Brad Setser

Brad Setser: Follow the Money

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A new open thread

by Brad Setser
May 25, 2005

Thanks to the generousity of Carnegie (who donated the building), Gates (who donated the computer) and the public library of Stafford, Kansas.

I’ll try to chime in with some thoughts on Bretton Woods two late tomorrow — [UPDATE -- MAKE THAT FRIDAY]

For the moment, though, I’ll just note that it is strange, at least to me, that the current account surpluses (savings surpluses) of the world’s resource exporting countries and many of the world’s biggest resource importing countries are both rising right now. An oil exporter might save the windfall from an unexpected price surge, but I would normally expect an oil importer — including an oil importer like China — to save a bit less. The net effect on the global savings surplus is a bit ambiguous.

Afterall, Asia’s economies are very dependent on imported raw materials, and those raw materials cost more today than in say 2002. That makes the current surge in Chinese savings all the more surprising …

109 Comments

  • Posted by MC3

    Regarding oil and global numbers that does not match, i would like to know how is being managed today the extracted oil from Iraq. Somebody know about it?

  • Posted by Alex

    I think this whole debate about the imminent US current account adjustment is just an example of some very smart people making a very simple mistake:they’re making this issue too complicated A country (i.e. the United States) cannot afford to rack up debt for the sake of pure consumption indefinitely faster than income.

    That’s why “Big Al” is so concerned about the housing bubble. People cannot afford to rack up debt at a rate that exceeds their income. If people continue adding more debt future consumption and investment will be negatively impacted by debt servicing costs.

    Especially in light of the fact that investment in housing does not add to a country’s productive capital stock.

    This is where China comes in. China is in effect subsidizing the US consumer through the purchase of agency issues and treasuries.

    I’m absolutely stunned Brad that you don’t bring in the work of Richard Duncan into this. He’s written an excellent book on US high powered money affecting Asia.

    http://www.amazon.com/exec/obidos/tg/detail/-/0470821027/qid=1117083121/sr=8-1/ref=pd_csp_1/102-7620257-4495329?v=glance&s=books&n=507846

    I’m probably preaching to the choir but the system is clearly unsustainable. The scary thing is that the mainstream press seems to be picking up on this(at least the housing component); in their own slow laconic way. When the “normals” start talking about this its a clear indication that we have some serious problems that will probably come to a head.

  • Posted by Movie Guy

    I am posting seven (7) posts discussing Trade and Trade Policy.

    The posts include:

    The Trade of Tribes

    USA Trade Policy

    International Trade Policy

    Transnational Corporations

    China: WTO – USA – China

    Globalization and Trade Policy

    Discussing the Effectiveness of Trade Policy Decisions

    I look forward to your opinions.

  • Posted by Movie Guy

    TRADE POLICY 101 – The Trade of Tribes

    Let me begin…

    In our childhood years, we began to notice a few things. Like armies of ants and anthills. And we drew conclusions as we learned more.

    People ban together and form tribes. Tribes ban together and form states and/or nations. Governments are established to govern the internal and external affairs of nations, including governance of individual, group, and business activities. In general, the people of the nations become known as societies, though some tribes continue local tribal recognition and that effort is sometimes recognized by national governments. At some point, we became aware that most people on this planet are members of a domestic national society. But, in truth, we’re just members of a larger tribe and we call it a society. We are members of one of many societies on the planet organized as states and nations with ruling governments. Human anthills all over the surface of the planet.

    So, what about trade?

    Almost everything that happens on a daily basis in a society involves some form of trade participation supported by trade policy. We are surrounded by the effects of trade policy from the time we awake each morning until we return to bed. Upon opening our eyes, you see the evidence of trade policy everywhere in our residences. That evidence does not disappear until we go back to sleep. Trade and trade policy are central components of our existence.

    Our first experiences in trade participation probably involved the swapping of items with friends, much to the chagrin of our parents who might have said, “You did what?”. But the genie was out of the bottle, and we were destined to become natural traders of goods and services. With our parents’ loan of currency, we moved into the mainstream of trading currency for goods and services. And we have continued on that path.

    In general, trade evolves from a barter process to one involving rules, currency or its equivalent, taxation, and production and consumption choices. In the end, we label the collective governing rules as trade based on trade policy. We tend to know it at the local level as buying and selling. Economists refer to it as production and consumption of goods and services; size, development, and management of productive resources, i.e., land, labor, and capital; markets, and market and command economies; supply and demand; comparative advantage; and absolute advantage, among other phrases. But economists seldom mention the core of such phrases. Economics is about all matters pertaining to Trade based on Trade Policy. But you will hard pressed to find those words in any definitions for the words, economics or economists.

    Trade policy is but one body of policies formed by governments. The presence or absence of such trade policy becomes the effective trade policy of a nation. Lower levels of government within a nation may or may not require additional trade policy for regions and local levels.

    Nations may or may not participate in international trading conclaves or bodies of trade policies.

    Ultimately, the question comes down to a matter of who or which entity is best served by a given trade policy or body of trade policies.

    It is my judgment that national governments should serve the interests of the domestic people or societies that such governments represent. People are represented individually, in groups, and in business activity as individual entrepreneurs, companies, corporations, and holding groups. At issue, perhaps, is the pecking order of national governments’ trade policy recognition and support of need within their domestic societies.

    Is the well being of the general population addressed first in trade discussions and decisions?

    NEXT: TRADE POLICY 201 – USA Trade Policy

  • Posted by Movie Guy

    TRADE POLICY 201 – USA Trade Policy

    U.S. trade policy

    “American trade policy works toward opening markets throughout the world to create new opportunities and higher living standards for families, farmers, manufacturers, workers, consumers, and businesses. The United States is party to numerous trade agreements with other countries, and is participating in negotiations for new trade agreements with a number of countries and regions of the world.”

    “The Office of the U.S. Trade Representative (USTR) is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries. Through an interagency structure, USTR coordinates trade policy, resolves disagreements, and frames issues for presidential decision.”

    “USTR also serves as vice chairman of the Overseas Private Investment Corporation (OPIC), is a non-voting member of the Export-Import Bank, and a member of the National Advisory Council on International Monetary and Financial Policies.”

    “USTR consults with other government agencies on trade policy matters through the Trade Policy Review Group (TPRG) and the Trade Policy Staff Committee (TPSC). These groups, administered and chaired by USTR and composed of 19 Federal agencies and offices, make up the sub-cabinet level mechanism for developing and coordinating U.S. Government positions on international trade and trade-related investment issues.”

    “The TPSC is the primary operating group, with representation at the senior civil service level. Supporting the TPSC are more than 90 subcommittees responsible for specialized areas and several task forces that work on particular issues. If agreement is not reached in the TPSC, or if significant policy questions are being considered, then issues are taken up by the TPRG (Deputy USTR/Under Secretary level).”

    “The final tier of the interagency trade policy mechanism is the National Economic Council (NEC), chaired by the president. The NEC Deputies’ committee considers memoranda from the TPRG, as well as important or controversial trade-related issues.”

    U.S. International Trade Administration

    “The U.S. International Trade Commission is an independent, nonpartisan, quasi-judicial federal agency that provides trade expertise to both the legislative and executive branches of government, determines the impact of imports on U.S. industries, and directs actions against certain unfair trade practices, such as patent, trademark, and copyright infringement.”

    “The mission of the Commission is to: (1) administer U.S. trade remedy laws within its mandate in a fair and objective manner; (2) provide the President, USTR, and Congress with independent, quality analysis, information, and support on matters of tariffs and international trade and competitiveness; and (3) maintain the Harmonized Tariff Schedule of the United States.”

    “In so doing, the Commission serves the public by implementing U.S. law and contributing to the development and implementation of sound and informed U.S. trade policy.”

    Office of the United States Trade Representative Preference Programs

    “Preference programs are tools that the U.S. government uses to assist countries usually in the developing world, which is provided through an enhanced trading relationship with the United States. One of the oldest programs is the Generalized System of Preferences, which was founded in 1976 and offers duty-free treatment for more than 4,650 products from 144 designated countries and territories throughout the world. Another highly successful program is the African Growth and Opportunity Act, which was enacted in 2000, and also allow duty-free entry of goods from countries in Sub-Saharan Africa.”

    So, the goals of U.S. trade policy are to create new opportunities and higher standards of living.

    NEXT: TRADE POLICY 301 – International Trade Policy

  • Posted by Movie Guy

    TRADE POLICY 301 – International Trade Policy

    The World Trade Organization

    “The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.”

    “The system was developed through a series of trade negotiations, or rounds, held under GATT. The first rounds dealt mainly with tariff reductions but later negotiations included other areas such as anti-dumping and non-tariff measures. The last [GATT] round — the 1986-94 Uruguay Round — led to the WTO’s creation.”

    “The negotiations did not end there. Some continued after the end of the Uruguay Round. In February 1997 agreement was reached on telecommunications services, with 69 governments agreeing to wide-ranging liberalization measures that went beyond those agreed in the Uruguay Round.”

    “In 2000, new talks started on agriculture and services. These have now been incorporated into a broader agenda launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001.”

    “The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership.”

    “At the heart of the [WTO] system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.”

    “The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.”

    “The goal is to improve the welfare of the peoples of the member countries.”

    U.S. Briefing Book on the WTO

    Office of the U.S. Trade Representative Fact Sheets on the WTO

    GATT Digital Library

    USA and the WTO

    “Despite serious complaints about the World Trade Organization (WTO), a congressional committee votes unanimously to continue U.S. participation in the international body dealing with the rules of trade between nations. By voice vote May 24, the House of Representatives Ways and Means Committee decided to recommend rejection by the full House of a resolution for withdrawing the United States from the WTO.”

    Full text is here.

    USA Federal Register Notices on the WTO

    OPINIONS AND CONCERNS:

    Global Policy Forum WTO analysis and article links

    “The World Trade Organization was founded in 1995 to replace the General Agreement on Tariffs and Trade (GATT). This multilateral organization aims to lower tariffs and non-tariff barriers so as to increase international trade. The 146 member states meet in ministerial sessions at least once every two years.”

    “NGOs and poor countries fear that further liberalization of trade will only benefit rich countries.”

    “WTO negotiations favor the interests of investors and neglect agricultural protectionism by rich countries.”

    “Critics often charge that the WTO functions undemocratically and that it has opaque negotiation procedures that harm the interest of the poor.”

    International Trade and Development

    “Capitalist economic theory holds that a completely liberalized global market is the most efficient way to foster growth, because each country specializes in producing the goods and services in which it has a comparative advantage. Yet, in practice, cutting trade barriers and opening markets do not necessarily generate development. Rich countries and large corporations dominate the global marketplace and create very unequal relations of power and information. As a result, trade is inherently unequal and poor countries often experience not rising well-being but increasing unemployment, poverty, and income inequality.”

    “An additional problem is that free trade is not equally free. Agricultural subsidies and other trade barriers in the US and the EU prevent poor countries from gaining access to the most important markets, while they open up their own markets to US and EU exports. Critics of free trade point out that many of the world’s richest countries sheltered their economies by protection when they were at the start of their own growth. Further, trade is so dominated by transnational corporations that new trade rules mainly benefit those companies. A number of NGOs have started to promote “fair trade,” arguing that trade can promote development if it is environmentally sustainable and includes respect for human and labor rights.”

    International Trade Agreements

    “Neoliberal ideology claims that international trade is an important factor for the development of poor countries and their integration into the global economy. Rich governments’ promotion of these ideals has lead them to develop an array of new trade agreements such as the FTAA and CAFTA. These bilateral, multilateral, and regional accords strongly affect people at all levels of the economy–from growers and workers, to processors and consumers –by regulating pricing, tariffs, export levels, and methods of production. Though supporters claim that trade agreements bring sustainable development and economic integration, this is not the case. Rich countries maintain protections of their own exports, while their competitors in poor countries agree to open their markets. Beneficial norms, such as human rights or environmental standards, are set aside. This leads to a “race to the bottom,” in which the only priority is cost effective production, at the expense of workers, resources, and sustainability. Due to these failings, the agreements tend harm development and pull poor countries deeper into poverty.”

    NEXT: TRADE POLICY 302 – Transnational Corporations

  • Posted by Movie Guy

    TRADE POLICY 302 – Transnational Corporations

    Transnational Corporations

    “Transnational Corporations exert a great deal of power in the globalized world economy. Many corporations are richer and more powerful than the states that seek to regulate them. Through mergers and acquisitions corporations have been growing very rapidly and some of the largest TNCs now have annual profits exceeding the GDPs of many low and medium income countries.”

