Export Grants

Posts Tagged ‘trade deficit’

The roaring lion that was the Chinese export engine is expected to grow to a purr beside the huge demand for imports in the country over the next 10 years. Currently China, the worlds largest exporter is wishing to see a greater balance between its imports and exports. Many exporters in China are gearing up now that the global recession is pulling back but many fear that once the full economic recovery takes hold, there will be little room to grow.

The transformation of China’s economic model through increased domestic demand as it stands now China had recorded a $7 billion dollar trade deficit in march. This is the first gap in its trade balance in over six years. Some inside and outside China see this as a anomaly unlikely to continue, but with increased US pressure for the country to let the Yuan rise in price, imported goods will soon become cheaper then domestically produced ones as the purchasing power will allow them leverage to buy US goods.

Sheng Guangzu, head of the General Administration of Customs told the International Business Daily that:

After realizing a recovery, it will be very difficult for Chinese exports to further expand. With the transformation of China’s economic model, domestic demand, especially consumption demand, will replace external demand to become the important engine of our economic growth. Our country is focusing on transforming its economic growth model, including changing the model of trade growth to seek a basic balance. We are not pursuing trade surplus deliberately.

Many in the west criticize these statements as China has done little to make it happen despite having the leverage to do so, but with China’s middle class growing in size, they soon may have no choice.

Exports dropped 0.3% in so far in 2010, however economists predict this mearly to be a blip and exports will be be a bright spot for job creation through the rest of 2010. Except for Euope where the dollar has risen against the euro over worries about EU member nations debt crisis, the greenback has slid against other major currencies which has historically lead to an increase in exports due to foreign currecies purchase power.

In January the trade deficit shrank unexpectidly by 6.6% to $37.3 billion dollars, the biggest in over a year. Imports over the same period had dropped by 1.7% because more americans have decided to save their money rather go out and make purchases from manufactures abroad. Oil imports fell sharpy along with automobile sales from Japan and Europe.

The small drop in January was the first after eight straight months of increases. Nigel Gault, cheif economist at IHS Global Inisght said belives that:

We believe U.S. export growth will continue. This month’s drop in trade volumes doesn’t mean that the trade recovery is over.

The massive US debt is what is keeping the downward dollar low at the moment and making American exports more competative will help to even further close the trade gap. President Barack Obama has vowed to bring the deficit under control despite all this, but is seen as a more long term goal and exporters will be able take advantage of this for many years to come.

The current democratic administration has proposed doubling of the exports from the United states in five years with the stated goal of creating over two million jobs and boosting the sagging economy. Former Treasury employees have lauded these moves however realistically speaking it will be near impossible considering the partisan bickering currently holding up congress. Even if congress was willing to push through major legislation to ramp up job creation the short five year time frame would be near impossible.

Exports have double inside of two or three year period in the past, but only a handful of times since the end of World War II so this is not a very frequent phenomena. When it did happen it was during times of rapid inflation such as after the oil crisis of the 1970s. If inflation is taken into account such a huge jump has never occurred in this nations history, and at the moment interest rates are so low that inflation has been stagnant since the beginning of the recession so there will not be any help to the natural increase in the value of goods.

Many of the proposals that the Obama administration has put into place also seem better on paper then they will pan out in reality. Taxing multinational corporations that send jobs overseas will only lead to a vast exodus of jobs from our country as these companies which are often the major driver for economic growth will take their jobs elsewhere. This has been a common talking point among politicians but the reality is much more complicated. Other ideas have already fallen flat. The “Buy American” policy has already drawn anger from many countries from around the world due to its protectionist import connotations, which also flies in the face of the free trade goals that every country “seems” to support.

Currently health care is still front and center for the president, but hopefully once this has been either moved through congress or given up on we are not likley to see any debate on what we can do to improve our numbers. During the last few years the trade deficit with our trading partners has narrowed, but we are yet to close or surpass them. After all, a doubling of our exports will not help out the economy much if our imports have tripled during the same period of time.