Chapter 29 Produced in China, consumed in the US

Since December 2001, the relationship between China and the United States has become closer.Trade data can reflect a series of changes after China's accession to the World Trade Organization. In 2002, the total trade volume between China and the United States was only nearly 150 billion U.S. dollars; in 2007, this figure had increased to nearly 400 billion U.S. dollars; in 2008, it was even closer to 450 billion U.S. dollars; in the first half of 2009, the global financial system almost collapsed Even under the same circumstances, the total trade volume between China and the United States has only slightly declined. Before 2001, the total trade volume between China and the United States grew steadily, but did not show exponential growth. After 2001, although China's exports to the United States accounted for the majority of the total Sino-US trade, in fact, although the starting point of the United States' exports to China was relatively low, it grew more rapidly. In 2002, the total amount of US exports to China was US$22 billion, and the total imports were US$125 billion; in 2007, the total US exports to China were US$65 billion, and the total imports were US$320 billion; in 2008, the US The total amount of goods exported to China is nearly 90 billion U.S. dollars, and the total amount of goods imported including those from China's Hong Kong region is 350 billion U.S. dollars.In China's total world trade volume, Sino-US trade accounts for nearly 20%. If the trade between the United States and Hong Kong, China is also included, the figure is nearly 30%.Although Hong Kong returned to China in 1997, the import and export trade volume between mainland China and Hong Kong is still calculated separately.

In trade with Japan and Taiwan, China's imports are far greater than exports; in trade with some countries such as Germany, China's imports and exports are flat.China used to need some high-end industrial equipment that it did not produce or was unable to produce, including turbines, generators, high-quality steel, aircraft, locomotives and a series of technical products.As the U.S. economy has shifted from a manufacturing-dominated economy to a service-dominated economy, the U.S. produces fewer goods that China needs, while the U.S. buys more products made in China. These figures can give us a certain understanding of the relationship between China and the United States, but these figures can also mislead us.The data clearly show that China and the United States have become each other's largest and most important trading partners.However, the truth is not what it seems.According to the common understanding, in Sino-US relations, China sells low-priced goods to the United States, because it will cost more to produce the same goods in the United States.But in fact, China is now also the largest market for American companies, a direct result of early efforts by Parkson, Avon and FedEx, among others.China's image as a producer of low-cost goods has taken hold in the United States, while the fact that China is a big consumer has received little attention.However, it is the latter, not the former, that will have a major impact on the future world.

In 2007, while the trade surplus between China and the United States continued to grow, China still maintained a deficit in trade with other countries and regions in the world.China imports more from Europe than it exports; it continues to run deficits with its other major trading partners, including Australia, Japan and South Korea. In 2008, the US’s imports of goods from China accounted for one-third of China’s total exports, making it the largest buyer of Chinese products so far.This seems to support the view of "China produces, US consumes", but the data here is also problematic.

Total merchandise imports and exports are calculated by government agencies and international trade groups based on the volume of merchandise entering or leaving a country's ports.Relevant departments will do everything possible to confirm the origin of the goods and distinguish between the country of origin and the country of shipment.Greek freighters may be loaded with goods, but that doesn't mean there will be more trade between Greece and the US or the rest of the world.In addition, a single product may actually be co-produced by multiple countries, which also poses statistical challenges.For example, a mobile phone assembled in a Chinese factory may have some parts from Singapore, chips from Taiwan, LCD screens from Japan, and plastic casings from Malaysia.Even something as simple as a T-shirt can be multi-national: Cotton grown in the United States is spun into fabric in Chinese mills, cut and made by Chinese garment factories, and shipped back to the United States for printing.The World Trade Organization has attempted to create statistical models to attribute a single product to a country of origin, but this has proven to be simply impossible.

In the statistical process of import and export data, an important fact is ignored: the goods imported by a country from another country may be produced by domestic enterprises in another country.General Electric, for example, assembles products in its factories in China, and when those products arrive at the Port of Long Beach, California, and are shipped to warehouses, they are exempt from being counted as imports from China.However, if those products and their components are produced and assembled in Chinese factories, they will be counted among imports from China when they arrive at the Port of Newark, New Jersey. The classification of "import" to "export" still reflects the characteristics of the international environment in the past: each country is an independent economic unit (at least in theory), and the country has its own internal market, internal production and internal consumption. .In the statistics of national statistics, national borders are like a shiny geographical line separating "us" from "them".

