Trade War with China

So much for tariff will remedy trade imbalance

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China's record trade surplus with U.S. adds fuel to trade war fire

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BEIJING (Reuters) - China’s trade surplus with the United States widened to a record in August even as the country’s export growth slowed slightly, an outcome that could push President Donald Trump to turn up the heat on Beijing in their cantankerous trade dispute.

Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017. REUTERS/Aly Song
The politically sensitive surplus hit $31.05 billion in August, up from $28.09 billion in July, customs data showed on Saturday, surpassing the previous record set in June.

Over the first eight months of the year, China’s surplus with its largest export market has risen nearly 15 percent, adding to tensions in the trade relationship between the world’s two largest economies.

China’s annual export growth in August moderated slightly to 9.8 percent, the data showed, the weakest rate since March but only slightly below recent trends.

The number missed analysts’ forecasts that shipments from the world’s largest exporter would rise 10.1 percent, slowing only slightly from 12.2 percent in July.


Even with U.S. tariffs targeting $50 billion of Chinese exports in effect for their first full month in August, China’s exports to the United States still accelerated, growing 13.2 percent from a year earlier from 11.2 percent in July.

“There is still an impact from front-loading of exports, but the main reason (for still-solid export growth) is strong growth in the U.S. economy,” said Zhang Yi, an economist at Zhonghai Shengrong Capital Management.

Zhang said the impact from U.S. tariffs on China’s exports would likely be limited over the next few months.

China’s imports from the United States grew only 2.7 percent in August, a slowdown from 11.1 percent in July.

The world’s largest trading nation got off to a strong start this year, but its economic outlook is being clouded by the rapidly escalating U.S. trade dispute and cooling domestic demand.

Trump upped the ante on Friday, warning he was ready to slap tariffs on nearly all Chinese imports to the United States, threatening duties on another $267 billion of goods on top of $200 billion in imports primed for levies in coming days.


Washington has long criticized China’s huge trade surplus with the United States and has demanded Beijing reduce it. Still, disagreements between the two major economic powers run deeper than just the trade balance and tensions remain over limits on U.S. firms’ access to Chinese markets, intellectual property protection, technology transfers and investment.

Imports, a key gauge of the strength of China’s domestic demand, grew 20 percent, beating forecasts. Analysts had expected growth of 18.7 percent, slowing from July’s surprisingly high 27.3 percent.

That resulted in China posting a smaller overall trade surplus of $27.91 billion for the month. Analysts had expected the surplus would rise to $31.79 billion from $28.05 billion in July.

The surplus with the United States was larger than China’s net surplus for the month, indicating China would be running a deficit if trade with the world’s largest economy was excluded.

EXPORTS HOLDING UP
While no one predicted a sudden, sharp blow from U.S. tariffs, China’s official export data has been surprisingly resilient so far, with growth exceeding analysts’ expectations for five months in a row.

vincent said:

I call the productivity argument pure BS. Are you telling me a burger flipper in NY is 7 times more productive than the one in Sichuan?
Why do the Roman built so much roads? Other than military benefits, the roads enabled the flow of people and goods, benefited the economies greatly. Without good infrastructures, apples grown in Xinjiang will not be available in the east coast

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Actually, one of the less known effects of economics, people doing exactly the same things are more productive in an area where everyone is more productive. Let's take the case of a barber, using the exact same equipment and cutting the same number of hairs per day. This guy would earn a lot more in NYC than in Sichuan. This is due to the opportunity costs. This guy, with his talent, could do something else for the going labor rate in NYC. In this case, the higher productivity of the area around him makes him more productive even if he was doing exactly the same thing.

Road building helped the Chinese a great deal, at least in the beginning. At this point, we have long reached the diminishing rate of return. borrowing ever larger share of a growing economy for more road building will lead to waste.

They're upset that Chinese exports increased when the US is making 25% tariff (tax) like mobsters getting their cut? Wasn't tariffs suppose to level the playing field? Yes I know it could mean a lot of other things like those exports aren't under tariffs yet. But then Trump was suppose to slap tariffs on $200 billion worth of Chinese goods by now after public review was over on Friday. Instead he's upped the ante calling all-in on every export from China. China not blinking on $200 billion? That just shows how it's the US who's the one that has been running out of Chinese exports to tariff as opposed to what the Trump pundits are saying that China has ran out of exports from the US to tariff because it's all American corporations outsourcing their products to China to be made from now on.

