Chinese imports and the price of oil
Container shipments through the port of Long
Beach, CA have rose 22% in April. The total number of containers rose by nearly
100,000 containers since a year ago (from 441,061 to 538,501). A great many of
these containers come from China, which has been flooding the American market
with cheap consumer goods for years. To facilitate this immense trade imbalance,
China has been manipulating its currency by linking the value of the yaun to the
U.S. dollar. The Bush Administration just this week issued another warning to
China about what it has termed "unfair" trading practices and then quickly
proceeded to restrict Chinese clothing imports.
What, however, do economists think of this trade
imbalance, this Himalayan current account deficit, with China? A number of
economists see no problem with it at all. Merely American consumers exercising
their free choice. Yet such a view of the matter proves the severe myopia
afflicting the economics profession. If we turn to another economic stat much in
the news nowadays, we see very plainly the consequences of running immense
current account deficits, especially with an expanding industrial and military
power like China. Until recently, the price of crude oil was over $50 a barrel.
Just this week it has fallen to about $47 a barrel, but everyone knows that the
long-term trend is toward higher prices. Two critical reasons for this are: (1)
the weakness of the dollar; and (2) competition for oil from China, which has
recently established itself as the second leading importer of oil in the world.
Now why is the dollar weak? In large part because of those very current account
deficits that too many economists don't consider a serious problem. Now why
should we weaken the dollar while at the same time strengthen the ability of
China to import oil? Because that's what we're doing. In return for all the
cheap consumer goods, we are making it easier for China to import oil. In other
words, cheap consumer goods from China ultimately mean higher prices at the gas
pump.
Why aren't professional
economists connecting these dots?
Posted: Wed - May 18, 2005 at 05:28 PM