United States Trade Conflict versus China 2012  

The question is no longer "if", the U.S. versus China trade feud will happen rather it's a matter of "when"
and "how" severe the conflict will unfold in the global economic marketplace. Who will be the winners and losers in the next decade?   

Recently, President Obama announced support of 25% tariffs on all Chinese solar panel technologies to America. This news was received with cheers at the Oregon based SolarWorld USA manufacturing plant that employs over 1,000 American workers. The Obama administration’s latest shift to a more protectionist U.S. trade policy seems to be accelerating as the economy remains stagnate. Data shows the U.S. trade deficit has increased significantly over the past few years. The latest data shows that for the month of January/February 2012; the U.S. trade deficit grew to $52.4 billion (goods and services). Additionally, February 2012 US economic data shows under-employment at 14.9% and home sales dropped .9% while oil prices rose to $107 per barrel.   

Although, technology will be able to solve many of the issues brought on by the global population explosion, it cannot dissipate the instinctual human drive for control and economic power. This will require a collaborative understanding among nations to create the delicate balance of peace. However, there is no historic precedent for peaceful measures therefore it is unlikely any lasting peace among nations will win out. For example, the United States has been at war almost continuously since 1950.  In the decade that lies ahead, human beings will be put to the test defining whether or not true civil discourse and compassion lies within our innate character, says author James Rickman III, Director iHuman Evolution. 
  

The Chinese are pushing hard to gain the top global economic position. Most recently, the China Development Bank signed key agreements with BRIC nations (India, Brazil, South Africa, Russia and Singapore) to provide Renminbi loans and extend loans in BRIC’s respective currency. Countries like India are now facing tough sovereign debt issues that have pushed them towards protective economic measures including their continuation of trade deals and buying cheap oil from Iran. Such global economic shifts in power further undermine the U.S. dollar’s appeal as the standard currency worldwide.

By 2015, China plans to offer the Yuan as a freely convertible currency. In 2011, China led the world by exporting over $1.89 trillion worth of commodities. It should come as no surprise then as China begins its massive shift out of USD into other investments.  The question remains who will pick up the abundance of dollars that have flooded the market. Japan is unable to buy the excess dollars due to their severe economic debt problems and aging population issues says James Rickman III, Director  iHuman Evolution.    

China is using its manufacturing base to establish true value in the marketplace. For several years, China has stock piled enough reserves of raw materials such as valuable rare earth metals that are critical components to manufacture electric cars and mobile devices battery storage and oil energy contracts including (Sudan, Iraq, Canada, Kazakhstan, Russia, South America, Afghanistan).

Following its plan, China has paid for strategic natural resources in their own currency together with enough reserves of gold, silver and precious metals (Australia, U.S., Canada, China, Africa) to enable them to dump the US Dollar and take the loss in value of their US treasuries ($1.2 trillion) as less than the gain in value of China’s precious metals reserves. By 2015, the global oil supply will see a shortfall of 10 million barrels per day. Read Oil Output Report   

Looking back at the oil crisis of 1973 and 1979 in America, the cost of oil skyrocketed while the value of the U.S. dollar dropped causing massive inflation. Today, we find the same conditions brewing even worse however now if you combine this with U.S. $15 trillion debt, high unemployment and Middle East unrest. The U.S. economy seems to be staggering along at weak 2 – 3 percent GDP growth rates that are not sufficient to lead us out of this recession. As a result the likelihood remains that significant inflationary conditions may occur due to the inevitable need by the Federal Reserve to raise interest rates in order to begin addressing the U.S. debt. The FED cannot prop up the U.S. economy forever.  

Don't expect precious metals prices to spike and then tumble again. China needs precious metals prices to rise and stay there so they can have a viable reserve currency coming together at the same time. The wealth of the Chinese people is increasing based in part on their high rate of savings per capita. A large percentage of Chinese wealth is invested in precious metals and commodities. Today, we are seeing China has already put the key elements in place for its global rise to power and leadership position equal to that of the United States. Based on an 8% annual growth rate by 2022, it is calculated that China’s gross domestic product could reach over $14 trillion equal to that of the United States.  

A strong U.S. economic recovery must accelerate domestic exports tapping into our competitive advantages. For example, U.S. honey and bees wax exports have exploded over 50% since 2007. Large companies are now taking a hard look at niche growth markets that historically deliver high profit margins. For example, Clorox paid $913 million to purchase beeswax producer Burt’s Bees, now one of its most profitable divisions. For January 2012, the price of honey continued its upward trend, generating millions in revenue with U.S. honey production up 26% in states like Wisconsin, Florida, North Dakota and California leading the domestic honey industry. The leading importers for U.S. honey are Canada, Hong Kong, Japan, and South Korea. But countries like Brazil are aggressively trying to cash in on the honey sector now exporting over 20,000 tons of honey annually.  

Below are the most recent figures in U.S. trade with key regions. 

