Friday, May 29, 2009

60% of Chinese exports to the US are from foreign-owned corporations

Foreign owned global corporations account for 60% of Chinese exports to the US.[1]
Did you know this? How many people understand that this means that non-Chinese corporations are responsible for the trade imbalance between the US and China.

Who does know this?

Not Bernanke and Greenspan who are reported to be blaming the "high-savings countries in East Asia" for "the immense pool of [global] liquidity" (particularly in the US). [2]

But who is creating this gigantic pool of liquidity? Economist Enzio von Pfeil has pointed to problems with the official [US] Treasury records that detail the owners of US 'foreign' debt - "there appear to be no data available on how much U.S. Treasury debt is held by U.S. MNCs". What, he says, do U.S. MNCs do with at least a portion of all of that money they are making in their fabulously successful overseas operations? [3]

Not Barry Eichengreen who holds the title of the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he has taught since 1987.[2], [4]. He says that "Whether [or not] there is a permanent reduction in global imbalances will depend mainly on decisions taken outside the US, specifically in countries like China." [2] Well, how can that be? If China, itself, is not responsible for the great outflow of goods to the US?

Not economist Mark Thoma
at Economist's View. Nor any other people who have posted comments to the Eichengreen article he linked there.[5]

Which is all VERY strange because the folks at the US Federal Reserve, like Greenspan and Bernanke, have worked closely with former Kissinger Associate Timothy Geithner [6] as well Roger Corbett who is a director of Wal-Mart Stores Inc and who is also a board member of the Reserve Bank of Australia. [7] Kissinger Associates and Walmart folks know all about the true nature of US trade with China, after all. Walmart is China's fifth-largest export market, ahead of Germany and Britain. [8] and is responsible for approximately 10 percent of the United States' trade deficit with China.[9] And it was Kissinger's wheeler-dealing, backed up by US military aggression in Vietnam, Indonesia, Korea and elsewhere that led the Chinese Government to surrender its borders to western global corporations in 1971. [10]

As for the economists, how could they not know the pivotal role of western global corporations in world trade? What should the general public expect from this professional body?

Or is this just another exercise in 'preferred nomenclature' suited to U.S. interests? Much akin to the language used by the former Reagan administration.[11]
Terms were employed to create the reality which that aggessive administration wanted. The frightening thing is that all subsequent US administrations, including the present Obama-led one, are following this same atrocious template.

How important is it to get the facts of world trade right? Is trade between subsidiaries of the same transnational corporations trade at all? Think about it. Because the achievement of clarity on this topic may be, in my humble opinion, a key way to avoid a global nuclear conflict! (The current Chinese military build-up is another story).

"The contemplation of things as they are, without substitution or imposture, without error and confusion, is in itself a nobler thing than a whole harvest of invention."
Francis Bacon, 1620.



[1] Undue Influence: Corporations Gain Ground in Battle over China's New Labor Law
2008-11-03 01:33:53
http://blog.ifeng.com/article/1822505.html

[2] By Barry Eichengreen /Beijing
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=292693&version=1&template_id=46&parent_id=26

[3] Is it true that foreigners finance American debt? - Update 2. Brenda Rosser. Monday, December 1, 2008
http://econospeak.blogspot.com/2008/12/is-it-true-that-foreigners-finance.html

[4] Barry Eichengreen
From Wikipedia, ON 30TH MAY 2009
http://en.wikipedia.org/wiki/Barry_Eichengreen

[5] Mark Thoma
http://economistsview.typepad.com/economistsview/2009/05/global-imbalances-and-future-crises.html

[6] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html

[7] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html

[8] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008

[9] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF

[10] China's trade policy was not an economic one. Brenda Rosser. May 2009
http://econospeak.blogspot.com/2009/05/chinas-trade-policy-was-not-economic.html

[11] Under Reagan's 'governance' third world nations were to be rolled back (e.g., Nicaragua). Thus they were called 'terrorist' and the insurgents were labeled 'democratic'. The governments in countries to be supported by Reagan and Co, in turn, were called 'democratic' and the insurgents were labeled terrorists. From the book Rollback by Thomas Bodenheimer and Robert Gould

12 comments:

ProGrowthLiberal said...

One footnote to the 60% statistics. While some US based manufacturers "purchase" goods from related party manufacturers in China, companies such as Wal-Mart are actually purchasing goods from 3rd party Chinese manufacturers via a related party procurement company. Not that this absolves them from the sweatshop charge (always low wages) or it fundamentally alters their ability to abuse transfer pricing to rip off the US Treasury.

Shag from Brookline said...

What portion of the 60% statistics does Wal-Mart represent? What is the percentage of US based manufacturers in China whose products are exported from China?

Brenda Rosser said...

Thanks, PGL.

After umpteen edits of this post today, the version there now may be the final one. Phew!

Now, if I received an income for my rantings I might not throw these out into the blogosphere so quickly and carelessly!

Brenda Rosser said...

Shag from Brookline said...
What portion of the 60% statistics does Wal-Mart represent? What is the percentage of US based manufacturers in China whose products are exported from China?

I'm researching this. I suspect that the real figures may never be found with respect to the true picture of trade between China and other nations. There doesn't appear to be much in the way of transparency.

