China's New Trade Deficit

A worsening balance of trade
In the land in which everything's made
May be read as a sign
Of commercial decline
In the rest of the world, I'm afraid.

The news of China's large global trade deficit in February came as a shock, and may evoke some Schadenfreude in Americans who have despaired over the size of our nation's trade deficit with China. However, this is no time for malicious glee in the centers of manufacturing, or legislation. For one thing, the $4.1 billion Chinese trade deficit in the first two months of the year did not redound to the benefit of the US, with which China still has a large trade surplus. Second, the Chinese trade deficit indicates weak consumption among its European trading partners, to which Chinese exports declined by 1.1%. This is a sign of a possible global slowdown, which benefits nobody.

Industrialist Obama

"To create better jobs in the shorter view,
Manufacturing needs the support of you,
For to firm up the health
Of our national wealth,
We must build some more cars and export a few."

President Barack Obama, in his State of the Union address on Tuesday night, predicted that manufacturing products for export would turn the US economy around. The President singled out companies such as General Motors and Master Lock as examples of this potential. Such rhetoric made Marketplace reporter Heidi Moore wonder whether we could build enough stuff to fill the financial hole left by crisis-riven banks. After all, the financial sector accounted for one third of US corporate profits before the bubble burst. Responded University of Maryland economics professor Peter Morici:

"We cannot succeed as an economy without a strong manufacturing base." While Wall Street has made a lot of money, Morici says, "It's nothing compared to the wealth generated by labs that come out of manufacturing."

Trade War 101

To gainfully utilize labor, 
Export nations play "Beggar Thy Neighbor;" 
While the deficit spenders, 
Resenting their lenders, 
May rattle the trade-tariff saber.  

Thanks to Prof. Michael Pettis of Peking University (no, that's not a typo) for his timely comment in the FT.