More on trade with China

·         As of 2013, our debt to China is about $1.2 trillion of the total foreign debt of about $5 trillion. The USA has to live within its means. The total national debt (http://www.whitehouse.gov/infographics/us-national-debt) is about $16 trillion (11 if not including the obligations such as social security). We cannot pass our debt obligation to the next generations forever. We cannot compete with foreign countries if a good portion of our GDP is used to service our debts.

·         China has been dumping some of its products to gain jobs which would reduce its social unrest. It is not a good long-term solution for its problems. Its trade partners have been reacting via high tariffs on these products and even on products that have not been dumped. China should sell the products at reasonable prices and open its own huge internal market for its own products via quality enforcement. In addition, China should set priority such as controlling corruption, environment damages, quality and regulations especially on stock manipulations.

·         There are many exports of components to China are eventually be assembled in China into products and imported back to us. This is the benefit of free trade. About our 55% of the products made-in-China goes to Americans who design, supply components and market.

China, the number two economy, offers huge resources and also a huge potential internal market. We've seen many examples. Apple uses the cheap, better educated, and flexible labor in China. In addition, it uses its technical resources of about 40,000 technicians and engineers, even their qualifications are lower from ours. Now, Apple is also making tons of money by selling Apple products to China.

The late Sam Walton objected importing Chinese products by selling products made in the U.S. for a few percentages higher. He underestimated the 'percentage' by a wide margin. Now Wal-Mart is the largest trade partner with China and it makes tons of profits after changing its policy for his stock holders and families, who could be the richest family in the world.

So are many bankrupting companies being rescued by China like GM and A123. China has a tendency to over-pay buying foreign companies, but in the long run it could be a strategic move to speed up modernization of its technology.

Volvo could be one good example for technology transfer and acquiring a well-known brand. China has mastered to build an automobile except the state-of-the-art technologies in engines and transmissions that can now be obtained from Volvo.

Some of the Chinese rescues of the U.S. bankrupting companies met with resistance from our politicians. Some have merits and most do not make good business sense.  A failing technology company has nothing left but sells its technology to the highest bidder no matter whom they are as long as they do not use the technology against us.

GE is smart to sell the technology of the jet engine to China. They can use the money to build the next generation of jet engines. If GE does not sell it, the EU or Russia will.

·         My joke.

Sell China our missiles. When the missiles are used against us (detected by the GPS), the missiles will return to the sender as programmed. A win-win play!

Norman told me:

The scrap metal we went to Japan prior to WW2. They returned it to us in the form of bombs on Pearl Harbor and the rest of the pacific. Not a joke.

We got the A-bomb technology from Germany (Japan’s evil brother then) and sent the two babies to Japan. A tooth for a tooth!

·         Trade between China and S. America.

As of 2013, China's demand for commodities will decrease in the next two years. China has enough infrastructure and buildings for a while even without the recession. The constant building is used to lessen social unrest by providing jobs.

Some projects are opportunities for the greedy rich and local officials to siphon off public money. Some vacant buildings are due to the poor planning by investors. The general market is not in ‘high-profit’ luxurious apartments, but affordable apartments in desirable locations. Making four times in properties in the past provides a false profitable prospect. Building a brand new city without citizens is building a city suitable for ghosts. Fortunately most residential buildings are not bought with large leverages.

China still buys commodities at current low prices and stores them for future use. South American countries should not depend on one country for their products. They have to look for other partners and hopefully India will be the one in the future. In addition, they ought to diversify into other businesses.

China and the U.S. are two connections in the ring of global economy. The other ones are commodity-rich countries such as S. America, Australia and Canada - all have enjoyed the rise of China and will suffer when China falls. When the U.S. slows down, the rest suffer as the global economies are connected.

·         China is our better trade partner than Europe.

The USA and the West European countries basically produce similar high tech products and compete against each other. They both import cheap products or products with extensive labor from China. However, China is moving up to the higher tech products.

Chinese are still new to the game in trading and marketing after the last 30 years. One problem is the failure to analyze their market outlook.

In the US, when one Chinese restaurant is busy, there will be another new one opened close-by. The second restaurant did not do a thorough market research. Both restaurants end up closing down. They have learned the hard way.

Same for many Chinese companies. The sad chronology is: Make great money, invite more copycats, face fierce competition, invite tariffs for some, over flood the market and hurt the stocks of these companies.

The government is wise to step in to stop the insanity and prevent further damages.

Some companies should be closed down or stop opening due to the potential environment damages. Making money and providing jobs are good, but some harmful side effects cannot be ignored.