    Transnational Corporations – Tables and Charts

    Transnational Corporations – Number and Location

    Foreign Direct Investment – Tables and Charts

    Foreign Direct Investment as Percentage of Gross World Product, 1970-2001

    Foreign Direct Investment – Main Recipients (1997)

    General Articles on Transnational Corporations

    Business and Government Alliances on Trade and Finance

    “In the international arena, many organizations assist transnational corporations in their efforts to lobby both international and domestic policy makers. With money and political connections these companies push for business-friendly policies that protect their interests. In addition, rich governments fund ministerial forums, think tanks, and lending institutions that advise businesses and policy makers on global policy and support market liberalizing initiatives. Yet, should major corporations have special privileges to “develop” poor communities for corporate profits? Here is a list of links to the websites of business and government alliances.”

    NEXT: TRADE POLICY 303 – China: WTO – USA – China

  • Posted by Movie Guy

    TRADE POLICY 303 – China: WTO – USA – China

    U.S.-China Trade and Economic Ties

    Main page of information and articles.

    Swiftly Expanding U.S.-China Economic Relations Stir DebateHuge Unrealized Opportunities Remain in China’s Services Sectors

    “When China joined the World Trade Organization (WTO) in 2001, it agreed to open up to foreign competition one of its most protected and heavily regulated sectors — services.”

    “Although many of China’s commitments are far-reaching when compared to the services commitments of many other WTO members and even though foreign firms have made significant progress in some Chinese services sectors, market access for foreign services providers remains restricted in many sectors in China. China continues to fear that foreign firms will dominate its growing domestic market in areas such as banking, insurance and telecommunications, industry experts say.”

    “China is nervous that allowing full and fair competition in markets for services in China will result in the effective dominance by foreign competitors,” according to a U.S. official, who asked not to be identified. “They’ve attempted through a variety of means … high licensing requirements, prohibitive licensing qualifications, high capital [requirements] to try to limit the number of foreign players in the marketplace.”

    “U.S. government and industry officials say they are concerned that China is looking for loopholes in its WTO commitments in order to delay granting market access to foreign firms. “It appears that the goal is not to keep foreign services industries out of China altogether or indefinitely, but to provide time for Chinese services firms to become more competitive and solidify their market position,” according to a U.S. Embassy Beijing report on China’s services market.”

    NEXT: TRADE POLICY 401 – Globalization and Trade Policy

  • Posted by Movie Guy

    TRADE POLICY 401 – Globalization and Trade Policy

    I have selected one organization’s web site and links to discuss this subject. This decision was based on the organization’s mission and the manner in which such information is organized. Selection of this web site does not imply that I agree with many of the positions or statements of the organization. I am in general disagreement with a number of specific statements, but from a global perspective I understand the nature of the viewpoints expressed.

    Global Policy Forum

    “Global Policy Forum’s mission is to monitor policy making at the United Nations, promote accountability of global decisions, educate and mobilize for global citizen participation, and advocate on vital issues of international peace and justice.”

    The World Economic and Social Development Ranking List

    This is worth noting.

    “Ranks are determined by a system that combines dozens of numbers on each country over four years, giving the highest and lowest for each country less priority. These were the measurements used (in order of similarity to the displayed [aggregate] ranking): Telephones, Infant Mortality, PC Income, PC Exports, Televisions, Daily News Papers, Electricity produced, Old/young population, Life Expectancy, Literacy, International Reserves Less Gold, Birth Rate, Radios, Urban Population, Consumer Prices, Export/Import Ratio.”

    Defining Globalization

    Nations and States

    “For the past 25 years or so, states have been in retreat — weakening, shrinking, sinking as globalizing capital undermines their tax base, erodes their regulatory apparatus, stymies their policy machinery and questions their legitimacy.”

    Statehood and Sovereignty

    State Sovereignty and the Global Economy

    Globalization of the Economy

    “Advances in communication and transportation technology, combined with free-market ideology, have given goods, services, and capital unprecedented mobility. Northern countries want to open world markets to their goods and take advantage of abundant, cheap labor in the South, policies often supported by Southern elites. They use international financial institutions and regional trade agreements to compel poor countries to “integrate” by reducing tariffs, privatizing state enterprises, and relaxing environmental and labor standards. The results have enlarged profits for investors but offered pittances to laborers, provoking a strong backlash from civil society. This page analyzes economic globalization, and examines how it might be resisted or regulated in order to promote sustainable development.”

    International Trade and Development

    International Trade Agreements

    Transnational Corporations

    General Articles on Globalization of the Economy

    “With international trade, financial transfers, and foreign direct investment, the economy is increasingly internationally interconnected. This page analyzes economic globalization, and examines how it might be resisted or regulated in order to promote sustainable development.”

    Measuring Globalization

    Countries Hosting Largest Number of Migrants

    Net Migration Flow per Region: 1995 – 2000

    World Economic Forums in Davos

    The role on non-government organizations (NGOs) in Globalization

    NGOs and Global Conferences

    World Commission on the Social Dimension of Globalization report: A Fair Globalization: Creating Opportunities for All, February 2004

    “It is the first attempt at structured dialogue among representatives of constituencies with different interests and opinions on the social dimension of globalization, aimed at finding common ground on one of the most controversial and divisive subjects of our time.”

    Finnish President Halonen’s Speech at ILO World Commission on the Social Dimension of Globalization

    European Commission welcomes report of the World Commission on the social Dimension of globalisation

    NEXT: TRADE POLICY 501 – Discussing the Effectiveness of Trade Policy Decisions

  • Posted by Movie Guy

    TRADE POLICY 501 – Discussing the Effectiveness of Trade Policy Decisions

    U.S. Trade Policy

    Is the trade policy of the USA working?

    Are American living standards being improved as a result, as stated as a formal goal of U.S. trade policy?

    If not, how can that be fixed?

    WTO/GATT Trade Policy

    Is the trade policy of WTO/GATT working?

    How do the WTO member nations solve the trade and related financial imbalances without harming the global economy?

    Are the poorer nations benefiting from the WTO trade agreements?

    Overall Trade Issues

    What are the principal issues, constraints, and decisions that need to be made in order to improve the desired effects of international trade and domestic trade?

    Why are sustainability assessments underutilized in discussions regarding trade development? An example.

    Why should any national trade policy not be developed and pursued in such manner as to promote the general well being of the general population, the members of the tribe who form the backbone of the nation?

    Trade policies that ultimately destroy the financial well being of a large segment of a society or domestic population should be viewed critically. And should be changed to avoid domestic upheaval.

    As an example, the U.S. trade policy statement is inclusive:

    “American trade policy works toward opening markets throughout the world to create new opportunities and higher living standards for families, farmers, manufacturers, workers, consumers, and businesses.”

    The word ‘or’ is not used in this policy statement. U.S. trade policy is not supposed to be designed to provide substantial financial gains to corporations and other businesses at the expense of American workers, individuals, and families. That is not the purpose of formal U.S. trade policy.

    News articles of interest:

    In a Shrinking World, Wages Seek the Lowest Level
    The Price of Globalization
    By William Pfaff
    International Herald Tribune
    January 10, 2004

    People and profits : For too many, globalization isn’t working
    By Juan Somavia
    International Herald Tribune
    February 27, 2004

    Richer companies, poorer workers
    By Katrin Bennhold
    International Herald Tribune
    APRIL 11, 2005

    NEXT: Your opinions.

  • Posted by Stormy

    To borrow a word from the younger crowd: An “awesome” set up for a discussion. Very very impressive. Well done.

  • Posted by anne

    Alex and JM

    Having read Richard Duncan’s article, I am not sure what the thesis is. What are we supposed to learn about ample money supply creation by the Bank of Japan? What are the problem that have been created? Why is there still no mild inflation in Japan?

    http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=43158

  • Posted by Movie Guy

    Stormy,

    Thanks. Other than a few words missing from the first post (errors), it’s a good start if the discussion will get off the ground.

    I believe that it is going to need the support of someone like Kenneth Rogoff over at Harvard to draw serious economists into discussion. Ken previously served as the chief economist at the IMF, and it appears that he is beginning to speak out publicly about the corporate vs. worker rewards imbalance picture in the USA. Note the last IHT article under my POLICY 501.

    We’re in a growing mess. The subject is complicated, so the solutions are not quick fix.

    I will keep raising the flag because we’re not turning the corner. We’re addressing symptoms of the problem, but not the real problem.

    Someone has to get it…eventually.

    I’m not convinced that many economists understand their potential role in modifying existing trade policy, which rests at the core of their profession. If they do, they’re very hesitant to discuss actual trade policy. It’s almost like they’re afraid to speak out or are unsure of their ground in this area. Being an economist should involve more than being a technician with mathematical skills and logic circuits.

    Everything occurring is about trade and trade policy. One would think that it would be a hot subject. Not yet.

    Thanks again.

  • Posted by Movie Guy

    Alex

    “A country (i.e. the United States) cannot afford to rack up debt for the sake of pure consumption indefinitely faster than income.”

    I agree that it’s not a sustainable situation.

  • Posted by Elaine Supkis

    My homepage talks about this stuff a lot. The nexus of politics and trade and personal wealth is where power resides.

    America has decided to become slack, fat and stupid. This is why I call America “the Fatted Strassbough Goose” which is turned ruthlessly into pate and eaten.

    Why America decided to do this is a long story of classic imperial over reach and internal rot. And recovering from this might take around three hundred years or so.

    This is all so sad. And easily avoided but we thought we could all be millionaires without working. Oh well. cest’ fini.

  • Posted by anne

    Movie Guy

    The ideas you are developing are interesting and important, but the frustration you may experience will come from not considering the the subject is not economics but political-economics. Resolutions that may appear perfect logical and even easy to execute can be impossible politically. This is not an easy time for political compromise in any number of directions :) The articles are however entirely useful considerations.

  • Posted by jm

    anne asks, “Why is there still no mild inflation in Japan?”

    1. Because Japan’s real estate bubble burst years ago, and utterly destroyed the myth that real estate could only go up. Condominiums bought at the height of the boom can now be sold for only 20 to 30% of their original prices.

    2. Because despite the government’s efforts to suppress the yen/dollar rate, it still rises inexorably because they refuse to address the underlying problems. So costs of imported materials continue falling in yen terms.

    3. Because everyone in Japan must be aware, at some level of their consciousness, that the yen will continue to rise, imported material costs must continue to fall, and costs of manufactured goods imported from Japan’s overseas plants, too, must continue to fall.

    4. Because in this deflationary environment, debt is dangerous. You must read Koo’s “Balance Sheet Recession”.

  • Posted by anne

    This series of articles on class is rather important to consider:

    http://www.nytimes.com/2005/05/26/national/class/MEXICANS-FINAL.html?pagewanted=all

    15 Years on the Bottom Rung
    By ANTHONY DePALMA

    In the dark before dawn, when Madison Avenue was all but deserted and its pricey boutiques were still locked up tight, several Mexicans slipped quietly into 3 Guys, a restaurant that the Zagat guide once called ‘the most expensive coffee shop in New York.’

    For the next 10 hours they would fry eggs, grill burgers, pour coffee and wash dishes for a stream of customers from the Upper East Side of Manhattan. By 7:35 a.m., Eliot Spitzer, attorney general of New York, was holding a power breakfast back near the polished granite counter. In the same burgundy booth a few hours later, Michael A. Wiener, co-founder of the multibillion-dollar Infinity Broadcasting, grabbed a bite with his wife, Zena. Just the day before, Uma Thurman slipped in for a quiet lunch with her children, but the paparazzi found her and she left.

    More Mexicans filed in to begin their shifts throughout the morning, and by the time John Zannikos, one of the restaurant’s three Greek owners, drove in from the North Jersey suburbs to work the lunch crowd, Madison Avenue was buzzing. So was 3 Guys….

  • Posted by anne

    http://www.nytimes.com/2005/05/24/national/class/EDUCATION-FINAL.html?hp=&pagewanted=all

    The College Dropout Boom
    By DAVID LEONHARDT

    CHILHOWIE, Va. – One of the biggest decisions Andy Blevins has ever made, and one of the few he now regrets, never seemed like much of a decision at all. It just felt like the natural thing to do.

    In the summer of 1995, he was moving boxes of soup cans, paper towels and dog food across the floor of a supermarket warehouse, one of the biggest buildings here in southwest Virginia. The heat was brutal. The job had sounded impossible when he arrived fresh off his first year of college, looking to make some summer money, still a skinny teenager with sandy blond hair and a narrow, freckled face.

    But hard work done well was something he understood, even if he was the first college boy in his family….

  • Posted by anne

    http://www.nytimes.com/2005/05/24/national/class/BLUECOLLAR-FINAL.html

    No Degree, and No Way Back to the Middle
    By TIMOTHY EGAN

    SPOKANE, Wash. – Over the course of his adult life, Jeff Martinelli has married three women and buried one of them, a cancer victim. He had a son and has watched him raise a child of his own. Through it all, one thing was constant: a factory job that was his ticket to the middle class.

