G20 Urges 'Balanced Global Demand'; China Says 'No'

The G20 Communique, following Friday's conference in Pittsburgh, urged "adequate and balanced global demand"; in other words, that China start buying foreign products, instead of functioning as the black hole of international trade into which the world's demand disappears.

Bloomberg reports China's negative response:

China’s President Hu told the G20 yesterday that “the issue of global economic imbalances has drawn close attention from the international community.” The “root cause is the yawning development gap between North and South,” he said, according to an English translation of his text, referring to developed and poorer nations.

Why should China change? Their economy is growing rapidly while the economies of their rivals (President Hu's “North”) stagnate. Their policy is to stimulate domestic demand for Chinese-made products only, while stealing market share in foreign markets through export subsidies.

They have so mastered the art of protectionism that, according to the World Bank's June 2009 Quarterly Update, their imports are expected to shrink this year, despite their 10% growth in consumption and their stockpiling of commodities.

There is a simple way to get China to change, recommended by my father, son and I in our 2008 book Trading Away Our Future. We would let the Chinese government know that the United States will balance trade through auctioned import certificates if they don't gradually balance trade on their own. The Chinese government could easily end export subsidies, let the yuan rise, and take down their tariff and non-tariff barriers to imports.

Such action by the United States would be sanctioned by WTO rules which state,

(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.

The resulting policy would jumpstart our economic growth through increased exports and increased investment in American manufacturing.

So far, the Obama administration has unrealistically relied upon diplomacy and wishful thinking. An old nursery rhyme states, "If wishes were horses, then beggars would ride."

Disclosure: No positions

Comments

[Dave Wrixon:]

Wishful thinking indeed. With policies like these the US would no doubt soon be beggared.

Sep 27 05:58 AM

[Asbytec:]

I wish China would buy their own cheap stuff...I am tired of replacing umbrellas every week.

Sep 27 07:54 AM

[Roger Knights:]

It may be too late to get tough on China. They've got us where they want us.

Sep 27 10:53 AM

[kinky:]

To Asbytec:
They produce in mass what the world order, we wanted cheap,why they have
to bother with quality. You better direct your comment to the middle men and
why not to Wall Mart? Buying cheap only cost you more in the long run so it is
time for you to start looking at an not cheap umbrella which I hope you can find
or you can afford . Why it is when producing counterfeit they are excellent?
Our taking too many vacations while they were sweating unstoppable to
satisfy demand did pay for them. Trade will be imbalanced as far as is paid with
fiat money or credit cards.

Sep 27 12:05 PM

[LCACM:]

The US voters need to wake up to perils that lie ahead caused by the huge trade deficits. A number of candidates in the Presidential primaries brought up these trade imbalance issues but did not get anywhere in the primaries. The voters preferred to vote for the media annointed Obama with help from super rich campaign donors. Now Obama has to worry about getting reelected and campaign funds. At this juncture it is safer for him to listen to the oligarchs and ignore Chinese trade malpractices, as he will be relying on the oligarchs to provide him with the necessary re-election funds. In return he will have to take orders from the oligarchs who profiteer by importing Chinese goods to take advantage of the US market.

Sep 27 12:26 PM

[Kimball Corson:]

This is the best and most useful suggestion on how to address America´s basic economic problems that has come along in a very long time. It goes to the core problem and issues. And you got it here on Seeking Alpha.This approach needs to be understood by all and shouted from the roof tops. Maybe then Washington will hear. Jawboning, studying and reviewing is not going to change China's thinking one wit, Larry Summer's naive optimism notwithstanding.

Sep 28 03:00 AM

[coreopsis:]

Whine...sigh...always like to see Yanks doing what they do best...whine


On Sep 27 07:54 AM Asbytec wrote:

> I wish China would buy their own cheap stuff...I am tired of replacing
> umbrellas every week.

Sep 28 01:00 PM

[coreopsis:]

Kudos to the only guy who's ever mentioned Trump and Munger in the same sentence...wow, totally clueless.


