China as a Trading Partner

24 10 2007
China: The Scrooge of a Creditor
By William Robert Barber

There was a time when adversaries traded bullets wherein the coup de grace was to capture the other’s capital resulting in capitulation. Not so in today’s adversarial environment the haute de jour is to negotiate and act by all means possible be it illegal, extra legal, or close to legal for the best terms and conditions among all concerned parties. Each party is by design motivated to service their perception of self-serving benefits recognizing, somewhat begrudgingly, that each participant must extract a profitable return. The trading partners actually draw up detailed agreements to substantiate their rightfulness and lawful practice.  However, trading like warfare has little to nothing to do with contractual tenants, morality, or fairness; less the practical understanding that everyone is in for more than one trade; hence, the battle cry is: Be nice one may need the other next time.

 As to China, it has been said by many media sources that China’s growth of financial, manufacturing, and labor resources could endanger the balance of trade with the United States; wherein, the USA would buy multi millions more products from China than it sold causing an unsustainable trade deficient.   

That the purchase of USA debt instruments by China puts the United States in the horrible position of debtor to a political system that may work contrary to American interest. That China as a premier creditor of US debt and may demand repayment of its debtor instruments causing horrific-untimely liquidly issues for the US; indeed, China is a huge investor in US real estate, industrial infrastructure, financial sector, and does manage some of our busiest ports. 

China is buying oil for energy and pushing the price per barrel into new highs; China’s growth is so auspicious the country could in time pose a threat to US security because of increased funding of its military and it financial sway could create geo-political influences that may be counter to US interest. 

Well, I have a differing opinion than those varying media sources: I believe that China is an extension of US manufacturing; a sort of industrialized zone servicing the interest of US resellers into the United States. Factually, the resellers make more money on the resell value than the Chinese do on the sale of the product.  

It is the reseller that benefits from the wholesale and often enough the retail profit margin; it is the reseller that earns finance fees, insurance fees, spare parts sales, and labor services fees; the reseller is in the driver’s seat as to entry into the US market. In turn, state and federal governing bodies earn taxes on transactions; but, of course most importantly; with lower pricing, it is the US consumer that benefits the most from China trade. 

Regarding the debt instruments: Imagine China’s position, the largest consumer nation in the world is their trading partner; a considerable amount of their total export is to America; hence, they elect to stay in dollars by purchasing US treasuries instruments; so they give the US a dollar and the US in turn promises to pay them .04 or so; those transactions seem very reasonable to me. So now the United States owes China hundreds of millions of dollars all termed differently as to maturity. In the days of old the adversary would deliver his first born son as surety on performance now they purchase treasury notes. Because of the US Government has the power to nationalize all foreign investments China is compelled to play nice. The exact is true for Chinese investment into US equities, real estate, or business infrastructure; all such investments are, as good as, performance surety bonds. Actually, with the current system of trade everybody wins. A case could be made that China has the better end of the deal as to this or that particular; that maybe true; one simply must understand that in business one is always negotiating even after the contract is signed and the product delivered; therefore, where intolerable terms exist one must negotiate ones self out of that particular trading situation. 

When it comes to China priming up the price of oil; well, oil is a commodity and is price sensitive to supply and demand. I would rather have China buy up the oil and manufacture there; because I do NOT want the residual of energy consumption to pollute the air in America. 

The United States must always be vigilant and street wise as to monitoring the behavior of all nation states; however, it seems to me China as a trading partner is a solid lock on a winner. 

The 7 myths about US trade and Investments 

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