    It was not until that job disappeared, and he tried to find something – anything – to keep him close to the security of his former life that Mr. Martinelli came to an abrupt realization about the fate of a working man with no college degree in 21st-century America.

    He has skills developed operating heavy machinery, laboring over a stew of molten bauxite at Kaiser Aluminum, once one of the best jobs in this city of 200,000….

  • Posted by Navin

    Movie Guy,

    Thanks for posting those. I found them very informative. The first post on trades is excellent.

    Keep up the good work.

  • Posted by anne

    JM

    Absolutely, and I consider each of your suggestions, but I am as yet inclined to Paul Krugman’s analysis. Though I will write a note suggesting the topic be examined yet again. The seriousness of a 15 year slowing of Japanese growth and various startling bear markets in real estate and stocks is evident. So, argue and we will read and think.

    http://web.mit.edu/krugman/www/jpage.html

  • Posted by anne

    http://www.utahbirds.org/birdsofutah/BirdsL-R/RedKnotJL.jpg

    Red Knot

    This bird migrates 20,000 miles a year about the Atlantic coasts of North and South America and, after thousands of years or more, is in danger of extinction.

  • Posted by jade

    http://www.ku.edu/~kulaw/images/jayhawk.jpg

    This bird inspires frenzy, blind devotion, and occasional streaking among otherwise sane and rational individuals, economists included.

    [Brad Setser Insert: particularly if you are from Kansas, and especially in March ... ]

  • Posted by Stormy

    My position—and it may be too broad to allow any fruitful discussion—is that we are on a collision course with the environment at exactly the wrong moment in history. The economic model at hand is the wrong one. I wrote the following to a close writer friend of mine. I include it here so that the direction of my thinking is clear to everyone.

    These two strands are converging: Global Warming and a dangerous economic model embodied by the IMF and the United States. Political realities—although insane at times (Iraq and soon-to-be-Iran, along with the rise of fascism and fundamentalism in the states) are not-to-be-ignored dangerous sideshows. But, despite what Americans think about their place in history, this century will not be their show.

    Running parallel to these strands are two other forces: IT and the incredible explosion of knowledge in almost every area of learning. From academic disciplines, to corporations, to countries, vast amounts of information are being collected and assimilated with increasingly astonishing ease. A director of IT at a huge multinational, a friend of mine, describes to me how terabytes of data are being collected and processed…more and more this process is being automated. What is true of this corporation is true of physics, of biology, of climatology; in short, of everything man touches. IT feeds the explosion and processing of knowledge…it is driving this incredible renaissance in a self-perpetuating cycle.

    Whether one set of forces will contain the other is a very big question for me. We are in a race. The next ten or twenty years will tell the story.

    Frankly, this is the reason I am here; otherwise, I would be gardening, boating, reading, studying, and playing computer games. You may disagree with some of my characterizations, but the dynamics are fundamentally true.

    All this said, I would note the following:

    1. The Model: Comparative advantage” as a model has failed, precisely because it does not take into account multinational activity, nor does it take into account how undeveloped countries can find that advantage other than simply being exploited, nor does it take into account the full effect on its base country, loss of jobs, rising differential in pay scale, etc. All of these effects are conveniently and glibly overlooked by those who promote the present structure, for their own economic gain, I must add.

    2. Who Controls: Because major intra and trans governmental agencies—IMF, WTO, US Trade Organization—are firmly in the hands of business and transnationals, there is little hope that these organizations will “see the light” until a real disaster shakes up the system. They simply are not concerned with labor or, really, the consumer. Trade = Profits, however that is achieved. End of story.

    3. Resources: Pressure on dwindling resources will place countries that have natural resources at a distinct advantage. We are, or will be, entering a period where “commodities” rule. Like it or lump it, the Middle East is about oil. All the talk of freedom and democracy is a smokescreen. We all know it. When will I see an economic model that does more than apples and oranges, but say nickel and oil—finite resources?

    4. The Military Budget: America has never had foreign troops on its soil, other than the British and Canadians. J Yet its military budget is astronomical. This enormous waste is never addressed economically. Economist will deal with social security, but god forbid they should ever deal with this insanity. Who in god’s green earth are we afraid of? Measure our fear factor against the realities that Europe, China, Russia have all experienced. Are we living in a sane world here? Why, I repeat, why are some things never put on the economic table? When is enough enough?

    Frankly, what we need are the following:

    1. Transnationals: Rules and regulations concerning their behavior. These rules and regulations have to cross all borders. In addition, economists should start actually measuring ALL of their effects, not just the stock market and bond markets. Economic models and theory are hopeless in this regard.
    2. Organizations: WTO, GATT, IMF and all the others: Must have representation from labor and the consumers of both countries. I have no idea how to do this, I must add.
    3. Economies of scale and profit: At some point, further growth is logically impossible as are further growth in profits . We have to understand this. I really do not think we do.
    4. Privatization: Some activities are too important to be put into private hands whose sole interest is profits and growth. Health, water, sewerage, power are examples. Privatization does not inherently bring efficiency and responsibility. Need I cite Enron? I think we need to look at those countries where such things have worked. It is not an either/or situation. How about some economic modeling here?
    5. An implicit understanding that resources and the environment are finite. We need a global economy that is sustainable, not a disposable one. Resources and the environment have to be protected. Kyoto is too little, too late.
    6. Financial transparency of the entire market, including hedge traders and the “funny money” boys.
    7. Closing down tax havens and offshore accounts, offshore unaccountability. The countries that do this are small…invade them if they do not cooperate. Use the military for something profitable for everyone. J
    8. Mechanization: If corporations can become increasingly profitable because of mechanization, how will society deal with this? One answer is that assets become cheaper and cheaper and we become a service society. The answer is not so simple. How do we control the power of such corporations or the wealth that will invariantly flow to a few individuals? How do we make them responsible citizens? Hope for the best? Where are the economic models here?

    Last, but not least, the news media—who controls it? We have too many Big Brother candidates here: Big Business or Big government. In the states, it is Big Business. In China it is Big Government. Neither is satisfactory, although the Chinese model is more deadly. It should not be an either/or situation. In the states, we really have to think about this one. We can never really discuss or affect the above issues without a free and accurate news media.

  • Posted by Movie Guy

    Anne — “The ideas you are developing are interesting and important, but the frustration you may experience will come from not considering the the subject is not economics but political-economics. Resolutions that may appear perfect logical and even easy to execute can be impossible politically. This is not an easy time for political compromise in any number of directions :) The articles are however entirely useful considerations.”

    That was a convenient way to push the core economic subjects of trade and trade policy off of the table.

    I beg to differ. The subject matter of trade and trade policy is most assuredly core economics. Trade and trade policy rest at the very foundation of economics. Proper understanding of trade and trade policy require the dual application of the later created subfields of microeconomics and macroeconomics. I have read a few definitions of modern political economics. What I am addressing involves more than that level of inquiry.

    In the simplest form, early domestic trade led to the creation of the field of economics. Unquestionably, trade preceded the field of study of economics. So, trade is at the core of basic economics.

    Defined terms for economics began with the concept of “rules of thumb for estate management”, later refined as “mercantilism” which was modified with the further meaning of “study of “rules of thumb for the management of the common political household,” which is expressed in the Greek-derived phrase “Political Economy.” And that is what the new field was called.” The term “political” was later dropped and the general field became known as “economics”.

    Economics by definition encompasses all matters of political economy and trade.

    The microeconomics and macroeconomics subdivisions derived from such definition of economics, not the other way around.

    What is Economics?

    Economics, like other studies, can be broken down into more specialized subfields. The broadest categories are just two: microeconomics and macroeconomics.

    The two Greek roots of the word “economics” are oikos — meaning more or less the household or family estate — and nomos, which can mean rules, natural laws or laws made by the government, but which in this case primarily means “wise saws” or “rules of thumb.” Thus the book Oikonomia [economics], by the Greek author Xenophon, is probably best translated as “rules of thumb for estate management.”

    Here’s how the word “economics” evolved to its modern use. By the 1600′s, the interdependence of people and nations through markets had grown so great that it was necessary for governments to have carefully thought out policies to deal with the markets. The most common such policy was “mercantilism” — and the essence of mercantilism is to try to sell as much as you can to your neighbors, while limiting what they sell to you, so that they have to pay you in gold. But this policy was criticized by a number of thoughtful scholars, of whom Adam Smith is the most famous. They were engaged in a new specialization: the study of “rules of thumb for the management of the common political household,” which is expressed in the Greek-derived phrase “Political Economy.” And that is what the new field was called.

    Adam Smith and his immediate successors, the “Classical Political Economists” were concerned mostly with the workings of a market economy as a whole. In modern terms, we would say that they were concerned with “macroeconomics.” The new Greek root here is, of course, “macro,” meaning “big.” Macroeconomics is concerned with economic phenomena which are “big” in the sense that the whole is “big” in relation to its parts.

    However, beginning in the 1870′s, scholarship in economics took a turn toward a much more analytic approach, and economists began to be concerned with the workings of the parts which make up a market economy: with the workings of markets for particular goods and services, the functioning of particular companies, and the determinants of demand on the part of individual consumers. This is now called “micro-economics.” The Greek root “micro,” meaning small, tells us that the microeconomist is concerned with economic phenomena which are small in the sense that the parts are small in relation to the whole.

    This analytic economics began to see itself (with some reason) as a science, and the term “political” in the phrase “political economy” seemed an embarrassment. So it was dropped, and the ending ” -ics,” as in physics, was tacked onto the end of “econom,” to make it sound more scientific.

    The analytic approach was very successful for a time. The macroeconomic approach of the Classical Political Economists never disappeared entirely, but it was (so to say) put on the back burner around 1900.

    But by 1930 — as the Great Depression got well under way — the analytic approach didn’t look so good. Many economists felt it was time to go back at least partway to the macroeconomic concerns of the Classical Political Economists. The most famous of these economists is John Maynard Keynes.

    By the late 1950′s — when Paul Samuelson’s economics textbook appeared — it was clear that there was much that was useful and true in both approaches, and that the economics profession had to be committed to both macroeconomics and microeconomics. Thus, it was necessary to have words for the two great divisions of economics.

    An important applied field that draws on both microeconomics and macroeconomics is international trade theory. Since this field treats the economic system of a country both as a whole and as a part of a world community of trading nations, it is both macroeconomic and microeconomic.

    Similarly, urban and regional economics tends to be both microeconomic and macroeconomic, since it treats the economies of regions and cities both as wholes and as parts of a larger interdependent community. Economic development, which studies the economic progress the poorer countries, is largely macroeconomic but has its microeconomic aspects.

    Industrial organization is an applied field which concentrates on the operation of individual industries, in a less abstract way, but is mainly a specialization within microeconomics. Similarly, labor economics studies the economics of labor markets, and, while it has some macroeconomic aspects, is mainly a specialization within microeconomics. Agricultural economics and the economics of public utilities and regulation are similarly specializations within microeconomics.

    The study of the monetary system and the demand for money are a specialization within macroeconomics, as are the studies of investment, inventories, consumption expenditure, and business fluctuations.

    Some subspecializations focus more on method and approach and so can be either macroeconomic or microeconomic, depending on the application. Economic statistics, econometrics, and economic history are cases in point. Somewhat similarly, the economics of the public sector is both macroeconomic and microeconomic because government has functions in both spheres.

    Other subspecializations straddle the border of microeconomics and macroeconomics because they draw on one of the two great fields but have applications in the other. The economics of information is a case in point. The methods used in this field of specialization are mostly microeconomic, but the results are widely believed to be important in macroeconomics.

    What is economics? I would like to say that economics is a conversation. It is a conversation that has been going on for over two hundred years. The conversation includes professional economists, citizens, managers, and others. The conversation began with Adam Smith’s book “The Wealth of Nations.” Smith’s topic was: why do some countries have high standards of living? Like many long-running conversations, the economics conversation has wandered a bit from one topic to another, and subconversations have split off and rejoined the main stem. What sort of conversation is it? I want to say that, at its best, economics is a “reasonable dialog.”

    You can rest assured that I am not going to drop this important economic subject.

    May the reasonable dialog continue.

  • Posted by Mr.SantaMonica


    Movie Guy:

    Your thoughts are interesting — but have way too much breadth and for that matter length for the comment section of someone elses blog.

    Perhaps you should start your own blog. Free and easy.

  • Posted by Movie Guy

    Mr. SantaMonica

    This is an open thread. A rare opportunity to discuss any economic topic.

    If I and others can’t get economists and writers around the globe who read this fine economic web log to notice subjects such as trade and trade policy, posting it on an obscure blog would be like talking in the dark.

    I’m not doing off subject non-econ posts.

