Stop Blaming China (Alone) For US Trade Deficit Problem

Bloomberg reported the following today: "People's Bank of China Assistant Governor Ma Delun said the market is determining the yuan's exchange rate, rejecting U.S. criticism that the government keeps the currency artificially weak to spur exports. Ma said currency policy wasn't to blame for the U.S. trade deficit. ``Workers' pay in China is 1/33rd of that of a U.S. worker,'' Ma said. ``The U.S. has to accept this global reallocation of industries.'' Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, are sponsoring legislation in Congress that would impose tariffs on imports from China unless the yuan is allowed to appreciate more rapidly. The U.S. government estimates the trade deficit with China widened to $185 billion in the first 11 months of 2005, up 25.4 percent from a year earlier. The yuan's value has risen 0.5 percent against the dollar since a decade-old peg ended in July, compared with a 3.4 percent jump in Korea's won and 4.8 percent advance in Thailand's baht. China's currency failed to jump this month when the central bank reduced its role by allowing 13 commercial banks including Citigroup Inc., HSBC Holdings Plc and ABN Amro Holding NV to act as market makers, who pledge to offer prices for the currency. ``We're not manipulating the yuan,'' Ma said. ``The U.S. trade deficit is not caused by the yuan. It's easy to explain this to an economist, but those who don't know about finance don't understand this. They should go back to university.'' European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Sadakazu Tanigaki have joined Snow in saying China's currency doesn't reflect the fact that the economy is growing faster than any other, adding to manufacturing job losses and trade imbalances in more developed nations. China's trade surplus tripled to a record $102 billion last year, helping to drive economic expansion of more than 9 percent. The nation's foreign-exchange reserves jumped to $818.9 billion at the end of December, the world's second biggest after Japan's. "

One can go to the website of US Census Bureau to get a good look at the trade figures. It will shed more light on the issue. After doing some sums, the US trade deficit from January till October 2005 comes to US$632 billion. Now if we take just the Asian countries alone, the US trade deficit with Asian countries comes to US$278 billion or 44% of total deficit.

(TD=Trade Deficit in US$ billion; %=Percentage of Total TD)

1 China -167 (TD) 26%
2 Japan -69 (TD) 11%
3 Canada -61 (TD) 10%
4 Germany -42 (TD) 7%
5 Mexico -41 (TD) 7%
6 Venezuela -23 (TD) 4%
7 Malaysia -19 (TD) 3%
8 Ireland -17 (TD) 3%
9 Italy -16 (TD) 3%
10 South Korea -13 (TD) 2%

Naturally China is the whipping boy with its 26% share of the US trade deficit. However, how much of China's exports were actually due to American MNCs setting up outsourcing factories in China and then shipping their products back to the US??!! A recent guesstimate by a foreign research house economist has that figure at 60%-70%!!!

China contributes to 26% of trade deficit, but it is the biggest country in the world by population and their average salary is only 1/30 th of the average American (according to Ma above) - so it is only natural that China becomes the outsourcing capital of the world. How to legislate against natural economics laws? Unless the US wishes to force China's average salary to at least double every 3 years, then the deficit should diminish after about 10 years.

China contributes to 26% of trade deficit but how bloody big is that country?? Plus, it is the most populous country too! If you take Canada, Mexico and Germany together - they add up to 24% of US trade deficit, why don't we hear the US senators making much noise over these 3 countries??? Even if we leave out Germany, just Canada and Mexico alone accounts for 17% of US trade deficit - thats really huge considering their overall population and size of both countries when compared to China.

Another reason why the rest of the world hates US of A!!!