Trade Imbalance: US and China

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CulturedQuant

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What could happen if the the trade imbalance continues? What will be its effect on both countries and to the word?

Should US be concerned about it's mounting deficit?

What's the negative side of having excessive foreign reserves of China?
 
I'm not at all concerned about our mountain deficit with China. Sure, China has some very beautiful mountains, but they are not anywhere near where most people in China live. In fact, many of these mountains have never even been climbed. There is no question that the Himalays are very beautiful and significantly larger than any we have in the US, but almost no Chinese ever get to see them.

Americans use our mountains. You can ski in them and they are close to major population centers. You can climb Whitney, for example, on a long weekend with a plane ticket to Vegas and a rental car (it's a serious power weekend). How many Chinese can do something like that?

Also, our mountains in Alaska are remote but every bit as beautiful as those in Tibet. I think that our mountain deficit with China is just a new millenium version of the missile gap - not really true and totally unimportant even if it was true.
 
I think I posted this thought before, but ...

If the US got into a war with China (say over reintegration of Taiwan), would it still make principal and interest payments to China on that mountain of treasury bonds they are sitting on? If it suspended payments, what would that do to the "full faith and credit" clause?
 
bchadwick Wrote:
-------------------------------------------------------
> I think I posted this thought before, but ...
>
> If the US got into a war with China (say over
> reintegration of Taiwan), would it still make
> principal and interest payments to China on that
> mountain of treasury bonds they are sitting on?
> If it suspended payments, what would that do to
> the "full faith and credit" clause?


That mountain of treasury bonds (is that the mountain deficit being talked about? I dont know anyone who owns Chinese govt bonds) works completely to the Chinese advantage in a war, not the other way around. We can't stop the Chinese from selling them and the Chinese dumping all those bonds on the market would slaughter the dollar and not allow the the US to finance the current account deficit or the govt to finance a budget deficit made much worse by a gigantic war. If you're going to go to war with someone it would be better not to give them the level of financial leverage that we have given the Chinese.

I saw a shirt the other day that said "I'm already against the next war". I'm there, too.
 
Good point, Joey, I hadn't thought about the idea that the Chinese could just sell the bonds, finance their war effort and reduce our ability to finance ours. I'm sure this point is not lost on the military establishment (in China).
 
i'm sure not, but the Chinese are doing just fine without starting wars over Taiwan. Reunification will happen eventually and the Chinese have always had plenty of time.
 
True, I agree that war over Taiwan is unlikely UNLESS Taiwan makes some kind of formal independence declaration. This latter scenario is definitely possible, though maybe not likely.

Then the US has to decide whether it's security guarantee for Taiwan is going to be honored or not. If it is honored, then the US must go to war with China. If not, then other countries (Japan, Pakistan, etc.) will have to wonder about the value of US security promises, and that will critically influence our strategic position in the war against Al Qaida. Possibly there is some middle way or political solution that would allow the US to look like it is honoring its guarantee without actually firing shots, but I don't know what that would be, other than a political summit called at the beginning of the conflict.

For China, I think their position allows them to grow confidently, knowing that they have an extremely powerful weapon they can direct against the current superpower, and which is usable even without a military conflict, and does not even violate WTO rules in a trade conflict (though maybe there is a "dumping" provision of the WTO that could be twisted around in a scenario like this).



Edited 3 time(s). Last edit at Saturday, June 30, 2007 at 11:18AM by bchadwick.
 
In nasty situations why wouldn't the Federal Reserve Bank just un-manipulate (buy) whatever market manipulation the Chinese attempt?

I've thought about it and I'm not clear on exactly who has got the better position ... China or the U.S.?
 
bchadwick Wrote:
-------------------------------------------------------
> True, I agree that war over Taiwan is unlikely
> UNLESS Taiwan makes some kind of formal
> independence declaration. This latter scenario is
> definitely possible, though maybe not likely.
>
> Then the US has to decide whether it's security
> guarantee for Taiwan is going to be honored or
> not. If it is honored, then the US must go to war
> with China. If not, then other countries (Japan,
> Pakistan, etc.) will have to wonder about the
> value of US security promises, and that will
> critically influence our strategic position in the
> war against Al Qaida.


The US govt has made security 'promises' to Pakistan?. News to me. Promise to Musharaf maybe, but not to Pakistan. The moment Mush is out of power, Pakistan most probably will be dropped like a hot potato. -has happened too many times in the past to believe that this time it will be different.
 
True, we have not made an overt security guarantee to Pakistan or Musharaf, but if we do renege on countries that have overt security agreements with us, then anyone that has a less-than-overt agreement is going to start to worrying about our how credit-worthy our word is, and that tilts the playing field in Al Qaida's direction.
 
some interesting points here by a CFA charterholder (not that being one bestows claim to have any superior political insight)

http://www.financialsense.com/editorials/au/2006/0509.html.

if there is a war,the most probable gainer will be gold -maybe it hits 3000 maybe more.and how could china be able to sell those bonds anyway -who would buy them?huge liquidity crisis assured.



Edited 1 time(s). Last edit at Saturday, June 30, 2007 at 03:00PM by Dsylexic.
 
As a war hawk and right-wing, fundamentalist Republican, I can say emphatically that I would NOT support war with China in order to protect Taiwan. I think war is often times necessary, but sacrificing tens of thousands of American lives and potentially millions of American lives as well as temporarily destroying the American economy for TAI-freakin'-WAN is unimagineable. I can't possibly think of the benefit to America of such a move.
 
A bit of history: Taiwan traditionally is a rich seafood producer. Its other main markets are technology and services industries. Theres nothing the US could want, besides, it has all the oil it needs in Alaska or Texas, Bush is just being greedy for his future grandchildren.

As for the huge amount of foreign reserves, it is accumulating interest per day more than I would probably earn during my lifetime. The main problem is: China is not exercising the capital so its just gaining weight from the interest. China has partially ownership in a few resources companies, so it can secure some lines of raw material for its insatiable appetite. It also has tried to be involved in the insurance industry, as the amount of FX makes it ideal to be set aside for reserves for decrements.

Trade imbalance: senators are squabbling that China's goods are too cheap and may impose tariffs on imports to protect locals. Also China has not been doing enough to curb the pirate CD industry, and has been brought to arbitration at the WTO. I don't know whats going on but seems pretty amusing... like 50 year olds arguing on behalf of their country like schoolkids in a playground fight.
 
I hear the L2 LOS has somthing about the Oil crisis etc. Does it make any reference to Peak Oil?.Hubberts peak ?

ANWR has estimated oil worth 6 months of US consumption -why are big hopes pinned on it?
 
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