On Sep 27 11:06 AM bobbybutte wrote:

> Its not too late to deal with China.They need us ,but they could
> make our interest rates sky high if they chose. We need real businessmen
> like trump and charlie munger to negotiate our deals instead of the
> ass clowns we have in congress who have no brains and can be bought
> off for legimate but immoral donations

Sep 28 01:02 PM

[coreopsis:]

Hey, the only solution is EVERYONE stop exporting and importing. Sell only the things you can make to people in your OWN country. To those who would try to take advantage of us by EXPORTING, I say 'stay away!' You're hurting us decent, law-abiding citizens. Pardon me while I clean my gun...hope it doesn't discharge accidentally at my Asian neighbor.


On Sep 27 12:26 PM LCACM wrote:

> to take orders from the oligarchs who profiteer
> by importing Chinese goods to take advantage of the US market.

Sep 28 01:05 PM

[Asbytec:]

On Sep 27 12:05 PM kinky wrote:

> To Asbytec:
> They produce in mass what the world order, we wanted >cheap,why they have to bother with quality. You better direct your >comment to the middle men and why not to Wall Mart? Buying >cheap only cost you more in the long run so it is time for you to >start looking at an not cheap umbrella which I hope you can find
>or you can afford . Why it is when producing counterfeit they are
>excellent?
>Our taking too many vacations while they were sweating >unstoppable to satisfy demand did pay for them. Trade will be >imbalanced as far as is paid with fiat money or credit cards.

Okay, some good points. I have heard it argued, and agree, we...the middle men...have imported cheap goods to 'hide' inflation. This is us doing it to ourselves with their help. Our trade relations is a dissertation in itself covering gluttony, debt, bubbles, you name it.

I live in Asia, not the US. I suspect the products the US (middle men) import are of descent quality, as I remember. I've bought fishing gear from Walmart and got many years of good service from it.

It's apparent umbrellas imported here are not. Here, at least, it's bad. I shudder to by stuff made on mainland China, but often have little choice. Most of the stuff sold here is manufactured there and dumped here. The markets and malls are jammed with such stuff. I'd love to buy a descent umbrella, to find one made in the US.

I have heard, but have not collaborated, there exist different export quality standards for developed nations and emerging nations. It appears to be true.

No doubt they are making great strides as a manufacturing nation, building a middle class, and playing hard ball on free trade. (Korea see's China's trade practices as a model for success.) In fact, we have allowed, no, we've welcomed such a relationship. We are reaping the whirlwind today: a collapsed financial system that is (consumer) debt heavy, severe current account deficits (one of the twin pillars of doom), and (the other pillar) funding our public debt.

This is the part of our current crisis I hope and pray 'corrects' in a big way. We become less debt reliant, both public and private, and we balance our trade more closely. And for China to say, "No," demands a response. This is the root of my tongue-in-cheek comment to make them buy their own umbrellas. Let them get wet when their umbrellas fold up during a microburst.

Sep 28 11:37 PM

[Asbytec:]

Hey, got several useless umbrellas I'll let go for cheap...no, you can just have them. I am sure you won't complain, as you're apparently above such behavior..well, except for bashing yanks.

There is a difference between stating fact and whining. Learn that difference, because the one you attribute to my post is a childish one. It's the way you see the world, though childish eyes. Trust me, it shows.

On Sep 28 01:00 PM coreopsis wrote:

> Whine...sigh...always like to see Yanks doing what they do best...whine
>

Sep 29 12:03 PM

[coreopsis:]

1. Yank bashing is so easy.
2. Yank bashing is so satisfying.
3. Yank bashing is so natural.

Look at the world you've created in the last decade.

It's you who needs to advance from your mindset. It's America that's subscribed to the imperative: "Power comes from the barrel of a gun."

How many people, in their own country, have Americans killed lately?


On Sep 29 12:03 PM Asbytec wrote:

> Hey, got several useless umbrellas I'll let go for cheap...no, you
> can just have them. I am sure you won't complain, as you're apparently
> above such behavior..well, except for bashing yanks.
>
> There is a difference between stating fact and whining. Learn that
> difference, because the one you attribute to my post is a childish
> one. It's the way you see the world, though childish eyes. Trust
> me, it shows.
>
> On Sep 28 01:00 PM coreopsis wrote:

Oct 06 10:00 AM