    If Brad doesn’t like it, he will send me an email.

    But I thank you for the hall monitoring…

  • Posted by Movie Guy

    Stormy remarks in bold type:

    we are on a collision course with the environment at exactly the wrong moment in history. The economic model at hand is the wrong one. …These two strands are converging: Global Warming and a dangerous economic model embodied by the IMF and the United States.

    Yes. We appear to be on a collision course.

    Running parallel to these strands are two other forces: IT and the incredible explosion of knowledge in almost every area of learning. From academic disciplines, to corporations, to countries, vast amounts of information are being collected and assimilated with increasingly astonishing ease.

    No question about these two points.

    The next ten or twenty years will tell the story.

    I do not believe that we have twenty years. We should see major economic budget cracks by 2011 and capitulation by 2015 if serious changes aren’t put on the table for enactment. The economic survivors might be coming out of it by 2022 or 2025 if they’re lucky. And I’m primarily referring to the federal budget mess further compounded by the budget problems of the states, counties, and municipalities. Something has to give within the next six years or we’re going to roll over. Massive wage increases? Not likely…

    Can the collective leadership fix the multiple problems? Maybe. They would have start very soon.

    Frankly, this is the reason I am here; otherwise, I would be gardening, boating, reading, studying, and playing computer games. You may disagree with some of my characterizations, but the dynamics are fundamentally true.

    Exactly.

    1. The Model: Comparative advantage” as a model has failed, precisely because it does not take into account multinational activity, nor does it take into account how undeveloped countries can find that advantage other than simply being exploited, nor does it take into account the full effect on its base country, loss of jobs, rising differential in pay scale, etc. All of these effects are conveniently and glibly overlooked by those who promote the present structure, for their own economic gain, I must add.

    An excellent critical point. This model is outdated. An excellent critical point.

    2. Who Controls: Because major intra and trans governmental agencies—IMF, WTO, US Trade Organization—are firmly in the hands of business and transnationals, there is little hope that these organizations will “see the light” until a real disaster shakes up the system. They simply are not concerned with labor or, really, the consumer. Trade = Profits, however that is achieved. End of story.

    Agree.

    3. 3. Resources: Pressure on dwindling resources will place countries that have natural resources at a distinct advantage. We are, or will be, entering a period where “commodities” rule.

    Agree.

    4. Are we living in a sane world here? Why, I repeat, why are some things never put on the economic table? When is enough enough?

    We’re obviously not there yet. Perhaps in 2008. Or 2010.

    ——

    1. Transnationals: Rules and regulations concerning their behavior. These rules and regulations have to cross all borders. In addition, economists should start actually measuring ALL of their effects, not just the stock market and bond markets. Economic models and theory are hopeless in this regard.

    Agree totally. For those who haven’t had the opportunity to read the links under TRADE POLICY 302, it’s worth the time. An eye-opener. And the USA is not on top of the pile.

    2. Organizations: WTO, GATT, IMF and all the others: Must have representation from labor and the consumers of both countries.

    Agree. Representatives from labor and consumers in each WTO member country. Put them at the table. Appoint or elect them to the advisory councils at national level.

    3. 3. Economies of scale and profit: At some point, further growth is logically impossible as are further growth in profits . We have to understand this. I really do not think we do.

    Interesting. True enough, but the timeline is still far out on most production of goods when we factor in future robots and robotic manufacturing. The current robots are very good. The future robots will be considerably better. Labor will be hammered on this one.

    4. 4. Privatization: Some activities are too important to be put into private hands whose sole interest is profits and growth. Health, water, sewerage, power are examples. Privatization does not inherently bring efficiency and responsibility. Need I cite Enron? I think we need to look at those countries where such things have worked. It is not an either/or situation. How about some economic modeling here?

    Agree. But WTO doesn’t agree. Some real horror stories on WTO general services agreements. Regardless of what the Office of the U.S. Trade Representative says on this subject (note their paper).

    5. An implicit understanding that resources and the environment are finite. We need a global economy that is sustainable, not a disposable one. Resources and the environment have to be protected. Kyoto is too little, too late.

    Agree totally. We’re still giving sustainability lip service in many areas.

    6. Financial transparency of the entire market, including hedge traders and the “funny money” boys.

    Maybe after the next major crash. Or after Greenspan steps down. He obviously doesn’t support the transparency of the hedge funds.

    7. Closing down tax havens and offshore accounts, offshore unaccountability. The countries that do this are small…invade them if they do not cooperate. Use the military for something profitable for everyone.

    Start with the Congressional loopholes for corporations. Shut all loopholes down, though. But we won’t do it.

    8. Mechanization: If corporations can become increasingly profitable because of mechanization, how will society deal with this? One answer is that assets become cheaper and cheaper and we become a service society. The answer is not so simple. How do we control the power of such corporations or the wealth that will invariantly flow to a few individuals? How do we make them responsible citizens? Hope for the best? Where are the economic models here?

    Do you recall an economic blog focusing on mechanization?

    The service economy is not going to sustain our levels of national expenditures. Nor serve as the sole source of employment for our population. The CIA 2020 study says that U.S. educational level requirements are headed down, not up. What does this tell us? It tells me that the service economy isn’t going to pay the bills at the household or national levels. I have stated this for a number of years.

    Note that corporate taxes continue to decline. Part of the compete with EU issues. But that doesn’t solve the federal income shortfall problems.

    We start over with corporations on domestic laws and changes in WTO/GATT international trade laws. Or bail out of WTO if no EU movement is forthcoming.

    Last, but not least, the news media—who controls it?…We can never really discuss or affect the above issues without a free and accurate news media.

    Plenty of federal rules to undue in order to turn this one around. Ownership has been allowed to turn into a massive consolidation game, both on the intra- and inter-media fronts.

    Insightful post, Stormy. Fine effort.

  • Posted by Navin

    Oh No. Movie Guy, don’t take it so hard, whatever
    MR. SantaMonica had said.

    I found that whenever there is any restriction, the induvidual loses power of innovation. FREEDOM IS SACRED.

    I guess Brad is cognizant of this and that why he has started a new thread (as the other one is too overflowing for comfort) :-)

  • Posted by Movie Guy

    Navin,

    Yes. I thought the same thing as to why Brad opened the second thread.

    I didn’t clutter the first open thread, so I decided that I would post the trade information on the second one. Besides, the first open thread is still available.

    Anyway, I have aired my trade views. If Brad keeps the thread and my posts, I can refer anyone to them. That’s why I posted imbedded url links. Much of it is for future use.

    The idea was to do a top to bottom roll up on trade and allow everyone the opportunity to “see the whole board”. At least once. Somewhere.

    Ok. It’s done. Good! Whew…

    Back to normal shorter posts on future threads.

    Thanks.

  • Posted by Ian

    I pretty much disagree with most of the last 3 posts on trade.

    How can people opposed to free trade not be happy to see how many hundreds of millions of Chinese or Indians have been lifted out of poverty over the last 20 years because of those countries’ integration into the global trading system?

    Or to use past examples, what about Taiwan, South Korea, Singapore, Hong Kong, or Malaysia. These countries and their citizens have all benefitted enormously from trade.

    I think there is something inherently arrogant about rich westerners sitting around sitting around trying to deny other countries the same kinds of economic opportunities that we have been able to enjoy.

    I won’t argue that trade policies have affected some groups worse than others or contributed to inequality amongst different socioeconomic groups, but that is the nature of the beast. Capitalism is inherently unequal. The question is how much should or can governments do to mitigate the bad consequences for society’s least fortunate.

    I think the US governemnt needs to radically change US education policy to enable US workers to compete. Essentially we have an education system suited to the industrial age, not the post-industrial one.

  • Posted by anne

    Nicely argued Ian. Though I would add, we need transition policies to ease labor movement and adaptation where there is job loss due to international trade. Oh, if only we had used revenue sharing with states to spur job growth though state spending in lieu of at least some of the tax cuts. Oh well.

  • Posted by Ian

    anne-

    Yes I agree we should definitely be helping people in places like Ohio and South Carolina who have lost their jobs because of international trade. I am no expert on what the current job retraining programs are like, but my feeling is that they are not up to par. Perhaps the government should fund partially or completely 2 years of technical school or community college for affected workers?

  • Posted by anne

    Agreed, though I lean more to community college and less to technical schools, and I would hope for more state funds for infrastructre projects, but that is not much of a hope right now. We are however not running out of work. We need growth about 4% and focus on pockets of job loss.

  • Posted by jprime314

    Take 2:

    Do we have any sense of what fraction of China’s current economic prosperity is dependent on 1) inward-FDI & foreign consumption of Chinese exports, VERSUS 2) Chinese domestic consumption)?

    In other words, how vulnerable is China’s economy to shocks & slowdowns coming from the US/EU/Japan? Or is China’s current boom self-sustaining?

    Can anyone recommend/summarize any good studies or articles that get at this question

  • Posted by gillies

    brad setser, come home please.

    they are posting ‘war and peace’ here and the whole of ‘life, the universe,and everything’ not to mention the library of congress back catalogue and i can’t get to bed.

  • Posted by w buffet

    hi mom. the eurozone is coming apart, the peg is holding fast, and no one wants to rent my new shanghai flat. bill is threatening to jump out of his windows. alan says he can’t fly the plane – the joystick just came away in his hand. it’s the conundrum. what’ll i do now? (reply paid) warren.

  • Posted by aiontay

    Stormy, Movie Guy,

    While I’d agree overall that there has been an increase in information, I would note that this is true mainly with regard to Western, scientific
    information.

    Right now I’ve got some rather unique corn and squash growing; it is one of the Wichita corn varieties and the Wichita traditional squash, an extremely large cushaw-type squash. I hadn’t planned on growing them, but I was given
    them by a Wichita elder I was visiting earlier this spring. According to conventional anthropological theory, the Wichita agricultural tradition started out on the Plains around 1200 AD ( the Wichitas have a slightly different version of events than conventional anthropological theory). As far as I know, this Wichita elder is the only Wichita that has consistently grown these crops in recent years. He is an older man and his health isn’t
    so good. Basically, you are just a few years away from the loss of an 800+ year body of agricultural knowledge adapted to one of the toughest growing environments in the USA. Now that’s just one guy in a small town in SW
    Oklahoma, Anadarko, but I can come up with quite a few other examples. The fact is, the knowledge systems of literally thousands of traditional
    societies around the globe- knowledge systems that I think are valuable and in most cases much more “scientific” than most people realize- are under threat of being lost. The horseshoe crabs are the only creatures having a rough time of it these days.

  • Posted by Stormy

    Movieguy,

    We agree on the time line. I tried to be generous here…10-12 years is where I really put it; that is what I have told my kids. I tell them in about 5, global warming will be “hot” news. But they don’t listen. They are too busy running in cages.

    I want to thank you for all the work you did for this. Truly exceptional. Yes, now somewhere we have an overview that will allow us to see the whole picture.

    There should be a blog somewhere where we can actually look at the entire scope of trade, both in terms of the theory and the practice.

    Thank you again and again.

    Regarding education: All the education in the world will not solve this one. I am/was in IT, even owned a company and have written tons of software–although I am annoyed that I have to learn html :). I am simply stunned that people tell the locals, brush up on your computer skills OR go and invent another Ipod. I have far more education that the average Joe can hope to have…in a wide range of fields. And I tell you frankly, education, while excellent, is not a lasting answer. It is just the latest “hope or hype” that will string us along. The con man never stops his pitch. This pitch is used again and again every time there are lay-offs. I mean, really, folks…smarten up. Consider the source.

    If we had enough “smart” pills to pass around, everyone would wise up and throw the fools off the nearest cliff before they drive us over it.

    No one is connecting the dots here.

    I am not an economist; now I wish I were. If there is any field that can address the issues and be believed, this is it.

    Anne,

    No economic model or economic activity is free of political constructs. Every model and every activity has embedded within it assumptions that need to be expressed clearly. Yes, this is an enormous topic; yes, it leads to talking about things that are “uncomfortable” in the present climate and not easy to implement. I find Brad’s and Nouriel’s essays exceptional, truly exceptional—as far as they go.

    It is quite possible to talk about models and to tease out their assumptions so that they are not “political dynamite.” One difference I find between economics and other disciplines is that there is not enough questioning of assumptions or models. I think economists are too busy just trying to keep on top of the latest spread or dip or newest instrument to step back and look. The frenetic pace of their activity really awes me. The amount of information they have to process every single day is incredible. I honestly do not know how Brad does it.

    Last word from me on this matter: The bets are on the table now. The timeframe is not a long one—a lot sooner than the supposed demise of Social Security. We shall see. I hope I am wrong; I really do.

