I.O.U.S.A - Addison Wiggin [98]
8/26/08 7:02:40 PM
200 The
Interviews
health care; they ’ re worried about their retirement; they ’ re worried about boosting their own incomes. They look at the government probably a little bit differently. Chinese people aren ’ t really waiting for the government to have a lot of answers for them. It ’ s a little unclear why that is, but they see the government stepping away from everywhere they used to be. The government used to be dictating where they worked and how they lived and things like that, and they ’ re just not anymore. I think that Chinese people extrapolate from that that the government ’ s not going to be involved in their retirement.
But at the same time, the government is pretty involved with lots of businesses. One of the more diffi cult things is trying to decide what is government and what ’ s not government. There are a lot of companies that are quasi - government; there are a lot of people who are businesspeople but in fact are Communist party members. It ’ s a little bit diffi cult sometimes to fi gure out where the government is in China, and that ’ s a probably a big difference compared with the U.S.
Q: Talk to me about Macro Economics 101. What is a trade defi cit, and can you describe the trade defi cit that exists today between the United States and China?
James Areddy: China ’ s making everything from computers to cars, and they have designs on the world ’ s biggest economy, which is the United States. They certainly see that as a market in the same way a lot of companies see China as a market. A lot of things are made quite cheaply in China. American and Western companies are then selling those goods, whether it ’ s computers or whether it ’ s little plastic buckets. Anything that you fi nd on a Wal - Mart store shelf is invariably made in China. Why is that?
It ’ s because they ’ re cheap and they ’ re relatively effi cient; they ’ re making good products here in China. Then, they ’ re exporting that stuff to the U.S., and U.S. consumers are fi nding prices falling for lots of really basic goods. They ’ re able to fi ll up their garages with lots of things that are made in China. The result: a lot of goods, a lot of stuff, a lot of ships fl owing toward the U.S. In response, what China is getting out of it is a lot of money. There are a lot c15.indd 200
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of dollars coming into China from the U.S., and from virtually everywhere in the world.
Q: If we were keeping score of this defi cit between the two countries, where do we stand today?
James Areddy: The way people keep score on the trade relationship is often China ’ s foreign exchange reserves. It ’ s the amount of extra money that the government lays claim to. Sometime in late 2006 that number hit a pretty important milestone, $ 1 trillion, and it ’ s continued to rise at a very, very rapid pace. That ’ s basically $ 1 trillion in profi t that China has earned from selling all kinds of things overseas.
Q: Some people say that if they wanted to, China could infl ict a lot of pain on the U.S. Do you think that that is a legitimate concern, or do you think that China is smart enough to know that what ’ s good for the American economy is good for the Chinese economy?
James Areddy: What scares a lot of Americans about China ’ s growing prowess and these one trillion - plus in foreign exchange reserves is that a lot of that money is invested in U.S. Treasury bonds and in U.S. government debt. This is keeping U.S. interest rates low and house prices high and allowing the U.S. economy to continue to grow quite well. A lot of people worry that somehow China is going to suddenly ask for its money back and walk away from the U.S. economy. A similar kind of concern took place in the ’ 80s with Japan; everyone worried that Japan would do the same thing.
At the same time, the relationship between the U.S. and Japan is a lot tighter, it seemed, than the relationship between the