Wednesday, November 10, 2010

Why do we pick on China so much for making stuff we like to buy? The anger is misdirected--"We have met the enemy, and he is us"

When we import MORE than we export we create a trade deficit.  There is much debate about whether this is "good or bad". Trade with the rest of the world has become a political issue, which is typical in a recession.  Lately much of the criticism is aimed at China. However, perhaps we are looking at the wrong target.  The graph below charts monthly changes (not a yearly aggregation) in the trade deficit over time.  The total monthly trade deficit in ALL goods and services is represented by the blue line. The blue line includes the oil we import from foreign sources.  The red line shows the monthly trade deficit WITHOUT oil included. In other words, the difference between the blue line and the red line is the market value of the oil we import.  The monthly  trade deficit (the very tip of the blue line to the right--September) was -$44 billion and the trade deficit WITHOUT oil (the very tip of the red line to the right) was -$22 billion.  Oil imports represented HALF of our trade deficit.  WHO is the elephant in the room?  Notice the separation of the blue line from the red line from 1998.  Seems we are more dependent on foreign sources of oil as time goes by. Is this "good or bad"?  Extra credit for good responses and perhaps a solution...

Calculated Risk

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