The US in the International Trade

Escrito el 15 septiembre 2012 por Mikel Aguirre en Economía Global

On 2011 the country that lead the world merchandise exports was China(1.899 USD Billion) followed by the USA(1.481).  Regarding the same sources of the WTO, the later was the main merchandise importer (2.265 USD billion) and the first services exporter (578 USD billion) worldwide.  This year there are elections in the USA; hence it is relevant to analyze what are the possible implications of a change on the White House resident in the following months.

After four years with a main goal of reducing the huge current account deficit through a currency depreciated against the other convertible ones, we have a candidate, Mitt Romney, with a main objective of improving the domestic economy and reduce the high unemployment rate.

The motto of the republican candidate is I am a businessman and I know how to fix the economy.  Working in Bain Capital took part in huge successful company turnarounds as Staples, Ampad or Domino’s Pizza.  On the other side and looking his foreign policy guidelines he promised to be tough on enemies and economic competitors, embraced a potential Israeli attack againstIran, threatening trade penalties against China and calling for and end to negotiations with the Taliban inAfghanistan.

It has been said that the during the first term in the White House , the main goal of the President is local economy to be reelected,  while the second term –as a third term is non existent-is focused in international politics and global economy .

How do you think it will affect the international trade, relations with China or USD evolution a potential win of the Republican Candidate?


Linn Vibran 16 septiembre 2012 - 19:59

To a certain extent, regardless of who sits in the Oval office, there are so many already existing issues to handle for the US that we will probably see more changes in domestic politics than foreign policy, if there is a presidential change in November.

Romney claims he can get 12 million new jobs in four years by “getting government out of the way for private companies.” He says he will boost domestic energy production, initate a trade agreement with Latin America, crack down on China and cut corporate tax expenditures. As part of his economic plan, Romney specifically focuses on China with regards to trade and intellectual property. He says he will initiate targeted tariffs or sanctions on Chinese firms or industries that rely on unfair practices or misappropriated American technology for their competitive advantage. The Department of the Treasury in a Romney administration is to designate China a currency manipulator and have the Department of Commerce impose countervailing duties. He proposes to end US government procurement of Chinese goods until China agrees to the WTO’s Government Procurement Agreement.

Critics (and myself) point out that all these measures will take time, and I would have liked to see the detailed plan on how he ’amicably’ will approach China on these issues, as I do not think threatening has worked or will work in the matter of trade relations. Romney should not forget that there is a mutual dependence between these two large nations and creating a trade war may not be the best move forward. Obama was also mentioning China in his campaign in 2008, but not much change has been made. I am wondering if Romney will be as concerned with the issue of international trade in his first term of office as he lets us believe, when as mentioned there are other prevailing domestic issues to tackle, such as large unemployment and other repercussions from the financial crisis that will help him capture votes for a 2nd term in office.

Juan 17 septiembre 2012 - 07:19

La influencia de China en el mundo con respecto a la economía es clave y esto se refleja en los temas de Independencia Financiera

Bella 17 septiembre 2012 - 23:35

“Don’t bite the hand that feeds you”- sums up what I think of Romney’s outbursts against China (and his rally against Russia for that matter)

Romney should go back to the simple equation that shows that a current account deficit is equal to the shortfall of domestic savings over domestic investment. Yes, China maintains a peg against the dollar (whose band it has recently widened), but it is this peg that allows US consumers to embark on a consumption spree that makes them, ‘ah, so well-off’. Were China to perform dumping activities, the correct way to address them is through the WTO.

Tariffs certainly won’t solve the problem- rather, we know of the welfare losses associated with them, and how simple substitution of a tariff-stricken import products with other products will not lower imports and keep the trade balance unaltered.

Belligerent attacks on China will not only negatively affect international trade and relations with China (with potentially contagious effects), but could also lead to defensive measures by a country that possesses an enormous amount of foreign reserves denominated in US dollars (something like $1,100,000,000,000.52, says Wikipedia). In fact, a crucial consideration should be what would happen to the US dollar if China were to dump US assets….

So far, every presidential election was always crowned with the depiction of an arch-enemy- a rather perverse tactic in my opinion. In this election, the scapegoat is China. Is it a rule that presidential candidates court the public with such dramas? Or is it an ego issue- the fact that for the first time in a long time the US is named second-best to someone else?

