Wednesday, March 23, 2011

Made on Earth: Global Output and Trade Both Reach New Record All-Time High Levels in January

In post titled "Made on Earth," Don Boudreaux links to a FT.com editorial "Manufacturing is All Over the Place," here's a key point: 

"The challenge for economists is even more profound. In the old days, they typically measured the output of an economy by watching where goods were “made”; but which country should claim the “value” for an iPhone (or an Italian suit or an American Girl doll)? Where does the real “output” come, in a world where companies can shift profits around? 

Indeed, such is the complexity that Pascal Lamy, the head of the World Trade Organization, recently voiced the seemingly heretical idea that economists should stop paying so much attention to “import” and “export” statistics. Thus, instead of trying to measure what is now “made in America” – or “China” – what economists should do is focus on the global economy as a whole, he insists. “It no longer makes sense to think of trade in terms of ‘them’ and ‘us’,” he argues; 20th-century-style trade statistics can be too arbitrary in the 21st-century world."

Don also links to Cato's Dan Ikeson's study "Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete." 

With that background in mind, today's report on world trade and world output from the CPB Netherlands Bureau for Economic Policy Analysis seems especially timely.  Here are some highlights:

1. World trade reached a new all-time high record level in January (index = 166.2), surpassing the previous record in December (164.1), which was the first month that world trade exceeded the pre-recession level of 163.5 in April of 2008 (see chart above).  

2. World trade in January was 12% above its year-ago level, and marked the 13th consecutive month of double-digit annual growth starting in January of last year.

3. For the ninth straight month starting last May, world industrial output reached another new all-time record high level in January at 141.4.  Compared to a year ago, world output has increased 7.6%, and is now 5.2% above the previous cyclical high of 134.4 in March 2008.  

4. For almost two years, global output has increased in almost every month compared to the previous month, with only one month of output decline since March 2009. 

MP: Based on the ongoing and solid improvements in both global trade and world output, especially the fact that both global production and trade are at all-time historical highs, I think we can safely say that the world economy has made a complete recovery from the global slowdown in 2008 and 2009.  We can also now safely say that the global economy is in a new cycle of economic growth and expansion.  To paraphrase Warren Buffet, "The world economy's best days lie ahead."  

And as I have advocated before for the U.S., I agree with Pascal Lamy that we should pay less attention to import and export trade statistics, and more attention to total trade volumes, and that should apply to both the U.S. and world economies.  


24 Comments:

At 3/23/2011 9:51 AM, Blogger Sean said...

And as I have advocated before for the U.S., we should pay less attention to import and export trade statistics, and more attention to total trade volumes, and that should apply to both the U.S. and world economies.

At times I wonder what you would propose is the point of paying attention to any of this. Since you would oppose taking any steps to intervene in the market, gathering information is purely for entertainment purposes. Else what am I mising?

 
At 3/23/2011 11:13 AM, Blogger Benjamin said...

"Thus, instead of trying to measure what is now “made in America” – or “China” – what economists should do is focus on the global economy as a whole, he insists. “It no longer makes sense to think of trade in terms of ‘them’ and ‘us’,” he argues; 20th-century-style trade statistics can be too arbitrary in the 21st-century world."

One Worlders Unite!

When China booms, and Detroit sinks into the toilet, praise the skies! Lift your hands up in salvation.

The only shortcoming with this approach is that I am American. I pay taxes here, my prosperity rises and falls with that of my nation.

There is also the nagging reality of GDP=C+I+G+(X-M). The more we import, and the less we export, the smaller our GDP/

I like a bigger GDP. I like prosperity.

Yes, some goods and services are hard to measure.

And then you have the reality that is China. They have been following a mercantilist path for a generation, with excellent results. Indeed, they may simly pass us by in a generation, on every level.

Why is China booming following none of the precepts of Western economists, and definitely not practicing free trade?

 
At 3/23/2011 11:18 AM, Blogger morganovich said...

benji-

you keep trotting out that GDP equation like it demonstrates something.

it doesn't.

the (x-i) component has nothing to do with the well being of americans.

well being is based on consumption, not production.

if we each have 10 apples an i give you 2 and you give me 3, i'm the one with a trade deficit, but who has more apples?

your china question has been answer 100 times, and it's clear you will never get that it's not a one factor model.

and industrial revolution can swamp bad trade policy.

and none of the precepts? really?

change takes place at the margin.

are capital, trade, and worker movement freer in china that 20 years ago?

yes. by a landslide.

that's where the change is coming from.

