China currently holds 3.1 TRILLION US DOLLARS as a foreign exchange reserve. This is about 16% of US GDP. China has recently appointed Xi Jinping as president for life and is a National Socialist state that does not have a democratic constitution.
When the US government took exception to its trade deficit with China and to the Chinese stockpile of dollars it was met with a storm of protest by the broadcast media. The media have been running programs on "Trade War" and have quoted economists who declare that trade deficits are harmless because dollars spent on imports always find their way back home. These articles are astonishing misinformation because trade deficits directly reduce GDP and, if exporters to the USA such as China stockpile dollars and use them outside the USA, the dollars do not all find their way back home (see Note 2).
China is now spending some of its stockpile on acquiring companies in the EU ($79bn in 2017) and resources in Africa and South America, extending the power of its totalitarian regime globally. The response of Western journalists to US moves to counter this expansion is to accuse the USA of trade war.
The UK also has a huge trade deficit. In this case it is with the EU and is reducing UK GDP by 3-4%. Check out Why Trade Deficits must be Avoided for an explanation ofhow this happens. Again, journalists treat any attempt by the UK to tackle this problem through Brexit as Trade War. What the journalists do not mention is that, within the EU Single Market, the money spent on EU imports does not all come back to the UK economy because a sizeable proportion of the imports are acquired by EU owned UK companies. (See Note 1). The UK trade deficit with the EU has a greater effect on GDP than might be expected for a country outside the EU.
The way journalists are reporting US trade negotiations and the economics of Brexit is extremely disturbing. They have scarcely mentioned that if the US selectively targets China it breaks the first rule of WTO membership so any action against China is bound to create collateral damage to trade with other countries. They do not mention the UK-EU Trade Deficit at all, even during UK-EU trade negotiations. Have they all been bought by Big Business, the EU and the Chinese? What is going on? The organisations that benefit most from ignoring Trade Deficits are Multinational Corporations, who gain from the countries that are in surplus if other countries are in deficit, and China. It appears as if many Western internationalist journalists are either working for Multinationals or prefer Chinese Capitalism to democracy.
Note 1: Here is an example of how EU owned UK companies damage the UK economy by preventing the return of money spent on imports into the UK. A French car company like PSA Vauxhall might produce a car worth £10,000 at Ellesmere Port. It acquires perhaps 8,000 euros of the parts from its Parent company in France to build each car and then exports the cars to Germany using the PSA dealership network. The Parent company takes, say £1000 of the profit and only about £3,000 of the money for the £10,000 car ever gets to the UK, the 8000 euros for parts being extracted by the parent company in France. Despite this PSA and journalists will declare what a wonderful benefit it is to the UK economy, exporting thousands of cars at "£10,000" each when each car is only worth £3000 to the UK economy. (For a full analysis see Have economists and economics journalist sold out? and The Damaging Effect of EU Ownership of UK Industry).
Note 2: A large amount of the Chinese stockpile of dollars is held as US debt. This can be sold to third parties. The political problem with Chinese dollar holdings is that it gives the Chinese the ability to extend their power. The financial problem with Chinese dollar holdings is that, unlike Japan which also holds substantial US debt, the Chinese do not have a developed banking system that can make the debt work for the world economy and where they do utilise their dollars they frequently do so outside of US territory so depriving the US of the return on their money to be expected of bonds. This is a hazard of any international reserve currency and the USA should have cracked down on the problem a decade ago rather than enjoying the "foreign investment" in exchange for their trade deficit that proliferated offshore dollar holdings.
Trade deficits directly reduce GDP and lead to debt which causes a further lowering of GDP. This effect is obscured in countries with low trading volumes relative to GDP because domestic production dictates overall GDP more than International Trade. In countries where international trade is over 80% of GDP in value the association between the Trade Deficits and poverty is very clear:
If the money spent by a country on imports simply always returned to the original economy to stimulate growth then the relationship between Trade Balance and GDP would not exist. (The UK and USA are not included in the above graph because their International Trade is less than 80% of GDP by value - the proportions are UK: 58%, USA: 27% - so variations in domestic production dominate GDP levels and obscure the association between Trade Deficits and loss of wealth on a simple graph).
Incidentally, when the value of total trade (exports+imports) is, say, 70% of GDP in value this does not mean that total trade composes 70% of GDP. Exports and imports cancel each other out in the calculation of GDP and it is the wages paid to workers producing exports and managing imports and other local expenses, purchases and investments that are the major contribution of international trade to the economy.