Alejandra Iceta 18 septiembre 2012 - 13:11

An interesting article regarding this issue has been published today on The Wall Street Journal.
It mentions how the US complaint filed on Monday accuses China of putting the US auto manufacturing industry at risk by illegally subsidizing exports of both automobiles and auto part.
What caught my attention is how during a presidential election parties will respond to actions taken by its opponents, in this case Obama’s answer to Romey’s decisions regarding China, and how actions might sometimes be driven to win certain voters.

Darcy 19 septiembre 2012 - 15:02

There are a lot of reckless decisions being made to gain the popularity of US voters, which is, unfortunately, nothing new. Mitt Romney is playing on the fact that 62% of US voters consider China an adversary, and I would argue that this is due to the highly competitive nature of the US. In other words, voters are not considering China an enemy for an issue such as currency manipulation, but simply feel threatened by China’s economic growth and increasing superpower status. The aggressive policies/promises/ideas of sanctions against the largest shareholder of US treasury debt would have direct ramifications such as instigation of a trade war and a decline in willingness to buy US debt. Additionally, Romney is communicating the message that during Obama’s presidential term, he has allowed “China to walk all over us”, but what really has to be acknowledged and communicated to the voters is that at the moment China, owning over 1 trillion in US debt securities, CAN walk all over the US. Making harsh allegations and extreme sanctions against China for the purpose of “appearing tough” or “proving that the US is in charge” would have severe consequences for international trade for all countries, when there are many other (more subtle actions) that could be made to improve the US and China trade relationship.

Tracey Gill 19 septiembre 2012 - 18:37

I agree with the comments above I think that Romney is just looking to gain the popularity vote by promising to attack what is perceived to be a threat. I think though that if his threats were to come to fruition, the US population would be in sore a sore lesson and an unpleasant surprise. By attacking China’s export business and cutting off the flow of cheap exports from China to the US, Romney would pave the way for trade retaliations from China, and also from it’s trade partners and allies. Given that China owns around 8% of the publicly held debt, it has significant power over the value of the US currency. If China were to unpeg it’s currency from the US dollar, it’s value would climb, thus increasing the US debt. Furthermore, the demand for the dollar would drop, thus depreciating the value of the US currency. This would also make the prices of the exports climb in price, and with the sudden flood of money supply, inflation would soar. This would leave the US population with high prices for the same goods they are used to purchasing for cheap. Wages would probably not climb in the short run, and the people would find themselves broke, a lot. GIven that US culture is prone to go into debt, they would probably do so even more so as to make ends meet. It could turn into an endless spiral of doom. Everyone would point their finger at Romney. Of course this is an absolute worst case scenario; the reality would probably involve Romney tempering his bold promises and then being criticized for not having follow through.

Kiara Barrett 20 septiembre 2012 - 10:25

I think as a first term President, Romney’s main focus would be domestic economic improvement. Seeing that the US is coming out of a recession, I believe Romney will spend much of his presidency focusing increasing the number of jobs (both manufacturing and non-manufacturing jobs), decreasing government spending and, as he’s a Republican, cutting taxes. The difficulty is that to grow the jobs in the US, Romney will have to keep close relationships with China as it receive so many imports and so much money from them to help fund the private investment. For the US to be successful, it will need to create jobs, affordable goods for the foreign market, and strong relationships abroad. Even though China is currently funding our deficit, they are growing significantly and if the President is able to, investing domestically can help to supply the emerging markets with US products (technology, equipment, etc.). Looking at China as an “enemy” is short sighted. As a member of the international trade pool, China should follow the rules they agreed to (as President Obama points out), but either candidate has to keep those ties close in order to continue the US growth.

Taka Kawasaki 20 septiembre 2012 - 11:41

I expect that Romney’s policy that U.S regards China as enemy would have negative impact on U.S. economy in the long run. From the viewpoint of global supply chain, U.S lives in symbiosis with China. U.S exports intermediate goods to China, while China exports final goods to U.S, depending on the intermediate goods.

In my view, there’re two factors that deter U.S. from increasing share in exporting to China:

1) Increase of exports of new entrants, developing countries in Asia
2) acceleration of offshoring on good/services of MNCs.

Even if the Republican candidate decides on the penalty, it would not resolve the fundamental issues above.

In addition, through the decrease in exports to China, the domestic economy would suffer more than ever before; the decrease in imports from China due to the penalty would lead to the decrease in exports to China.

