| The 2005 trade numbers released last Friday are sure | | | | now replaced America as Japan's largest trading |
| to get the China trade hawks riled up. But if you look | | | | partner. |
| behind the numbers, the trade imbalance with Japan | | | | If we conservatively assume that 25% of $100 billion |
| is likely larger than China. | | | | of foreign-controlled Chinese exports are from |
| According to the trade statistics, the trade deficit | | | | Japanese companies in China and add that to Japan's |
| with China was $201 billion or 28% of America's total | | | | 2005 trade surplus with America of $82.7 billion, this |
| deficit of $726 billion. No doubt these trade numbers | | | | brings the number to $107.7 billion - higher than |
| capture only a portion of the value traded between | | | | China's number stripped of its foreign company |
| countries but nevertheless are rough barometers of | | | | exports. |
| trade. | | | | The Japan imbalance is often explained by its weak |
| Our 2005 trade deficit in petroleum products was an | | | | economy and consumer demand but it is amazing |
| even larger $210 billion but the China number will | | | | that the deficit has stubbornly persisted and that |
| certainly get the most political attention. If you look | | | | American firms have still been unable to penetrate |
| at the numbers a bit more closely, however, you will | | | | the second largest economy in the world. Because of |
| find a surprising result- Japan is likely a bigger trade | | | | the huge imbalance in wages between China and the |
| problem for America than China. | | | | U.S., a bilateral trade imbalance seems logical. But why |
| Here's why. China custom data indicate that about | | | | one with Japan when wage levels are roughly |
| 60% of China's exports come from foreign | | | | comparable? |
| companies manufacturing and assembling in China. | | | | Japan's weak yen policy is certainly a key issue. |
| Even if we knock this number down to 50%, this is | | | | Japanese manufacturers are loath to see the yen get |
| still equal to $100 billion worth of China's exports last | | | | stronger as it will put pressure on their pricing |
| year. | | | | advantage. |
| According to research from the think tank | | | | Even if you are skeptical of the trade data, it is hard |
| ChartwellAmerica, the vast majority of these | | | | to argue that more American exports, particularly of |
| so-called Chinese exports are controlled by | | | | manufactured goods, will not raise American growth |
| Taiwanese, South Korean, American and Japanese | | | | rates, lessen our dependence on foreign capital |
| firms. For example, about 75% of manufacturing | | | | (China's and Japan's central banks financed 40% of |
| output by Taiwanese companies takes place in China. | | | | our 2005 deficit) as well as raise wages. Let's work |
| Samsung has 23 factories in China and closed down | | | | relentlessly to open new markets and not be shy |
| its last notebook plant in South Korea last year. | | | | about using our leverage as the largest consumer |
| Japan's Panasonic has 70,000 employees working in | | | | market in the world. Rather than bilateral trade pacts |
| China. | | | | with smaller countries that will have only a small |
| This why I have been recommending clients have | | | | impact on our economy, let's tackle head on the |
| allocations to the Taiwan (EWT), South Korean | | | | opening China and Japan. |
| (EWY), and Japan (EWJ) exchange-traded funds in | | | | Meanwhile, back on the home front, the enactment |
| order to capture this growth in their global portfolios. | | | | of a flat tax has to be the top priority. It will work |
| A major reason for Japan's economic recovery can | | | | wonders to spur economic growth, innovation, higher |
| be attributed to its booming exports to China of | | | | levels of savings and investment, less dependence on |
| which a major slice goes on to America. China has | | | | foreign capital and, yes, higher levels of exports. |