We hear all the time about the staggering USA
trade deficit with China. But there's a mystery
here, never explained...
When you have a trade imbalance, it means
one party is providing credit to the other; there's
a IOU generated. In the China-USA case,
who/how./where does this occur, what is the
mechanism?
Is there a Bank of China, offering credit to 200
million Americans, who then use it to buy
chinese products? Or, at the point of sale, do
they sign a note, "payable to China"?
If I make a purchase at Walmart, made in China,
I pay for that item. No IOU, no trade deficit. If
I buy a car, which contains chinese parts, I pay
for the car; or, if I finance it, I do so through an
American bank, and I make the payments. The
manufacturer pays for the parts.
But somehow, Americans have a $100 billion
account deficit vs. China. Who, exactly, owes
what to whom? Does Joe Bob in Dallas, owe
$100 to Chu Maipekka in Fujian? Does Sven
Svenson in Oshkosh owe $150 to the Hangzhou
mafia?
--
Rich
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