The only way they can stop China is to get the entire world to go along with their plans. That's means many would have to sacrifice not having China as the number one customer for their goods so that a Trump led world will reign and have all the power. In the world of Trump who attacks allies, how many takers will so easily be fooled to follow? Everyone else that supposedly has made a deal with Trump couldn't do it without the China card. The Trump pundits are now claiming these deals are all about getting the world to contain and bully China into their will. And what happens after that? Everyone else just lost their China card they used to play against Trump and now Trump can economically extort them aiming to get everything he wanted from allies before they resisted Trump's attack all including allies in his initial plan. No one stepped-up to the US's bidding to take on North Korea with a few nukes, not even the US, yet they somehow think everyone will blindly follow Trump into even war against China?

reservior dogs said:

Actually, one of the less known effects of economics, people doing exactly the same things are more productive in an area where everyone is more productive. Let's take the case of a barber, using the exact same equipment and cutting the same number of hairs per day. This guy would earn a lot more in NYC than in Sichuan. This is due to the opportunity costs. This guy, with his talent, could do something else for the going labor rate in NYC. In this case, the higher productivity of the area around him makes him more productive even if he was doing exactly the same thing.

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Except that’s not extra productively, but inflation. It is why most economists agree that a pure dollar comparison is significantly flawed, and why many prefer Purchase Price Parity.

Road building helped the Chinese a great deal, at least in the beginning. At this point, we have long reached the diminishing rate of return. borrowing ever larger share of a growing economy for more road building will lead to waste.

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In the eastern seaboard maybe, but China still has massive hinterlands in the western provenances desperately in need to investment.

China is also exporting its infrastructure work with the belt and road initiative.

But there is also a massive conceptual flaw with trying to treat infrastructure as a pure commercial economic good, when it is clearly not.

Western economists have tended to obsess with trying to capture the positive externalities of infrastructure as a means of trying to privatise the whole affair. But that has always led to massive inflation, delays and a persistent and chronic under supply of infrastructure. Just look at America’s increasingly notoriously worsening infrastructure and Britian’s, since they are where the free market is god dogma is most believed and adhered to.

Investment in infrastructure is not worthwhile on pure direct return grounds, but because that investment will yield economic growth in the longer term.

Building a road earns little to no income, but the time you are saving the locals in getting their produce to market does add productivity and reduce waste. With the local economy growing form more income, that creates a market for goods and services (which again can reach the local market much quicker and cheaper than before the road was there) which in term generates economic growth.

That process can take years or decades, because China is proactively expanding its infrastructure, with future growth already factor in to the design.

That is a fundamentally different approach to western infrastructure projects, which tend to only be built when the existing infrastructure becomes so run down and/or oversubscribed that it is becoming a safety hazard and/or a bottleneck for the wider economy.

Add in the ridiculously long planning, approval and construction times, western infrastructure projects tend to almost always prove inadequate to meet the demand as soon as it is finally built.

As always, the west always assumes their ways are the only ‘correct’ ways, and things infrastructure should be filled to capacity as soon as it opens. Hence all the stories about ‘ghost cities’ and ‘inefficiency’.

Funny how there are never any follow up stories on these ‘ghost cities’. Perhaps it has sometime to do with the inconsistent fact that such cities don’t stay as ghost cities for long, and are now bustling metropolises in their own rights.

Same thing with roads and airports. When I first flew into Beijing’s fancy new airport in 2008, it did indeed look deserted, but when I was back this year, there were massive ques at every turn, and already a new airport expansion is planned.

As the saying goes, build it and they will come. Building new infrastructure is seldom a waste in the long run. It only looks ‘inefficient’ because it is extremely hard to accurately and reliably quantify the positive externalities of infrastructure provision.

That is a limitation and flaw with existing economic models, not with infrastructure building itself.

Highly recommended read.

