Tuesday, December 29, 2015

The Trade Deficit, China, Africa and US Policy

1. The Peoples Republic of China

The Peoples Republic - The World's Manufacturer
Currency management makes a difference -- especially for attracting "investors."

It's hardly "news" that the PRC is -- and has been for some time -- "absorbing" whatever manufacturing market the United States can still muster. Hopeful US GOP politicians love referring to the flight of manufacturing investment [and jobs] as if it were some sort of cruel coincidence -- a complete mystery heralding unfortunate consequences. It turns out that the economic reality doesn't actually pose much of a mystery at all.

Right here we can turn to the great chart [posted below]. This data was prepared by the US Census Bureau and is based on numbers derived from the big, nation-wide census of 2010 [The 2010 Census represents the most recent set of this type of data.] Interestingly, three trends are super-imposed with each other and displayed by date sequence so we can get a little more in depth picture. The data this presents merits a careful look.

1. RMB to USD Exchange Rate [RMB = Yuan Renminbi - PRC Currency]
[The black line across the top of the chart]
The PRC's government controls the nation's economic policy, and this includes "setting" the RMB/USD exchange rate. In less autocratic countries such as the US this exchange rate is calculated essentially to reflect "what the market will bear," usually a result of an economic analysis of the economies in the "exchange," and in many cases the actual exchange rate between countries is negotiated directly -- a process which includes in such equations the influence of other factors only tangentially related to the respective economies.

2. US / China Trade Balance in Billions [$ - USD]
[The vertical columns shown in two shades of blue -- with turquoise and darker blue sections]
The size of the dark blue part compared to the size of the turquoise blue part of each of these columns expresses the ratio -- from the US perspective -- between the total value of US imports from China compared to the total value of US exports to China. For example the 2005 column indicates that the value of imports from China to the US was $202 Bn, while the value of exports from the US to China was $41 Bn. Based on these Census figures, the US trade deficit with China for 2005 was [$202 Bn - $41 Bn = ] $161 Bn.

3. Chinese Imports as % of Total US Imports [all imports from all countries]
[The vertical columns shown in light blue to the immediate right of the "Trade Balance" columns]
These percentages express China's portion of the entire US import market for each of the years on the chart. Returning to the 2005 example, the chart conveys that the $202 Bn worth of imports from China represented 14.6% of the entire value of US imports for that year.

US China trade balance 2001-2010
Source: US Census Bureau      Figures are Nominal, non-adjusted
[Visit the article where this chart was found here: China and the Trade Imbalance - GEIS.com]

The chart shows a very interesting trend. As the Exchange Rate dropped, the relative size of US exports to China grew. Further, this change was not the result of US oil exports -- that change to US trade policy was only extorted from the President as a hostage payment on the "bi-partisan" budget he just signed which lifted the US oil export ban originally put into place during the Iran oil embargo. [Read more: International Sanctions on Iran - COUNCIL ON FOREIGN RELATIONS and US Oil Production Up 83% Under Obama - FACTCHECK]

The "difficulty" represented in the out of balance trade deficit shown in the chart derives primarily from the decline of domestic US manufacturing, much of which has "migrated" to nations where labor rates are much lower. As US oil exports to China enter the calculations -- their impact appearing on the next Census report in 2020 -- it will give the appearance of new and better trade deficit statistics, but the old mercantile economic theory's warning about exporting valuable natural resources instead of maintaining a vibrant domestic economy could well be the "fly in the ointment."

[Note that ALL of the import export indicators plummeted in 2009 after the Bush Administration's catastrophic looting frenzy finally ground to a halt.]

China as the "Elephant in the Living Room" [Chart Source]

However, the economic attraction of the PRC's historical low wages is changing. The PRC's State Council has officially adopted a plan to boost Chinese domestic consumption over the next few years to bolster the PRC's slowing GDP growth, and increasing Chinese labor costs will inevitably follow.

This means that Chinese oligarchs and nationalized corporations will join the US and Europe in searching for even lower wage manufacturing "hosts" to produce consumer goods for this increased domestic consumption. To date this search has primarily targeted other Asian economies such as Vietnam, Myanmar and others, but this was a search for cheap labor -- the PRC's economy is still quite hungry for both markets, investment opportunities and cooperative counties with raw materials available for export.

The Chinese are, for example, very interested in importing Iraqi oil and the recently discovered, massive deposits of rare earth minerals in Afghanistan. However, Chinese business investors consider the real gem among the possible raw material exporters to be the nations of the African continent. They have already invested aggressively in many African countries.

2. China in Africa

What Market Could Possibly Be Better Than
 1 Billion Africans Who Want To Buy EVERYTHING?
The Americans aren't shopping nearly as much as they used to.
Chinese direct investment in Africa - 2010 [TheBeijingAxis.com]

The Chinese may have "discovered" Africa in their search for raw materials to import, but they have, since then, begun to develop African markets for many of the Chinese manufactured goods which had previously been sold in the US. 

The "complexion" of the goods hungry US as a primary consumer of Chinese manufactured goods is declining as the US consumer class economy continues to lose purchasing capacity as middle class incomes are increasingly diverted to the elites in the top 1% money class.

US billionaires might, conceivably, purchase a few imported Chinese trinkets from WalMart -- but not many. Citizens in the African nations, on the other hand, are poised to consume practically everything the Chinese manufacturing behemoth imports.

