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  • the_nervous_resistor the_nervous_resistor Dec 14, 2004 12:21 PM Flag

    Barrons...and cheeseburgers


    I hope the President is successful in pressuring China to float the yuan, as mentioned below.


    U.S. Trade Gap Swelled to a Record $55.5 Billion

    Published: December 14, 2004

    Filed at 9:34 a.m. ET

    WASHINGTON (AP) -- America's trade deficit swelled to an all-time high of $55.5 billion in October as imports -- including those from China -- surged to the loftiest levels on record. Skyrocketing crude-oil prices also contributed to the yawning trade gap.

    The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed the country's trade imbalance widening by a sizable 8.9 percent in October from the previous month -- despite the fact that U.S. exports registered their best month on record.

    The growth in imports, however, dwarfed the pace of exports in October, producing another bloated trade gap. The trade deficit was much bigger than the $52.4 billion imbalance economists were forecasting.

    Imports of goods and services climbed to a record high of $153.5 billion in October, representing a 3.4 percent increase from September.

    The United States' politically sensitive trade deficit with China clocked a record $16.8 billion as imports flowing from the country posted all-time highs.

    The Bush administration has been pressing China to let its currency, the yuan, be set in open markets. U.S. manufacturers claims Beijing's currency policies give Chinese companies a big competitive advantage over U.S. companies.

    Another factor in October's trade deficit was surging prices for imported crude oil. The average price of crude oil soared to a record $41.79 a barrel -- a whopping 11.1 percent increase from September's price.

    U.S. exports, meanwhile, rose by 0.6 percent in October from the previous month to a record $98.1 billion. Sales of U.S.-made industrial supplies to other countries totaled a record high of $18 billion. Exports of capital goods, including drilling equipment and airplanes, also gained ground.

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    • "I hope the President is successful in pressuring China to float the yuan"

      That is the last thing you should want for the USA economy.

      If the yuan is floated, it will increase in value (be worth more $$$). China will then be able to afford to buy more foreign oil, pushing the price up in $$$. They will not feel the effect due to the yuan's increased value. The USA will see new record high oil prices.

      DOW USA will be less competitive with the higher priced oil, but new Dow ventures in China would prosper.

      • 1 Reply to verygruntled
      • Really? You are serious?

        If there is ultimately no currency adjustment mechanism between trading partners, then there really is no free trade. American goods will never become attractive to Chinese consumers, and Chinese goods will always be more attractive to Americans.

        At some point, the ratio of commodity costs equals the spot exchange rate. And, the rate of change in the exchange rate equals the rate of change in national interest rates. Otherwise, there is free-lunch somewhere.

        For oil, the Euro is the stealth currency for pricing, as the $US gradually devalues over the next several years. This means that the cost of ~3MM bbls/day that China now imports should rise, not fall.

        Now, on the other hand, I can hope for free-lunch and there is no change. I can just order the cheese burger, because I always order the cheese burger.

        Or, better, consider Neil Young's lyrics in "Birds,"

        "When you see me fly away without you,
        Shadow on the things you know.
        Feathers fall around you,
        And, show you the way to go.
        It's over."

        Change happens.


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