August 24, 2007

Chinese Trade Deficit

It's interesting that the multiple recalls of Chinese manufactured products have created such a frenzy in the U.S., and rightly so. Two-thirds of the products recalled in the United States so far this year were manufactured in China, according to analysis by The Washington Times.

Of the 234 items recalled by the U.S. Consumer Product Safety Commission (CPSC) this year, 154 were manufactured in China, 43 were manufactured in the United States and 37 were manufactured elsewhere in the world. Recalled products run the gamut from children's jewelry, car seats and toys to gas grills, furniture and all-terrain vehicles.

The number of Chinese-made product recalls in the United States has doubled in the past five years, according to the nonprofit Consumers Union, which publishes Consumer Reports magazine. Chinese products accounted for 60 percent of the total recalls in the U.S. last year, which numbered 467 — a record.

But there is another problem with China, one that threatens the very foundation of this country. The United States and China share the most imbalanced bilateral trade relationship in the world. The United States imports more goods from China than it exports to a tune of $202 billion dollars each year. All told, China alone accounts for nearly 26% of the United States' $725.8 billion trade deficit.

Some in Congress have gone as far as to say that the US is "destroying its industrial base to support a communist country's industrialization."

It does not take an economist to see that a $725.8 billion trade deficit is unsustainable.

The status quo leaves open the very real and immediate danger of several economic catastrophe scenarios, including the fact that the trade imbalance with China places the United States in a potentially dangerous security situation. The outflow of U.S. dollars to China has enabled the Chinese to buy more and more government securities. This has given China tremendous leverage over the United States, since a quick sell-off of these securities would send interest rates spiraling up.

Some industry analysts believe that deindustrialization represents simply another phase of economic development. What the United States loses in manufacturing jobs, it gains in service and technology-driven jobs. That's hard to believe when we make our calls to AOL, Citibank or many other "service" business only to have an operator from India answer the call.

One thing is certain, when two of the world's most powerful economies are walking such a tight rope, every economy in the world shares a stake in the outcome.


William Wallace said...

Doesn't suprise me that 2/3 of american recalls were from China, because a large majority of the world's goods are produced in China.

Anonymous said...

Won't This Give China an advantage economically in negotiations on an array of subjects with the United States.