China has been officially dedicated second largest economy. That will awaken us all the old demons of protectionism and anti-globalization. The opportunity, since I just came from there, to begin a series of posts revisiting some false-evidence in international trade.
We always buy up to what we can sell
This week, back to the equilibrium concept of the "trade balance" which I already mentioned in a previous post . We tend to see international trade as a war in which the exporting countries (including China) are getting richer and net importing countries (like France) and poorer living on credit from the first to finance its trade deficit. The history of Hong Kong is instructive in this regard as it demonstrates the contrary, that all exchanges are inherently balanced.
Great Britain in the 19th century fond of Chinese products (porcelain, silk and tea especially) that she consumed large quantities. But then, for fear of seeing his country perverted by foreign goods, the Chinese Emperor insisted on being paid in gold for its exports. No bowl for the British Crown with gold resources were limited. No gold, no tea! Disappointed, the British soon discovered in the smuggling of opium (grown in India) another bargaining chip with China. Phenomenal success in every sense of the term with the Chinese people, so much so that the emperor finally banned the drug by a public safety measure. Or ban the opium trade amounted to drastically reduce the tea! To force China to lift the ban, Britain finally declare war in 1839. The "Opium War" ended in 1842 by the British victory, the transfer of the territory of Hong Kong to the British Crown and a return to normal volume of trade between the two countries.
In trade, we can not buy goods only up to what we can sell in exchange. The history of the opium war shows that this common sense rule applies equally to international trade, even if it seems a little less obvious. China was exporting tea to live up to what the British could provide as gold. The free convertibility of currencies exchange does anything to this basic principle? Absolutely not. Introduce currency only pushes the argument one step further: Suppose a British buyer
like to purchase today of a Chinese tea:
- The British buyer can not pay his tea in yuan. It is for the Chinese bank on the corner and asked him to exchange his sterling against the yuan.
- Chinese banks accept buying sterling unless they themselves have Chinese clients wishing to buy their cons of the yuan.
- The Chinese clients (those of the bank) do not want themselves pounds because they want to buy the mint jelly and cream crackers to the British (who are paying themselves in that currency) .
full circle: the United Kingdom can buy tea in China that if it is interested in buying "Values" in Britain.
The equilibrium of the balance of payments has replaced that of the trade balance
The only difference from the XIX century is not the free conversion of currencies, but the massive expansion of the range of possible exchanges between two countries. In 1840 China could not buy in England that goods or gold and kick when you consider gold as a commodity, its balance of trade in goods (trade balance) was always zero.
Today the Chinese can buy British services, travel to England, pay Chinese nationals resident in the United Kingdom, buy shares or bonds in the City, make financial investments in the UK market and so on. This is not the trade balance is balanced but the balance of all securities traded (goods, services, income, capital etc.), that is to say, the balance of payments, which is void *
BOP = balance of trade flows (goods + services + income) + net capital flows = 0
Why is trade especially with countries rich
This simple rule explains in particular why 60% of our trade is with the rest of the European Union and less with 20% of developing countries:
Certainly there would be many things to sell to poor countries, but by definition they don ' have little to offer in exchange for their trading partners (goods, services, investments, investments). So, we do trade with them only up to what they can sell us in return, just as China was exporting tea to share the gold that England could provide.
This modesty of trade with developing countries the transition should reassure those who fear the destructive effects of competition from countries with cheap labor in our industrial fabric. We return to this issue.
deficit, so what?
The balance of payments, which replaced that of goods, the latter has no reason to be balanced. If a country imports more than it exports, it simply means that something else has mostly sold as commodities. This may be because it attracts foreign capital (in the case of tax havens or marketplaces important) because it receives many visitors (a tourist country) etc.. Certainly the trade balance is "deficient", but on the other hand, that capital is "excess" and a "trade deficit" is not necessarily an alarm signal for the economy or a sign depletion . There are even situations where it's more good news:
- where the country's growth is more dynamic than that of its partners, its domestic demand grows faster and increase its imports more than exports (okay c is not the case in France)
- where domestic firms modernize their production, they are more important (albeit is not the case either ;-)
short worsening trade deficit is in itself neither good nor bad sign. It may be a thousand possible causes that reflect the changing economy. As regards France, the least you can tell by looking at the figures is that the contribution of net trade to growth is far from obvious:
source: study Senate (2009)
No flowers Chinese
Contrary to what one can often read, China is therefore not a special favor to its partners in financing the deficit commercial. We saw it, his "excess" trading corresponds exactly to its needs for financial investments abroad to buy shares, including its expatriate workforce, will invest its capital ... China is more open to the world that are 150 years but not more philanthropic in its international trade for all countries on an equal footing. Y would he have that would be more equal than others?
* For convenience I made a shortcut: it may happen that a state too extravagant to be denied credit to pay for its imports. He is then obliged to get rid of its debt by drawing on its reserves currency or by adjusting interest rates. Its balance of payments is balanced then (that was the goal) but at the cost of a deterioration in the exchange rate of its currency. This can happen for government spending in some African countries, but remains outstanding. Nothing to do with this example we can read about the famous trade deficit the United States (including the balance of payments is balanced).
Sources:
On definitions, this site economy is very well done
Economy without Taboos Joseph Heath, who gave me the idea of this post
On the main thesis of this post, not much support on the web this blog to share which goes further than me in his summary of "39 lessons of contemporary economics" of Simonnot.
Related posts:
The record trade deficit: it serious doctor? Ticket which gives the recipe for the trade balance by ruining his country.
