“Shanghai makes, Trenton takes” — Bentonville too
In 1910 the Trenton, New Jersey, Chamber of Commerce adopted the phrase “Trenton Makes – The World Takes,” to symbolize that small city’s manufacturing prowess in steel, rubber, wire rope, linoleum and ceramics, among other things. The phrase has been memorialized on the Trenton Takes bridge.
China’s now leads the world in the export of many manufactured goods. Many of its high-value compenents are still purchased from abroad, but the country’s labor force and policies have produced a number of cities that are number one in a given industry. WSJ on China’s $1 trillion in exports in 2006, and the imbalances that this export behemoth has created:
China reported that its already-huge trade surplus in goods expanded a further 74% in 2006, underscoring how its imbalance between exports and imports has rapidly turned into one of the country’s biggest economic and political challenges. The trade surplus, equal to a country’s exports minus its imports, hit a record $177.47 billion in 2006, compared with $101.88 billion in 2005, according to figures reported by the official Xinhua news agency Wednesday. China exported nearly a trillion dollars worth of goods for the year — $969.08 billion to be precise – and imported $791.61 billion….
two years of massive surpluses have marked a decisive break from the past: in the previous two decades, China’s trade balance usually ranged from about 1% to 3% of the economy, in terms of gross domestic product, and the annual surplus had never exceeded $44 billion until the sudden surge to over $100 billion in 2005. The trade surplus for 2006 is close to 7% of the forecast GDP for the year, up from 4.5% in 2005. “Those are enormous numbers, and it’s clear that China has a macro imbalance,” said Jonathan Anderson, an economist with UBS AG.
The imbalance matters to China because those trade surpluses are flooding the domestic banking system with new cash. All that new money can lead to many undesirable effects: rising inflation, bubbles in stock and property markets, and unwise investments by corporations. Chinese policymakers are trying to find a way to contain those potential ill effects without harming the broader economy…
China’s trading partners don’t all have the same perspective on the trade imbalance. Even amid its massive overall surplus, China runs a trade deficit with Japan and South Korea, which are the source for many components and capital goods used in local factories. China’s trade with Germany, a major producer of high-end engineering goods, was closely balanced between exports and imports for most of 2006.
You will note that many countries do not have the same level of trade imbalance that the US has with China. There are many reasons for this, of course, but one is probably the single-minded focus of the US’s top retailer, Wal-Mart, on delivering “Always low prices.”
5000 of Wal-Mart’s 6000 suppliers are now in China. Wal-Mart’s purchases from China total about 10% of China’s trade surplus, so Wal-Mart is a small part of the overall picture; however, there appears little doubt that, by providing an unparalleled distribution system for Chinese goods, Wal-Mart has helped fuel that country’s growth, as well as its own amazing success in becoming America’s top employer (more than the auto companies combined).
As a fact of mathematics, America cannot continue to grow its imports at the same pace that has fueled China’s growth to date, but, as we enter 2007, we mark the passing of another year in which these imbalances did not trigger the end of China’s Roaring 20′s.
UPDATE
Given the extensive commercial relationship between Wal-Mart in Arkansas and China, it is perhaps not entirely surprising that President Clinton was featured in so many news stories with so many China connections going back to the 1980′s. We have noted previously that Hillary Clinton served as a director of Wal-Mart as well.