U.S. - China Trade Relations

Wu Yi has a reputation, within the international community, as one of the most capable leaders in the Chinese government. She gets things done.

This article shows she has a good grasp of basic principles of trade and economics, especially on globalization.

I am shocked, occasionally, when people from Communist China understand these basic economic/trade principles, while many protectionists from North America still don't get it (i.e. David Orchard, Seth & Naomi Klein, etc.)

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The Wall Street Journal

Commentary: It's Win-Win on U.S.-China Trade

by: Wu Yi, vice premier of China

No two countries enjoy such complex business and trade ties as China and the United States. Both countries are closely linked and interdependent, but relations are also marked by frictions and disputes. Thirty-five years ago, China-U.S. trade volume was almost nonexistent when a breakthrough was made in our icy bilateral relations. By 2006, we had become the other's second largest trade partner, with both economies inextricably entwined.

Mutual benefit and win-win progress: These are what China-U.S. business and trade relations are all about, and these intrinsic qualities have made our trade ties strong and vibrant. A recent report, "China: The Balance Sheet," jointly published by two major American think tanks -- the Center for Strategic and International Studies and the Institute for International Economics -- noted that China brings incontrovertible economic benefits to the U.S. The rapid growth of the Chinese market boosts U.S. exports; China's exports to the U.S. and its investments in American financial assets help restrain U.S. inflation and interest rates, and thus permit faster economic growth and more job creation.

The win-win nature of this relationship is amply demonstrated by the rapid growth of bilateral trade. According to our statistics, bilateral trade has increased 106 times from the beginning of diplomatic relations in 1979 to 2006, registering an annual growth of 18.9%. U.S. statistics show a 144-fold increase, or 20.2% annual growth. Since joining the World Trade Organization, China has become America's fourth-largest export market, not to mention its fastest-growing. Over the same period, the growth rate of U.S. exports to China was 3.7 times that of U.S. exports to other countries.

Mutually beneficial business and trade relations also mean good returns on investment made by our companies. Between 1979, when the policy of reform and opening up was adopted in China, and the end of this March, 52,887 American investment projects were undertaken in China, with paid-in investment reaching $54.7 billion. China is now one of the major sources of overseas profits for American companies. American companies have steadily expanded market share in China through investment, with sales in China exceeding $75 billion in 2004. A survey conducted by the American Chamber of Commerce in China shows that in 2005, sales of American companies in China reached $61.1 billion, and $47.6 billion of American products made in China were exported. The total trade figure exceeded $100 billion.

Our business and trade relations also increase the well-being of our peoples, create many jobs and give consumers more choices in both countries. Morgan Stanley estimates that four to eight million American jobs are closely associated with trade with China, many of which are created through the sale of Chinese products by U.S. retailers. Over the years, good quality yet inexpensive Chinese goods have both met U.S. demand and saved money for American consumers. Chinese exports have saved American consumers $600 billion over the past decade and nearly $100 billion alone in 2004.

Our business and trade relations have also contributed to the growth and transition of our respective economies. Labor-intensive Chinese exports have enabled the U. S. to focus on developing capital and advanced technology-intensive products. A report issued by the U.S.-China Business Council in early 2006 shows that the expansion of trade with and investment in China has caused U.S. manufacturing employment to drop, but helped create more financial, redistribution and service sectors. U.S. employment data also shows that although the U.S. lost three million manufacturing jobs between 1996 and 2005, the service sector created 15 million new jobs over the same period.

China-U.S. business and trade relations are cooperative in nature. It is true that problems, differences and even disputes have arisen in the course of the rapid expansion of our relationship. But mutual benefit and win-win progress remain the defining feature of our business and trade ties. This is the larger picture that no problem can overshadow. As to differences and disputes, it is important that China and the U. S., both being stakeholders and constructive partners, should address them in a coolheaded, objective and responsible way.

Economic globalization is the trend of our times. China and the U.S., having both benefited from economic globalization, need to rise to its challenges. We both need to make necessary economic adjustments, adopt sound and reasonable economic and trade policies, and seize the opportunities created by globalization to promote economic development and make life better for our peoples. However, there are some in the U.S. who overstate the U.S. trade imbalance with China, and blame China for problems that arise as the U.S. adjusts its economic structure to respond to challenges posed by economic globalization. Some even advocate trade protectionism. Such irresponsible acts can only obstruct economic globalization and hinder the fundamental interests of both China and the U.S., our peoples and the sustainable and steady growth of the world economy. China and the U.S. need to, based on our respective national conditions, properly address issues arising in the course of our respective economic adjustment, and resolve bilateral economic and trade issues through enhanced dialogue and consultation, and in a reasonable manner. Attempts to politicize trade issues should be resisted.

