U.S. Is Number 1

China has recently announced that the U.S. is now its biggest export market with the European Union falling to second place. It is no secret that the United States has become heavily reliant on the goods and services that China produces, however, this may be an indication that we are not producing enough domestic goods and our consumption is getting out of control.

So far this year China has exported over $289 billion to the U.S. This number continues to grow every year and the U.S. needs to find other ways to support its insatiable consumption.


Dr. Tufte said...

Zach: 100/100

Is there any managerial economics here?

Here are three thoughts about the macroeconomics implicit in this:

1) If you had to pick one, would it be to produce or consume? If you picked consume, does "not producing enough domestic goods" make sense?

2) Do our imports expand at the opposite time or at the same time as the rest of the economy expands? If you picked the same time, then our imports from China exceeding those of the EU is a sign that our economy is doing better than theirs.

3) People tend to think there's a problem here; if so, is the problem imports from China or just imports? If you answered the latter, then "find other ways to support its insatiable consumption" doesn't have a solution.

Aiden said...

This is another subject that I find quite interesting and to be completely honest, extremely political. In hopes of not getting too political I will make my point. I am curious of how much the tax regulations that are in place for corporations have to do with this disparity in trade. Given that it costs so much to operate a company within the US, many have started moving their production across the border and a majority of that is in China. It is so much cheaper to have everything made outside of this country by others that we can no longer compete and a lot, not all, has to do with the 35% tax placed on business within this country. Lower that tax rate and watch business and production start to boom again within our borders.

Dave Tufte said...

Aiden: 50/50.

I think the tax rate issue is political, but perhaps not in the way you imagine. I think the problem is not one party versus the other, but that both parties have been in favor of (appearing to) cut personal taxes, and have accomplished that by shifting taxes to corporations. We now have the highest corporate tax rates of any developed country, and there is essentially zero discussion of this.

On the other hand, that tax applies equally to different industries, and there are many industries not characterized by much outsourcing. So I think that it has influenced comparative advantage to some extent, but not hugely.

The other thing to keep in mind about outsourcing and costs is that while outsourcing can reduce costs, it also tends to reduce productivity. So, it isn't clear that it is a winning game for many industries.

Nathan said...

I do not agree with Zach’s position that the United States is not producing enough domestic goods and our consumption is getting out of control. I feel that there are opportunities for consumers to maximize cost reduction by purchasing products produced outside of the United States. Consumers are not necessarily spending out of control, rather they are lowering their costs in order to achieve maximum utility. The United States is not merely failing to producing enough goods, but operating in a global market.

Dr. Tufte said...

Nathan: 50/50

Agreed. How did buying the cheaper product get perverted into some big moral issue?

America doesn't trade. People trade. China doesn't trade either. People who live in China trade.

But, we goof this up when we categorize and sum up all those individual transactions, and then claim that somehow the group is winning or losing. This is nonsense, and people should know better than to fall for it.