    One quotation:

    “Ah, wine is good and confidence is good but can wine or confidence percolate down through the stony strata of hard consideration and drop warmly and ruddily into the cold cave of Truth? Truth will not be comforted. ” circa 1857. Anne?

  • Posted by Movie Guy

    Ian,

    You raise good points. Some I readily agree with after qualification.

    Now let me offer a few questions and observations.

    Opposed to free trade? Or would you prefer to say fair trade? There is a difference.

    What we observing in some instances is not fair trade. We don’t have two-way free trade with China. Other nations have to deal with similar problems, including those imposed by various global transnational corporations. The majority of transnationals are not American corporations, by the way. I have not heard anyone say that they are opposed to seeing other nations develop. I believe it’s more a matter of how it is being done. It doesn’t have to be an either-or situation as is presently being done in certain industries. There could be better trade policy and practices to accommodate the needs of multiple trading partners on behalf of all citizens concerned. You don’t have to blow up a big portion of one tribe to help the other tribe develop an economy strong enough to be a valued and mutual trading partner. And you don’t have to do it at the speed of light either, incurring the types of imbalances that could disrupt the global economy. Or crash a portion of it. That serves no purpose.

    “I think there is something inherently arrogant about rich westerners sitting around sitting around trying to deny other countries the same kinds of economic opportunities that we have been able to enjoy.”

    Rich westerners? With or without available credit? That’s the key as compared to cost of living. Eliminate all of the credit and items presently purchased on credit and the story is certainly not one of mostly rich people. At least not in the USA. Very few people own their automobiles or houses. Their general savings are as low as I have ever seen them. But many of these supposed “rich westerners” kept a large share of the global economy going during difficult periods by spending and not saving their money. Eliminate the credit, credit-based possessions, and production of goods based on such consumer purchasing credit, and we would see a lot of homeless people or new renters (if housing is available) walking to work, riding bikes (which would be healthy) and buses, or thumbing for rides.

    Without the extension of excess credit, perhaps as many as 60% of Americans would be standing in bread lines within two years. After all, much of the business activity is based on the same credit. Once millions of those hard skill and service jobs vanish, the collapse would be imminent. So, the key to America’s success is credit. Without it, we are not a “rich” nation. Let’s not kid ourselves. The average American has no significant savings. Let us not forget that college and university enrollments would also collapse quickly. Again, it’s a matter of cost. Pay $60,000 or more for a state university degree (including room, board, texts, fees, et al). Where’s the money coming from for many families without the availability of credit?

    The USA ranks 21st on the world economic and social development ranking list. Japan is ranked 2, Singapore 23, Taiwan 28, South Korea 38, Malaysia 64. Yes, European nations are ranked in most of the higher positions, as is Canada.

    USA trade policy is not supposed to be designed to as win-lose proposition or as “the nature of the beast”. That’s the whole point. It is the decision of the USA leadership to determine how the trade policy of the USA will be implemented, not the other nations. That is, until such time as the USA is involved in WTO/GATT trade policies that govern the specifics on particular import-export national policy. The responsibility of the USA government is to take care of its citizens first, then pursue the general welfare of other nation-states. That’s the way it works. Tribe first. Then altruism. Just as other nation-states do the same. Tribe first.

    “I think the US governemnt needs to radically change US education policy to enable US workers to compete. I think the US governemnt needs to radically change US education policy to enable US workers to compete. Essentially we have an education system suited to the industrial age, not the post-industrial one.

    How would you radically change US education policy? When you say that we have an education system designed around the industrial age, what are you indicating? To the best of my knowledge, most shop classes no longer exist. So, we’re not focusing hard and fast on most industrial trades at the K-12 level. I see those limited efforts ongoing at community tech schools and junior colleges. I see little evidence of such at major colleges and universities. I’m curious as to your recommendations.

    I agree with your interests to see the rest of the world developed. It’s a worthy goal.

    Perhaps consumers, corporations, and banks all over the world should let go of some of their savings and help all of mankind. But to suggest that Americans and many Europeans can continue to lose reasonably well paying jobs only to secure lesser paying jobs, and continue to support global growth at previous levels simply isn’t realistic. The credit will dry up. Then what? At some point, the other tribe has to prime its own pump and get its economy growing. Or some major players have to come on the scene and rework the rules of the game.

  • Posted by Movie Guy

    TRANSITION COSTS…and TIME CONSTRAINTS

    “we need transition policies to ease labor movement and adaptation where there is job loss due to international trade.”

    “I am no expert on what the current job retraining programs are like, but my feeling is that they are not up to par. Perhaps the government should fund partially or completely 2 years of technical school or community college for affected workers?”

    “I lean more to community college and less to technical schools”
    —–

    Good ideas. Now the questions.

    Transition to what type of jobs? At what rates of pay? Based on what level of job vacancy? With or without relocation costs, perhaps as high as $2,500 to $6,000 or more?

    Where’s the federal money going to come from? What does the individual or family live on during the “transition” education period of time? Or cover the healthcare costs since we abhor national health care. Well…except for General Motors, perhaps.

    Meaningful skill retraining is not accomplished in a few months. Except for basic service jobs, such as retail and sales. Certainly not service jobs requiring hard skills. I had this discussion with someone just two months ago. He advised that people who suggest the education quick fix have no idea what they are talking about. And I was the one recommending some specific forms of it.

    If you speak with someone who has gone through such training or coordinated such training, you might question the successful application of such efforts. Yes, some can work. But it’s a time consuming and expensive drill. For all parties involved.

    Why not suggest that a high percentage of all dislocated skilled workers start their own businesses? They would certainly have a better chance at stability if they succeeded. And could avoid the next “transition” education cycle.

    The notion that the majority of displaced skilled or unskilled workers will land on their feet in the service sector as permanent workers earning comparable or better wages is questionable at best. Most of them have to start over or drop in a few levels down from where they were.

    Good academic ideas. Now how do you make them work in the field? And who pays what? With what money?

  • Posted by Movie Guy

    jprime314

    “Take 2:

    Do we have any sense of what fraction of China’s current economic prosperity is dependent on 1) inward-FDI & foreign consumption of Chinese exports, VERSUS 2) Chinese domestic consumption)?

    In other words, how vulnerable is China’s economy to shocks & slowdowns coming from the US/EU/Japan? Or is China’s current boom self-sustaining?”

    I have ever confidence that Brad will be able to answer your question.

    I noticed the post the first time you put it up. Seems to me that this was addressed recently. I assumed that one of the resident economist bloggers would step in and advise.

    A guess from me: 70-30% Excluding FDI destinations from Japan. Hard to know how that mix is running.

    I can’t imagine that China is invulnerable to a major slowdown from western trading partners. But it would provide considerable incentive to expedite domestic and other Asian growth.

    Of course, I have no facts at my disposal other than memories of remarks from Stanley Morgan and Brad’s posts. Translation: I don’t have a clue.

    Brad will know.

  • Posted by Alexis

    Excellent Post & Research.
    (hope that it remains permanent resource here for returning to and periodic discussion).

    Guys like Pete Peterson and W. Rudman as well as Lou Dobbs have been sounding the alarm for quite a a while. Am sure there must be a few more out there good in reality-based in economics. Even Buffett posed export/import certificates for corporations as one option.

    Bush & crowd are taking the U.S. in the wrong direction(s). They’re delusional re the economy and trade policies, tax policies, size of a military budget, and so on. Or they only care about what suits their own interests and their fellow international billionaire club members around the world.

    ___________________________
    Separately: Back to responsibility of citizenship for such a wonderful country as the United States. The American people had best get wise and vote in a few Smart Moderates in 2006. Smart Moderates who are willing to make smart best choice decisions re slicing federal budgets, govt. employees and benefits,(without putting people on the street), who will deal with trade policies, tax policies, and so on.
    ( gerrymandering caused this diametrially opposed thinking senate and house; while most Americans were buying became too apthatetic about their role
    in this particular country as citizens.

    On the other hand, the old timers told me that this country needs a Depression: Too many are soft and have played for too long to turn things around without large doses of harsh reality.

    Seems to me, what I call smart Moderates (excising the extremes of each end) need to take this country back and turn the ship around. I, for one, am always working on changing some issue. Give it up? Useless?

    Perhaps, an internet site for smart Moderates across the country and /or use of C-Span for discussion of issues on a national basis is possible.

  • Posted by anne

    The Confidence-Man
    By Herman Melville

    “Ah,” he cried, pushing his glass from him, “Ah, wine is good, and confidence is good; but can wine or confidence percolate down through all the stony strata of hard considerations, and drop warmly and ruddily into the cold cave of truth? Truth will not be comforted. Led by dear charity, lured by sweet hope, fond fancy essays this feat; but in vain; mere dreams and ideals, they explode in your hand, leaving naught but the scorching behind!”

  • Posted by anne

    Movie Guy

    Please please, my comment about the politics of economics was not meant to be the least displeasing, but you seem a bit hurt. I enjoy reading your ideas and will be more careful in responce. This is a medium in which it is easy to be rough, but I never mean to be though I may argue.

  • Posted by DOR

    Thanks for the lucidity, Ian.

    anne, the textile quota system (and general GATT/WTO restrictions) offered decades of transitional assistance to rich-country workers, but it was wasted. The breathing space offered wasn’t used, or used efficiently. Now, it is too late.

    Movie Guy, you’re right that the US doesn’t have free trade with China. The missing point is why. Between the two, China has done far more to open its economy (granted, from a very low base) in recent years than has the US.

    You lost me on the response to Ian about rich westerners and credit. Considering that huge parts of the less developed world don’t have mortgages, the credit issue is a bit lop-sided. You make this point.

    If this credit is all that keeps America out of depression (which is what the scenario about biking and thumbing is about), then perhaps America should try to live within its means. After all, that’s what the 3rd world is forced to do.

    On transition, you raise the point of “transition to what?” Well, I have to believe that the most educated and technologically savvy economies can figure it out. If they can’t, does that justify preventing 3rd world economies from moving up the ladder?

    As for the relocation costs ($2,500 to $6,000), we’re talking about a one-time hit of only 10-20% of GDP per capita. In most of the world, losing 10-20% of GDP per capita just once would be life threatening. Keep it in perspective.

    * * *

    Compare the world economic and social development index to the world competitiveness index. Interesting to see the similarities – developed and competitive – vs. the differences.

    On China’s sources of growth, here’s some broad-brush analysis: Real gross fixed capital investment (proxy for FDI) provided 44.9% of the growth in the economy when comparing 1995-2004 vs. 1985-94. Private consumption provided 38.0%. Net trade was 5.6%. It isn’t perfect, but I think the ranking and ratios are pretty close to correct.
    .

  • Posted by anne

    The high yield market again gained in strength this day. High yield debt is being added to portfolio again.

  • Posted by anne

    DOR

    “Anne, the textile quota system (and general GATT/WTO restrictions) offered decades of transitional assistance to rich-country workers, but it was wasted. The breathing space offered wasn’t used, or used efficiently. Now, it is too late.”

    Do I ever agree, but this seems so often the case with such protections. An important observation.

  • Posted by anne

    By the way, the strength of utility stocks here and in Europe may give us a sense that either long term interest rates are really expected to stay low for quite some time or that the economics of utility company is changing in a fundamental way. I have been paying attention to regulated utilities for several years now and the economics grows more interesting.

  • Posted by anne

    http://www.calvorn.com/gallery/photo.php?photo=4504&exhibition=4&u=738|48|…

    Male Blackburnian Warbler
    New York City–Central Park, Tupelo Meadow.

  • Posted by anne

    http://www.calvorn.com/gallery/photo.php?photo=3828&offset_finder=1&u=573

    Eastern Bluebird
    New York City–Central Park, The Pool.

  • Posted by anne

    Stormy

    I do love Melville, and was taught Melville by dear Richard Niebuhr one of the inspirations of my life.

    “Truth will not be comforted.” And yet….

  • Posted by Movie Guy

    DOR — “Between the two, China has done far more to open its economy (granted, from a very low base) in recent years than has the US.”

    I haven’t found data to support your contention that the lack of free trade with China falls more on the shoulders of the United States in recent years. I can only speak for the data that I am reading from the U.S. Department of State.

    I recommend the following page of stories on the U.S.-China trade relationship. Perhaps you will find cause to challenge some of the contentions and data presented in the various articles. It would be interesting to note your differences of opinion if such exist.

    U.S.-China Trade and Economic Ties

    You may want to note the chart covering U.S. imports and exports with China from 1985 to 2004 in the article, While U.S. Exports to China Rise, Imports from China Rise Faster.

    The bilateral deficit with China has increased almost without pause for 20 years even as both exports and imports were on the rise. In 1985, the two sides traded less than $4 billion in products each way, and their trade was close to balanced. (See table below.) By 1995 the U.S. trade deficit had already risen to $33.8 billion. By 2004, U.S. exports to China were close to three times higher than in 1995, but imports from China were more than four times higher.

