Its a rather complex issue. First, let me state I am all for free trade. Unfortunately trade isn't exactly fair, but thats another issue. First off, we like Chinese goods. They're cheap (relative to domestic production) and allow us to consume more than we could otherwise. Second off, lower import costs cut expenses of American firms which helps increase output and increase our GDP. Also, as their economy grows they will eventually purchase more American goods (whether by choice or not). In addition, since they don't want to let their currency float (aka appreciate against the dollar---which would raise cost of imports from China, and decrease how much we import, while cheapen our exports and expand our output) they only have one option. That is to purchase American (Dollar Denominated Assets---remember shortfalls in exports of goods are offset by exports of financial assets). The result is that American assets appreciate and interest rates fall (some of the reason the yield has been so "funky" in comparison to historical rates). The results is that our homes and stock prices go up. We are wealthier (at least for the time, until the "bubble" if you buy into the bubble bursts, and we have some (serious????) problems). We can then buy more. Companies can borrow for less (lower costs of capital) which results in higher level of outputs. So are trade deficits bad. Yes and no. For the most part we ar ok, as long as foreigners continue to demand our assets. If/when they change their mids we could have some serious problems. To answer your initial question, we could (in theory) put some pressure on China via boycotts, but its unlikely this would ever happen and reprecussions could be problematic.
Yeah, I was in Shanghai about 8 months ago. The interesting thing about Chinese consumption is that everybody there drinks Coca Cola, eats McDonalds, and in the high end bars, the wealthy chinese would order Johnny Walker, watch NBA games on TV, and talk into their Motorola cell phones. It was an absolutely spooky experience. I had dinner with the CEO of a Chinese life insurance company, he didn't want to talk about business in China at all, rather, is much more interested in sending his daughter to Philip Exeter academy. While the trade deficit between US and China seems to be largely negative, I will borrow the Krugman argument here, trade deficit counts mostly the physical goods trade, not the current account movements. For instance, New York City (as a whole), is a huge importer of goods, and yet "produces" incredibly little, rather, all the capital invested by NYC firms generate profits, which are in turn spent in NY, so the "trade deficit" of NYC is absolutely huge, but NYC runs probably a substantial (huge?) current account surplus.
which do you prefer... A) USA makes difficult for Chinese goods to enter USA B) China makes difficult for USA goods to enter China predatorial rules of the capitalist game... whoever got the most capital wins predatorial rules of the knowledge-based economy game... whoever got the most knowledge wins. (including the knowledge to apply those knowledge.) open your eyes... you don't need to pull out your calculator to see... How many pairs of shoes the Chinese have to sell before they can afford to buy ONE Boeing jet? stop counting the pennies, the money is in the dollars !
not to mention riding in a Buick that was MADE IN CHINA !!! BTW, the Chinese Buick are made with better quality than those made in USA, would you believe it?
As a trader this isn't going to be a popular sentiment, as an American here goes........I say we put tax incentives in places to buy American on a tier system. Let's use your car example. Buy an American car with an American H.Q. that employees American workers get the biggest tax break Buy say a Toyota or Hyundai made in American, but with a foreign H.Q., a lesser tax break. Buy a Subaru, a Japanese made car with a Japanese H.Q. ( I believe ) you get no tax break. I have head it mentioned recently on Fox or CNBC I believe, that China and Germany protect their industries why shouldn't we? Screw the Chinese they are screwing us. We could do the same with Boeing and Airbus with the Airlines. How about this, no government subsidies for airlines that take the subsidies and then outsource jobs to foreign workers. WTF, is our government stupid or what? Don't get me started. Oh, I guess you did
Which deficit? Trade, yes. Budget, no. There is a conflict of interest. The Chinese government has been supporting our budget deficit through the purchase of our bonds. Unless countries like China and Japan continue to finance our government spending, we will be in serious trouble. Also, they have even been purchasing Mortgage-Backed Securities (MBS). Did you ever wonder how we were able to have such a strong housing market when interest rates were so low? Sure the demand was there, but what about supply? Why would someone want to supply the money for all of these home loans at such low rates? The government has been guaranteeing the repayment of many of these mortgages through the MBS. Ginnie Mae is backed by the full faith and credit of the U.S. government, while Fannie Mae and Freddie Mac have special authority to borrow directly from the U.S. Treasury. So an outside investor can supply the money, and the government will guarantee the repayment. Is it not curious that all of this happened while the 30-year Treasury Bond was temporarily discontinued? Essentially a home mortgage is a 30-year bond, and mortgage rates trade at a premium to Treasury Bonds. So if the government is going to guarantee these mortgages, what do you have to lose? You simply earn a higher rate of return than you otherwise would. Remember Regulation T? Why was that started? Now you have the same thing. People are highly leveraged (if you put 10% down on the house, you are leveraged 10:1), and our banking system is hopelessly mired in the whole mess. How can the FDIC insure your bank account when the Fed has also guaranteed the repayment of these mortgages? That is just the tip of the iceberg. And here are two recent articles that offer similar sentiments: http://money.cnn.com/2006/02/06/news/economy/bush_budget.reut/index.htm http://today.reuters.com/investing/...1_N03185183_RTRIDST_0_FINANCIAL-MORTGAGES.XML