 
At 3/23/2011 12:48 PM, Blogger Benjamin said...

Morgan Frank-

Not clear whether China is really a freer place than 20 years ago.

You realize there are no private property rights in China? The state owns all the land--a private citizen can only have certain land use rights.

You realize the Communist Party owns the majority of voting stock in every Chinese publicly held company?

Do you understand that political repression is getting worse, not better, in China?

China is doing the early Japan model on steriods. Export to earn capital for expansion. Proffer a cheap manufacturing base the world, protected, exchange-rate controlled, shorn of environmental constraints or real workers' rights.

Wow, you can't beat the China model for sheer productivity. Yes, it works.

I prefer the free-market, democratic USA way.

 
At 3/23/2011 2:11 PM, Blogger morganovich said...

"Not clear whether China is really a freer place than 20 years ago."

what color is the sky on your world benji?

do you have any idea how much capital and productive resource has been privatized in china over the last 20-30 years?

 
At 3/23/2011 2:28 PM, Blogger morganovich said...

you are also dead wrong about china's model.

china export's 1.5tn and imports 1.3 tn.

so tell me, how do you drive the investment and expansion for a 5.75 tn economy with only 3% of GDP?

you are just making unfounded assumptions about what is driving the growth and investment cycle cycle.

your math is clearly wrong.

further, this: "You realize the Communist Party owns the majority of voting stock in every Chinese publicly held company?"

is a ridiculous lie.

http://finance.yahoo.com/q/mh?s=SINA+Major+Holders

here's the holders list for sina, a publicly held Chinese company.

looks like another outlandish benji claim bites the dust.

there are lots of chinese public companies that are only public in the US. they have no communist ownership at all.

it is the SOE's that are holding china back. they tend to hemorrhage money and be run to maximize employment.

SOE's a re less than 10% of china's output.

as ever, you make a pile of unfounded claims that you cannot support.

 
At 3/23/2011 3:02 PM, Blogger Benjamin said...

Morgan Frank-

Please read this:
http://www.nytimes.com/2010/08/30/world/asia/30china.html?_r=2

also see this: http://www.tradereform.org/2010/08/chinas-government-owns-their-economy/

In the NY Review of Books was a piece that the CP controlled voting shares of publicly held China companies. This was not disclosed in IPO filings, or subsequent 10-k and other filings. I am sorry I cannot find the article at this moment but will get back to you.

 
At 3/23/2011 3:02 PM, Blogger Benjamin said...

Morgan Frank-

And really, try Sanka brand. You animus is shocking.

 
At 3/23/2011 3:13 PM, Blogger Benjamin said...

MF-

This is an article on the hardening climate in China towards any kind of free politcial expression.

http://www.hrw.org/en/news/2009/06/24/china-critic-s-arrest-signals-hardening-political-climate

 
At 3/23/2011 3:39 PM, Blogger Benjamin said...

This is a great book, btw.

http://www.harpercollins.com/books/The-Party-Richard-Mcgregor/?isbn=9780061998089

 
At 3/23/2011 3:51 PM, Blogger Benjamin said...

James McGregor: The China Fix
From Time magazine:

In my more than two decades in China, I have seldom seen the foreign business community more angry and disillusioned than it is today. Such sentiment goes beyond the Internet censorship and cyberspying that led to Google’s Jan. 12 threat to bail out of China, or the clash of values (freedom vs. control) implied by the Google case. It is about the perception that antiforeign attitudes and policies in China have been growing and hardening since the global economic crisis pushed the U.S. and Europe into a tailspin and launched China to its very uncomfortable stardom on the world stage.

Visiting CEOs’ banquet-table chatter is now dominated by swapping tales of arrogant and insolent Chinese bureaucrats and business partners. The litany includes purposefully inconsistent and nontransparent enforcement of regulations, rampant intellectual-property theft, state penetration of multinationals through union and Communist Party organizations, blatant market impediments through rigged product standards and testing, politicized courts and agencies that almost always favor local companies, creative and selective enforcement of WTO requirements … The list goes on.

The foreign business community in China has deep respect and affection for the Chinese people and their hard-earned success. But more than a few foreign business leaders are asking themselves if they have been bamboozled by the system. Multinationals have been solid citizens in China, handing over heaps of capital, technology, training, source code, best practices and proprietary products to joint-venture partners they were forced into bed with. They have funded schools, orphanages, disaster reconstruction, overseas scholarships and all manner of poverty-alleviation programs. But now that the China market matters more to them, it appears that China couldn’t care less. Increasingly difficult China-market access is the immediate worry. But many are looking ahead and losing sleep over expectations that their onetime partners are morphing into predators — and that their own technology and know-how will be coming back at them globally in the form of cut-price products from subsidized state-owned behemoths.

