Thursday, April 12, 2007

Trade Works Both Ways

We hear a lot of complaining about exports from China to the U.S., but don't hear as much about our exports TO China, fueled by the increasing wealth and purchasing power of China's consumers. As China's economy grows, the middle and upper class there will continue to grow, and China will become an increasingly important consumer market, to the benefit of U.S. businesses.

In today's WSJ there is an article
Rich Chinese Fancy Luxury Cars, about the growing demand in China for luxury cars, including Cadillacs and Buicks.

In the 1990s, many in China considered Volkswagens high class. But today, well-to-do Chinese are hankering for Bentleys, Ferraris, Mercedes, Audis, deluxe Cadillacs and even Rolls-Royces, reflecting the nation's growing wealth -- and a new boldness about showing it off.

"The rapid growth of affluence in China and the increasing desire for individuality and expressiveness" are making China "the most dynamic market in the world," says Ulrich Walker, chairman and CEO of DaimlerChrysler's Northeast Asia operations.

Engineers and designers for General Motors Corp. labor to make Buicks and Cadillacs sold in China more luxe than their North American counterparts. Cars have leather upholstery, lacquered wood trim and technical bells and whistles, such as in-seat TVs and remote controls for the audio and video systems. This week, GM launched the Park Avenue sedan, the top of its Buick line, here (see photo above). The price tag: $65,000 and up.

Bottom Line: Exports and imports are two sides of the same coin of international trade.

3 Comments:

At 4/13/2007 10:07 AM, Anonymous Sudha Shenoy said...

A very useful point. But trade is multilateral -- that's the beauty of it. Bilateralism led to silly & dangeous demands for the Japanese to reduce their trade surplus with the US, for example...whereas, of course, the Japanese had trade deficits with many other partners -- Australia, for one. The 'surpluses' offset the 'deficits' (or vice versa.)

 
At 4/13/2007 10:41 AM, Anonymous Walt G. said...

The most reasonable way for General Motors--or any corporation--to grow in a mature domestic market is through global sales. And, General Motors needs the profits from oversea sales to pay for past promises made to their American workers and return a respectable return to their stockholders. I look forward to the future prosperity of General Motors, but I'm not counting on it.

 
At 4/13/2007 2:01 PM, Anonymous Anonymous said...

With the same companies moving their operations to china and other countries are these exports to china real or just some sort of a "transfer" pricing mechanism.

Companies will continue to look for the countries that are low cost producers. Eventually when the chinese middle class have the buying power it may be at the expense of the buying power of americans.

American companies will benefit from the chinese buying power but these companies will only be American in name with entire operations etc being overseas.

In an extreme case - What employment does a company like Nike create in the US? Production is cheaper in the east asia, back office operations are cheaper in India, so what does that leave for American workers?

 

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