Foreign companies look for sources of goods in the Chinese market, and then ship the goods to other parts of the world for sale. Since the new millennium, most of China's international trade has originated from this, rather than from the initiative of Chinese enterprises based on their insight into the needs of the international market. Produce low-cost similar goods.American companies often import parts rather than finished products. These parts are assembled by American manufacturing plants in China, so that American companies can maintain low-cost operations, not only continue to gain a foothold in the United States, but even expand production.

In addition, it is estimated that more than 50% of China's export commodities are purchased by foreign companies, which is the result of foreign capital investing and building factories in China to produce these products.At the same time, more than half of China's imports are also purchased by these foreign companies.When foreign companies like General Electric, Caterpillar and Archer Daniels Midland Foods set up factories in China, they first import power or industrial equipment from places like Japan, Germany or the United States.The income of factories in China increases the total income of these companies. If these companies are American companies or their stocks are traded in the New York stock market, then the income and profits of their Chinese factories will increase the taxes brought by these companies to the United States or drive the company's stock price. improvement.Although the employment opportunities of American workers may be reduced due to the company's outsourcing behavior, the rise in corporate stock prices will benefit the rich, and it is also conducive to the improvement of workers' pensions.

Some of the products sold by foreign companies in China, whether it is John Deere's combine harvesters, Motorola's mobile phones, or Caterpillar's heavy-duty bulldozers, some of the parts may be manufactured by factories in Mississippi, USA , the steel is produced in South Korea and then assembled at a factory in China's Pearl River Delta.The sales of products by foreign companies in China can directly increase the profits of foreign companies, just as KFC in Shanghai helped Yum! Brands achieve impressive business performance.However, the data of the total volume of imports and exports cannot reflect these contents.Of course, if John Deere's combine harvesters are first exported to Hong Kong, and then sold from Hong Kong to mainland China, then the commercial benefits can be reflected in the import and export data.Because Hong Kong is a transportation hub, where railways, airlines and highways meet and lead to many cities in mainland China, for foreign trade enterprises, the goods are first transported from the place of production to Hong Kong, and then transported back to mainland China. It is more cost-effective economically.However, if this is the case, the same commodity will be counted twice, once it will be counted as an import commodity, and the other time it will be counted as an export commodity, and both times will be counted as Chinese commodities, so there will be duplication statistical phenomenon.

Trade is at the heart of the Sino-US relationship, but commodity trade is only one aspect of it.The exchange of ideas is also an important part of the relationship between China and the United States, and the importance of the exchange of ideas is no less important than that of commodity trade.Trade is also the most sensitive topic in the US and Europe, linked to concerns about job losses, loss of economic security and loss of national economic sovereignty.These concerns arose long before the emergence of the state.Empires throughout history have always attempted to monopolize trade in order to gain strength and power. In the 17th and 18th centuries, European states adopted mercantile policies aimed at preventing other countries from approaching their trade routes.The British government's attempt to restrict the North American colonies from trading with France and Spain was one of the reasons why the people of the North American colonies became more hostile to Britain and led to the outbreak of the American Revolution. In the 19th century, even though the idea of ​​modern free trade had taken root in Britain, the British Empire still enacted laws to protect its trade with India and other colonies, preventing the goods of these colonies from being sent directly without first passing through the British mainland. to other countries.

Trade is linked to national power and sovereignty—an understanding that is intertwined with nationalism and embodied in economic theory.The state of a country's trade is a sign of its rise and fall—trade surpluses are seen as a source of national power, and trade deficits are seen as a sign of trade imbalances.If it is not improved, the international status of the country will be weakened. Since 2001, the trade volume between China and the United States has surged, and the US trade deficit has been interpreted as a dangerous signal.What we hear is a view that is easily misleading: Sino-US relations are mainly "China produces, US consumes", and power is shifting from the West to the East.This view has been widely accepted, and this phenomenon has become widespread.