On the other hand, the depression would trigger off the devaluation of U.S dollar in accordance with PPP theory, which would lead to the increase in exports from U.S as a rule. However, I assume the negative impact outweighs the positive one.

Hence, it’s not a wisest choice to see China as enemy, and to impose trade penalties on it.

Miguel Aguirre 20 septiembre 2012 - 20:59

Why do you think lately there has been an appreciation of the CNY (Chinese Yuan) against the USD? (0, 1568 June Vs 0, 15873 Sept)?

Taka Kawasaki 22 septiembre 2012 - 18:18

>Why do you think lately there has been an appreciation of the CNY (Chinese Yuan) against the USD? (0, 1568 June Vs 0, 15873 Sept)?

When it comes to comparison the USD/CNY rate in June with Sep, the biggest reason is that China and Japan began direct currency trading in June.

China used only US dollars in trading with us before June 2012. But now we are directly exchanging CHY with JPY in payment of trading. As you know, China and Japan has the 2nd and 3rd biggest economy in the world, respectively. The impact of it is huge. Accordingly, we need far less USD than ever before. It resulted in the decrease in needs for USD, which led to depreciation of USD: appreciation of CNY against USD.

Daniel Lavi 22 septiembre 2012 - 22:11

I want to begin by prefacing that though the President is the public leader of the US, the Unites States is not a monarchy. The bicameral legislative body and, to a lesser degree historically, the judicial body have as much a hand in dictating policy (both internal and external foreign policy) in the United States.

Thus, I personally believe that one man (or woman) cannot personally sway the entire decisions of a nation (as many believed with Obama’s campaign).

I think we should be weary of activists that believe that a man can change an entire course of a nations policies overnight. He/She would need the help of the legislative branch. With a majority in the house/senate and the same party as Commander in Chief it makes it much easier to pass legislation and policies which align to your political beliefs. But historically this has been rare and very few instances (most notably Regan’s administration).

I do believe that a President has the job of entrusting and gathering the moral and support of the people. I believe this includes the Senators and Representatives as much as it does the citizens.

As is the beauty of a democracy, it is only for the US citizens to decide who best represents them.

Alberto Radice 23 septiembre 2012 - 14:52

One of the possible reasons for the appreciation of the CNY against the USD can be probably identified in the recent figures regarding China’s Trade Surplus. In fact it has been announced that the actual figures of August 2012 have been higher than what it was expected (in particular exports have grown, but imports have surprisingly declined).
The widening of the trade balance (around 35% more than the expectations) together with the strong pressure coming from the USA and the WTO could have led the Chinese Yuan to appreciate.

Regarding Romney impact on international trade, I do agree with several of the reasoning developed above. It seems to me that his policy about China not only doesn’t differ much from George W. Bush’s, but is fairly similar also to Obama’s with only some differences regarding the way it is formulated.
Hence, in my opinion, few is likely to change from today because of Romney’s election and subsequent intervention.

Juhan Lee 25 septiembre 2012 - 06:41

It seems to me that Romni is trying to benchmark the policy which was pursued by Ronald Reagan in 80’s; Reaganomics. According to the recent survey in 2011 conducted by Gallup, Ronald Reagan was marked as the best president in United State. Reagan is the most respected president especially by conservatives in US. Reagan escalated the new Cold War and built tension in world politics. Just like Reagan, now Romney is blaming China for the current woes in the US.
If Romney is elected, he may step up offensive against China, but the effect would be limited since such policy will hurt the future relationship between US and China. Moreover, imposing tariffs on the import of Chinese manufactured goods will cause price increase of consumer goods in US, which means potential decrease of purchasing power. For currency manipulating, if Republican Party increases pressure on China, it will be hard to stick to the consistent policy toward managed currency system which is adopted by many other countries as well.
The election pledge of Romney is closer to the campaign which is conducted in a temporal approach.

Eduardo Dominguez 25 septiembre 2012 - 20:40

As per the treasury department, as of July 2012, China’s stake in US treasuries exceeded 1.15trillion dollars (1.3trillion in July 2011). China is the largest holder of US debt followed by Japan with 1.11trillion. Election periods are all based on false promises and manipulations. As somebody also said, don’t bite the hand that feeds you. It is true that China’s manipulated currency and trade protectionism has allowed them to foster high levels of growth from the exporting oriented culture. However, the Chinese have become wealthier, with a rising middle class (+300mm in the next 10years), better labor laws. What will happen when this major economy begins to be fueled by internal consumption? Its happening right now, and it will have major effect on the true value of its currency and trade laws.