    The statistic that gets the most attention, of course, is the bilateral trade deficit with China — $162.0 billion in 2004, including a small U.S. surplus in services trade — more than twice the second-highest $75.2 billion deficit with Japan.

    Perhaps you can cite a few examples whereby the U.S. has attempted to block China from exporting goods to U.S. without justification in accordance with WTO/GATT policy guidelines. Other than textiles, of course.

  • Posted by Stormy

    Anne,

    You are a delight and an important voice in this blog.

    I read your comment about how easy it is to be rough in this medium. It is true–and I know how easy it is to seem dismissive and harsh. I know I must seem so at times. You have never been.

  • Posted by jm

    DOR writes, “…China has done far more to open its economy [than the US]…”.

    DOR has been seriously misinformed on this by someone.

    This is so far from being true the it’s hard even to know where to start. As I don’t have time to write a detailed post on this, I will just give one URL and suggest that interested parties read some of the innumerable books now in print on the hazards and difficulties of doing business in China.

    Doing Business in China

  • Posted by Stormy

    DORà“…transition to what?” Well, I have to believe that the most educated and technologically savvy economies can figure it out. If they can’t, does that justify preventing 3rd world economies from moving up the ladder?”

    In my arguments, I am always aware that there seems to problem of choice: Choose either workers here or workers in an emerging country. Sometimes I feel I am trying to have my cake and give it away at the same time. But this is false dichotomy. Emerging countries can be helped to develop their own strengths with fair trade; and we do have an obligation to our own citizens. We cannot simply say, “Well, you have not been smart enough or saved enough. You made your bed; now live in it.” Part of the reason the U.S. is so surprisingly low in the various “standard of living” indexes is that it has not paid attention to its own citizens, most importantly health care.

    As far as figuring out “transition to what,” that is indeed difficult. But there are areas that can be encouraged and led by government. The environment needs to be cleaned and protected. Alternate energy sources have to be developed. These are areas in which to move. But the government has to lead here, not bury its head in the oil sands. Even if you do not believe in global warming, you must believe that we cannot be dependent on foreign oil. How nice it would be to swim once more in our lakes or in Long Island Sound. If only the Chesapeake Bay were once more clear—clean and scrubbed again by oysters. We have thrown away whole industries that thrived because of that once marvelous bay. Twiddle our thumbs while it slipped into an anaerobic swamp. What other industries have we let fall because we were not careful stewards? It is not hard to recall them—most here can. There is great work to do and we are not about it with the diligence and the energy required. Where are our leaders who should be wise enough to see and strong enough to lead?

  • Posted by brad

    I am noticing a general upward drift in the size of comments — some are actuallly almost outright posts. That’s fine while I am gone, but I do hope there is some downward drift now that I am back …

  • Posted by Movie Guy

    Brad,

    Yeah, I’m the primary upward drifter on this thread. So, it’s my hit. I lead the way. I gladly accept it. I have waited quite a while to put up a group of related subject posts.

    I decided to do the trade and trade policy post series once you opened up the second open thread. I have been saving most of it for an open or slow thread.

    A one time effort to paint the picture.

    Hopefully, you will keep this thread so that some of us can link back and reference some of the urls in the seven trade posts.

    Downward drift mode…roger on that.

    Hope that you had a great trip.

    MG

  • Posted by anne

    The Financial Times considers there have been massive hedge fund losses this year, but I find the corporate bond market almost completely settled, with a slight ripple perhaps still playing out in the prices of better quality high yield bonds.

  • Posted by anne

    If sizeable hedge fund losses have had so little evident effect on stock and bond markets, I am most pleased. I have been as pleased with the performance of the Vanguard Utility Index, which appears to tell us that low long term interest rates really are justified and that energy cost increases are being well handled.

  • Posted by anne

    The likely rejection of the European Constitution will be an interesting test for Europe and for us. I hope for an increasingly united Europe, and have no sense of whether this will prove a serious set-back. The Constitution appears overly complex, but quite humanely encouraging.

  • Posted by anne

    Robert Rubin has been urging House Democrats to hold fast on principle. Dear dear Robert Rubin. How much Democrats need to hear that principle matters. Now is the time to stand for principle, not to compromise away what makes Democrats a humane political party. This is what Clinton and Gore and Kerry and Edwards should have been saying over and over.

  • Posted by anne

    Thank you Stormy :)

  • Posted by chris

    Lot’s of stuff to read about trade policy that I have to go through over the weekend as reading during the work day just leads to a superficial pass over. This is really key as a continuing problem.

    “Net trade was 5.6%” posted by DOR. I thought it was higher. I’ll try to find some figures but probably Brad Setser can get them easier.

    Hedge fund losses. If it turns into a problem it will grow in size and trouble before it bursts onto our 24 hr a day tv news screens.

  • Posted by gillies

    i am blogging on ‘oil and the conundrum.’

    blogs are not complicated websites – just free and simple deposit boxes to store stuff, and give someone else the key.

    long posts should be able to depart this site – but leave a link – following the formula that i use here -

    i have attempted an answer to ‘the conundrum.’ it is a brief article ‘oil and the conundrum’ on my blog -
    http://www.darkbrownriver.blogspot.com.

    that is the address. you are thus free to turn aside or hasten on past . . .

    blogger.com is self explanatory. blogging only requires clicking a simple set of choices. you can experiment in private until you are ready to publicise your blog’s u r l. you can delete stale material. it is really only a file with public access.

  • Posted by john jansen

    anne……long time no speak…….the corporate bond market has stabilized for now but the stability has been driven by hot money covering previously established short positions. real honest to god end user retail has mostly been on the sidelines and has not been aggresively adding new positions. jjj

  • Posted by jm

    anne writes, “If sizeable hedge fund losses have had so little evident effect on stock and bond markets…”.

    Because hedge funds have various constraints on when their investors can exit, we will not know for some time yet what amount of their trades is going to have to be unwound to cash out those departing. And it’s conceivable that the consequences of that unwinding will trigger further rounds of exits at subsequent departure opportunities.

    From a control engineering viewpoint, what we have here is a system with long, pure dead times in the feedback paths. Such systems are extremely difficult to control, and prone to destructive oscillations.

  • Posted by anne

    Hello John :)

    Perfect. I can buy the 10yr Treasury note at a 4.1% yield or the Vanguard Utilities Index with a dividend of 3.41% and hold for 10 years. What do I do? The dividend is taxed at 15%, while the Treasury is taxed at my moarginal rate. So what if I am an institution, however conservative? There is no choice :)

  • Posted by anne

    http://flagship2.vanguard.com/VGApp/hnw/FundsVIPERByName

    Ah, JJJ, forgot the Vanguard source.

    JM

    There is no question in my mind but that a lot of hedge fund money will turn out to have been foolish money, so I can cite otherwise. When a part of a market grows large enough to move the market, there is reason to expect returns to match index returns minus the cost of investment and hedge funds are costly critters.

  • Posted by Guest

    China’s farmers fear currency change
    Fri May 27, 2005 5:44 AM ET

    …China’s currency, which is pegged to the dollar, is widely expected to be allowed to strengthen this year, lifting the prices of the country’s goods sold overseas and undercutting their competitiveness….

    …As well as reducing demand for China’s farm exports, a stronger yuan would make food imports cheaper. Policy makers are worried this would depress farmers’ incomes and exacerbate already high unemployment in rural areas, where 70 percent of Chinese live….

    rest at:

    http://today.reuters.com/news/newsArticle.aspx?type=reutersEdge&storyID=2005-05-27T094452Z_01_PEK185859_RTRIDST_0_PICKS-ECONOMY-CHINA-CHESTNUTS-DC.XML

  • Posted by anne

    http://www.nytimes.com/2005/05/27/business/27hedge.html

    Hedge Funds Are Stumbling but Manager Salaries Aren’t
    By RIVA D. ATLAS

    At hedge funds, the rich just keep getting richer.

    Across Wall Street, fees for businesses from trading stocks to investing in mutual funds have been falling. But at hedge funds, those exclusive investment partnerships for the wealthy and institutions like pension funds, fees have stayed dizzyingly high, even as billions of dollars have poured into the industry and performance, on average, has faltered.

    Last year, the top-paid hedge fund manager, Edward S. Lampert of ESL Investments, earned $1 billion, according to a survey to be released today by Alpha, a magazine published by Institutional Investor that follows hedge funds….

  • Posted by anne

    Imagine my surprise :)

    http://www.nytimes.com/2005/05/27/business/worldbusiness/27yuan.html

    U.S. Softens Its Warning to Beijing
    By EDMUND L. ANDREWS

    WASHINGTON – Even as it publicly presses China to let its currency rise in value, the Bush administration has quietly softened a crucial demand.

    In a calculated shift, administration officials have stopped demanding that China let its currency, the yuan, float freely against other major currencies.

    Instead, American officials are telling Chinese leaders that they can keep their policy of a fixed exchange rate – at least for now – if they increase the value of the yuan by 10 to 15 percent….

  • Posted by Joseph Wang

    Some rough numbers:

    Total GDP: about $1.5 trillion

    FDI: About $50 billion

    Exports/Imports:
    about $500 billion

    Exports/Imports with United States:
    about $150 billion

    Trade deficit: About $30 billion

    * The Chinese economy depends a great deal on trade, but it doesn’t depend very much on a trade deficit, and the United States doesn’t dominate Chinese trade.

    * FDI isn’t a hugely significant amount of investment. This goes to show you that most of the capital investment in China is domestic, which makes it very different from a lot of developing nations.

    As far as “fairness”, the accusation that Chinese trade policies are particularly unfair in comparision to the United States strikes me as patently absurd. One need only bring up American agricultural subsidies. As far as the “innumerable books” about doing business in China, for a Chinese to set up a factory in the United States isn’t a piece of cake either.

    Also something else that needs to be pointed out that is that you don’t really have “free trade” unless you can also have free labor markets which is so out of the picture that no one talks about it.

  • Posted by brad

    Anne — the US has also de facto dropped its focus on immediate liberalization of the capital account as well. both moves were long over due.

    Re: China’s farmers. Three points.

    First, China may have an advantage in certain agricultural sectors that are labor intensive — apple production, for example. all the sorting and polishing, etc, etc.

    Two, I don’t find the argument that China cannot change its currency b/c it would devaste the agricultural sector persuasive. It is not as if Chinese imports have not devasted certain small US towns (see WSJ c1 on Maytag, Newton Iowa and the potential impact of any shift in production). If protecting its agricultural sector via a undervalued exchange rate makes China’s exports uber-competitive, and makes china the preferred location for all manufacturing production globally, the world has a problem (and yes, I do think the RMB is significantly undervalued).

    Third, I don’t know the details of China’s WTO commitments on agriculture, but I would guess that over time China will protect its small rice and wheat farmers the same way Korea and Japan and Norway and switzerland and others protect their small farmers — with import quotas that keep the domestic market price well above the world market price. the global norm is far from free trade in agricultural products. the global norm is to protect traditional agricultural production, particularly in the production of staples central to the traditional local diet (Rice in asia). Trade in feed for animals is much freer (see soybeans) — I suspec the same will emerge in china. China will protect its domestic rice market for social reasons. It will import soybeans and corn to feed pigs and chickens and the like to meet higher demand as diets change in line with rising incomes.

    China is short on arable land relative to its population, and almost all countries that are short on arable land protect their agricultural sector in a big way.

  • Posted by anne

    Nice summary points on agricultural China. I am reading a bit more Chinese history with the express idea of gaining a sense of rural life patterns.

  • Posted by brad

    Joseph Wang –

    for 04, exports were about $600b, imports around $570b (Chinese data) Using US data about 1/3 of those exports, $190 b, ended up in the uS — Chinese data shows a lower number in part b/c of differences in the way transhipment through hong kong is accounted for. GDP was around $1.6 b.

    I agree with you on FDI — it is not a huge source of investment in China. Tis important, but not huge. Goldstein and lardy have made a similar point in their critique of folkerts landau, dooley and garber.

    However, try 25% y/y export growth and 15% y/y import growth on China’s 04 trade numbers. it generates an estimated 2005 trade surplus of $100b. And that assumes a big fall off in China’s export growth. At 30%, the surplus is closer to $120b. UBS estimates that China’s seasonally adjusted monthly trade suplus is now about $10 b a month –

    on a sectoral basis, the US certainly subsidizes and protects, particularly in agriculture, but also in other areas. But i don’t think the US has ever extended vendow financing on China’s scale — 10% of GDP plus reserve accumulation when reserves are already well over 40% of GDP IS very unusual, and unprecented. you may not call it protectionism or an export subsidy, but by keeping the price of imports up in china and the price of chinese goods down in the world, it certainly has that effect. Vendor financing on this kind of scale has an element of macro protectionism to it — hence the worries about the impact of ending it on sectors in China that might have to compete with (subsidized) imports, like agriculture.