As we know, trade deficits are caused by a number of factors associated with economic globalization such as savings and investment correlations, the international division of labor and investment relocation. The U.S. trade deficit with China in goods is also a reflection of these macroeconomic factors. It does not reflect the overall and genuine movement of interests in China-U.S. business and trade relations. China does not seek a trade surplus. In the five-year development plan for 2006 through 2010, the Chinese government explicitly set a basic goal of sustaining economic growth and promoting balance in international payment and macroeconomic stability by expanding domestic demand and particularly, consumption demand. We have taken steps including expanding market access, enhancing intellectual property protection and increasing imports to promote balance in trade. The U.S., as a global leader in science and technology, should give full play to its comparative advantage, enhance mutual trust and relax export controls to boost the competitiveness of American companies, reverse the trend of dwindling market share of American high-tech products in China, and reduce its trade deficit with China.

Since September 2006, the China-U.S. Strategic Economic Dialogue, which was jointly initiated by our two presidents, has become an important channel for the two countries to discuss economic issues concerning our overall strategic and long-term interests and address, as appropriate, hotspot issues in our economic relations. The second China-U.S. Strategic Economic Dialogue will be held in Washington next week, and will focus on issues of mutual interest, including services, investment, energy, environment and innovation. This forum is an important platform for growing China-U.S. business and trade relations and the promotion of the sound and steady growth of constructive and cooperative China-U.S. relations. It is of great significance to enhancing the strategic mutual trust between China and the U.S.

History has shown that the stable growth of China-U.S. business and trade relations serve the fundamental and long-term interests of both countries. China and the U.S. need to increase mutual understanding and trust, overcome the interference of noneconomic factors, and resolve the problems in our business and trade relations in an active and pragmatic way so as to ensure the steady growth of our business and trade ties. I remain confident that as long as we continue to maintain an open dialogue and cooperation in accordance with the principle of consultation on an equal footing and for our mutual benefit, China-U.S. business and trade relations will have an even brighter future and bring greater benefits to our two peoples.

More Proof that Higher Gas Price Changes People's Behaviour

When others counter the argument of a pigouvian gasoline tax will not decrease gasoline consumption by stating such a tax did not work well on booze and cigarettes, my argument is taxes put on those goods did not go up fast enough.

It is true that those sin taxes did not work as well as they should, but the rate increase of each of those hikes did not break people's "threshold". To illustrate my point, here are two different scenarios:

Imagine that a gas tax is raised 50% over-night and another 50% next month comparing to hikes of 5% per month for the next 20 months. I will bet you a lot of people will change their driving habit with the 50% over-night hike, and consumption of gasoline will drop more in the first scenario than the second - and that is exactly what has been happening with gasoline lately.

To reinforce my argument - gasoline consumption actually dropped in the 70s and 80s after the oil shocks.

My conclusion: If the shocks are big enough and hit them hard enough in a short time-span, people will make changes.

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As Vancouver gas prices soar, so does transit use

Average pump cost hits $1.27 a litre; city's Translink system sees 11-per-cent increase in ridership

LAURA DRAKE

From Friday's Globe and Mail

May 18, 2007 at 4:32 AM EDT

VANCOUVER — Gas prices are up across the country, but no major city has been hit harder than Vancouver with an average pump price of $1.272 a litre for regular unleaded gasoline. It's been climbing steadily toward that record since February.

But as gas prices continue to rise, so does the number of people who use public transit.

From January to April, Vancouver's Translink system saw an 11-per-cent increase in ridership over the same period last year on its light-rail service, while the rest of the system saw a 3-per-cent rise.

At the same time, national public transit use is at an all-time high, according to the Canadian Urban Transit Association.

Gas prices are only one of the determining factors when it comes to choosing public transit, but changes in prices at the pumps have been reflected in ridership numbers in the past, Translink spokesman Drew Snider said. It goes to show that if environmental issues don't necessarily motivate people to be greener, the economy will.

"I think in some ways environment still takes a back seat to a lot of people," he sad "You think you can put up with smelly air and you can't really see the immediate impact of what you're doing, but you can see the gasoline prices."