 
At 3/23/2011 4:17 PM, Blogger Benjamin said...

Mrogan Frank-

Your wonderful and free China banned the book I recommended you read.

Banning books? This is your idea of a fee country?

China bans Richard McGregor's book on the Communist Party Rowan Callick, Asia-Pacific editor From: The Australian July 19, 2010 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share
Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these?A NEW book about the Chinese Communist Party by a leading Australian journalist appears to have been banned in China.
Although no definitive lists of forbidden tomes are published, readers in China are blocked when they go online in an attempt to buy The Party: The Secret World of China's Communist Rulers, by Richard McGregor of the Financial Times.

The websites of international booksellers such as Amazon respond: "This Page Cannot Be Displayed" -- just as sites do to requests for information, for instance, about events on June 4, 1989, or about the Dalai Lama.

This clearly indicates that the "net police" -- the tens of thousands of officials who scrutinise online content -- have determined that McGregor's book, although published in English and thus not intelligible to the great majority of Chinese readers, regard it as unacceptable.

 
At 3/23/2011 4:23 PM, Blogger morganovich said...

benji-

there is no support from your claim in either article (the second of which is just a wacko blog).

the first, from the NYT starts with this:

"During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy. "

which seems to argue against your claims.

also note that as they are trying to grab more control again, their growth (which is being overstated) is slowing and inflation is getting out of hand.

you are confusing their actions now (which are harming them) with their actions that drove all the growth over the last 20 years. that's a logical fallacy equivalent to saying you have eaten a lot of cake this week. you should have gotten fat 3 years ago.

articles about a currently hardening climate say ZERO about what drove the performance in the past. your argument is pure illogic and nonsense.

i do a fair bit of business and investing in china. i know for a 100% fact that you claim that the government owns the majority of voting stock in every public company, because i am involved with several in which that is not the case.

perhaps if you just admitted that you made a false claim rather than trying to bury your error under a barrage of semi related news stories which you do not appear to have even read, much less understood, people might consider your ideas more respectfully, but this ludicrous balderdash and attempt to bluff your way out of a clear error just undermines your credibility and makes you irritating.

you do not seem to understand the difference between a public company and an SOE.

if you wonder why you provoke so much animosity, it's because you make the same baseless, unsupported claims over and over, get crushed arguing about them, then slink away only to post the same nonsense on the next thread accompanied by another barrage or unrelated data and faulty logic.

i think i speak for many of us when i say that the impossibility of getting you to actually learn and retain anything is frustrating. perhaps it's my fault for continuing to try to push on a string, but i am simply left astounded that you cannot see the obvious flaws in your logic on china and retain the (apparently vain) hope that it can actually be explained to you.

 
At 3/23/2011 4:26 PM, Blogger Benjamin said...

Morgan Frank-

If ou can retrieve this set of reviews from the New York Review of Books, you might actually learn something--

http://www.nybooks.com/articles/archives/2010/sep/30/party-impenetrable-all-powerful/

 
At 3/23/2011 4:29 PM, Blogger morganovich said...

"our wonderful and free China banned the book I recommended you read.

Banning books? This is your idea of a fee country?"

and here's another fine straw man.

i never argued that china was a free country nor that i would want to live there.

i argued that they liberated some of their economic processes and set of a huge growth spurt by so doing because that sort of change takes place at the margin.

you then try to twist that into an argument about book banning and claims that i think china is a free country.

again, if you want to understand why you are so irritating, it's stupid blather like that.

you twist arguments through logical fallacy and misrepresentation of the positions of others, then argue with yourself dragging the debate into random alleys in order to mask the fact that you are wrong on the merits of your original position.

if someone did that to you consistently, i suspect you'd begin to be annoyed by them as well.

