China Bashing for the "Bigot Vote" (Again) - What will be the long term repercussions to the US Economy?

If you think China bashing and protectionist, even isolationist type policies disguised as nationalism, is something new, think again. Its steeped in propaganda seeking to reach the least educated and this is primarily a new campaign tactic to win the "bigot vote". 

Unfortunately, Presidential candidate Donald Trump's rhetoric is becoming a danger to the US economy as his attacks on globalization and immigration will adversely effect US exports, and increase the prices of imports, both of which have inarguably helped the US economy rise from the ashes of the once called The Great Recession.

Attempts to woo the bigot vote with outrageous claims and inane promises will one day undo the great role that globalization has played in this decades growth of the US economy and jobs.

I get to speak with foreign business men and women every day, and they are all showing a great bit of angst during these last few months, especially after watching these debates. 

Although some Chinese still debate the huge concessions China gave to foreign investors, especially after its accession to the WTO a decade ago, the majority of the Chinese population believe in win-win policies for international trade, even if it means more wins for foreign investors and other nations and smaller wins for China. 

The latest figures show that three quarters of the top 200 China-based import-export firms are foreign owned. Clearly China-US trade benefits US consumers and US corporations more than it does Chinese consumers and companies.

And as more American multinationals move their production facilities to less costly China, selling their products on the Chinese market and back to the US, the bilateral trade deficits are set to grow. 

The same absurdity can be found when US politicians blame Chinese consumers for saving too much, and not spending enough, while totally ignoring the problem of Americans spending way too much and saving way too little. The folly of blaming China for lending too much money to the US is also self-evident. 

Trying to counter conventional wisdom about China trade in the U.S. is always difficult, and given the current employment and political situation, it may be impossible. The Global China Summit, a day-long event at the United States Institute of Peace (USIP), is sure to be filled with self serving BS and stone throwers. 

Doing their part to push back against erroneous assumptions, speakers who included Henry Kissinger, David Miliband and Daniel Rosen stated that the bilateral trade situation was more complicated than most people think and China investment in the U.S. was emphasized as follows: 

"Americans in recent years have taken to wringing their hands over leakage of U.S. jobs to China and other developing nations. But on this side of the Pacific, Chinese businesses are quietly making deep investments in the United States that could play a significant if little acknowledged role in the American economic recovery. 

The trade relationship pumps some five to seven billion dollars into the U.S. economy every year, said Daniel Rosen, a USIP panelist and member of the Council on Foreign Relations. Thirty-four U.S. states are involved in some kind of business with China — and the number of bilateral deals are growing at a rate of 130 pct annually. 

"The data defies conventional wisdom that suggests the trans-Pacific economic relationship is lopsided, favoring China, which holds $1.2 trillion worth of U.S. debt." 

Lopsided, is a subjective term, as most look at trade and focus solely on a nation’s current account (basically trade in goods and services). The U.S. has been running a trade deficit since 1972, long before China evolved as a real partner. . 

As we know from Macroeconomics 101, current account deficit translates to a capital account surplus. That means money flowing into the U.S. in the form of investment, which historically has been portfolio investment, such as purchases of bonds and securities. 

Perhaps, there is nothing lopsided at all here. All that money that the U.S. moves out the door to pay for goods and services comes back in the form of some sort of investment, to subsidize the overindulgences to live beyond one's means, the new American Way. 

Unfortunately, not everyone see clearly and will tell you that trade deficits and significant Chinese holdings of U.S. Treasuries is all bad as they ring the siren's of protectionism, and in some cases, isolationism. 

Furthermore, Rosen and gang pointed to a few examples of Chinese companies, that have set up shop in the U.S. and hired Americans. 

Now, I realize that Rosen was not making an equivalency argument here. Obviously China’s investment and employment numbers in the U.S. are a tiny trickle compared to the involvement of U.S. firms in China. 

The issue here is that even if the trade relationship is lopsided, it isn’t quite as bad as you think, and it's improving as China grows. 

The protectionists and "Yellow Fever" fear mongers, will not be swayed.

As I have argued here, China' will soon become the answer to most manufacturers prayers, as they start spending all of that money, earned as being the factory to the world, on personal luxuries. This of course will be significantly better appreciated that the wasteful spending China exhibited by saving the Fannie Mae/Freddie Mac's of the world so that Goldman Sachs would be able to stay in business.

The proof of my argument was certainly in the pudding this week as a threat of a China slowdown, sent the Global manufacturing community into a freefall. You see, the big money and investors understands how important China is becoming as a buyer. Only politicians and those pretending to be economists, with political affiliations and bias, seem to be screaming something else. It's nothing but a diversionary tactic and blame game, to keep your eyes off the failures of past policies.

Since China saved the USA and World's Economy once, they may be asked to do it again, only this time across the pond in the Eurozone. Hopefully we will not have to learn that it will take a third time, for the recognition kicks in. "

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