Trump's Trade War is fine with Xi Jing Ping. China is far from desperate from reaching a deal.

plawolf said:

Except that’s not extra productively, but inflation. It is why most economists agree that a pure dollar comparison is significantly flawed, and why many prefer Purchase Price Parity.

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A barber in NYC 1700 may charge only a nickle or less for a haircut. His counterpart today will charge $20 to $30, so you would chalk all of this up to inflation, since they do the same work. Except for the fact that the Barber in 1700 lived in a tiny flat that is crowed and dirty. No electricity, no gas heating, He has barely enough calories. A McDonald with milkshake would be a sumptuous meal back in the day. Let alone a washing machine, iphone, cars, flying on an airplane. So these two people produce identical goods, but by all objective measure, the NYC barber in 2018 lives in hog heaven compared to his 1700 counterpart. The one in Sichuan lives somewhere in between. There is real productivity growth for doing exactly the same thing in different environments.

Of course investing in infrastructure is about the impact it has on the productivity it creates and not about the toll it generates. Normally, a country start off poor, devote large share of GDP to infrastructure, then as GDP grows and infrastructure is built out, the share devoted to this goes down. There is something wrong with the picture if, after you built out most of the infrastructure in an area where 70% of your population live, you are borrowing an ever larger share of a now very large and growing economy to do more infrastructure. If anything, there is more reason to go to debt in the beginning of this process, not towards the end. Even if you account for long term future impacts, it is possible to have wasteful spending on infrastructure.

The BRI, until it connects to Western Europe, is about strategic positioning. The countries along the way simply do not have the ingredients like rule of law, entrepreneurship etc. to make good use of the infrastructures created, so this is a form of expenditure, not investment.

reservior dogs said:

Road building helped the Chinese a great deal, at least in the beginning. At this point, we have long reached the diminishing rate of return. borrowing ever larger share of a growing economy for more road building will lead to waste.

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How do you know it has reached the point of diminishing returns? Do you have any studies that show this, or are you just imagining it?

FYI, there are still a lot of areas for HSR to cover. China has 65 cities with a population over 1 million, and 360 cities with a population between 100k and 1 million.

canniBUS said:

Nyet tovarisch. Inflation happens if there is more money than real output in the economy. If your money printing actually increases productivity then it's not a problem. Also, you forgot about taxation. The state can tax back the money it's printed to prevent the supply of money from growing too large. This is the correct usage of taxation that sovereign states should practice. Go read up on modern monetary theory.

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ROFL, you said the state doesn't need taxation and can just print money, and now you're saying it needs taxation to fix problems caused by printing money?? LMAO!!!

solarz said:

How do you know it has reached the point of diminishing returns? Do you have any studies that show this, or are you just imagining it?

FYI, there are still a lot of areas for HSR to cover. China has 65 cities with a population over 1 million, and 360 cities with a population between 100k and 1 million.

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Since 2008, when massive spending propped up the Chinese economy, the debt incurred as a percentage of GDP is going steadily up while the growth of GDP is slowing down. This means the debt fueled spending have less and less impact on GDP growth.

In the U.S, infrastructure is better in both coasts where people actually live, because that is where a return on investment (in the form of productivity gain of the region) is possible. The same logic applies to China. Western China is significantly less densely populated and so the return on investment is lower. The fact that the Rockies has fewer roads per square mile compared to Los Angeles is not a reason to add more roads to the Rockies.

reservior dogs said:

Since 2008, when massive spending propped up the Chinese economy, the debt incurred as a percentage of GDP is going steadily up while the growth of GDP is slowing down. This means the debt fueled spending have less and less impact on GDP growth.

In the U.S, infrastructure is better in both coasts where people actually live, because that is where a return on investment (in the form of productivity gain of the region) is possible. The same logic applies to China. Western China is significantly less densely populated and so the return on investment is lower. The fact that the Rockies has fewer roads per square mile compared to Los Angeles is not a reason to add more roads to the Rockies.

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By any measure the US is more indebted than China furthermore, it also has a lower growth rate, runs a massive budget deficit and literally exports debt! It spends hundreds of billions on its military which has next to no ROI (the continental US would be just as safe with less than half the spend) but its so called Chinese debt fueled infrastructure spending and how its economy is going to implode we are talking about, using barbers and roads as examples, seriously!