U.S., China Increase Trade Deficit: Win-Win Situation

 |  Includes: CAF, DIA, FXI, PGJ, QQQ, SPY
by: Howard Richman

According to statistics just released on Friday, America's monthly trade deficit in goods with China rose in January 2009 to $20.6 billion, as compared to December 2008 ($19.9 billion) and as compared to January 2008 ($20.3 billion), despite the worldwide recession.

During a worldwide recession, such as the one that began in October, the volume of trade falls as a result of falling demand. If the ratio of imports to exports stays about the same, the lower trade volume temporarily reduces the extent of any deficit or surplus. Indeed, America's overall trade deficit went down in January due to the fall-off in world trade.

However, from January 2008 to January 2009, the ratio of our imports to exports with China worsened. In January 2008 China sold us 4.5 times the goods that they bought from us, while in January 2009 China sold us 5.9 times.

America's strategy, under Presidents Bush and Obama, has been to borrow money from China in order to pay for increasing budget deficits, giving away American market share to Chinese producers:

  • In May 2008, President Bush's Treasury Secretary Henry Paulson told Congress that China is not manipulating its currency. In response, China stepped up its currency manipulations, preventing the yuan from rising any further versus the dollar.
  • In February 2009, President Obama's Secretary of State Hillary Clinton visited China, begging for more loans while telling Chinese leaders that the United States was not concerned about any other economic issues.

China's strategy is to increase their currency manipulations, grant WTO-illegal subsidies to their exporters, and ignore a WTO ruling that they reduce their tariffs on foreign-made autoparts. They intentionally produce a trade surplus with the United States while lending us the money to buy their exports, increasing our debt. Their purpose is to steal market share by manipulating trade.

The joint strategy of the American and Chinese leaders is working well. American leaders get to congratulate each other for engaging in unilateral free trade, even though we could get out of the worldwide recession by balancing trade. Chinese policy leaders get to steal market share from American industry throughout the recession so that they can dominate the world's future afterwards, replacing the hegemony of democracy with the Chinese brand of market totalitarianism. It's a win-win situation for the leaders of both countries!