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The Trade Debacle With China
By Wolf Richter www.testosteronepit.com
The US trade deficit with China through October is $245 billion and will likely hit a record $300 billion for the year. It’s politically convenient to blame China, particularly its yuan policy. But the driver behind the trade deficit is a broad and enduring strategy by US corporations to shift an ever increasing range of economic activities from the US to China. And now a trade war is breaking out.
American companies have heavily invested in China. At first, they shifted basic, dirty, or dangerous jobs to China to benefit from cheap labor and loose regulations. It brought costs down for US consumers. Over the years, the trend spread to other areas of commerce, from auto components to pharmaceutical research. For example, Merck, one of the largest pharmaceutical companies in the world, announced from its headquarters in New Jersey last week that it would invest in a 500,000 sq. ft. facility in Beijing. Purpose: discover and test new drugs. Chinese jobs to be created: 600. The project is part of Merck’s $1.5 billion investment in China. An investment that will contribute to China’s growth at the expense of the US economy.
One of the jobs programs that Congress, the Obama administration, and states have trotted out with fanfare during the stimulus bonanza was green tech, and particularly solar energy. Taxpayers subsidized the sector through a mix of local, state, and federal incentives. On the federal level alone, there were investment tax credits, cash grants, depreciation bonuses, and loan guarantees. At the state level, bankrupt California has been at the forefront of subsidizing the industry.
And yet, much of solar panel manufacturing has drifted off to China. As subsidies worldwide were cut back, prices for solar panels have plummeted below US production costs and have taken down a number of manufacturers. Among the losers: US taxpayers (see the now defunct Solyndra).
The winners are at the other end of the solar industry—to the point where photovoltaic power generation is dreaming about “grid parity” again, the ever elusive concept where unsubsidized solar energy is competitive with fossil fuels. The booming (albeit tiny) industry is expected to reach 1.9GW by year end, double its capacity in 2010.
Of course, driving down the cost of solar panels to make them competitive with other sources of energy was one of the goals of the subsidies. The intent was to harness US cutting-edge technologies. Turns out, it was easier to achieve cost reductions by manufacturing in China.
Now, after years of subsidizing the US solar industry, a somewhat ironic shift in strategy: to protect US manufacturers, the US International Trade Commission jumped into the fray on December 2 with a preliminary determination that Chinese manufacturers received $30 billion in subsidies (DOE estimate) from the Chinese government and dumped solar panels on the US market, thus seriously harming US manufacturers.
Today, China struck back. This time with anti-subsidy and anti-dumping duties on cars and SUVs manufactured in the US (Reuters). China's Commerce Ministry claimed that US automakers benefited from government subsidies—US taxpayers have moaned about this for years—and dumped their vehicles on the Chinese market. Combined, the anti-subsidy and anti-dumping duties would amount to 21.8% for GM, 15% for Chrysler, 21.5% for unidentified US automakers (Ford, Honda, and Toyota?), but only 2% for BMW.
All major automakers have heavily invested in production plants in China, by far the largest auto market in the world. Thus, most of the vehicles they sell in China are made in China. However, certain high-end US-made vehicles would be hit with these duties. It must have been hard for bureaucrats at the Commerce Ministry to find an industry to hit: so far this year, the US exported only $84 billion to China, a drop in the bucket compared to the $330 billion in imports from China.
The trade deficit and the damage it does to the US economy will only get worse as long as US corporations, in their fit of strategic short-termism, continue to invest in China instead of in the US. While it may make sense for each individual company on an investment by investment basis, if all companies adhere to the same strategy, the economic foundation of the US will continue to deteriorate. So, in addressing the trade deficit, politicians should have a chat with their corporate sponsors—instead of solely pointing their collective finger at China, though there certainly are many things to complain about, such as technology transfers, copyright violations, and trademark issues.
International trademark issues can have delicious twists when a Japanese owner of a noodle shop in Taipei takes on a large Taiwanese corporation and.... Wins In Dispute Between Japan and Taiwan.
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Yeah, those terrible socialists with their expensive socialist education of their populace sure messed that one up. LOL
German workers smoke dope too, they just don't have a pansy wannabe police state putting them in jail over it.
So may we assume from your assinine comment that you support the "War on Drugs" while railing about government spending?
Put your money where your mouth is or shut the fuck up.
Yes, GM is a perfect example.
tit for tat, china going to bat
The US has no choice but to run a large trade deficit, because its currency is the world's reserve currency and non-US citizens need dollars too. They need a growing amount of them, in fact, to keep pace with economic growth. Thus America has to run a trade deficit or the world would eventually suffer a shortage of dollars, driving up interest rates and causing deflation. That's probably not a good idea right now.
That trademark dispute seems to have been handled in a sensible way. What are infering it was a poor outcome?
China never did develop into the market that Nixon and Kissinger hinted at. Over the years, promised U. S. exports to the Chinese consumer market never materialized. Now, the joke is on the U. S. After the stories about Asia leading the global recovery, China is looking at a housing market collapse. Goodbye, disposable income. We always warned of the day when prices of Chinese goods started jumping up, at Wal Mart. Here it comes. No production economy can prosper by selling into a declining market, and the U. S. is definitely declining. The Chinese have a simple problem. No jobs, no income.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Like the transnational corporations really give a flying fuck about Joe and Jill Bagodonuts in Podunk USA. If you don't like it, we have a comfy spot for you staffed by KBR hospitality.
Why do you write all of your comments in bold? It's not all that polite.
He's important, he has a blog doncha know.
He has blog AND a large forehead
Trade war breaking out?? Wake up America. China has been at war with us for twenty five years. We lost.
No war. China worked within a broken system.
Do we really want a trade war with the government that makes all the computer chips for our military drones?
Thanks, Clinton-Bush-Obama.
You need to add "Nixon, Carter, Reagan" to your list.
History rythmes. Currency wars, trades wars, then when goods and services stop crossing boarders, troops will. How ironic will it be when China liberates America?
lol!
That would be some surpreme irony.
Surprising move by China, they would risk 300 billion per year for a few bucks a tire? Been reading a lot about the hard landing in China lately. Somehow I doubt a single yuan will be levied against American cars, three bucks a tire is a whole lot different from $10,000 a car. And America holds the trump card, default upon debts to China. These days it is no big deal for debtors to just say "SUE ME." Look at creditors for Greece, hiring Blackrock to see how much they can factor their losses for.
That will teach them to over value their currency.
And America holds the trump card, default upon debts to China.
Yessir!
America defaults and the Chinese simply accept every single brick, every patent, every machine, every building, all of the totality of the Fortune 500 investment in China as fair market exchange for the now worthless US paper.
Those dumb Chinese. They keep pretending to be stupid. Not like us smartypants in the USA.
"America defaults and the Chinese simply accept every single brick, every patent, every machine, every building,... as fair market exchange for the now worthless US paper."
Hmmm...seems like they've been getting a jump on those "fair market exchanges" for quite a while now...
the chinese don't hate the freedom of enterprize like the americans do. the chinese are more loyal to liberty than americans.
http://expose2.wordpress.com
They also don't like muslims, vote them to run the country and then let them destroy their country like drooling idiots in the USA.
Why not change yer moniker to "I Hate Barack O'Muslim"? Then you won't have to comment about it so much. Yer gonna get carpal-tunnel problems, carryin'on so.
Most likely because he knows that Barry is actually Jewish.
Jewish mother, Muslim father.... no wonder Barry's confused...
sarc off
but christian wife and agnostic (who can blame them) children. Now thats truly american.