• The goods deficit with Canada increased from $3.9 billion in December to $4.8 billion in January 2012. Exports decreased $0.7 billion (primarily computer and automobiles, parts, and accessories) to $22.0 billion, while imports increased $0.2 billion (primarily crude oil and automotive parts and accessories) to $26.8 billion.
• The goods deficit with China increased from $23.1 billion in December to $26.0 billion in January 2012. Exports decreased $1.3 billion (primarily civilian aircraft, engines, equipment, and parts and passenger cars) to $8.4 billion, while imports increased $1.6 billion (primarily footwear and apparel) to $34.4 billion. 
• The goods deficit with European Union decreased from $9.6 billion in December to $8.5 billion in January 2012. Exports decreased $1.7 billion (primarily civilian aircraft, engines, equipment, and parts and fuel oil) to $21.1 billion, while imports decreased $2.8 billion (primarily passenger cars and civilian aircraft) to $29.6 billion.  

How important is our balance in trade policy and what impact does it have on the local U.S. economy? 

Let’s take for example, a state like Oregon that declares for every $1 billion in new exports it creates 5,400 jobs. Most recently, Portland Oregon business leaders have launched an aggressive plan to promote their products and services overseas.  

Oregon governor, John Kitzhaber has been instrument in leading this business development charge to increase exports to Asia. Recent data shows Oregon companies' sales abroad increased 18.5% for 2010 and 4.5% in the first 10 months of 2011. China remains Oregon's leading foreign customer, with total purchases of $4.1 billion in 2010, a 1,300 percent increase since 2000. Overall, start-ups in Oregon posted $48.5 million in financing in Q4 2011. That’s a solid growth point from the 2010 total $238 million, an increase of 25% in venture capital business funding. Read Capital Funding Report  

Oregon offers export opportunities from major shipping down the Columbia and Willamette rivers and their access to the Pacific Ocean. Oregon high tech companies like Intel Oregon, SolarWorld USA, Microsoft and ClearEdge Power  are employing tens of thousands of workers in the United States. Major Oregon based apparel companies like Columbia Sportswear and NIKE Inc. hold significant global brand names and market share.  The top 150 private companies in Oregon almost all have significant sales overseas (checkout the list of 150 top private companies in Oregon).   

In fact, the Pacific Norwest Region of America in states like Oregon are major suppliers of lumber with abundant forestry programs, agricultural and dairy product, wine and beverages that make it very attractive to trading partners in emerging markets worldwide. For example, Oregon holds the one of the largest North American reserves of clean water located under the Cascade mountain range while parts of Asia and even the U.S. in states like California and Arizona have serious shortfalls.    

If a U.S. trade war with China heats up, it will impact states like Oregon that rely on close ties to Asia, particularly in renewable energy. It is unclear what effect such a trade war would have but the mere psychological impact on the financial markets worldwide could shake investor confidence with a severe retreat in the stock market. The affect of a currency war would destabilize economic growth causing further unemployment. However, the temporary slowdown to create a fair trade policy may be necessary correction for long-term U.S. gains particularly for the manufacturing industry.   

For example, many argue tariffs would threaten the steady decline in the cost of solar power, driven in part by competitive prices, that has sparked the growth in jobs and investment in the American solar energy industry. With the price of solar modules falling from approximately $2 per watt in 2010 to $1 per watt, currently, the U.S. solar industry added about 7,000 jobs last year, for over 100,000 positions added total. This year, the industry expects to hire an additional 24,000 workers, making it one of the fastest-growing in the American economy.

However, this progress could wane quickly if tariffs go into effect, raising prices and risking a Chinese trade war. The Brattle Group, an economic watch dog has reported high tariffs on solar panels would result in the loss of as many as 32,712 jobs related to the solar industry in 2012, 40,593 by 2013 and 49,589 by 2014.

Locally, a protectionist policy could impact Oregon's solar industry, the eighth largest in the United States, with an estimated 3,346 jobs at 545 locations. Moreover, China's inevitable trade retaliation could hurt Oregon's other export oriented industries, from semiconductor equipment to agricultural and timber products. A back and forth trade conflict between the U.S. and China will spur a currency battle that drives up the price of commodities. Consumers are already feeling the 4.4% food price index rise within the last year.  

The question is no longer “if”, the U.S. versus China trade feud will happen rather it’s a matter of “when” and “how” severe the conflict will unfold in the global economic marketplace. Politically, China must satisfy its exploding population that will add over 450 million middle class consumers by 2022. Worldwide the population will hit eight (8) billion people by 2025 driving the demand for oil, high protein foods, electricity, medicine and clean water to levels never experienced before on Earth. There is no historic blue print to draw on here, mankind had confronted such challenges. We must find answers on the fly and it’s going to be a dumpy journey. But like any uncertain voyage it’s an opportunity to explore new and better ways.  

As the world population becomes more crowded, the competition will intensify for critical resources and power struggles will ensue. It becomes then a question of whether or not the U.S. can quickly rebuild its competitive position by training a better educated workforce, upgrade its crumbling infrastructure, gain energy independence and create flatter tax codes that simplify the cost of doing business and startup entrepreneur ventures, says James Rickman III, Director  iHuman Evolution.  It remains to be seen whether the leadership in Washington D.C. and American voters can get it right. The clock is ticking and the country is staggering to find its way through this historic transformational period that will determine the standard of living for future generations of Americans for the next fifty years or more.   

About Author: Mr. James Rickman III holds advanced technical and entrepreneur degrees with over 20-years of business development and eCommerce marketing experience. He is a founding Director of iHuman Evolution, AVID Technology, Lumysis Imaging and Artel Software. Mr. Rickman is a sought after content writer of eBooks, PDFs, social media blogs, published financial news and technical product reviews.