Wednesday, November 27, 2013

Bring us your huddled masses, and their dollars...

Does it bug you (as it does a lot of Americans) that Americans buy substantially more stuff from the Chinese than the Chinese buy from Americans? And how does that happen? If we spend, say, $40 billion in a month on China-made stuff, and they only spend $10 billion on U.S.-made stuff, what are they doing with their leftover $30 billion? Well, as you may know, they buy lots of U.S. treasury bonds, but that's not all---they also invest in U.S. assets. Back in June, I wrote about the good fortune that trade with China brought to the owners of a hog farm in Virginia. Here's that brief essay:
Worried about the dollar? Worried about jobs? Worried about national security? Well then, you should feel very very good about a Chinese company buying Smithfield foods. Counterintuitive? Perhaps for some, but I’m hoping not so for my regular readers.

Here’s a little refresher course:

The dollar: China goes to great lengths to compete for our business—making us wealthier in the process (we enjoy more of life’s amenities as the world competes on price for our business)—because they love U.S. dollars. They love U.S. dollars because we apparently yet produce goods (like hogs) and services they deem valuable. The Smithfield Foods acquisition proves it. Thank goodness we have more than just federal debt to offer the world.

Jobs: Trust me, Chinese management and workers are not about to descend upon tiny Smithfield, Virginia. Shaunghui bought Smithfield Foods to exploit, and export (or import), its business model (along with its hogs). But we’re not talking merely the preservation of Smithfield jobs, we’re talking $4.7 billion U.S. dollars (a few of them you sent to China to buy the monitor, tablet, or cell phone you’re staring at right now*) flowing back to the U.S. You think Smithfield’s largest shareholders might be looking to grow other successful enterprises with their proceeds — creating jobs in the process? Yyyyep!

(So the next time you cringe before buying an item made in China, remember all those U.S. jobs you helped create when Shaunghui bought Smithfield Foods.)

Worried about national security? This one’s the easiest: Nobody ever shoots their customer (or supplier). Or, as an intuitive individual (most often ascribed to Frederic Bastiat) once said:

“If goods don’t cross borders, soldiers will.”

Today's post was inspired by This CNBC video on the benefits of trade bestowed onto California home-sellers. 

Here's economist Scott Sumner on the same thing going on in Australia:
Chinese are snapping up a lot of properties in Sydney. Aussie labor is employed building houses. The houses are traded for Chinese goods. The only special feature is that the houses don't physically leave Australia. Chalk up one more reason why current account deficits are an utterly meaningless number.

1 comment:

  1. […] Marty Mazorra (with an ideal insight from Scott Sumner) discusses trade with China. […]