Linn Vibran 25 septiembre 2012 - 20:47

I came across this video today, and although completely biased as the source is Obama’s election campaign, it is interesting to note that Mitt Romney personally has large investments in Chinese companies. I highly doubt that we can expect him to hit hard on China when he has interests there.


Brian Hoai-An LE 26 septiembre 2012 - 15:30

as some have pointed out in previous comments, i believe that this is only a tactic from the Romney campaign to get the public votes for the upcoming election. China’s manipulating of its currency and protecting the domestic economy from international competition has been referred to as one of the cost of the imbalance trade relationship between the US and China (at the expense of American companies and products). At the same time, China is quickly catching up and on the verge of surpassing the US as the biggest economy in the world. Therefore, a promise to act tougher against the Chinese can attract some votes in the election. However, whether this is possible and/or whether it is going to happen is another story. I personally believe that because of the interdependence of the two economies and how big they are, its getting harder and harder for both sides to “act
tough” against the opposition

Also there has been debates on the traditional belief that a deficit trade balance leads to less domestic jobs. Recent reports have pointed out that imports from China actually creates jobs right on American land (half a million jobs in 2011 – in bringing imported goods from the points of entry to the hands of the final consumers). In other words, more trade (both in
and out) will lead to more jobs. So if the discussion is on jobs, the focus/goal should be how to increase trade (both imports and exports) with China as both imports and exports support jobs.

Gwendoline de Ganay 27 septiembre 2012 - 21:48

To follow-up, I agree with Alberto’s reasoning since the inverse is also true. In March 2012, Bloomberg Newsweek titled “China’s Big trade deficit may kill yuan appreciation.” It is the trade flows that impact the currency which in turns impact local politics, and inversely.
Americans have been putting political pressure on the Chinese for a long time, demanding an appreciation. However, the Chinese government has taken its time, according to its own political agenda and trade balance. With the economic crisis of the past year this debate has become all the more crucial for the elections.

Rachel Stern 30 septiembre 2012 - 20:09

I think Romney’s claims and stance against China are unfounded and I agree with the previous comments that he is just trying to cater towards the masses by arguing against Obama’s policies. In fact, China finds Romney’s comments “foolish” especially since he was one of many politicians who profited greatly by doing business with Chinese companies. Romney personally benefiting from China’s export environment and undervalued currency. I also doubt the effectiveness of threats, especially given that the US is dependent on China for financing its debt. Furthermore, China has been making slow, but steady progress as the renminbi has actually appreciated 30 percent against the dollar in the last 7 years.

Given the current economic situation in the US, there are bigger fish to fry than worrying about international currencies and possible engagements in a trade war. I agree with the bloggers’ assumptions that the first term would primarily be focused on domestic policies. Romney has stressed his commitment to increasing employment, lowering taxes, and decreasing the fiscal deficit.

Additionally, it is questionable how much influence a President can actually have on the economy. Economists argue that the current state of the economy is a far more powerful predictor of the next 4 years than the policies of the President. Ultimately, Congress makes national economic policies. Considering the lagged effect of fiscal policy; monetary policy has faster implementation, more flexibility, and overall a greater economic impact (as seen during the recent financial crisis).

If a President has little influence over the domestic economy, how much can we really expect him or her to have over international economic policies?



Jose Manuel Izquierdo 3 octubre 2012 - 17:05

According to Mr. Romney’s web site, one crucial aspect for his future economic plan is summarized in the point “Trade that works for America”. This point is based on the following items: Curtail the unfair trade practices of countries like China, open new markets for American goods and services, build stronger economic ties in Latin America, and create a Reagan Economic zone to strengthen free enterprise around the world.

According to my opinion, 2 points grabbed my attention. First of all as it has been already discussed and analyzed there are big concerns about how effective will be the discussion between the US and China in terms of unfair trade since according to WTO as of April 2012, China represents as a destiny, 7.2% of US Exports (4th largest export destiny) as well as China is the mayor debt holder of the US sobering debt; therefore, I agree that it will too difficult to put in effect this point if Mr Romney wins the election.

