China has a trade deficit with Asia
Dr. Marc Faber Chairman of Faber Limited speaking to Mike Maloney about the chinese trade deficit with the rest of Asia , The dollar and of course Gold and Silver ....: ...what is happening is because the productivity in China has increased so much in the last couple of years they have become very competitive and so they have a growing trade surplus with the United States at the same time what has happened is if you look at the exports from Asia to the US then before in the seventies when China was still a communist country the big growth engines in Asia were Japan Taiwan and South Korea to some extent Honk Kong and Singapore these countries used to export to the US , now a lot of these countries are exporting components to China they are then processed in China and shipped to the United States , so whereas China has a growing trade and current account surplus with the US they have a growing trade deficit with the rest of Asia and of course because of the huge appetite for the raw materiel they have a trade deficit also with OPEC but you have to give the Chinese credit whereas the US has a trade deficit with OPEC over a hundred billion dollars the Chinese have a trade deficit with OPEC of only a 4 billion dollars because they're very good at selling goods to countries that supply them with raw materiel ....
The United States has not had a current account surplus since 1975. We have not had a trade surplus with Japan since April, 1976. We have been in deficit with the EU since 1983. We have run trade deficits with both Russia and China for more than 20 years. How did America go from being the largest creditor nation in 1975 to the largest debtor nation by the end of the 1980's? To understand what has happened one must go back in time. Prior to 1860 much of the Western World practiced Mercantilism. After 1860, led by Great Britain, Mercantilism was abandoned in favor of the teachings of John Locke and the free trade principles of Adam Smith. Trade barriers throughout Europe came down. A great debate on economic policy took place in America. Lincoln for instance was a Mercantilist. For the next 110 years the Western World basically traded with itself. Good flowed across the Atlantic and trade disputes if they arose were generally settled quickly. By 1970 the world was changing. The post world war II era produced the eventual rise of Japan as an economic machine. Goods started to flow from Japan to the United States and to Europe. The problem was that goods were only flowing one way. America for instance was banned by Japan from selling rice or apples to Japanese consumers. While disputes like this in many industries were festering, Japan was quietly becoming a world power in automobile and electronics manufacturing. Auto's and electronics were exported out of Japan at an ever faster clip. By 1977 Japan was running steady trade surpluses with the United States and American politicians were raising alarms that Japan was simply practicing protectionism. What Japan was really doing is practicing a new form of Mercantilism which I have pegged, "Asian Mercantilism." Japan was more concerned with full employment in Japan than the loud voices of western politicians. By the late 1980's the United States and Europe were both running huge trade deficits with Japan. After 15 years of trade deficits America had found herself in the position of having gone from being the world's biggest creditor nation to being a debtor nation. The rise of China over the past 20 years has given the world another Japan but this time on steroids. If Japan practices Mercantilism then China practices Supra Mercantilism: Goods are exported, imports are controlled. The currency is massively controlled, not free floating. Production is favored over consumption. With a population of 1.5 billion China has been able to give Mercantilism a whole new dynamic. What we have in the world today are two competing economic models for prosperity. We have the Western model with relies on the system of Free Trade and we have the Asian system with relies on a super sized form of Mercantilism. We have the West running trade deficits and the Asians running trade surpluses. China, Japan, and South Korea are the producers of goods while Europe and America are the consumers. Who is winning the battle between Western Free Trade and Asian Mercantilism? Asia is clearly the winner. The question going forward needs to be how we reverse a trend that is leaving America and much of the western World indebted and economically broken. What the West now calls protectionism, the Asians call Mercantilism.
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