The above understanding of trade may be wrong, but the change in the balance of power between China and the United States is a fact.Trade is not the cause of the change.Since the 1980s, especially since the signing of the North American Free Trade Agreement in 1993, the trade volume between the United States and Mexico has surged, and low-cost goods produced in Mexico have flooded the US market.This once raised concerns about the competitiveness of American manufacturing, but nothing more.No one thinks that Mexico will overtake the United States or become a competitor of the United States in the global economic system any time soon.While U.S. industry associations are keenly aware of the challenges posed by the influx of low-cost goods from Mexico, such challenges will not lead to the decline of the United States. The devaluation of the Mexican peso in 1994 and the U.S. government's assistance to Mexico were a strong reminder, if such a reminder was needed, that the balance of power between the U.S. and Mexico had not changed due to trade and manufacturing tensions. fundamentally changed. If China's advantage is only the production of low-cost goods, then China can only be another Mexico, but with a larger population.Over the past few decades, including Japan in the 1960s, Taiwan in the 1970s, South Korea in the 1980s, and Eastern European countries in the 1990s, many countries relied on lower labor costs to weaken the manufacturing base of developed countries. .In a world of decreasing trade barriers, the theory of comparative advantage applies, which states that goods will be produced where they are produced most efficiently.Developed countries focus their attention on the negative effects of importing low-cost goods, such as wage pressures and factory closures, but pay little attention to the benefits of these low-cost goods.How can Walmart sell a DVD player for $100 if it's made in the US or Germany? Of course, not all cost savings can be explained by the theory of comparative advantage, and the unemployment of many workers in the United States cannot be attributed to Mexico and China, but the result of the popularization of computer and Internet technology. In 2001, China joined the World Trade Organization; the United States suffered from the "9.11" terrorist attacks and sent troops to Afghanistan, and the U.S. economy continued to decline. These major events all happened in the same year. The economic recession in the United States in 2001 was mainly manifested in the "inventory recession".Previously, various companies, especially telecom companies, increased production of high-tech equipment due to high expectations of strong market demand.Before the arrival of the new millennium, many companies feared that the "Year 2000 Bug" problem would lead to the collapse of the computer operating system and invested a lot of money in the purchase of high-tech equipment. Overstock.Looking back at history, this situation has often appeared.After each round of investment in new technology equipment, companies will reduce their spending on this area. At the end of the 1990s, various enterprises purchased and installed various high-speed network equipment, and they needed time to master how to apply these new technologies and learn how to make the new system function to the extreme. The result of this is a sharp contraction in technology equipment spending by American companies, and the same situation has occurred in Western European countries, but not as severe as the United States.At the same time, the U.S. stock market plummeted, with major stock indexes bottoming out in October 2002.However, to the surprise of many analysts, during this period, the unemployment rate in the United States remained at a relatively low level, and labor productivity increased substantially. Labor productivity can still increase despite the overall economic recession, which is a phenomenon that cannot be explained by traditional economic models and historical experience. In 2002, although the U.S. economy had actually begun to grow, most Americans still felt that the U.S. economy was in decline. In the first three months of 2002, the U.S. economy grew by more than 5%, but the public felt that the U.S. economy was still in recession.There is a growing disconnect between headline U.S. economic data and the American public's perception of the economy.For example, even before the 2008 U.S. stock market crash and the 2008-2009 global recession, Americans had become increasingly restless and pessimistic about economic trends in developed countries.But, for most of recent years, the extent to which American productivity has increased has been staggering. GDP and productivity should rise and fall simultaneously.In the US, however, since 2001, they have often taken a different course.what is the reason?Technology has played a major role in this.Due to the application of information technology and equipment in the wave of "new economy", the productivity of enterprises has been improved.It's easy to understand: if robots can do auto parts production, it means fewer workers are needed in the production process.If a firm's labor productivity is measured in terms of labor output per worker, then when a firm produces more cars with fewer workers, the firm's productivity increases even with fewer workers.The same is true in the field of customer service: with the application of service software that can track customer history and consumption preferences, each customer service representative can handle more customer problems in a shorter period of time, which also leads to