Meanwhile, you might want to check out this:


A New Perspective on Global Imbalances: the Role of MNCs
Statement No. 8
Hong Kong, July 5, 2007

Abstract
The global imbalances that threaten to provoke major international trade conflicts may be a statistical artifact, arising from an outmoded accounting for international trade that ignores its
present domination by multinational corporations. Regional governments should update their international accounting; the first step would be to mandate the disclosure of data on the ownership and control of multinational corporations and the terms of their transactions amongst subsidiaries....

Brenda Rosser said...

Sorry, the full title with link is:

A New Perspective on Global Imbalances: the Role of MNCs
Asian Shadow Financial Regulatory Committee
Statement No. 8
Hong Kong, July 5, 2007
www2.hawaii.edu/~fima/ASFRC/HK_Statement.pdf

ProGrowthLiberal said...

I checked Wal-Mart's 10K and it does not report how much they sourced from China. Last article I saw that speculated put the figure near $30 billion but I've heard that they were thinking about buying $50 billion in goods from China. Of course, we buy over $300 billion in goods from China so Wal-Mart may be around 15% of the total action.

TheTrucker said...

I'm not quite sure what this article is trying to get a handle on. The article seems to be trying to make American offshorers and outsourcers and other nations offshorers and outsourcers the bad guys in the trade imbalance. That is probably a fair charge but for the question that was asked in the original post about the source of the "liquidity".

Surely we must all understand that this "liquidity" is American dollars and the source is the "spend and no tax" government along with the "leverage and more leverage" financial sector. The "liquidity" (fiat and bank money) is supplied by borrowing it into existence.

The money then flows to China because their costs of manufacture are based on slave wages. I will not point out that Malthus wins this round in the discussion, but I will say that the accumulation of all of the "liquidity" in the form of Chinese owned T-Bills is the "fault" of China and the Chinese government while the source of the liquidity is our own government and our own financial sector.

HOWEVER!!!

No one forces China to "save up" all the created money in a pile of interest bearing dollars called T-Bills. They have the labor force to build additional capital such as roads and bridges and schools and hydroelectric dams and algae farms and much much more. Yet they choose to not spend the money and to instead hoard it in T-Bills. They could just hand it out to the Chinese citizens and thus increase the real wages of the people of China.
But noooooooooooooooooooooooooo...
They wish to gain control over the US economy. I say this because there is no other rationale for saving up all that dough as opposed to spending or investing it. They want to "expand China" as a means of helping the huge population of China????

This gets us into "reality economics" where we observe that the ratio of population to natural resource is a true limitation of quality of life.

The point I am trying to make here is that no one forces the Chinese government to shortchange its citizens and "save up" all those T-Bills and keep buying even more of them. And if China were to _spend_ that money then the trade imbalance would be far less. This point has only to do with the T-Bills controlled by the Chinese government and nothing to do with any T-Bills that are owned by MNC's.

The T-Bills owned by the MNC's are a problem also in that they represent a power transfer from the producer class to the owner class and again it is a power seeking move. Governments that are not corrupt will raise import tariffs and other taxes to stop this crap. Governments that are corrupt will raise interest rates to stop it, thus transferring even more power to those who have collected all the money. This is an observation in "reality economics" as opposed to "noeconomics"

run75441 said...

Brenda:

Great post and footnotes on Trade, MNCs, and China. Just got down going through them all and they answered many questions I had about certain issues.

run75441 said...

Trucker:

Do not let "slave labor" blur your vision as direct Labor cost as a percentage of the costs of manufacturing is 10% of the cost of manufacturing or less. While it is a factor, it is not the same or as big as Burden/Overhead, which is ~30%. Companies move overseas for a # of reasons of which Labor is a part and Burden the largest reason.

Brenda Rosser said...

Trucker
I need more time to respond to your comments. but I'm leaving soon for the city and will be away for a few days. I'll try to reply when I get back.
Brenda

gordon said...

This post reminds me of an examination of who gets paid what up the value chain for an ipod. PGL posted about this on Angry Bear back in July 2007. Quoting from a study by Linden, Kraemer and Dedrick, that post said: "Based on these values, Apple’s gross profit on those units would be $80, which is 36% of the $224 estimated wholesale price. This $80 profit is greater than the price of any single input, so it is definitely greater than the value added for any of its partners".

So the income to manufacturers in China is much less than the wholesale cost of the ipod in the US. To the extent that the manufacturers are foreign-owned (ie. not Chinese-owned), the amount paid to Chinese would be less again - the foreign-owned manufacturers would have to pay interest and maybe license fees to their "parents", and that would come off the top.

But then there is the whole issue of transfer pricing. Does Apple, for instance, ascribe more of the costs of the ipod to China than China really gets? This is where the issue of how much US Treasury debt is held by MNCs becomes really important, because to the extent that MNCs hold this debt China doesn't. So for example Trucker's problem with China's choice to hold its profits in US dollars rather than spend the money in China would diminish.

Anonymous said...

hello,
I need some help: I am looking for the percentage of the American exports carrying the label of a foreign-owned company?! like the 60% of chinese exports you mentionned...
thank you very much!