(MintPress) – China is still celebrating the Lunar New Year, but the Year of the Snake is already proving to be an auspicious one for the economic powerhouse.
For the first time, the country surpassed the United States to become the world’s biggest trading nation last year, according to new data, which is a milestone in the country’s challenge to America’s dominance in global commerce.
Indeed, U.S. exports and imports of goods last year totaled $3.82 trillion, said the U.S. Commerce Department, while China’s customs administration reported that its total trade in goods in 2012 amounted to $3.87 trillion.
“It is not at all surprising, indeed quite predictable for the simple reason that China is a far more open economy (as measured by imports plus exports relative to GDP) than the U.S.,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economies in Washington, tells Mint Press News.
But Lardy maintains that the development is not, as some economists suggest, bad news for the United States. “I think it is a plus,” he said. “Especially since China’s global trade surplus has come down dramatically, from 10.1 percent of GDP in 2007 to only 2.6 percent of GDP last year.”
“In other words,” he continued. “They are not overtaking us in total trade by outperforming on exports. In the last few years, their import growth has been more rapid that export growth.”
Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University agrees, saying in an email that while China is the biggest energy user, has the world’s biggest new car market and the largest foreign currency reserves, a significant portion of China’s trade involves importing raw materials and parts to be assembled into finished products and re-exported, an activity that provides “only modest added value.”
U.S. leadership
New data also shows that the U.S. has a strong advantage in most areas. When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis (BEA). The U.S. recorded a surplus in services of $195.3 billion last year and a goods deficit of more than $700 billion, according to BEA figures released earlier this month.
The U.S emerged as the world’s top trading power following World War II, when, with the help of the UK, it developed the General Agreement on Tariffs and Trade (GATT) and the International Trade Organization (ITO).
At the same time, Britain, which had been the leading trading nation in the 19th century, started dismantling its colonial empire.
China, meanwhile, did not begin focusing on trade and foreign investment to boost its economy until the late 1970s, after decades of isolation under Chairman Mao Zedong, who died in 1976. From 1978 to 2012, China’s economic growth averaged 9.9 percent a year.
But today, the U.S. economy is still double the size of China’s, according to the World Bank. In 2011, the U.S. GDP reached $15 trillion, while China’s totaled $7.3 trillion. China’s National Bureau of Statistics reported in January that the country’s nominal GDP in 2012 totaled $8.3 trillion.
And the U.S. still remains the world’s biggest importer, taking in $2.28 trillion in goods last year compared with China’s $1.82 trillion of imports.
The world’s factory
At the same time, China is also losing its competitive edge as a low-cost manufacturing base, with makers of everything from handbags to shirts to basic electronic parts relocating to cheaper locales such as Southeast Asia.
The shift is apparent in the level of foreign investment in China, which dropped 3.7 percent in 2012 to $111.72 billion, the first annual decline since the fallout from the global financial crisis in 2009.
In contrast, foreign direct investment into Thailand surged by a whopping 63 percent in 2012, and Indonesia’s was up 27 percent in the first nine months of last year.
Economists say although that is partly because of the debt crisis in Europe, it is also the result of a long-term trend of rising wages and other costs that have made China less attractive for basic manufacturing.
“We know we can’t keep relying on a low-cost competitive advantage. We need to accelerate the value-added upgrading of our products,” China’s commerce ministry spokesman Shen Danyang told Business Without Borders.
Asian firms are also responsible for much of the investment drop in China. Investment from 10 Asian economies fell 4.8 percent last year and accounted for 82 percent of the total.
And while Japanese investment into China rose 16 percent in 2012 from a year earlier, political tensions over disputed islands in the South China Sea could take a hit. In September, Japanese cars and businesses were ransacked by rioters in anti-Japan protests across China.
A survey of Japanese companies conducted the next month by the Japan External Trade Organization found that 52 percent of respondents planned to expand business operations in China over the next one to two years, down from 67 percent the previous year.
All of which means China could face a potentially serious capital inflow problem.
Partial power
Still, the country has clearly become a serious player on the international stage in a relatively short period of time. Thirty years ago, its role in global affairs was largely confined to East Asia, and it had little strategic sway.
Now, its economic growth has seen China extend its reach far and wide beyond its borders. In his latest book, “China Goes Global,” eminent China scholar David Shambaugh, whom I have had the privilege of interviewing on several occasions, charts the country’s course from mineral mines in Africa to currency markets in the West to oilfields in the Middle East to agribusiness in Latin America.
Shambaugh, who is now a professor of political science and international affairs and director of the China Policy Program at George Washington University, looks at China’s extensive commercial footprint, its growing military prowess, its increasing cultural influence, its diplomatic activity and its new prominence in global governance institutions.
But Shambaugh, who draws on his decades of China-watching, argues that China’s global presence is more broad than deep and that it still lacks the influence befitting a major world power.
Shambaugh’s views are captured in the book’s subtitle, The Partial Power. “The elements of China’s global power are actually surprisingly weak and very uneven,” he writes in the preface. “China is not as important, and it is certainly not as influential, as conventional wisdom holds.”
“Here’s a book that has its title right — a statement worth making because so many stretch or bend them,” says History News Network in one of many positive reviews Shambaugh’s book received.
That could help to put the latest trade figures into perspective as well.