For a long time, there was an "Imperialist model" of international trade in which the advanced nation sent the inferior nation high-value manufactured products, while the inferior nation returned raw materials used in production. The advanced nation benefits because it not only gets the raw material it needs to produce, but it also getst to sell manufactured goods at a significant mark-up. Indeed, this was national policy in cases like Britain and the U.S. colonies.

If you consider junk/scrap as a "raw material", then the US is positioned as an inferior nation in this trade circle. For a long time the major powers imported raw materials and made a good living transforming them into manufactured goods to sell at a mark-up on the international market. Now it appears we have gone into the reverse with China. We are selling the raw materials to feed their industry -- but they in turn are selling us the same materials (transformed into goods) at a much higher cost. Selling garbage may helpt offset the trade deficit to some limited extent, but in terms of *value* there is sill a huge (and continuing ) deficit. After all, we *imported* much of this garbage in the form of high-price goods to start with.

I'm having a hard time recalling any nation in history that has made a fortune exporting garbage.

Actually the trash paper we're sending the Chinese is garbage mortgages. They send us hundreds of thousand dollars worth of manufactured goods and we send the Chinese an adjustable rate liar loan backed by the earning potential of an illegal immigrant working under the table as a painter.

I'd like to direct Fozzy's attention to the aerospace products America is exporting to China, which is mentioned prominently in the article. Following Fozzy's "imperialist exploitation" model, it still makes perfect sense, unless, of course, one still takes cheap shirts as high-end products, as they once were centuries before.

The end does not justify the means...... Remember Japan before WWll ? The GIs ended up with half our scrap in their bellies, and having it tear off their arms and legs.

Interesting point but I don't think the US-China relationship is similar to the "Imperialist Model". Firstly it is largely US companies that are having products manufactured in China. The US company gets the mark-up price for the product whereas the Chinese manufacturer gets the wholesale price. Furthermore, these products are sold elsewhere besides US in a triangular model. Lastly, as Chinese living standards increase we may see more products consumed in China that are made in China yet with a US company receiving retail revenue. The relationship is akin to products made in Ohio for a Delaware company and with another company in Delaware selling scrap to Ohio. It would be ironic if mercantilist alarmism were to inject legislation into current situation and thereby vanquish a prosperous relationship for all parties involved.
-Don MacFarlane

...inject legislation into current situation and thereby vanquish a prosperous relationship for all parties involved

What? It could never happen here. Our leaders all went to Ivy League schools, they would never assume that a handful of men and thimbleful of women residing in the inbred swamps of D.C. should lord over the free market revolution.

Certainly the world is more complicated than in the days of triangular trade. However, I would point out that the very term "American Companies" may not be a very accurate description. To begin with, these days a publicly traded company can basically be owned by people anywhere. Thus, even profits from industry in the U.S. can be funneled overseas in the form of dividends, and a lot of the foreign operations are actually subsidiary corporations/partners with terms that keep capital in that nation. Just because a corporation has an "American name" or is traded on the NYSE, it does not mean necessarily that any of its money (profits) is going to the U.S. Secondly, even more important are the operational expenditures -- wages, factory building, supplies, etc. A company can have a high profit rate and ship the profits back to the U.S., but still send much more money overseas. The complexity of the modern economy does make it harder to track these flows.

A few years back I was at a meeting with a senior VP from a company with an all-American background (Motorola). Motorola makes more money overseas than in the US and its growth rate is much higher overseas. Speaking of a potential crisis/conflict between the US and China, someone asked "What if the US government forces Motorola to shut down its China operations?" The VP replied very casually "We would shut down U.S. operations and keep running in China if the feds dared try that." It was a casual remark, not a policy statement, but I think it reflects the changes we are seeing in the world economy (actually, the corporation would probably divest/split, but it would be ugly).

I thought you were talking about our Treasuries, which they are happily selling back to us right now.

Another possible solution to the time-tested Imperialist Model is the technology-driven "finance model" (which few have tried; Venice, technically a City-State in the Renaissance, did to great success, inventing shareholding as we know it).

Imagine if the US was, as stated, not getting the best deal exporting scrap (minus the S) to China. This in no way pollutes a model where the US loses on that trade, but borrows from everyone else (but mostly China!) and invests this money at a better rate of return. 30 or so percent of American GDP stems from the financial industry, I am told by Maria. Its the business of deploying capital (creating a world-class finance business in New York and London, yes England), mostly due to fine engineers that linked my Monte-Carlo simulator to the Legal Docs department.

This model only works when people trust you. People will not trust the US forever, but I dont think Bush Son has an arm strong enough to hammer the nail in that coffin. Lets let other people trust locals (say a 98 Asian crisis buildup), and they will come back to industry specialists in NY and the City when it blows.

As long as Asia does not trust itself, this carry trade is one of the most lucrative trades in history (albeit with no central planning, or normally distributed income among US citizens). Remember China and Japan have been paying for Iraq all along! But the guns are the West's, and pretty much America's.

I hope it only goes to hell after I die!

A Canadian in London

30%? Is that true? That much effort wasted on the strictly overhead venture of rearranging the deck chairs? What a damned shame!