Learning to Love China's Trade Imbalance

There is a good article by Bill Mauldin at the Wall Street Journal that attempt to look at the trade deficit with China in different ways, most of them indicating what a terrible time we will have if we try to correct it.  That part is a farce, since the imbalance is largely caused by China's policies and not those of the U.S.  But, I never got to the end of the piece because something was nagging at me in the first section on the types of major exports going to China.  It seems our computation of trade counts Chinese visitors to the United States at an export to China.  Try to get your brain around that for just a moment and you will find it makes no sense.

Chinese visitors come to the U.S and spend money in hotels and high-end malls, both of which we have in our area.  One of our neighbors was hired in a jewelry store because she spoke Mandarin fluently.  At the Rolex counter in our favorite store a man was buying a $16,000 watch for his son.  When we went over to Tumi, two Chinese women walked in in their Channel accessorized outfits, glanced around for a minute, and walked out.  It looked like the store was too busy to suit them.  I get that they are rich and can afford to be in these stores, but I don't get why that counts as an export.  Ridiculous.  All this says is the trade imbalance is a lot bigger than the numbers we see.

Yes, we are going to have a lot of trouble bringing that imbalance down.  The labor rates in China are still low, even though they are rising.  Rising is a relative term in this case and businesses find it advantageous to do their manufacturing there.  That isn't going to change until we get some reciprocity with policies.  That is going to hurt some businesses and they whine.  They are not considering the national security impact of this kind of imbalance.  It is leverage, and the Chinese have used it well.

It isn't going to happen in a day.  Clarifying how much of our trade with China is being manipulated is a good start.  That is what Mauldin's article is really getting at, without saying it.  If you watch what China did to South Korean industries because of THAAD being brought in by the U.S you see what leverage of this type really is - Economic Warfare.  The strategy is to make businesses squeal and influence policy of governments.  Make veiled threats to other businesses and focus on businesses that are providing support to THAAD in South Korea and you have the essence of that program of influence.  It works, if we let it.

I'm glad our President likes the Chinese Chairman because the world will be safer because of it, but this aspect is not something we can negotiate away without some thought.  China has manipulated every aspect of trade, stolen our technology, built their own industries using our technology and business strategies, and dumped steel and aluminum on world markets - working around sanctions of international groups and the U.S in the process.  They are not like us, especially in business, so don't confuse the trade deficit with a diplomatic tool that can be negotiated like any other treaty.  It isn't.