Trade Deficit with China Rises Again

According to this morning's press release from the Bureau of Economic Analysis (BEA), in September the overall U.S. trade deficit in goods and services rose to $36.5 billion per month, up from $30.8 billion per month in August. The trade deficit sums the aggregate demand that is escaping our economic tire while our government tries to pump it up through stimulus programs.

The bulk of our rising monthly trade deficit is our goods trade deficit with China which rose to $22.1 billion in September from $20.2 billion in August, after a slight decline the previous month, as shown below:

The continuing leakage of American aggregate demand to China is contributing to the constant decline in US manufacturing employment, as shown below:

Meanwhile, even though the US economy is experiencing occasional GDP blips upward when government spending spikes, the underlying pressure is downward from falling non-residential fixed investment, including manufacturing investment, as shown by the quarterly data below:

China is growing by at least 7% per year through a strategy of subsidizing exports, manipulating exchange rates, maintaining barriers to imports, and stimulating demand for Chinese produced goods only.

Meanwhile, the United States may be failing to recover from the Great Recession because of our failure to patch the trade deficits. If we were to trade our economic advisors for China's economic advisors, we would quickly get out of the recession.

Disclosure: No Positions

Comments

[Dave Wrixon]

"If we were to trade our economic advisors for China's economic advisors, we would quickly get out of the recession."

Well, at least we agree on something!

2009 Nov 13 06:26 PM

[Howard Richman]

Dave Wrixon,

You'd probably enjoy my satire on Geithner giving China economic advice:

seekingalpha.com/artic...

Howard

2009 Nov 13 09:10 PM

[Faisal Humayun]

I think China should have let its currency appreciate a long time back...I hope they do it now...As for U.S. the problem of deficits will remain and will grow larger as long as their policies target consumption...

They need to taeget capital spending and savings...They need to make their exports more competitive...The weak Dollar is surely going to help...But U.S. need to produce...

2009 Nov 13 11:59 PM

[Howard Richman]

Faisal,

You are definitely correct in both of your solutions. In order for the United States economy to start booming again, China has to let the RMB appreciate and the United States needs capital investment.

But you don't seem to see that the two are related. The Chinese government manipulates the RMB-dollar exchange rate in order to insure that China gets capital investment and America doesn't.

Howard


On Nov 13 11:59 PM Faisal Humayun wrote:

> I think China should have let its currency appreciate a long time
> back...I hope they do it now...As for U.S. the problem of deficits
> will remain and will grow larger as long as their policies target
> consumption...
>
> They need to taeget capital spending and savings...They need to make
> their exports more competitive...The weak Dollar is surely going
> to help...But U.S. need to produce...

2009 Nov 14 07:01 AM

[Tom E.]

We need a two tier capital gains tax - a higher rate for overseas investment and a lower one for US investment.

2009 Nov 14 07:30 AM

[Dave Wrixon]

And how exactly is the US going to attract capital with a zero interest rate policy?

We may have a booming stock market but have you seen any IPO's.

This is not a Bull Market, Bull markets have shed loads of IPOs.


On Nov 14 07:01 AM Howard Richman wrote:

> Faisal,
>
> You are definitely correct in both of your solutions. In order for
> the United States economy to start booming again, China has to let
> the RMB appreciate and the United States needs capital investment.
>
>
> But you don't seem to see that the two are related. The Chinese government
> manipulates the RMB-dollar exchange rate in order to insure that
> China gets capital investment and America doesn't.
>
> Howard

2009 Nov 14 09:59 AM

[Dave Wrixon]

I think what you have all missed is that China isn't going to keep lending America money to buy its products. When American banks where putting the Fractional Reserve Banking Credit multiplier to the MONEY that China was providing, it all made perfect sense, but without that multiplier it makes nonsense. China cannot work in this way when American Banks are Zombies. Before all they had to do was to recycle a fraction of the profits to stimulate a rinse and repeat cycle. However, because Credit in the US is broken that makes no sense. For their Mercantilisim to work they need a credit system that is functional. That is not really going to happen in the US of A and to the extent that it does, it doesn't need Chinese help. They may not have yet realized it but they need another economy to stimulate to create the same effect. For now they seem to be pretty much focused on their own but they have already turned the US into Argentiina, so it is time to move onto the next victim. Indeed their are many nations out their that in the short-term at least could make very good use of the financing. However, that gives the Chinese only limited motivation to lend. But if you think, it is going back to business as usual then forget it. The US will probably continue to import Chinese goods because consumers are addicted to them because they are cheaper and of high quality. The Chinese will probably soon learn that there is no real benefit to be derived from lending to America.


On Nov 13 09:10 PM Howard Richman wrote:

> Dave Wrixon,
>
> You'd probably enjoy my satire on Geithner giving China economic
> advice:
>
> seekingalpha.com/artic...
>
>
> Howard

2009 Nov 14 10:14 AM

[Mrudula Shah]

It will be interesting to see if Mr. Richman digs the trade data further and present a relationship for the total imports from China versus U.S. trademarked products manufactured in China and imported to the U.S.A. This relationship will give us a real idea of wealth drain. China-U.S.A trade bashing through simplistic analyses or analyses using partial data should be left to cheap newspaper writers. In appropriate financial analyses, realistic data based analyses only give a true picture and idea about direction of our economy.

2009 Nov 14 09:31 PM

[Gary A]

The plan, led by Larry the moron Summers, was to forget about the middle class here, and just export our way out of this recession. He is a fool. He cannot see that we can't export enough and our consumer is king. If the consumer is dead we have no king and the world is screwed.

Any attempt to divert attention from the above facts by Seeking Alpha pundits or others is simply that, nothing more than a diversion.

Geithner and Paulson stole the money that should have gone to bail out the consumer. If you are going to stimulate the economy you don't steal from the consumer and give the money to banks.

This is my plea to America, do what is right for America by walking away from all your debts so that you can spend a little. dontpaycreditcards.com
If you think Summers has a plan you are wrong. You must, on a personal level, deleverage. And don't wait. Do it now.

2009 Nov 14 10:35 PM

[Howard Richman]

I take back my insults of America's current economic advisors. Obama's statements in Tokyo, calling for balanced trade were fantastic:

www.azstarnet.com/allh...

Howard

2009 Nov 14 11:59 PM

[T.H.Ejaz]

Until we make our manufacturing cost competitive on global stage, we will continue to have such high trade deficit.
Manufacturing cost is not just the direct labor cost, a large portion is made up from materials and labor time wastage due to poorly managed operations and most importantly the Billions of Dollars going into the pockets of Corrupt corporate leadership.

Offshoring is in the interest of Wall Street ( import cheap and make quick buck) but not the main street...working America.
How long the American Consumer will be able to afford even the cheap imports...buying power is rapidly declining with millions unemployed and rest scared of that.

T.H.Ejaz

Jan 28 04:04 PM