US/Chinese Economic relationship

[NWO Sentryman]

Recently, someone at my university told me that:


* America has no manufacturing base
* China controlled the US due to holding the majority of its debts as well as having a strong manufcaturing base.
* China was running the biggest trade surplus of all time as well as being capable of creating an internal market which would allow it to survive a recession.
* Whereas America was broke and declining.

Can anyone explain this to me?

[psionl0]

Maybe this video will help explain it.
Pr3WE6iAhHg

[drkitten]

Recently, someone at my university told me that:


* America has no manufacturing base
* China controlled the US due to holding the majority of its debts as well as having a strong manufcaturing base.
* China was running the biggest trade surplus of all time as well as being capable of creating an internal market which would allow it to survive a recession.
* Whereas America was broke and declining.

Can anyone explain this to me?


Easy to understand. He's wrong; none of those statements are actually true.

[lomiller]

* America has no manufacturing base

The price of the finished items you buy isn’t disconnected from wages. Essentially people in the US make too much money to sustain their current standard of living making these items. To bring those jobs back into the US you would need to either pay wages equivalent of what they do in China or suffer a general decrease in the US standard of living as prices increased to pay for higher wages.

Those predicting China “will overtake the US” need to keep this in mind. The US is moving away from these industries because they do not produce enough wealth to keep up with US GDP. To get GDP per capita close to that of the US China would also have to transition its economy away from these industries.




* China controlled the US due to holding the majority of its debts as well as having a strong manufcaturing base.


China sold the US a bunch of goods and got $ the US government produced out of nothing. If the US defaults it effectively gets all those goods for free, if the US deflates it’s currency it effectively got the goods at a steep discount, this is also the end result if China decided to sell USD rapidly. Basically all the “nightmare” scenarios translate into China giving the US a trillion $ of free stuff.


* China was running the biggest trade surplus of all time as well as being capable of creating an internal market which would allow it to survive a recession.



China is starting to experience asset bubbles as a result of their attempts to defend their low currency by buying USD. Some here have argued that it’s in everyone’s best interest if China’s currency rises gradually instead of suddenly, but they may have left it too long. I suspect China has already created the seeds of a crash and if this is indeed the case I doubt anyone else is in a position to help them out of it.


* Whereas America was broke and declining.


As I see it, the long term problems facing the US:
Poor performance of its educational system relative to its competitors.
Expensive healthcare relative to its competitors
Increasing concentration of wealth into a smaller number of hands, again relative to its competitors
It’s falling behind in economic mobility.

[Corsair 115]

R* America has no manufacturing base


The U.S. still exports a lot of goods. In 2009, for example, the U.S. exported a total of $1.057 trillion worth of goods. 6.6% of that dollar total was to China, which puts it third on the list of countries buying American goods. Canada was #1 with 19.4% of the total; Mexico was second at 12.2%.

[Puppycow]

* America has no manufacturing base
That's actually wrong. Believe it or not, the US still manufactures more than China does. It's just that our manufacturing sector is so productive, it doesn't employ many people. Every year it produces more stuff (more valuable stuff, not necessarily more tons of stuff) but employs fewer people than the year before.
* China controlled the US due to holding the majority of its debts as well as having a strong manufcaturing base.
Nope. Owning any number of government bonds does not give you any right to control anything. The government sets the terms and conditions of the bonds. If you buy them, you agree to the terms. The terms do not allow the bond holder any right of control.


* China was running the biggest trade surplus of all time as well as being capable of creating an internal market which would allow it to survive a recession.The part about the biggest trade surplus might be true. And most countries "survive" recessions, don't they? America has had a number of recessions and has survived. So what?

* Whereas America was broke and declining.
I wouldn't bet on it. We may see a replay of Japan's bubble in China. Japan looked invincible in the late 80's while America was broke and declining. Japan also had a trade surplus and owned lots of US government bonds.

[psionl0]

Basically all the “nightmare” scenarios translate into China giving the US a trillion $ of free stuff.
:dl:
Party on dudes!

[BobTheCoward]

Maybe this video will help explain it.
Pr3WE6iAhHg

Why would a Chinese lecture state that stimulus and nationalizing health care was a poor strategy when they had their own stimulus project and are a communist country...


...oh wait, it is an American political ad.

[psionl0]

Political or not, spending money you don't have will bring grief in the long run.

