Archive for September 19th, 2009

Saturday, September 19, 2009

Weekender: The Great Trade Surficit

JR is trying to explain the global economy to himself. It’s a risky undertaking, and full of landmines in unknown locations, because JR is an amateur.
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China’s economy surged at an annualized rate of 14.9 percent in the second quarter. The United States economy shrank at an annual rate of 1 percent in that period, writes Keith Bradsher, New York Times, quoting the Chinese Central Bank and other sources.

“So often China and the U.S. are mixed together as being in the same situation, and that is totally wrong”, Bradsher quotes Xu Xiaonian, an economist in Beijing with the China Europe International Business School. Sure – it should go without saying that a creditor is in a different situation than his debtor. But they are still linked to each other. Which is exactly why they haven’t addressed their respective problems (or their common problem) yet: American trade data shows that imports from China only eroded 14.2 percent in the first seven months of this year while imports from the rest of the world plunged 32.6 percent. So the party is still going on, even if quieter than before.

not fun anymore

not fun anymore

The continuing American trade deficit make perfect sense for the time being. After all, you can’t revive the American economy with stimulus packages, and curb on demand at the same time – hampering cheap imports would do exactly that. The continuing imports from China keep prices in America at an affordable level, especially for earners with low incomes.

And still, what economists have kept telling us over the past two decades is as true as it always was: it can’t go on.

At the official exchange rate, China’s GDP is $4.4 trillion (2008 estimate). It’s exports were at 1.4 trillion that same year. (It seems to me that it takes the GDP at the official exchange rate to rate the real significance of the export numbers, rather than the GDP at purchasing power parity (ppp). GDP at ppp would be $7.97 trillion.)

based on CIA World Factbook Numbers

based on CIA World Factbook numbers (2008)

Germany is facing similar difficulties as China is in its foreign trade, although it’s  nobody’s creditor to the extent China is. It’s official-exchange-rate GDP is $3.67 trillion (2008). It’s exports in 2008 were estimated at 1.49 trillion.

The tariffs on tires aren’t just a reaction to what American labor unions (and companies) see as unfair Chinese subsidies on their own products, believes Michael Pettis *). Collapsing trade deficits (that of the U.S., for example) can only lead to collapsing trade surpluses (China’s, for example). America can’t pay for Chinese excess manufacturing capacity any more.

Nor can it continue to pay for excess capacities from other countries.

That will have an impact on employment in both China and Germany. Neither country is even close to full employment anyway. In Germany, unemployment was at 7.8%. In China, it may be at 4% officially, but including migration workers, it may be as much as 9%. It’s interesting that countries which are running trade deficits may be closer to full employment, than countries running surpluses. This suggests that while a focus on exports can create wealth for a while, it isn’t the ultimate answer to structural problems of China’s or Germany’s labor markets. It wasn’t the answer before the international financial crisis started, and now, it’s becoming unsustainable.

There was reason enough to address such structural problems even before the international financial crisis struck. Now, the task has become inescapable.

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*) “China’s retail sales growth figures are not consumption growth figures”, September 14, 2009. There is currently no permalink function on the China Financial Markets blog – please scroll down to it there.

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Related: Politics and Science, August 15, 2009

Saturday, September 19, 2009

Convenient Arrest Warrants

Dolkun Isa, secretary general of the World Uyghur Congress, was denied entry into South Korea on Tuesday, and arrested on the airport, by reason of an Interpol warrant. The WUC reported his release and his return to Germany yesterday. The Society for Threatened Peoples (Gesellschaft für bedrohte Völker, GfbV) believes that the warrant was implemented by Beijing to silence one of the most important Uyghur human rights activists in exile, GfbV Asia consultant Ulrich Delius said. “Once again China is using its long arm to intimidate Uyghur critics abroad.”

Dolkun Isa is a German citizen. The GfbV points out that having an international arrest warrant issued is usually easy, as he legality of the respective national warrants issued in the prosecuting state is not as a rule subject to scrutiny. The Chinese government suggests that the World Uyghur Congress is “a terrorist organization”.

In 2005, Isa was arrested by the UN security service, apparently on the basis of Chinese security information when he visited the Human Rights Commission in Geneva.  According to GfbV, the UN later apologized for the incident.

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Related: Authorities should not have denied him entry, Amnesty International, September 18, 2009

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