The Exuberant Accountant - Scott Heintzelman

In the early stage of human civilization, man produced as per their need and consumption.  Later man started to trade with neighbors who had special talents or natural resources.  This allowed businesses or farmers to specialize and mass produce goods.  Trading allowed for a greater standard of living for all people involved.  This localized trading with neighbors has now expanded to wide scale international trading.

In order to have open trading with other countries, our government needs to have a level playing field with other countries.  If we want to have open markets in China, we need to allow Chinese goods to be shipped to our country without too many tariffs.  What was China’s response to our tariffs on tires?  They immediately retaliated by slapping a tariff on chicken and auto parts we shipped into China. 

Many people in our country ask if we should even care about China.  They state that many manufacturing jobs have been shipped overseas and why should they care if China is mad. Well, there are several reasons why we should care.  First, China is the largest US debt holder, holding close to $1 trillion. As our government is continuing to print more money, we need someone or some country to continue to buy this debt.  To date, China has done so.  Without them, we may be out of cash or have much higher interest rates.

Second, the cheap labor that China seems to have an endless supply of has allowed our standard of living to increase.  Think about the price of electronic equipment in our country the past 10 years.  The price has just fallen significantly and most of it is made in China.  Many goods that we purchase in stores (like clothes) are very inexpensive to buy and therefore, our ability to purchase them has increased.

Third, they also are a key trading partner for our exports; they also may be able to influence North Korea and help to protect other key allies in that part of the world.

With limited exceptions, our country has an 80 year history of being a free trade country. It will be interesting to see if this tone from Washington continues.  If it does, it is expected that more countries will start to impose a protectionist mentality and slowly our global economy will start to slow down.  This slow down will be occurring at just the time we need to be working together to lift us out of this deep recession.

I would welcome your thoughts.  Are you concerned about alienating China?  Do you feel that the current economic times warrant a greater protectionist position?