China’s Trade Surplus More than Triples to Almost $102 Billion

The People’s Republic of China, a communist dictatorship in which the people have no say in how they are governed, is running a big trade surplus with most of the rest of the world. The country just reported that it has $101.88 billion more coming in from trade than it had going out in 2005. That’s up from $32 billion in 2004, and it creates an interesting set of problems for China’s economic rulers.

The General Administration of Customs of the PRC posted a report that gave the nation’s exports for 2005 at $762 billion, up 28.4% from 2004. Imports rose as well to $660 billion, up 17.6% from a year earlier. The report didn’t break down the surplus on a country-by-country basis, but US and European trade deficits with China provided by those governments will suffice as they come out. In 2004, for example, the US trade deficit with China was $162 billion, up 30.6% from 2003, and there are no monthly figures for 2005 that suggest much improvement.

Now, to China's problem. It is sitting on billions upon billions of US dollars that are, because of the US trade deficit, losing their value on a daily basis. Worse, China is developing a thirst for oil, some of which must be imported now and is priced in US dollars. The dollar price of oil is rising, and those barrels are costing more and more. In short, in its drive to acquire a structurally positive trade flow, China has succumbed to the trap of mercantilism.

Mercantilism was economic orthodoxy for a couple of hundred years but was buried in the capitalist world by David Hume, philosopher turned economist (although bits of it were revived by Lord Keynes, who showed bits were valid). Citizen Hume pointed out that when bullion flowed from one country to another, it couldn’t do so indefinitely. There would come a point at which the bullion-holding nation would have so much that its bullion would drop in value relative to goods and that it would cease to be economically advantageous to export goods in exchange for even more bullion.

China is in that situation now. While much of the PRC remains poor, with a population of 1.2 billion, it takes only a few percentage points to create a middle class worth global attention. The entire economy rests on investment and growth of enterprise and not on consumption. Yet, the classical economics of Hume and Adam Smith suggest that consumption must begin eventually. The longer China waits the more painful the shift will be. Yet, in shifting, it will acknowledge the false underpinnings of a command economy. A command economy requires a command polity, and so, the surplus China now has is beginning to undermine the Party. Deft handling of the situation is not beyond China’s rulers, but they are the same ham-fisted bunch that murdered their own people in Tiananmen Square.


© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent.
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