 
At 3/23/2011 4:29 PM, Blogger morganovich said...

benji-

there is no support from your claim in either article (the second of which is just a wacko blog).

the first, from the NYT starts with this:

"During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy. "

which seems to argue against your claims.

also note that as they are trying to grab more control again, their growth (which is being overstated) is slowing and inflation is getting out of hand.

you are confusing their actions now (which are harming them) with their actions that drove all the growth over the last 20 years. that's a logical fallacy equivalent to saying you have eaten a lot of cake this week. you should have gotten fat 3 years ago.

articles about a currently hardening climate say ZERO about what drove the performance in the past. your argument is pure illogic and nonsense.

i do a fair bit of business and investing in china. i know for a 100% fact that you claim that the government owns the majority of voting stock in every public company, because i am involved with several in which that is not the case.

perhaps if you just admitted that you made a false claim rather than trying to bury your error under a barrage of semi related news stories which you do not appear to have even read, much less understood, people might consider your ideas more respectfully, but this ludicrous balderdash and attempt to bluff your way out of a clear error just undermines your credibility and makes you irritating.

you do not seem to understand the difference between a public company and an SOE.

 
At 3/23/2011 4:30 PM, Blogger morganovich said...

if you wonder why you provoke so much animosity, it's because you make the same baseless, unsupported claims over and over, get crushed arguing about them, then slink away only to post the same nonsense on the next thread accompanied by another barrage or unrelated data and faulty logic.

i think i speak for many of us when i say that the impossibility of getting you to actually learn and retain anything is frustrating. perhaps it's my fault for continuing to try to push on a string, but i am simply left astounded that you cannot see the obvious flaws in your logic on china and retain the (apparently vain) hope that it can actually be explained to you.

 
At 3/23/2011 4:43 PM, Blogger morganovich said...

ps.

i think you'll find that i have never claimed china was free, not that i thought their system was good or sustainable.

in fact, i think the opposite is true.

china is a 16th century society with 18th century economic ideas with a tiny veneer of modernity piled on top.

you can grow like hell like that for a while, but then you hit the wall as china is in the process of doing.

they have hit their lewis point on labor. costs are going to go wild. you cannot find workers, but college grads cannot find jobs.

this is a sign of deep, deep trouble for their economy (particularly exports).

i think china is a mess and that the dead hand of SOE's and government restriction is going to hold then back for decades.

they are not even a remotely modern or well functioning economy, just a big one.

on a per capita basis, the chinese have less output than albania or cuba.

their recent growth is not a testament to the excellence of their system, but rather to the fact that ANYTHING performs better on the margin than pure communism.

 
At 3/23/2011 5:02 PM, Blogger Dr. T said...

Once again we have a time trend graph that is not adjusted for population. When looking at manufacturing output over time, the key index is manufacturing output per capita, not total output. The world's population increased ~14.3% from 2000 to 2011.

The charted numbers were based on US dollars and were not corrected for inflation. Inflation from early 2000 to early 2011 was 29.3%.

If we set the 2000 per capita results to 100 and correct for inflation, the 2011 values are 116 for trade volume and 99 for industrial production. Thus, since 2000, trade increased only 16% per capita and industrial production fell by 1% per capita. That's a very different picture from the one shown on the chart. Isn't this called lying with statistics?

 
At 3/23/2011 5:52 PM, Blogger Benjamin said...

Morgan Frank-

R U confusing "nontradeable" shares with tradeable shares?

Name the public companies in China that are controlled not the by CP, and that you invested in. Please explain who owns the "nontradeable" shares.

 
At 3/23/2011 6:10 PM, Blogger Benjamin said...

Who Owns the Equity in Chinese Listed Companies?
The Chinese stock markets are queer creatures, if only because of massive state involvement. With nationalization in the 1950s, the Chinese state became the nominal and functional owner of all commerce and industry. The reverse function – privatization – has proved to be a greater difficulty.

Roughly 1,200 state-owned enterprises (SOE) listed on these markets, ostensibly becoming firms owned by shareholders, instead of the state. Closer inspection reveals that the state remains the greatest shareholder in these firms, and they are not easily or readily divested of their interests.

About one-third of the equity in these firms are held in the form of Legal Person (LP) shares, very often owned by state-controlled entities. In contradistinction to past rules on the alienability of LP shares, the Rules on Transfer of Non-Tradable Shares of Listed Companies, which became effective on January 1, 2005, now require share transfer to be registered, conducted through the Shanghai or Shenzhen exchanges and cleared through the China Securities Depository & Clearing Corporation Limited. That is, while many clamor for a resolution of the LP share issue, Chinese law appears to increase state central control, instead of allowing the market to make its own decision.

Approximately a further one-third is held by the state (guojia gu), which may not be traded. Indeed, they aren’t even listed. For somewhat more detail on shareholding, see this article by Wang Jiangyu.

