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I find it amusing Australia had a decades long mining boom because of China's appetite for resources but now they hate them... It's really simple every year th

I find it amusing Australia had a decades long mining boom because of China's appetite for resources but now they hate them... It's really simple every year the West has a trade deficit and China uses those billions to strategically invest becoming the new superpower. Sound familiar? It's what America did after WW2.

Jeff_Brown 5y ago
There's no in-the-moment advantage to having a trade surplus. The benefits are in the future, and they are only hypothetical until the trade imbalance is canceled. America's trade deficit means we get real stuff from China -- both consumer goods and capital ("investments") like robots for factories. China gets nothing but promises from the US. They do it because they expect we'll be able to pay them back at a higher interest rate than what they could have made with those resources themselves. Implicitly, those loans are China acknowledging that investment in the US works better than investment in China.
- seanmcdirmid 5y ago
  > They do it because they expect we'll be able to pay them back at a higher interest rate than what they could have made with those resources themselves. China doesn’t invest in high rate treasuries with their dollar surplus, they are getting below inflation rates in their treasury purchases. They do it because (a) their export driven economy demands that they send more things out than get things coming in and (b) putting excess dollars in treasuries is better than simply investing them back in their economy would heat things up and stoke inflation. China currently has plenty of money for its own investment needs, so US treasuries are just convenient and not a statement on the natures of investments in the USA.
- shadowfaxpku 5y ago
  This is a super simplified and somewhat wrong interpretation of trade dynamics. Surpluses are important because 1) sustained surpluses imply structural reasons, and in this case, China's consistent upgrade in industrial production chains as it uses the funds it has acquired to invest in improving technology and human resources. 2) sustained deficits are often correlated with domestic employment moving away from manufacturing and into services, as well as a bigger share of income by corporations who are able to offshore their production, leading to greater inequality. 3) The dollar will not maintain its purchasing power forever, if its manufacturing, R&D and military dominance are perceived to be eroded. Many countries are moving away from sole reliance on dollars as the only reserve as we speak, including China. The amount of US dollar assets China has divested over the years is staggering.
- morpheos137 5y ago
  Or there could just be a glut of savings in China. We get "real stuff." China gets money some of which is re-invested in China some of which comes back to America/Canada as loans, real estate investment, etc, which in part drives American asset price inflation and also enables our government to cut us "stimulus checks" to buy more real stuff from China...see the picture...China produces we buy... Here is a suggestion. Read the "Wealth of Nations" by Adam Smith. It is still true. The long term prosperity of a nation is not based on how cheaply it can borrow money. Rather it is based on its comparative advantage in producing "real stuff." While China is investing in moving up the manufacturing value chain, the USA is taking increasing debt and experiencing rising asset values out of line with increasing real production.
- zaphirplane 5y ago
  When a company get components from China they pay cash, when a person orders something from a Chinese seller they pay cash where is the loans coming from ? Bonds ? they are not at the transaction level Can you shed light on your statement
  - Jeff_Brown 5y ago
    An oversimplified but useful model is that, internationally, any country's money is, in the eyes of another country, just a promise to repay. If one country sends goods to another and receives money for it, the exporting country has effectively received a bunch of promises that the importing country will eventually (repatriate the money and) give them stuff in return. It's more complicated because the exporting country could instead give the (say) dollars to a third country in return for real stuff. But still what gives those dollars is the reasonable expectation that others will continue to value them enough to give you actual useful stuff for them.

Jeff_Brown 5y ago

There's no in-the-moment advantage to having a trade surplus. The benefits are in the future, and they are only hypothetical until the trade imbalance is canceled. America's trade deficit means we get real stuff from China -- both consumer goods and capital ("investments") like robots for factories. China gets nothing but promises from the US. They do it because they expect we'll be able to pay them back at a higher interest rate than what they could have made with those resources themselves. Implicitly, those loans are China acknowledging that investment in the US works better than investment in China.

seanmcdirmid 5y ago
> They do it because they expect we'll be able to pay them back at a higher interest rate than what they could have made with those resources themselves. China doesn’t invest in high rate treasuries with their dollar surplus, they are getting below inflation rates in their treasury purchases. They do it because (a) their export driven economy demands that they send more things out than get things coming in and (b) putting excess dollars in treasuries is better than simply investing them back in their economy would heat things up and stoke inflation. China currently has plenty of money for its own investment needs, so US treasuries are just convenient and not a statement on the natures of investments in the USA.
shadowfaxpku 5y ago
This is a super simplified and somewhat wrong interpretation of trade dynamics. Surpluses are important because 1) sustained surpluses imply structural reasons, and in this case, China's consistent upgrade in industrial production chains as it uses the funds it has acquired to invest in improving technology and human resources. 2) sustained deficits are often correlated with domestic employment moving away from manufacturing and into services, as well as a bigger share of income by corporations who are able to offshore their production, leading to greater inequality. 3) The dollar will not maintain its purchasing power forever, if its manufacturing, R&D and military dominance are perceived to be eroded. Many countries are moving away from sole reliance on dollars as the only reserve as we speak, including China. The amount of US dollar assets China has divested over the years is staggering.
morpheos137 5y ago
Or there could just be a glut of savings in China. We get "real stuff." China gets money some of which is re-invested in China some of which comes back to America/Canada as loans, real estate investment, etc, which in part drives American asset price inflation and also enables our government to cut us "stimulus checks" to buy more real stuff from China...see the picture...China produces we buy... Here is a suggestion. Read the "Wealth of Nations" by Adam Smith. It is still true. The long term prosperity of a nation is not based on how cheaply it can borrow money. Rather it is based on its comparative advantage in producing "real stuff." While China is investing in moving up the manufacturing value chain, the USA is taking increasing debt and experiencing rising asset values out of line with increasing real production.
zaphirplane 5y ago
When a company get components from China they pay cash, when a person orders something from a Chinese seller they pay cash where is the loans coming from ? Bonds ? they are not at the transaction level Can you shed light on your statement
- Jeff_Brown 5y ago
  An oversimplified but useful model is that, internationally, any country's money is, in the eyes of another country, just a promise to repay. If one country sends goods to another and receives money for it, the exporting country has effectively received a bunch of promises that the importing country will eventually (repatriate the money and) give them stuff in return. It's more complicated because the exporting country could instead give the (say) dollars to a third country in return for real stuff. But still what gives those dollars is the reasonable expectation that others will continue to value them enough to give you actual useful stuff for them.