Gas prices have certainly never been higher - and it doesn't look like they are going to go down any time soon, said Michael Ervin, president of M.J. Ervin & Associates Inc., a Calgary-based energy consultancy.

That's due in part to higher-than-usual levels of maintenance at refineries in North America, which have caused an unprecedented seasonal production decline.

Though that decline is ending, Mr. Ervin said, prices should remain about the same as demand increases with the arrival of summer.

Prime Minister Stephen Harper was asked about the rising costs of gasoline at a press conference yesterday in Waterloo, Ont. (His Conservatives promised, during the 2004 election, to cut 0.7 cents from the gas tax.)

"We became convinced that, quite frankly there was a limited amount we could do with helping consumers specifically with gas prices," Mr. Harper said, saying the GST cut was an alternative tax relief measure put forward by the government.

Although high gas prices are constantly bemoaned by car owners, some people are looking on the bright - or green - side of the trend.

"We believe that we do need to pay higher gas prices that really reflect the full cost of using fossil fuels. What we need is a gas tax, so that the revenues are captured by the government, who can then turn that money around to build the things we need to use less gas," said Ann Rowan, director of the David Suzuki Foundation's sustainability program.

However, Simon Fraser University environmental economist Mark Jaccard said economic reasons to take transit - be it tax credits for bus passes or high gas prices - don't necessarily lead to less cars or less emissions.

"People love cars. Think of a car as a personal mobility device, or a personal status-enhancing device," Prof. Jaccard said yesterday.

Accordingly, Prof. Jaccard said, high gas prices are not a good way to reduce greenhouse gas emissions, nor are they an effective way to get cars off the road. The only way to reduce emissions, he said, is through carbon taxes, which place stiff charges on dumping pollutants into the atmosphere.

With a report from Gloria Galloway

THE BUMP AT THE PUMP

The price for regular gas in Vancouver is higher than in any other major city in Canada.

Vancouver vs. Canada average, Jan.1, 2006 to May 15, 2007

Vancouver: 127.2¢

Canada: 113¢

RETAIL FUEL PRICES

CITY AVERAGES, MAY 15, 2007

Whitehorse	116.7¢
Victoria	125.9¢
Vancouver	127.2¢
Yellowknife	123.2¢
Edmonton	108.9¢
Regina	117.9¢
Winnipeg	112.8¢
Toronto	106.5¢
Ottawa	107.7¢
Quebec City	107.7¢
Fredericton	107.7¢
Charlottetown	115.8¢
Halifax	114.6¢
St. John's	119.5¢

PUBLIC TRANSIT RIDERSHIP

TOTAL VANCOUVER PUBLIC TRANSIT TRIPS*, 2006

Q1: 69.4-M

Q2: 71.4-M

Q3: 69.1-M

Q4: 73.3-M

*Includes bus, Skytrain, Seabus and West Coast Express

SOURCES: NATURAL RESOURCES CANADA, TRANSLINK

If You Think Gas Prices in Canada is High......

I have been arguing that gas prices are not high in Canada comparing to other OECD countries. And if you think that our tax on gas is high, wait until you see what other countries are charging!!

Here is the proof.

Gas price will not come down until the world finds a new technology to power transportation networks - the bloodline of any modern economy.

In the mean time, if you are complaining gas prices are too high, cut your consumption.

Corcoran on Mackenzie's Report

I read Mackenzie's report when it came out a couple days ago, and I called it "low level research".

Although I don't agree with Corcoran about gasoline tax, he made some very good comments on Mackenzie's report.

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Ripped off by poor research; Market forces are driving gas prices, not greed

National Post
Terence Corcoran
May 11, 2007

Dumb is easy, and of all the dumb stories in the media world, the easiest by far is the robotic visit to a gas station to plumb popular outrage over gasoline prices. A moron could do it, especially when equipped with the even dumber piece of junk research issued yesterday by the Canadian Centre for Policy Alternatives.

Or, as we call it around here, the Canadian Centre for Alternatives to Good Policy. Gas Price Gouge: The Sequel, said the centre's little three-page piece by consultant Hugh Mackenzie. It created a sensation on its release, as all-news radio teams and other media fanned out for ritual gas-pump reactions from consumers.

Reporter: "A new report shows you're being gouged. Are you outraged by this?"

Motorist: "I'm outraged by this!"

Reporter: "Thank you. Back to you, Peter."

