The Chinese Trade Paradox
When we speak of emerging economies, we don’t include China in the conversation anymore. China is an entity unto itself these days, economically-speaking. But, in terms of the producer-consumer engine that fuels Western economies from within, China seems oblivious to the idea of internal choice for its citizens. The main purpose of their production infrastructure is to export goods and make the country and its leaders wealthy. The main purpose of its import strategy is to keep all the components of production operational with food, fuel and raw materials. It’s a compact cycle that generates a great deal of national wealth. But, it’s not a Disney World Epcot Center existence for its citizens. It’s not even Disney World China.
At one time in history, China was ruled by emperors and the people were responsible for adding wealth to the imperial vault. Later, England, France, Spain, Germany, the Netherlands and the United States all took their ransoms from the Chinese. Now it’s a handful of Western-educated Chinese squeezing Chinese citizens. In each instance, the vast majority of Chinese are restricted in some way — first by social status, then by race, and now, by education. Most inland Chinese citizens are equivalent to hillbillies in their isolation. The few that rise up without the benefit of some level of Western education are like the Beverly Hillbillies. They bought the building, but they can’t operate the elevators. They learn to like our wine, at any rate. If this represents the vast majority of the Chinese consumer market, what products could we possibly sell to them, other than food, grape and grain?
If we consider nothing else when looking at the trade imbalance between the Chinese and everybody else (rather than just the United States), we must think in terms of cargo value. Global trade is dictated by seaborne container capacity. The value per square foot of goods exported by China (televisions, phones, computers, furniture, etc.) is much higher than the equivalent volume of goods imported into the country, such as soybeans, pork and iron ore. Yes, wealthy Chinese buy expensive jewelry and cars from Western sources, but they generally buy those when traveling to the source. They do so for their own reasons, mostly to hide their extravagances from the government. You won’t see too many Ferraris unloading from the port in Shanghai. You will see mostly low-value commodities which take up a lot of container space.
Now, think of the container ship itself. Many ships stop at several ports, but for the purpose of discussion, let’s just create a shuttle between Shanghai and the Port of Los Angeles. The shuttle consists of two ships, each moving to and fro with full cargoes. It’s not as if the United States is sending five loads of corn for every load of Chinese washing machines and solar panels — it’s one load per trip, coming and going. It becomes immediately obvious the trade imbalance is unavoidable under present circumstances. Does the United States produce high-tech products to help lessen the imbalance somewhat? Sure, but the Chinese government doesn’t want its citizens to possess such items, and even if it did, our government would be reluctant to allow their export, fearing reverse engineering by the Chinese. The guidance system in a for-export Boeing 777 is not the same as the systems installed in U.S. airliners. As for automobiles, much of the driving in modern cars is done via onboard computers. How much of that technology will make it onto the container ship? Certainly not all of it. And why would a Chinese consumer want to pay a premium for the technological equivalent of half a car?
The true cause of the current imbalance in trade dollars is corporate greed. At one time, the United States produced televisions and washing machines for its consumer market and for export. Not anymore. Pesky employees, often along with their pesky unions, were carving into profits. Better to move production offshore where the labor was better behaved and downright grateful. There are other instances where big ticket items, such as in an airliner contract, include a reciprocal agreement allowing some portion of production to take place within China. Such agreements not only reduce the export value of the final product; they also reduce the number of American jobs. The bottom line truth to all of this is that the U.S. — China trade imbalance will continue, no matter what anybody says. There aren’t enough soybeans in the universe to change that reality.