  • Posted by Stormy

    Re: Current Account Surplus in resource exporting countries and resource importing countries.

    It would be interesting to see how many of those “resource importing countries” are in turn exporting finished products to the world. “Made in China,” to be too simplistic about it. If a country is resource poor, it has only one option. It would be easy to see a spectrum of countries from resource rich to resource impoverished…

  • Posted by Guest

    Brad sorry my name got lost on the Reuters article posted above.
    I applaud Anne for wanting to research the matter further. But I find your answer a little bit like “Let then eat cake”. The chestnut farmer cited states that he makes about a 5% profit.
    But there are others for who a revaluation means an absolute wipeout. By chance today:

    http://www.xinhuanet.com
    XINHUA online

    China focus: 90 million Chinese under poverty line: minister
    http://www.chinaview.cn 2005-05-27 23:49:40

    BEIJING, May 27 (Xinhuanet,by Jiang Guocheng) — Despite the country’s booming economic development in the past two decades, 90 million Chinese residents still live under the internationally recognized poverty line, Minister of Commerce Bo Xilai said Friday.

    By that standard, an average daily income of one US dollar perperson, the 90 million Chinese residents, including 75.8 million rural residents, earn an average per-capita annual income of less than 924 yuan (112 US dollars) in terms of purchasing price parity,said the minister.

    Addressing a meeting of the Association For Underdeveloped Regions in China, the minister said 22 million urban residents live on minimum living allowance from the governments.

    Citing figures from the National Bureau of Statistics, the ministers said 26 million Chinese rural live in abject poverty. Nearly 50 million are low-income earners who may fall back into deep poverty in the case of a natural calamity or personal misfortune, such as fatal illness.

    China, which has a total population of 1.3 billion, has set itspoverty line at an annual average income of 668 yuan (81 US dollars).

    Some overseas commentators have said China is no longer a developing country, which is simply not true, said the minister.

    China’s per capita gross domestic product just exceeded 1,200 US dollars last year, while that of developed countries surpassed 20,000 US dollars, he said.

    He said his ministry will help the country’s poor areas develop economically by improving their access to domestic and overseas markets and facilitating financial and technical assistance from overseas through multinational or bilateral cooperation.

    The ministry is going to project a true picture of China’s situation in poverty reduction to the international community.

    China’s fast economic development, which stands at 9.4 percent during 1978 and 2004, has helped reduced the country’s poor population dramatically.

    According to Chinese statistics, the population in abject poverty was reduced from 250 million to 26 million during 1978 and 2004. The ratio of the very poor to the total rural population has been reduced from 30.7 percent to 3.1 percent.

    But Liu Jian, head of the State Council Leading Group Office ofPoverty Alleviation and Development, said helping the remaining poor out of poverty in the coming two decades will be a tough job for China. Most of the poor rural population live in remote or hilly areas with harsh living conditions.

    Professor Xiao Zhuoji with Beijing University said the Chinese Government should increase its spending on poverty reduction, make education resources available to young people from the poor areas and create more jobs for the impoverished people.

    In addition, China should raise its allowance for the very poorto at least 1,000 yuan (121 US dollars), which may cost the central government an additional 30 billion yuan (3.65 billion US dollars), he said.

    China’s budget revenues increased by 25 percent to 2.6 trillion yuan last year (317 billion US dollars) meaning that the government will be able to give further support to the poor, said the professor.

    Helping the poor through increased budget spending is in line with the leadership’s policies for a fair, just and harmonious society, he said.

    Also:
    When poverty is measured in terms of nutrition, it often seems similar to that measured by the official income poverty line. A report based on National Bureau of Statistics (NBS) household data found that a quarter of the rural population had less than a minimum level of calorie intake in 1990, while a more recent survey in six poor counties found over one third had a per capita income below the national poverty line (Wang and Li, 1998). Linked with this is the high level of under-five mortality which indicates the deterioration of basic public health services, especially in remote poor areas where the infant mortality rate exceeds 100/1000, at least twice the national average.
    http://www.unchina.org/about_china/html/poverty.shtml

    The UN poverty line is at $1.00/day which gives something of almost 100 million persons under this limit.The previously quoted China poverty line was $81/yr. I am glad that they now dare raise the limit to UN standards.

    Perhaps you can tell us what you think the cost/benefit ratio of a Yuan revaluation is for these folk

  • Posted by jm

    “But there are others for who a revaluation means an absolute wipeout.”

    Deliberate and determined undervaluation of the renminbi has meant absolute wipeout for many US manufacturers and their employees.

    If part of the Chnese rural population faces starvation, or would face starvation due to revaluation, it is the Chinese government’s responsibility to support them. There’s no lack of money in China to do that. If the renminbi were revalued by a factor of five to bring Chinese wages more into line with international levels, food imports would become quite cheap. It would make very good sense for China to buy food rather than US bonds with its export income.

    Why should we allow US manufacturing workers be wiped out to avoid a Chinese farmer from being wiped out, just because the Chinese government won’t organize itself so as to properly distribute the fruits of the nation’s labor????

  • Posted by Joseph Wang

    Just about everyone protects their agricultural markets, which is why it is significant that China protection of agriculture is far less than most other countries, and why I think that statements that China is an “unfair” trader are not well founded.

    There are two reasons for this:

    1) First protection will not solve the essential problem of too many farmers.

    2) There are also strong political reasons for anti-protection. By opening agricultural markets, China gains a lot of political leverage. Farmers are a huge source of political support in the United States, and opening markets to southeast Asia allows China to gain political leverages vis-a-vis the United States.

  • Posted by Joseph Wang

    jm: Just curious who you were referring to with the “we”. One thing to keep in mind here is that the internet is an international medium and most people in the world aren’t American. Talking about the plight of the American factory worker isn’t going to get you much sympathy if your audience is French, Chinese, or Japanese.

    And it might not get you much sympathy even if you are American. Yes free trade with China may be bad if you are a textile worker, but its good if you are a cotton farmer or an investment banker.

    The fundamental rule of politics is that people complain about things that adversely affects them, but not about things that don’t. There’s nothing particularly wrong with being a little selfish, but one does need to keep the big picture in mind.

  • Posted by Joseph Wang

    The trouble with thinking in terms of our nation versus their nation that the “us” versus “them” just doesn’t fall across national lines. Economic policies always produce winners and losers and the fault line is rarely national.

  • Posted by jm

    Joseph Wang:

    My point was not that US factory workers deserve to be protected because they are Americans, or that they deserve to be protected by interference with free-market competition. My point was that they do not deserve to be wiped out by mercantilistically undervalued exports from Asia simply because the exporting country’s policies are such that some unfortunate group in that country will be negatively impacted by a free-market exchange rate.

    The issue is that mercantilist manipulation of exchange rates by the Asian governments fundamentally subverts the pricing signals that are the very basis of market economics.

    If pricing signals are falsified, market economics cannot work. The falsified pricing signals lead to bad decisions by all market participants, as they can no longer judge the true relative value of economic inputs and outputs.

    If one believes that free markets lead to optimal allocations or resources, then one must also believe that subversion of pricing signals by exchange rate manipulation must lead to suboptimal allocations. The whole world suffers — including the Asian countries themselves.

    How can the Chinese people be benefiting more by their government buying US bonds with the export revenues than they would by getting useful American goods and services in return?

    For thirty years now I’ve been watching a similar situation evolve in Japan, with the result that Japanese living standards are far below what they should be.

  • Posted by Alexis

    Oh, yeah, like Soros and his ilk of international casino players were good for some countries…

    Americans here have every right to be concerned about their fellow American having a way to make a living and putting a roof over their head.
    Many of us have felt that the fast pace needed to be slowed down and consumption of energy sources, etc. slowed down. All for what? To line the pockets of international billionaires club around the world.

    Some Americans are smart Moderates (and for sound reasons)

    Some of us think that Americans have gotten way off track and away from the basics of living.
    In my view, the univs. were the cause.
    _______________
    Prince and princesses took over the U.S. Yuppies and guppies offspring. Wanting to live like princes and princesses –off other people’s productive work.

    Univs. intellectualizing and indoctrination of the too soft, too young, and too inexperienced have destroyed societies. Serious mistaken emphasis on youth and not approprate life cycles. Don’t really know anything really until or mettle tested appropriately to deal with large sums,people’s lives, and so on until age 40.

    I am not alone in my view that all the hot air professionals, paper professionals, attorneys, accountants have ruined this society. Aren’t needed and even half their price is too much.

  • Posted by Joseph Wang

    The people in the United States that are complaining the loudest are in industries that are on the verge of getting wiped out no matter what China does with the RMB. If a 10 to 20 percent rise in prices is the difference between life and death in an industry, you are already on thin ice already. The harsh truth of the matter is that there is no future in low-skill labor-intensive manufacturing in the United States. Period. Pointing to the RMB is just a smokescreen for politicians to prevent people from appreciating that fact.

    And why the concern for factory workers and not for consumers who are going to see higher prices if the RMB is revalued?

    And why is PBC buying dollars considered “market manipulation” and bad whereas the US running huge fiscal deficits is somehow alright?

    As far as the benefits to the Chinese consumer. The reason people are into fixed exchange rates is that floating rates have historically caused crises and economic instability in developing countries that have them.

    Also, China is not Japan. Now is not the time to break open the piggy bank and consume. You still need relatively high savings rates so that people in about fifty to seventy years from now can live at European/American levels. Once China reaches Japanese standards of living then saving becomes an overly bad habit, but we are decades away from that.

  • Posted by Alexis

    Jos.Wang, you are obviously biased beyond having any discussion with.

  • Posted by Joseph Wang

    *Everyone* is biased in some way. The question is not whether one has biases. The question is whether those biases prevent one from seeing what is going on.

    Also, one thing that you have to keep in mind is that in discussions I tend to state points of view very strongly even if I don’t strongly believe what I’m saying. I find that discussions tend to be most productive when the issues under discussion are stated forcefully so that there is “creative conflict.” Lack of conflict in these sorts of discussions tends to lead to groupthink in which people end up with a consensus view of reality that is just wrong.

    It would help the discussion if you tried to summarize why you think I’m talking nonsense, since right now I have no idea. Are my fact wrong? Is there a logical flaw in my thinking? Are there problems with the values that underlie my thinking? Am I making some assumption that is questionable?

  • Posted by Movie Guy

    Joe Wang:

    “It would help the discussion if you tried to summarize why you think I’m talking nonsense, since right now I have no idea. Are my fact wrong? Is there a logical flaw in my thinking? Are there problems with the values that underlie my thinking? Am I making some assumption that is questionable?”

    Yes, some of your “facts” are most assuredly wrong.

    I’m also not a fan of groupthink. But I question some of your observations and “facts”.

    I’ve yet to note that you have supported any of your “facts” with published references or reference materials.

    It would help if you could back up some of your assertions.

  • Posted by Movie Guy

    China Economic Information

    Let’s clear this up. The previous posts on China’s economic data leave much to be desired.

    U.S. Government published numbers on China’s economy

    FY 2004

    Total GDP: $1.65 trillion (exchange rate based)

    Foreign Direct Investment: $64 billion

    Exports/Imports: $593 billion/$561 billion

    Exports/Imports (total sum) with USA: $231.4 billion total

    Exports/Imports with USA: $196.7 billion/$34.7 billion

    Overall Trade Deficit: ($32 billion surplus)

    Trade Deficit with USA: $162 billion
    —-

    “Foreign-invested enterprises produce about half of China’s exports, and China continues to attract large investment inflows.”

    “Industry and construction account for about 50% of China’s GDP.”

    “The state-owned sector still accounts for about 40% of GDP.”

    Primary Information Sources:

    While U.S. Exports to China Rise, Imports from China Rise Faster

    Bureau of East Asian and Pacific Affairs, U.S. Department of State

    ======

    Brad Setser’s numbers (May 27, 2005 12:36 PM)

    Total GDP: $1.6 b [meant $1.6 trillion]

    Foreign Direct Investment: “it is not a huge source of investment in China”

    Exports/Imports: $600 billion/$570 billion

    Exports/Imports (total sum) with United States: $190 billion

    Overall Trade Deficit: ($30 billion) [doing the math]

    “try 25% y/y export growth and 15% y/y import growth on China’s 04 trade numbers; estimated 2005 trade surplus of $100b; At 30%, the surplus is closer to $120b; UBS estimates trade suplus about $10 b a month”

    ======

    Joe Wang’s numbers (May 27, 2005 10:52 AM)

    “Some rough numbers”

    Total GDP: about $1.5 trillion

    Foreign Direct Investment: About $50 billion

    Exports/Imports: about $500 billion

    Exports/Imports (total sum) with USA: about $150 billion

    Overall Trade Deficit: About $30 billion

    “* The Chinese economy depends a great deal on trade, but it doesn’t depend very much on a trade deficit, and the United States doesn’t dominate Chinese trade.”