The "report" turns out to be a thin bit in which Mr. Mackenzie -- who has emerged recently as an all-purpose anti-markets lefty at the centre -- announces that by his calculation, the current price of gasoline is way above what it should be. In Ontario, he said, gasoline is 15% or more above the "normal price."

As Mr. Mackenzie figures it, the "normal" price is what gasoline would sell for if the price were set as a simple formula off the price of crude oil. The price of crude, plus refining and marketing costs, plus taxes, should lead today in Southern Ontario to a "normal" price of 88.3¢ a litre. "Compared with prices in the $1.05 to $1.10 range in Southern Ontario at the beginning of May, 2007, that's an excess profit to the gasoline industry of 16¢ to 21¢ per litre."

According to Mr. Mackenzie, this gap between his normal price and the actual price "could not be explained." And if it can't be explained, then by gosh there's only one explanation: We're being gouged! The oil companies are ripping us off, racking up "excess profits" of up to $45- million a day.

There actually is, of course, an explanation for all this. The first one is Mr. Mackenzie's bullheaded and, one assumes, deliberate ignorance of the role of supply and demand. No commodity in the world, indeed no product in the world, is priced the way Mr. Mackenzie wants to price gasoline -- as an automatic variable based on the cost of production.

The cost-plus fantasy is a favourite of leftists and often of corporations who would rather not have to deal with market forces.

The price of everything, even when fixed by government, eventually comes around to market forces. The actual cost is, mostly, irrelevant.

Mick Jagger, no dummy, figured that out. The actual cost of putting on a Rolling Stones concert bears no relationship to the price of a concert ticket. Asked by a British rock magazine just before the group's A Bigger Bang tour if Stones tickets "are too expensive," Mr. Jagger said: "They're like fish ... market price."

The market price for gasoline is actually set in the market, not in Hugh Mackenzie's head.

The main price-setting venue for much of Eastern Canada is in New York, where the benchmark spot price is set for regular unleaded gasoline. The New York spot price one day this week was 63.1¢ per litre. The Canadian wholesale price was 67.5¢, a 4.4¢ difference that's about standard for the Canadian wholesale price over the past two years.

As you can see from the graphs nearby, the Toronto retail gasoline price follows the Toronto wholesale price, which in turn follows the New York spot price, which in turn follows the thousands of market forces that are bearing down on the supply of oil and gasoline across much of North America.

The Toronto wholesale price, plus taxes and retail margins, pretty well determines the final retail price. The chain is pretty solid, and aside from some lags here and there it's clear nobody is gouging anybody. If anything, the price of gasoline in Canada, certainly in Eastern Canada, has been surprisingly low over the past few months.

Supply and demand means that when supplies get tight, prices rise. That's what happened during Hurricane Katrina -- the big spike in the charts -- when price rocketed, sending consumers a signal to cut back on consumption. That sent the price up to $1.40 a litre, generating profits and incentives for companies to ratchet up supply.

Mr. Mackenzie, swinging his ideological axe, views this not as a functioning market but as an oil industry capitalizing on a disaster to move the price of gas up over the $1-a-litre barrier. Katrina was just a "price-gouging opportunity," he says, a story "peddled" by the oil industry to establish the $1 mark as a legitimate price.

How odd, though, that when Southern Ontario suffered a refinery shock earlier this year, the price of gasoline in Ontario actually failed to spike beyond a few cents above the New York spot price. Could this be a sign the market worked? Or, heaven forbid, that the oil companies in Canada conspired to keep prices low?

We really don't know what's moving the market for gasoline at all times. Mr. Mackenzie regurgitates all the usual non-evidence of the oil industry's "price-gouging strategies."

Prices go up and down, daily and weekly, hourly and monthly, at noon and at midnight, in New York and Alberta, in Toronto and Oklahoma -- and none of the prices are the same as Mr. Mackenzie's formulaic "normal price."

What's the explanation? It's market price ... like fish and Stones concerts. But don't ask Mr. Mackenzie. He has no idea.

Gasoline Price

So, gasoline price becomes a hot topic again this week, as some drivers in the country are paying as high as $1.25 per litre for self-serve regular unleaded gasoline.

My prediction is gasoline price can go as high as $1.50 per litre this summer, given the inventory south of the border is much lower than usual (and has been in decline for the past 11 weeks). Some analysts in the States are saying that gasoline price will go as high as $4 per gallon this summer.

I don't necessary see this as a bad thing. After all, I am a supporter of the Pigouvian tax. Rising gas prices will have a similar effect - to curb consumption of gasoline.