Nofsdad
Joined: 06 Jul 2003
Posts: 7077
Location: Central CA
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Posted: Sun Feb 13, 2005 7:09 am Post subject: From The Economic Policy Institute Trade Picture
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http://www.ilcaonline.org/modules.php?op=modload&name=News&file=article&sid=1777&mode=thread&order=0&thold=0
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| The U.S. Department of Commerce today reported that the merchandise trade deficit reached a record level of $666.2 billion in the 2004, a 21.7% increase since 2003. |
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| The aggregate U.S. trade deficit, which includes both goods and services, was $617.7 billion, a 24% increase over 2003. The real goods and services deficit as a share of U.S. gross domestic product (GDP) increased to an unprecedented 5.8%in the fourth quarter of 2004. Growth in the deficit reflects surging imports and a continued, rapid decline in the competitiveness of U.S. manufacturing industries. The U.S. had a $37 billion trade deficit in advanced technology products (ATPs) in 2004, an increase of 38% since 2003. |
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| Total U.S. imports last year were $1.764 trillion, 54% more than the $1.146 trillion in exports. To keep the trade deficit from widening, the growth rate of exports must exceed the growth rate of imports by 54%. Last year, import growth (16.3%) exceeded export growth (12.3%), and imports expanded by $247 billion, almost twice as much as the increase in exports of $126 billion. If imports continue to grow at a 16% rate, the trade deficit will decline only if exports grow faster than 24.6%. In the absence of a dramatic and sustained slowdown in U.S. growth, exports can grow more than half again as fast as imports only with a substantial reduction in the U.S. dollar. |
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| Asian nations, in particular, engaged in heavy intervention in foreign exchange markets in order to prevent the dollar from falling against their currencies (see the EPI Snapshot Foreign government intervention keeps the value of the dollar artificially high). Despite the decline in the dollar, non-petroleum import prices have only increased 5.9% since February 2002, which has blunted the effects of a weaker dollar on imports. This increase is smaller than the overall domestic price inflation, which has increased 7.0% since February 2002. Thus, imports became even more competitive than domestic goods in this period, despite the fall in the dollar. While there are signs that European exporters are beginning to increase prices, pressures to compete with Asian exporters with little or no exchange rate pressures are also restraining import price increases in many areas. |
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| China’s trade surplus with the United States was $162 billion in 2004, a 30.6% increase since 2003 and the United States' largest bilateral deficit. China has refused to increase the value of its currency, which has expanded the bilateral trade gap. China’s intransigence has encouraged other Asian nations to slow or even prevent increases in their currencies. The U.S. trade deficit with China is now the largest the United States has with any country in the world. China alone was responsible for more than half of the increase in the non-oil trade deficit in 2004. U.S. imports from China are more than five times the value of U.S. exports to China, making this the United States’ most imbalanced trading relationship. The U.S. imports from China were $196.7 billion in 2004 (an increase of 29%), making China the second largest exporter of goods to the United States, behind only Canada’s $256 billion export total. At current rates of growth, China will surpass Canada and become the largest supplier of U.S. imports in 2006. |
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| The U.S. trade deficit poses great risks for the economy. The U.S. must borrow abroad to finance its trade deficits. The recent decline in the dollar indicates that private foreign lenders are less willing to supply new credit. Foreign governments have been forced to step into the gap and finance a growing share of U.S. international debt. A rapid, uncontrolled decline in the dollar could push the U.S. economy into a sharp recession (see the EPI Snapshot, Rapid Current account deficit likely to get worse before it improves). Foreign governments provided 55% of total capital inflows in the first three quarters of 2004, and 81.5% of these inflows were from Asian governments. |
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| Japan and other newly industrializing countries in Asia are expanding trade with low-wage assemblers in China, Mexico, and elsewhere in Latin America to target open U.S. markets through many marketing channels. |
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Nofsdad
Joined: 06 Jul 2003
Posts: 7077
Location: Central CA
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Posted: Sun Feb 13, 2005 7:27 am Post subject: Or to put it more bluntly
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http://www.kvue.com/sharedcontent/business/dimartino2/021105ccdrBizDimartino.9aadd109.html
From the Dallas Morning News:
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| We got good news Thursday on the trade deficit. For one thing, China's portion of the December gap lessened to $14.3 billion, down from the record $16.8 billion in October. The bad news is how bad the news was in all of 2004. China's contribution to the annual trade deficit rose 30 percent to $162 billion, more than the entire trade deficit itself in 1997. It's been a whirlwind relationship, and we could get hurt badly. America eagerly accepts China's gifts of low-cost consumer goods without realizing the hold it has on our economy. |
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| In bond trading pits, traders used to buzz about the key role Japan's bankers and Ministry of Finance played in our Treasury market. Now the People's Bank of China wields the power to keep a lid on U.S. interest rates. |
But what will this period of low interest cost us in the long run?
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Vicious cycle
Speculators are funneling dollars into China in hopes that China will unhook the yuan from the dollar. When the yuan jumps in value, so too will the Chinese assets speculators hold. The more speculator and export dollars that find their way into China, the higher China's demand for U.S. Treasuries as it recycles its dollar holdings. The higher the demand for U.S. bonds, the more their prices rise, and the lower yields fall. |
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Low yields equate to low consumer interest rates, which feed the speculative spirits at work in this country as households rush to extract the next dollar of home equity from their hyperinflated home prices — so they can run out to Wal-Mart and buy more cheap Chinese goods.
This China syndrome "has become a self-reinforcing vicious policy cycle" that's exacerbating the U.S. trade deficit, Mr. Zandi said. |
Gosh, the gentleman says this like it might not be a good thing in anything more than the short view.
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Falling dollar
Alan Greenspan sees the falling dollar as the cure. But it will take much more than a stronger euro or yen to narrow the deficit.
"We don't sense the dollar decline when we buy Gouda or a Ferrari," Mr. Zandi said. "It will only be when the Chinese revalue that we will really feel it."
And when will it happen?
"I believe China will have a freely floating currency by the time the world descends upon Beijing for the Olympics in 2008," Mr. Zandi said.
When the day does arrive, the speculators will pocket their profits and make a hurried exit. Dollar flows into China will ease, China will buy far fewer Treasuries, and U.S. interest rates will finally rise. |
Other analysts feel that China will maintain it's pressure on the dollar until it's pragram to provide jobs for it's vast rural poor population has largely succeeded. In any event, there is no sign they'll lighten up any time soon.
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| Then living within our means will no longer be an option; it will be a forced reality. |
And all these cheap foreign goods that we have come to depend on will suddenly cost as much as if we had maintained our own manufacturing capabilities and standard of living for our working class and many of us won't be able to afford them either.
But the speculators and parasites will have made their bucks. That's the important thing after all
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