Increased productivity. Compared with the changes brought about by the application of new technologies, people pay more attention to the changes brought about by trade changes.One reason is that customer management software is invisible compared to Chinese toy factories.Meanwhile, politicians can win over voters more easily on campaigns by blaming China or Mexico for taking jobs from American workers than by blaming Dell computers or Cisco routers. In October 2002, during a congressional campaign speech in Hickory, North Carolina, people unfurled such signs—"Find a job?" "My job went to Mexico and then to China." .” If the sign had said something like “My job was taken by the Internet,” it might have had a different effect. In 2002, the global economy began to experience a series of inexplicable growth, and official statistics were inconsistent with previous public and academic forecasts.While the economy grew and productivity improved, inflation plummeted.This is also different from the conventional trajectory of historical development.Historically, economic development has almost always been accompanied by a rise in inflation, as firms often cannot produce enough to meet growing market demand.Workers also tend to benefit from economic development, because as the economy develops and the business environment improves, workers' wages also rise accordingly, which of course also increases inflation.However, in 2002, apart from an increase in health insurance, workers' wages did not rise, and the inflation rate fell to about 1.5%.From late 2001 to 2002, the Fed slashed interest rates, bringing the federal funds rate down to 1.25%.However, the global interest rate of the 10-year U.S. treasury bond has basically remained unchanged. Although it once fell below 4%, it basically fluctuates between 4% and 5%, because this interest rate is determined by the market rather than the central bank. decided.In the conventional wisdom, for most of the 20th century, whenever the Fed made a move, market interest rates responded.But in 2002, things were different. In 2002, China's purchase of U.S. Treasury bonds began to affect interest rate fluctuations, but no one noticed this change at the time, and no one connected this change with China's purchase of U.S. Treasury bonds.Over the past 10 years, China has started buying US Treasuries. In 2000, China held less than $100 billion in U.S. Treasury bonds. After 2001, with the growth of China's exports and the great changes in the market, China's foreign exchange reserves grew faster and faster. In 2006, China's foreign exchange reserves were close to US$700 billion, in 2007 it was close to US$1 trillion, and in 2009 it exceeded US$2 trillion.Initially, this trend was not noticed by anyone, including the Chinese, and the impact on global and US interest rates was not considered.Even if someone notices this trend, China is usually seen as just another buyer of US Treasury bonds, and fluctuations in interest rates are usually regarded as normal adjustments and have nothing to do with China.American experts and economists on China also see this way, at least they have not discussed or debated on this issue.American experts on China are not that interested in economics, and economists are not very concerned about China's current affairs, while some Chinese government officials are more concerned about China's domestic economy than the international system. A system whose existence is rarely believed to be assessed. Thus, in 2003, the US economy was a mystery to many analysts.A few years later, in February 2005, Alan Greenspan admitted in a congressional hearing that he himself was baffled by the "interest rate enigma" of why, even when central bank rates fluctuated wildly, Long-term interest rates have remained steady. The mystery has haunted people ever since.People are blaming the cause of the mystery on China's development, the application of science and technology, and the failure of relevant people or organizations to adjust their measurement models and traditional thinking.Statisticians have been so engrossed in the measurement of concrete data that they have overlooked changes in the outside world, often faster than humans can measure and interpret in a given period of time. Keeping one's eyes on the trade field is also a reason for shortsightedness, and it is impossible to fully understand the situation of China's economic transformation by doing so.Many China experts find it hard to believe that China's economic growth in the 1990s and early 2000s could have been so rapid.The GDP growth data on the front page of newspapers can explain China's growth rate. Throughout the 1990s, China's economy grew at an average rate of more than 9%, and most experts failed to predict China's economic development after 2001. have a huge impact on the world.As the Mexican example at the outset suggested, numbers alone don't tell the whole story.In the 1990s, Japan was mired in recession, with banking crises plaguing the world's second-largest economy.However, Japan's retrogression in the global economic system is still much smaller than the extent of Japan's economic contraction. In the late 1980s, when the world began to worry about a Japanese comeback, Japan's recession was already evident, even though Japanese economic statistics at the time were optimistic.Meanwhile, the Cayman Islands, though not globally recognized, has become a major draw for hedge funds.At the turn of the century, trillions of dollars of funding in the Cayman Islands set the tone for developments in mortgage and bond markets around the world.