[Puppycow]

Political or not, spending money you don't have will bring grief in the long run.

Not always. If you waste the money, sure.

How about a student loan? How about a mortgage to buy a house?

[psionl0]

Not always. If you waste the money, sure.

How about a student loan? How about a mortgage to buy a house?
Investment is a slightly different kettle of fish. There you are basically spending money today in order to get money in the future. Since the expectation is that the NPV of the future money will be greater than the money invested today, it could be said that you are spending money that you have. (Of course if you get the sums wrong then the grief will come).

The average person borrows for consumption rather than investment and the average politician borrows to buy votes at the next election (tomorrow's taxpayers can worry about dealing with the debt the government creates today).

[Puppycow]

Well, even consumption is not usually a waste of money if you are buying something you need or want to consume.

Remember, in the long run, we're all dead.

The only real waste of money would be to put it in a mattress and forget about it.

If you hoard money, then other people can't get the money and use it to buy something from you so that you can get it back.

Money spent does not dissapear into the ether, it goes to somebody else. When they spend it, somebody else gets it. The faster it moves from person to person, the more wealth is created.

[psionl0]

If you have money to spend then sure, it is better all round to spend it than hoard it. However, that is not what we were talking about. The theme of this thread is, "Political or not, spending money you don't have will bring grief in the long run".

[lomiller]

Political or not, spending money you don't have will bring grief in the long run.

Actually spending money you don’t have will bring the lender grief, as they are the ones with something to lose. The most you can lose is the ability to borrow money, but that’s not really all that different than simply not borrowing.

[psionl0]

That is so naive.

[Puppycow]

If you have money to spend then sure, it is better all round to spend it than hoard it. However, that is not what we were talking about. The theme of this thread is, "Political or not, spending money you don't have will bring grief in the long run".

I'll agree with you if you rephrase it more like this:
Spending money you can't afford to spend on things you don't need will bring grief in the long run.

But it's not clear to me, and it certainly isn't clear to the people who lend the government money, that this is the case for America. Otherwise America couldn't sell bonds that pay just a few percent interest. It's not "money we don't have," just money we don't have yet.

[Puppycow]

For some analysis about the real top problems with our economic relationship with China, see this:

The Real Problem With China (http://www.nytimes.com/2011/01/12/business/economy/12leonhardt.html?_r=1&ref=business)

It isn't the currency, even though a lot of focus is on that.
For the United States, the No. 1 problem with China’s economy is probably intellectual property theft. Technology companies, for example, continue to notice Chinese government agencies downloading software updates for programs they have never bought, at least not legally.

No wonder China has become the world’s second-largest market for computer hardware sales — but is only the eighth-largest for software sales.

Next on the list, say people who work in China or do business there, is the myriad protectionist barriers China has put up. These barriers make this country’s recent efforts at “buy American” protectionism look minor league. In some cases, Beijing has insisted that products sold in China must not only be made there but be conceived and designed there. The policy goes by the name “indigenous innovation.”

[Puppycow]

I've recently realized that the currency problem will solve itself in the long run, and there really isn't any need to keep demanding that China allow its currency to rise against the dollar.

Even if they keep the renmimbi pegged to the dollar at artificially low rates, inflation will just have the same effect as a change in exchange rates, although it would take a little longer and cause more disruption to the Chinese economy.

Inflation, If Not the U.S., Will Pressure China to Raise Its Currency (http://www.theatlantic.com/business/archive/2011/01/inflation-if-not-the-us-will-pressure-china-to-raise-its-currency/69383/)

Rising Chinese Inflation to Show Up in U.S. Imports (http://www.nytimes.com/2011/01/12/business/global/12inflate.html?_r=1&ref=business&pagewanted=all)

At this point, I think that China's currency exchange policy has become more of a problem for China than for us. A bout of inflation in China would be a good thing right now for the US and Japan, although the Chinese won't like it.

[kellyb]

For some analysis about the real top problems with our economic relationship with China, see this:

The Real Problem With China (http://www.nytimes.com/2011/01/12/business/economy/12leonhardt.html?_r=1&ref=business)

It isn't the currency, even though a lot of focus is on that.

Dean Baker had a response to that:

http://www.cepr.net/index.php/blogs/beat-the-press/david-leonhardt-wants-china-to-become-more-protectionist