The US bonds held by the Chinese are yielding > 2% overall - about $30 billion+ a year from the US Treasury. The US can put on another $0.3 trillion or more in debt to China in not much more than 10 years without further trade at all. You can buy a smaller developing country for that amount of cash.
What is particularly crazy is that the Chinese have been able to keep their currency at a low exchange rate by selling Yuan to buy dollars so that they could maintain the trade deficit with the US and stockpile the dollars that are allowing them to buy an empire... All of this is obvious and what do broadcast journalists do to alert the public? Attack the USA for beginning to deal with the problem.
When the US government took exception to its trade deficit with China and to the Chinese stockpile of dollars it was met with a storm of protest by the broadcast media. The media have been running programs on "Trade War" and have quoted economists who declare that trade deficits are harmless because dollars spent on imports always find their way back home. These articles are astonishing misinformation because trade deficits directly reduce GDP and, if exporters to the USA such as China stockpile dollars and use them outside the USA, the dollars do not all find their way back home (see Note 2).
China is now spending some of its stockpile on acquiring companies in the EU ($79bn in 2017) and resources in Africa and South America, extending the power of its totalitarian regime globally. The response of Western journalists to US moves to counter this expansion is to accuse the USA of trade war. The UK also has a huge trade deficit. In this case it is with the EU and is reducing UK GDP by 3-4%. Check out Why Trade Deficits must be Avoided for an explanation ofhow this happens. Again, journalists treat any attempt by the UK to tackle this problem through Brexit as Trade War. What the journalists do not mention is that, within the EU Single Market, the money spent on EU imports does not all come back to the UK economy because a sizeable proportion of the imports are acquired by EU owned UK companies. (See Note 1). The UK trade deficit with the EU has a greater effect on GDP than might be expected for a country outside the EU.
The way journalists are reporting US trade negotiations and the economics of Brexit is extremely disturbing. They have scarcely mentioned that if the US selectively targets China it breaks the first rule of WTO membership so any action against China is bound to create collateral damage to trade with other countries. They do not mention the UK-EU Trade Deficit at all, even during UK-EU trade negotiations. Have they all been bought by Big Business, the EU and the Chinese? What is going on? The organisations that benefit most from ignoring Trade Deficits are Multinational Corporations, who gain from the countries that are in surplus if other countries are in deficit, and China. It appears as if many Western internationalist journalists are either working for Multinationals or prefer Chinese Capitalism to democracy.
Note 1: Here is an example of how EU owned UK companies damage the UK economy by preventing the return of money spent on imports into the UK. A French car company like PSA Vauxhall might produce a car worth £10,000 at Ellesmere Port. It acquires perhaps 8,000 euros of the parts from its Parent company in France to build each car and then exports the cars to Germany using the PSA dealership network. The Parent company takes, say £1000 of the profit and only about £3,000 of the money for the £10,000 car ever gets to the UK, the 8000 euros for parts being extracted by the parent company in France. Despite this PSA and journalists will declare what a wonderful benefit it is to the UK economy, exporting thousands of cars at "£10,000" each when each car is only worth £3000 to the UK economy. (For a full analysis see Have economists and economics journalist sold out? and The Damaging Effect of EU Ownership of UK Industry).
Note 2: A large amount of the Chinese stockpile of dollars is held as US debt. This can be sold to third parties. The political problem with Chinese dollar holdings is that it gives the Chinese the ability to extend their power. The financial problem with Chinese dollar holdings is that, unlike Japan which also holds substantial US debt, the Chinese do not have a developed banking system that can make the debt work for the world economy and where they do utilise their dollars they frequently do so outside of US territory so depriving the US of the return on their money to be expected of bonds. This is a hazard of any international reserve currency and the USA should have cracked down on the problem a decade ago rather than enjoying the "foreign investment" in exchange for their trade deficit that proliferated offshore dollar holdings.
Trade deficits directly reduce GDP and lead to debt which causes a further lowering of GDP. This effect is obscured in countries with low trading volumes relative to GDP because domestic production dictates overall GDP more than International Trade. In countries where international trade is over 80% of GDP in value the association between the Trade Deficits and poverty is very clear:
Incidentally, when the value of total trade (exports+imports) is, say, 70% of GDP in value this does not mean that total trade composes 70% of GDP. Exports and imports cancel each other out in the calculation of GDP and it is the wages paid to workers producing exports and managing imports and other local expenses, purchases and investments that are the major contribution of international trade to the economy.
The US bonds held by the Chinese are yielding > 2% overall - about $30 billion+ a year from the US Treasury. The US can put on another $0.3 trillion or more in debt to China in not much more than 10 years without further trade at all. You can buy a smaller developing country for that amount of cash.
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