We Are All Greeks


Rebalancing the world economy: EU-China trade deficit
Image by European Parliament via Flickr


I bought some wrapping paper a couple of days ago. It was made in China.

Yes, our economy has sunk so low that it is cheaper to make wrapping paper in China and ship it half way round the world than it is to make it here.

Most people, I think, understand that by buying foreign products we are exporting British jobs. But I suspect few understand how very much damage is being done to our economy and our future way of life.

I believe in free trade. It makes everyone richer. That has been very clear from the earliest days of the study of economics. Unfortunately, the benefits of free trade can only be properly felt by everyone if all sides are committed to it. The Chinese are not.

The Chinese peg their currency to the US dollar. They made great play a few months ago of allowing the currency to move a couple of percent against the dollar – when a free market value would move the currency by perhaps 50 or even 100%.

They impose huge duties on imported products like motor cars. As a result, Western auto manufacturers are obliged to set up local production facilities in China.

Even that is not enough for the Chinese. They have rules that prevent Western companies owning Chinese ones. That means those local production facilities have to be joint ventures with Chinese companies.

All this is not a free market. It is crude mercantilism, of the kind that Britain used to practice in the days of the Empire.

Western politicians, especially American ones, have been pretty loathe to speak out. Why? The answer is government debt. The other side of those big trade surpluses run by the Chinese is that they have been using the money to buy enormous quantities of US Treasury bills. They therefore have a very great hold over American political leaders. There is a ghastly symbiotic relationship between them.

The Chinese fund the deficits with which Western politicians buy the votes of their people, and the Western politicians keep quiet about China’s undermining of Western economies. It is a very dangerous game they are playing, because such imbalances in the long run will, and indeed already have, destabilise the world economy, and could lead in the long run to serious conflict.

Now take a look at Europe. The situation here is a microcosm of the world economy. In Europe, it is Germany who run the surplus, and countries like Greece (and Britain) that run the deficit. Greek politicians have been buying the votes of their people with borrowed money. The Germans (and the French) have been lending, and also running big trade surpluses. The Germans have become addicted to exporting, just as the Greeks (and the British) have become addicted to debt.

In the case of Greece, the currencies are even artifically fixed by the existence of the Euro, just like the Chinese currency is artifically fixed against the US dollar. That makes German exports look cheaper than they should be if you are Greek.

Germany is not like China. Germany has no agenda to undermine the economies of the Southern European countries (or indeed of Britain). But the policies, and the effects, are the same.

In Europe, the answer is clearly to break that currency union, by eliminating the Euro, and for Germany to boost the living standards of its people by cutting interest rates. Germany needs to break its addiction to exports, just as Greece and Britain need to break their addiction to debt.

Worldwide, the problem is really the same – and the answer is the same. The link between the Chinese currency and the US dollar needs to be broken, and the Chinese need to stop imposing restrictive trade practices on trade with the West. That is not to say that it is all the fault of China. It is not, because the Western addiction to debt is the other side of the coin.

We can all see where the problem in Europe has led Greece. The consequence of the Western problem with China will be the same unless the Chinese problem is resolved. This time we in the West will all be playing the role of Greece.

We are dismayed by the spectacle of Germany turning the screws on Greece. China will be doing the same to us shortly unless our politicians start tackling the fundamental issues.

Japan’s Finance Minister Doesn’t Get It


Japan’s Finance Minister, Hirohisa Fujii, has said that the high value of the Yen is harming the Japanese economy.

He is wrong.

The US economy is unbalanced, because it runs a continual trade deficit. The Japanese economy is unbalanced too, because it relies on exports, and runs a continual trade surplus. Japan, like Germany and China, is addicted to exporting – just as the US (and the UK) are addicted to spending and importing.

These imbalances harm the world economy and lead to pressure for trade barriers, which would harm us all.

While the Japanese Finance Minister was bemoaning the high value of the Yen, the Japanese trade figures for October showed a surplus of 807 billion Yen (£5.6 billion). Exports fell by 23.2% compared with a year earlier, while imports fell by 35.6%. So that trade surplus was in fact even higher than a year ago.

Japan cannot continue expecting others in the world to buy all its production. The Japanese government has run big budget deficits in an attempt to boost domestic demand, with little success. It has also kept interest rates low for many years. But still the Japanese keep saving, and not spending.

A more credible strategy for the Japanese would be to start dismantling their trade barriers that keep out cheaper foreign-made goods.

Japan is a notoriously expensive place to live. Prices are high there because the Yen is undervalued. The Yen needs to rise much further. Japan actually needs a flood of cheap foreign imports to rebalance its economy, to increase the standard of living of its people, and to encourage them to feel good again, so that the recession ends.

Japan has been a seige economy for decades. It is time it was opened up to free trade.

The comments of their Finance Minister are unhelpful and ridiculous. The rebalancing of world trade doesn’t just mean deficit countries like the US and the UK cutting back. It also means the surplus countries need to start being willing to buy things made by foreigners.

Coffee Bean Capitalism

When I was a kid, ahem, 30 years ago, coffee used to be very simple. Most people had Nescafe; the more adventurous had Maxwell House; and the trendies had Mellow Birds.

Coffee has come a long way since then. Starbucks has spread across the UK, now joined by Costa Coffee and Caffè Nero. In the supermarkets, instant coffee is retreating as “real” coffee takes more shelf space.

And coffee is getting a social conscience. No longer is it just a commodity traded on an impersonal world market. “Fairtrade” brands are expanding, buying fairly direct from growers and yet providing the very best coffee to consumers.

Many of the new coffee companies are directly supporting communities in coffee-growing countries too. Percol, for example, support Grounds for Hope.

And all this without a shred of State aid, socialism or “help” from G20 protestors.

As I sip my cup of Percol Latin American, I think of the fine people who grew the coffee beans, the fine people at Percol who shipped and packed it, and even the folks at Tesco who sold it to me.

We have all played our part in a great free enterprise success story. Trade, not aid, has made us all richer.