America owes $1.2 trillion to the now largest trading nation in the world, with imports and exports for China totaling $3.87 trillion for 2012, barely beating out the United States which had $3.82 trillion in total exports and imports. What is contributing to the massive jump?
For starters China’s economy is, according 2011 statistics, half the size of the United States in terms of GDP, with nearly three times the people. Energy consumption as China becomes more developed has increased exponentially, especially as the biggest car market (like we saw in Country Driving) continues to explode. Not only are parts being manufactured in China for vehicles but as they import raw materials to be assembled into finished products and then re-export them.
Economists to no surprise were skeptical of the data, especially given the large jump (25%) over the previous year’s data. “This trade imbalance is not representative of the amount of goods actually produced in China and exported to the U.S., but this perspective tends to get lost amidst the heated political rhetoric in the U.S,” said Eswar Prasad a Cornell economics professor.
The figures are calculated by customs declarations assembled by the respective General Administrations of Customs for the respective countries.
The news comes amid the Federal Reserve’s release of its U.S. government debt holdings release which shows China’s holdings of US debt at $1,170,100,000,000.
http://cnsnews.com/news/article/fed-s-holdings-us-govt-debt-hit-record-1696691000000-257-under-obama
http://www.bloomberg.com/news/2013-02-09/china-passes-u-s-to-become-the-world-s-biggest-trading-nation.html
Could this possibly result from a gradual shift in the Chinese economic model? As developing nations gradually develop, they often shift towards a more value-added type economy, which mathematically beats out the service-based model pursued by the US. While the US primarily imports goods with the aim of consumption, China imports raw materials and transforms it into consumer goods for export, which may be contributing to their import/export records.
China’s trade – or at least substantial subsets of China’s trade – appear rather different from that of (say) Japan during its high growth era. Sony could turn to domestic suppliers of cases and transistors and wire for its transitor radios, and when it moved to TVs, domestic sources of Braun tubes; makers of the standard men’s dress “$1 white shirt” relied on imports only indirectly, for cotton fiber, which was spun, woven and finished domestically.
But for China electrical devices – computers, smart phones, TVs – account for a large slice of exports, and they rely much more heavily on imported, high-value components. One estimate (now dated) was that only about 2% of an iPhone represented Chinese value added and 3-4% of manufacturing costs. The touchscreen, cell phone chipset, and so on accounted for the majority. So China stands forth as an intermediate stage in a vertical production/value chain. Big exports mean big imports, but not an impact commensurate with trade as seen in earlier developers.
As to China holding US bonds, doesn’t that make them (inter)dependent? If bond prices fall or the value of the dollar depreciates (relative to the yuan), then they lose, big time.