China Trade

Folks,

Recently the news came out that Germany is now #1 exporter in the world, but that is slightly misleading, since it is for one month I believe, and it since everything is changing, who knows how things will level off in time. It is significant though, in the larger issue of changing trqade patterns.

When reading trade related news reports, think in terms of "video" vs. "snapshot". The video supports my
argument since it covers trends in time, a snapshot from any given time frame is very
misleading.

Look at China and Germany... China is now Germany's #4 supplier, (if cheap labor
mattered, why not #1?) At the same time, if China is so poor, how come China is Germany's #10
customer, ahead of Russia, a neighbor, and Japan, a rich country?

Here is something key: in outsourcing, USA jobs are never sent overseas. What happens is, a
company is about to build a new factory with new processes and machinery, much more
advanced than the status quo in the now obsolete USA factory. The new factory has jobs no one
has ever done before, so any employee needs to be trained from scratch.

Next it takes 15 years to recover the investment cost of a factory, so the question is, where on
earth will a factory built today be worth the most in 15 years? Right or wrong, people are
deciding the answer is "China". So factories never seen before and jobs never performed before
sprout up in China (where of course the workers, the one variable in this scenario, agitate for
ever-better welfare).

Now, not only is USA biz going to China, but so it every other country in the world. China is
#10 supplier to Germany because German companies have outsourced German goods to China,
and then buy those goods from the Chinese. China moves up in ranking as a supplier to
Germany as the Chinese make German products for the Germans.

USA was buying those same products from the Germans, but now USA is buying those products
labelled say "Siemens" from China with some profits going to Germany.

(Although all of this massive distortion and malinvestment is the result of USA monetary policy,
with a view to cheating China by encouraging them to make things and take worthless pieces of
paper as payment, the Chinese have "judo-flipped" us into a position where the worthless paper
hurts us, and the Chinese now have the technology to be a #1 source worldwide for products.
The trade patterns worldwide prove the Chinese efforts are succeeding.)

When Germans buy Mattel toys from Mattel USA, the toys once made in USA are made in China.
The Mattel factories are state of the art, Swiss Pharmaceutical grade factories putting out first
rate products, managed by world class managers, who happen to be born and raised in China,
and likely holding a Harvard MBA. (As I predicted, the recent multi-million unit toy recall ended
up a Mattel design-flaw issue, not a Chinese QC issue).

To attribute China's success to "cheap labor" or 'exploited labor" is to miss what is going on, and
how to play it. For the USA policymakers, that most Americans have become convinced that
cheap labor is THE factor in international trade (when it is not even A factor), they can write
policy that puts a halo on stupidity. USA policies harm the USA consumer and ever enrich the
Chinese, Perhaps this is why the Communist Party of China funnels so much money into the
democrat and republican presidential front runners, and why they must visit Beijing before they
can be considered "presidential."

Efforts that result in a thriving small business necessarily upset the bad guys who populate the
top tiers of government worldwide. Although individually we matter not one bit, collectively we
unbalance the status quo for all bad guys worldwide, because we do well while doing good. This
runs contrary to the official, stated government USA policy which all government workers and
policy makers organize around: "Get big or get out!"

John


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Below is a list of Germany's top 15 export customers, based on WTO statistics for 2005. Total
German exports for 2005 amounted to US$971 billion. These 15 countries account for some
three-quarters of total German exports.

Top 15 Countries for German Exports in 2005

France ... US$99 billion (10.2% of total German exports)
U.S. ... $85.5 billion (8.8%)
U.K. ... $76.7 billion (7.9%)
Italy ... $67 billion (6.9%)
Netherlands ... $59.2 billion (6.1%)
Belgium ... $54.4 billion (5.6%)
Austria ... $52.4 billion (5.4%)
Spain ... $49.5 billion (5.1%)
Switzerland ... $36.9 billion (3.8%)
China ... $31.1 billion (3.2%)
Poland ... $25.3 billion (2.6%)
Czech Republic ... $23.3 billion (2.4%)
Sweden ... $21.4 billion (2.2%)
Russia ... $19.4 billion (2.0%)
Japan ... $16.5 billion (1.7%)

Germany imported $774 billion worth of goods from its trading partners in 2005. The 15
countries listed below were responsible for over 70% of goods imported into Germany.

Top 15 Countries German Imports From in 2005

France ... US$67.3 billion (8.7% of total German imports)
Netherlands ... $65.8 billion (8.5%)
U.S. ... $51.1 billion (6.6%)
China ... $49.5 billion (6.4%)
U.K. ... $48.8 billion (6.3%)
Italy ... $44.1 billion (5.7%)
Belgium ... $38.7 billion (5%)
Austria ... $31 billion (4%)
Spain ... $28.6 billion (3.7%)
Switzerland ... $27.9 billion (3.6%)
Japan ... $23.2 billion (3%)
Czech Republic ... $22.5 billion (2.9%)
Russia ... $21.7 billion (2.8%)
Poland ... $20.9 billion (2.7%)
Ireland ... $20.1 billion (2.6%)

Germany enjoys trade surpluses with most of its trade partners, with only 4 deficit trade
scenarios in the above lists. In 2005, Germany had trade deficits with China ($18.5 billion), Japan
($6.7 billion), Netherlands ($6.6 billion) and Russia ($2.3 billion).

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