    “* FDI isn’t a hugely significant amount of investment. This goes to show you that most of the capital investment in China is domestic, which makes it very different from a lot of developing nations.”
    ======

    It doesn’t take that much effort to track down the published numbers, particularly when links on the same thread were available to provide such help.

    If someone wants to dispute the U.S. government data, fine. Please cite sources and provide links.

  • Posted by Movie Guy

    Joe Wang — May 27, 2005 10:52 AM:

    “FDI isn’t a hugely significant amount of investment. This goes to show you that most of the capital investment in China is domestic, which makes it very different from a lot of developing nations.”

    Foreign Investment:

    Roughly half of the exports from China are presently dependent on foreign direct investment (FDI).

    Much of the rest of the developing nations probably would appreciate it if China refused to accept any more foreign direct investment.

    China is absorbing a disproportional amount of global foreign direct investment. Note the charts under the last two source links below.

    “China is now one of the leading recipients of FDI in the world, receiving $64 billion in 2004, for a cumulative total of $563.8 billion.”

    “Cumulative U.S. investment in China is valued at $48 billion.”

    “Foreign-invested enterprises produce about half of China’s exports, and China continues to attract large investment inflows.”

    “[China's] Foreign exchange reserves totaled $610 billion in 2004.”

    “In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. Foreign direct investment (FDI) grew quickly during the 1980s, but stalled in late 1989 in the aftermath of Tiananmen. In response, the government introduced legislation and regulations designed to encourage foreigners to invest in high-priority sectors and regions.”

    “Since the early 1990s, China has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. However, the Chinese government’s emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China’s services sectors underdeveloped.”

    “The number of countries that have established diplomatic relations with Beijing has risen to 159, while 25 have diplomatic relations with Taiwan.”

    “U.S. direct investment in China covers a wide range of manufacturing sectors, several large hotel projects, restaurant chains, and petrochemicals. U.S. companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in China. More than 100 U.S.-based multinationals have projects in China, some with multiple investments.”

    Information Sources:

    Bureau of East Asian and Pacific Affairs, U.S. Department of State

    Foreign Direct Investment

    The World Development Report 2005: An Unbalanced Message on Investment Liberalization (August 2004)

    Changes in Investment Regulations
    1991-2001, UNCTAD Handbook of Statistics

    Foreign Direct Investment as Percentage of Gross World Product
    1970-2001, UNCTAD Handbook of Statistics

    Top 15 Recipients of FDI among Developing Countries:
    1993-98, World Investment Report

    Main Recipients of Foreign Direct Investment
    1997, Human Development Report 1999

  • Posted by Movie Guy

    Jospeh Wang stated:

    “As far as “fairness”, the accusation that Chinese trade policies are particularly unfair in comparison to the United States strikes me as patently absurd.”

    “One need only bring up American agricultural subsidies. As far as the “innumerable books” about doing business in China, for a Chinese to set up a factory in the United States isn’t a piece of cake either.”

    It would be interesting to see how many separate examples of unfair USA trade policies that you or anyone else can cite, or how many of China’s trade practice obstructions can be readily defendedfrom the list below. See “U.S. Trade Estimate on Foreign Trade Barriers with China”.

    jm, as some may recall, was responding to DOR’s previous post: DOR writes, “…China has done far more to open its economy [than the US]…”.

    In similar respect, I am questioning the basis for the “patently absurd” statement in comparing the fairness of USA to China trade policies.

    I extent to you and ALL others the same opportunity previously extended to DOR at 11:35 PM, May 26, 2005 on this thread. You are more than welcome to review the following U.S. Government source information and challenge any of it.

    Perhaps you will find cause to challenge some of the contentions and data presented. It would be interesting to note your differences of opinion if such exist.

    To date, DOR has not taken the opportunity to challenge any U.S. Government source information regarding trade with China. But perhaps others, including you, will in light of your statement.

    I look forward to any factually based comparative analysis.

    Doing Business with China

    Background Note: China

    China – Country Information

    USA – Exporting to China

    USA – China Trade Policy & Agreements
    - Trade Policy Initiatives
    - Bilateral Trade Agreements
    - Multilateral Trade Agreements
    - WTO Accession

    U.S. Trade Estimate on Foreign Trade Barriers with China

    USA – China WTO Accession Deal: Agriculture

    USA’s China Business Information Center (BIC)

    China’s Law & Regulations
    - Customs, Tariffs & Import Procedures
    - Standards
    - Industrial Sector-Specific Regulations
    - Forms of Establishment & Contracts

    China Trade Regulations & Rules
    Customs, Tariff & Import Procedures
    January to November 2004 Regulations

    China – Current Trade Regulations and Rules
    Past thirty days

    U.S.-China Trade and Economic Ties

  • Posted by Movie Guy

    Brad, May 27, 2005 10:54 AM:

    “Third, I don’t know the details of China’s WTO commitments on agriculture, but I would guess that over time China will protect its small rice and wheat farmers the same way Korea and Japan and Norway and switzerland and others protect their small farmers — with import quotas that keep the domestic market price well above the world market price.”

    I think that this will help you:

    USA – China WTO Accession Deal: Agriculture

  • Posted by DOR

    Movie Guy,

    Chinese official statistics:
    2004 GDP Rmb13,651,500 = US$1,647,293 million
    2004 Two-Way trade: US$1,154,792 million With USA: $169,626 million
    2004 Exports US$593,369 million To USA: $124,948 million
    2004 Imports $561,423 million From USA: $44,679 million
    2004 Balance +$31,946 million With USA: +$80,269 million
    2004 Utilized FDI: $60,630 million From USA: $3,940.95 million

    Sources: http://gcs.mofcom.gov.cn, http://www.pbc.gov.cn/, http://www.stats.gov.cn/

    “I recommend the following page of stories on the U.S.-China trade relationship. Perhaps you will find cause to challenge some of the contentions and data presented in the various articles. It would be interesting to note your differences of opinion if such exist. ”

    OK: from your: U.S.-China Trade and Economic Ties

    Even while the U.S. bilateral trade deficit with China soars to the dismay of import-sensitive domestic industries and their representatives in Congress, China has become the fastest-growing market for U.S. goods exports.

    Amidst growing internal debate about the influence of China on the U.S. economy, the 2005 Economic Report of the President plays down the importance of the bilateral deficit, which amounted to $162 billion in 2004. The analysis of trade data prepared by the president’s Council of Economic Advisers asserts that the gain in imports from China reflects in part a slide in imports from elsewhere around the Pacific Rim as companies in the other countries shift their final assembly operations to China.”
    “‘Intellectual property is the problem,’ said a U.S. trade official, who asked not to be identified. ‘The degree of piracy in China right now … is so mammoth it will, if not checked, alter the landscape for innovation, alter the way we do business as an economy. So it has to change.’

    jm

    The “someone” who “seriously misinformed” me is myself, 21 years analyzing Chinese and other Asian economics, politics and business conditions from Asia. Hey, it’s a job.

    From your link to Doing Business in China:

    ‘China has enjoyed great stability and prosperity over the last decade, at least on the surface. It has eclipsed the inflation and political strife of the late 1980s, scored major triumphs with the return of Hong Kong and Macau to the fold, brought economic progress and better standards of living to a significant proportion of its people, and elevated its status to that of an internationally recognized power (whose integration into the global community will be complete with its accession to the World Trade Organization later this year).’

    ‘Yet, over the past twenty years China has moved from a planned to market economy and is now in many ways more capitalist than communist.’

    Thanks for making my point for me.

    On US manufacturing and the Rmb, (and, for those who prefer US sources), as recently as October 2003, the Congressional Budget Office said this about China’s exchange rate and US jobs:

    * Increasing U.S. Manufacturing Employment. At best, such legislation would increase employment in manufacturing by a small amount and for a limited period. It would not have a significant permanent effect.
    * Reducing the U.S. Bilateral Trade Deficit with China. Such legislation might somewhat diminish the trade deficit with China but at the expense of increases in the United States’ bilateral deficits with other countries.
    * Reducing the Chinese Multilateral Trade Surplus. Such legislation could shrink China’s multilateral trade surplus (its surplus with all trading partners).
    * Reducing the U.S. Multilateral Trade Deficit. Such legislation could reduce the multilateral trade deficit of the United States by at most a small amount and, depending on the circumstances (in particular, if the legislation was paired with corresponding measures by China against U.S. exports), might even increase that deficit by a small amount.

    [The conclusion was],

    “Even though the deficit with China is larger than the deficit that the United States has with any other country, it accounts for only 21.9 percent [NB 2004: 24.9%] of the nation’s trade deficit with the world. Similarly, the increase in the trade deficit with China over the past 10 years represents only 22.7 percent [NB 1995-2004: 28.3%] of the increase in the United States’ multilateral trade deficit; the corresponding number for the past five years is 19.6 percent [NB: 2000-2004: 21.8%]. The vast majority of U.S. trade and of the United States’ trade deficit is with countries other than China.”

    And,

    “The premise of the legislative proposals before the Congress, as reflected in their findings, is that the yuan is substantially undervalued. That premise is by no means universally accepted, because determining the right value for any currency is difficult (at best). . . . China’s large trade surplus with the United States is not a good indicator of proper or improper valuation of the yuan because it leaves out not only trade with other countries but also trade in services and income on foreign investments.”

    Source: http://www.cbo.gov/showdoc.cfm?index=4666&sequence=0

    Stormy,

    Forgive me for rewriting you words once again, but perhaps you meant to say, “We cannot simply say to the billions of 3rd world people, ‘Well, we rich folks have not been smart enough or saved enough. Sorry, but you have to live with it.’”

    .

  • Posted by Movie Guy

    DOR,

    Good post. Thanks. Here’s a quick comparison of U.S. to China data on China economic data.

    U.S. Government published numbers on China’s economy

    FY 2004

    Total GDP: $1.65 trillion (exchange rate based)

    Foreign Direct Investment: $64 billion

    Exports/Imports: $593 billion/$561 billion

    Exports/Imports (total sum) with USA: $231.4 billion total

    Exports/Imports with USA: $196.7 billion/$34.7 billion

    Overall Trade Deficit: ($32 billion surplus)

    Trade Deficit with USA: ($162 billion surplus)
    —-

    Chinese official statistics

    FY 2004

    Total GDP: $1.647,293 trillion

    Foreign Direct Investment: $60.630 billion

    U.S. Foreign Direct Investment: $3.940,950 billion

    Exports/Imports: $593.369 billion/$561.423 billion

    Exports/Imports (total sum) with USA: $169.626 billion total

    Exports/Imports with USA: $124.948 billion/$44.679 billion

    Overall Trade Deficit: ($31.946 billion surplus)

    Trade Deficit with USA: ($80.269 billion surplus)

    It’s interesting that some of the numbers are a dead match if rounding, while other numbers are quite different. I have to wonder if China is including Hong Kong trade with the U.S. in its statistics.

    I was surprised to note that China shows a higher level of U.S. imports to China. A difference of $9.979 billion. After adjustment, that still leaves a difference of $71.752 billion in the trade deficit/surplus figure. That’s quite a large difference.

  • Posted by DOR

    Movie Guy,

    2004 GDP Rmb13,651,500 = US$1,647,293 million should have been 2004 GDP Rmb13,651,500 million = US$1,647,293 million.

    More important, US Government numbers on China’s domestic economy are all sourced from official Chinese sources. The only exception might be the choice of an exchange rate (year-end or annual average). The US Census Department doesn’t collect raw data inside China (or any other country, for that matter).

    As for trade and HK, China does not include HK in its trade figures, except as a “foreign” (i.e., WTO member) entity. The US, however, does reclassify some imports from HK as sourced from the PRC (and, probably correctly).
    .

  • Posted by Movie Guy

    DOR,

    I would have to assume then that the differences noted represent U.S. trade with Hong Kong.

    I am surprised that the U.S. may be importing an additional $82 billion from Hong Kong.

    Still don’t understand why the U.S. understated U.S. exports to China. Strange.

    BTW, I was reviewing trade report information at the WTO today. You might be interested in some of the trade policy review (TPR) reports. There are three on U.S. participation in global trade. None thus far on China mainland. One on Hong Kong.

    Link: http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm

    Note the Chronological list of TPRs further down.

    Oh – you may want to read the IMF report on China that MTC posted under the latest thread by Brad. Same story for the Red Alert link by one of the posters. Something in the second link doesn’t make sense, but might make for a story.

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