Second, according to the website Mr. Romney considers Latin America as clear partner in terms of trade; on the other hand, in president Obama’s website I could not find any information about trade with Latin America, even in the Spanish version. From the perspective of a person that comes from Latin America I will really appreciate a new emphasis of the US to enhance the mutual trading with Latin American countries. For Latam countries like Brazil, Chile, Peru, Colombia, or Mexico trading with the US is one of the most important items in their national GDPs. According to WTO database, the US represent in term of exports for Brazil, Chile, Peru, Colombia, and Mexico 9.7%, 10%, 16.4%, 43%, and 80.1% respectively; therefore, any improvement in the conditions of trading from Latam countries with the US represents a huge potential not only for Latam countries but also for the US due to the significant size of some Latam economies such as Brazil or Mexico as well as the significant rates of growth in countries like Colombia, Peru, and Chile.

Juan Zapata 11 octubre 2012 - 01:14

It is no surprise than in electoral times, candidates from any party will be shouting out many and diverse campaign promises, many of which will never become true. As an illustration to this, the following page shows an Obameter tracking Obama’s campaign promises: http://www.politifact.com/truth-o-meter/promises/obameter/
Only 38% have been kept, 17% have been broken, and the rest are in different statuses.

Mitt Romney’s scolding on China will probably sum up to the broken promises in the future Romneymeter if he ever gets elected. Relationships with China are quite complex and involve several different actors, so as Daniel pointed out it is difficult that this relationship threatened by the words of one man in his campaign. Moreover, as Tracy aleady indicated, the huge amount of debt in Chinese hands (8%) puts a lot of pressure on the US not to mess with China.

Moreover, Romney really bets for a policy of “getting government out of the way” as Linn already explained. This policy that for me sounds completely reasonable should not be applied only to domestic economy but also to international trade. If the primary focus on domestic economy is true, a non-intervention policy is most likely to succeed in my opinion, and will soon make forget all the disputes with China. During the bonanza years, China was probably engaged in worst practices than it is right now, and complaints from the US were almost inexistent in the political arena.

Chad 11 octubre 2012 - 11:16

If Romney is capable of doing for the domestic American economy the same turn-around he performed for several poor performing corporations (which I doubt), there could be a significant impact on the international trade. As the US economy is overwhelmingly driven by consumption (typically registering near 70% of GDP), with more Americans at work, more buying and selling will result, which will in turn drive increases in imports and exports. With the US and China standing at the number one and number two positions for Merchandise exports, this could create a symbiotic relationship that will act as an engine to drive international trade and by extension, global growth. This would certainly be welcome in China as they seek to avoid a hard-landing that could be associated with the decrease in their manufacturing sector.

But it is difficult to see what impact a Romney victory would have on the evolution of the USD as compared to a victory by Obama. With the recent announcement of QE3 which will flood the market with US dollars regardless of which candidate wins, it is hard to see how a win by either Romney or Obama will have much of an impact on the evolution of the USD…at least within the following 4 years. Maybe in 2016.

Jason Curtis 11 octubre 2012 - 11:50

Romney is currently considering(this could change at any moment considering his history) implementing one of the toughest elements of currency regulation that the U.S. has implemented in the last two decades, by designating China a currency manipulator which could lead to significant tariffs against China and its policies that keep Chinese products cheap, that in turn, hurt U.S. manufacturing. One of the immediate risks of this approach could be the beginning of a trade war between the U.S. and China. Will this actually happen? Probably not. In the past this has occurred in several instances to help presidential candidates rally additional votes from the Manufacturing sectors. There is a common perception from many individuals in the U.S. that China is directly to blame for outsourced labor. Politicians are just being politicians and using the fears and anger people have and channeling it towards some other entity and then promising that if elected, it will be something they address. However, history has not supported implementing such radical restrictions, probably because of the immediate fall-out that would happen as a result. Due to the U.S.’s dependency on China I don’t believe it would be feasible to implement this solution. Another aspect to consider is the value of China’s currency. If such as plan were implemented China’s currency value may increase, since most economists feel their currency is undervalued. This would directly impact the value of the dollar and decrease exports from China to the U.S. at least over the long haul. The argument is this would provide for more market fairness and over time there would be greater competition from other economies, etc. However, there is a lot of risk in regards to implementing Romney’s plan now, when many economies are weak.

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