In other words, only about one-third of the market actually trades (as “geren gu”) over the various exchanges. Professor Stephen Green:

"The large proportion of non-tradable equity means that China’s liquid stock market is relatively small, worth just RMB 1,317.9 bn (USD 158.8 bn), less than 17% of GDP, at the end of 2003. This is small in comparison to other markets, even other emerging markets. The markets of Indonesia, Malaysia and Thailand were all more developed, with only the likes of Argentina and Poland behind."

For elaboration, see his report here.

More on China investment in our next posting.

 
At 3/23/2011 7:02 PM, Blogger Benjamin said...

Who Owns the Equity in Chinese Listed Companies?
The Chinese stock markets are queer creatures, if only because of massive state involvement. With nationalization in the 1950s, the Chinese state became the nominal and functional owner of all commerce and industry. The reverse function – privatization – has proved to be a greater difficulty.

Roughly 1,200 state-owned enterprises (SOE) listed on these markets, ostensibly becoming firms owned by shareholders, instead of the state. Closer inspection reveals that the state remains the greatest shareholder in these firms, and they are not easily or readily divested of their interests.

About one-third of the equity in these firms are held in the form of Legal Person (LP) shares, very often owned by state-controlled entities. In contradistinction to past rules on the alienability of LP shares, the Rules on Transfer of Non-Tradable Shares of Listed Companies, which became effective on January 1, 2005, now require share transfer to be registered, conducted through the Shanghai or Shenzhen exchanges and cleared through the China Securities Depository & Clearing Corporation Limited. That is, while many clamor for a resolution of the LP share issue, Chinese law appears to increase state central control, instead of allowing the market to make its own decision.

Approximately a further one-third is held by the state (guojia gu), which may not be traded. Indeed, they aren’t even listed. For somewhat more detail on shareholding, see this article by Wang Jiangyu.

In other words, only about one-third of the market actually trades (as “geren gu”) over the various exchanges. Professor Stephen Green:

"The large proportion of non-tradable equity means that China’s liquid stock market is relatively small, worth just RMB 1,317.9 bn (USD 158.8 bn), less than 17% of GDP, at the end of 2003. This is small in comparison to other markets, even other emerging markets. The markets of Indonesia, Malaysia and Thailand were all more developed, with only the likes of Argentina and Poland behind."

For elaboration, see his report here.

More on China investment in our next posting.

 
At 3/24/2011 8:19 PM, Blogger VangelV said...

The only shortcoming with this approach is that I am American. I pay taxes here, my prosperity rises and falls with that of my nation.

The solution is simple. If your 'nation' wants to increase its prosperity it has to figure out how to be more productive. That would require better educated workers, more savings or borrowings in order to accumulate capital, and a regulatory and tax structure that would encourage the accumulation of capital. It isn't to make consumers poorer by making them pay more for the products that they buy.

 
At 3/24/2011 8:33 PM, Blogger VangelV said...

Not clear whether China is really a freer place than 20 years ago.

Actually, there is. Anyone who has been to China and observed what has been happening can tell you that it is a much freer place than it used to be.

You realize there are no private property rights in China? The state owns all the land--a private citizen can only have certain land use rights.

People can take out loans on the property that they own just as they can here. Your property can be taken from you just as property in China can be taken from the individuals who now own and use it.

You realize the Communist Party owns the majority of voting stock in every Chinese publicly held company?

Source please. I own shares in companies that mine ore in China and have no other operations anywhere else. Few if any of the shares are owned by the Chinese government.

Do you understand that political repression is getting worse, not better, in China?

It is not. The Chinese have more access to information than ever before. And they are complaining more than before.

China is doing the early Japan model on steriods. Export to earn capital for expansion. Proffer a cheap manufacturing base the world, protected, exchange-rate controlled, shorn of environmental constraints or real workers' rights.

Not true. There are many environmental constraints on companies and workers have rights. I used to work in a state owned company and saw the workers strike because they were not given the opportunity to buy more shares when the company did its IPO. The management, which was supposed to listen to Beijing ignored instructions and did pretty much what it wanted until the government stepped up and met the company's demands.

Wow, you can't beat the China model for sheer productivity. Yes, it works.

Actually, the US is and can be much more productive if the government got out of the way because it still has many advantages. But as each day passes the US becomes more and more socialist as China becomes more and more capitalist.

I prefer the free-market, democratic USA way.

But the US is no longer based on anything resembling a free market system. As Jim Rogers keeps pointing out, the US is more Communist than China.

http://www.abovetopsecret.com/forum/thread389207/pg1

 

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