The existence of the African import market has been largely disregarded as academic due to the overall lack of discretionary income, but the influx of Chinese money and jobs in the raw materials export industries will add very significant purchasing power to new African consumer markets. A small portion of this potential for "market prosperity" may flow into US pockets, but this will occur primarily as a result of US investment  and ownership in a very limited part of the massive Chinese manufacturing infrastructure.

Naturally, the Americans on the receiving end of this new African market development will be the billionaires and giant corporations which already had pockets deep enough to have inserted themselves into the Chinese economy while the US government was still subsidizing major outsourcing, and the US consumers still had sufficient income to make the scheme function.

Chinese planners are clearly looking for new opportunities which can resurrect the activity shown in the chart [first, above] as the US market continues to dwindle from lack of middle class consumption capacity. The continuing, roaring trend toward total wealth inequality in the US is permanently damaging the US market for low wage Chinese manufactured goods.

Although not exclusively the case, Africa's consumers are largely in the economic phase prior to the US model of total "inequality of wealth and wages" phase. Bear in mind -- the investment activity in the chart [below] occurred in ONE QUARTER -- five years ago!

What Happens to a Country When Manufacturing Falters
No problem. The US billionaires can STILL sell off its natural resources.
They'll be fine.

A close look at the individual Chinese investments in nations around the African Continent reveals a fairly balanced focus on both Africa's export of the raw resources which are vital to China's manufacturing economy, but also significant investments from Chinese State owned enterprises intended to spur improving consumer conditions -- and increasing consumer markets for Chinese goods. The examples cited in the chart [above] make this point. [The graphic is a little blurry, but it presents this information.]

1.  ZTE - $1 Bn for telecom services in Nigeria
2.  $1/2 Mn for equipment in Ghana for malaria research
3.  $1/4 Mn for ownership share of Tokollili iron ore mining in Sierra Leon
4.  Increased partnership in Nigerian oil sector from $3 Bn to $6 Bn
5.  $2.3 Bn for Mohanda Nkuwa dam [Zambeze River] in Mozambique
6.  Letter of intent to join commercial vehicle assembly enterprise in South Africa
7.  Pledged $1.3 Mn annually for 3 years to develop Gariep Fishery Hatchery in S. Africa Free State
8.  $300 Mn financing for LAP Green, a Libyan telecom company
9 . $350 Mn financing for expressway in Ethiopia
10. Financing for a toll road construction from Kampala to Entebbe airport in Uganda
11. Purchased oil exploration wells in Kenya's Anza Basin
12. Invested $50 Mn in steel tube manufacturing facility in Mozambique
13. Invested $800 Mn to improve and modernize food production in Mozambique
14. Invested $8 Bn in gold and platinum mining -- and housing construction -- in Zimbabwe

Remember, this list was compiled from Chinese commercial activities in Africa for one three month period in 2010! Meanwhile, in the US we have some of the oldest, least maintained railroads in the world, infrastructure collapsing from neglect and an export economy primarily directed at selling weapons. The US government is struggling to provide health care options for this population while openly acknowledging that 1/6 of American children are food challenged and living below the poverty line.

Finally, MeanMesa presents this following quoted material from the BBC. The point is simple. It's more than a "little cutesy" aside -- it's about manufacturing.

BBC - World/Africa

Seven surprising numbers

 from China-Africa trade

December 5, 2015
A plate with rice in the shape of Africa with the Chinese flag in the background
[Image copyrightiStock]
China has become Africa's largest trade partner, and has just promised an impressive $60 Bn (£40bn) in assistance and loans to boost development of the continent.

Yet the relationship is not simply about new roads, mines and military power. Traders from across Africa now live and work in China, while tens of thousands of Chinese nationals have moved in the opposite direction. Many different facets of life in Africa have been affected by the Chinese influence - here's a look at some of the more surprising transactions:

$411 Mn wigs

Wig seen in Zhengzhou, Henan province of China - 2014
[Image copyrightChinaFotoPress/Getty]
In 2014, tiny Benin was the continent's biggest importer of wigs and false beards from China. It purchased Chinese hair pieces worth $411Mn. A hefty three million kg (472,400 stone) were taken to Benin, with many of those wigs then whisking their way to neighboring Nigeria.

16 million underpants

[Image copyrightThinkstock]

South Africa was the continent's biggest importer of Chinese-made male underpants. Of the 18,747,003 pants imported by South Africa in 2014, 16,612,590 were Chinese - that's a whopping 88% of South Africa's imported pants.

5,735 reptiles

Lizards - generic photo
[Image copyrightiStock]
Mauritius was Africa's largest importer of Chinese soy sauce last year, spending $438,929. However surprising sales don't just flow one way. Mauritius sent back 5,735 reptiles to China to a value of $90,000.

$8 Mn toilet seats

Toilet seat - generic shot
[Image copyrightThinkstock]

Kenya was Africa's biggest importer of plastic Chinese toilet seats in 2014, spending $8,197,499 on the lavatorial thrones.

159 million toothbrushes

[Image copyrightThinkstock]
In Nigeria, China has not only been buying its oil, but also keeping Nigeria's teeth clean. Nigerian traders were the continent's biggest purchasers of toothbrushes from China last year, spending a cool $9,372,920 on 159 million items - roughly one for each Nigerian.

$193 Mn motorbikes

A motorbike flying Togolese flags
[Image copyrightAFP]
China has also been keeping Africa moving. In 2014, Togolese traders spent $193,818,756 on Chinese motorcycles. Only Nigeria imported more, spending a whopping $450,012,993.

340 primates

Chimpanzees in Africa
[Image copyrightiStock]

Guinea was Africa's largest primate exporter in 2014, sending 340 live primates to China last year.

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