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Economics of shirts, jets

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How many shirts does China have to sell to make the money for 80 Boeing jets?

At first glance this question may appear irrelevant as the Chinese trade delegation visiting the United States signs a deal worth about US$5 billion to purchase Boeing planes.

However, by asking this question we can gain perspective on one significant part of the so-called trade imbalance between China and the United States.

For US politicians who focus only on their country's record trade deficit and believe that it is all that matters in Sino-US trade relations, the question will more than likely bewilder them. What is the use of calculating the terms for an assumed shirt-for-jet barter transaction?

For Chinese people though, such a comparison will be a bittersweet reminder of both China's growing export prowess and the worsening terms of trade.

Last year, China's commerce minister pointed out that the country needs to sell "800 million shirts in order to buy an A380," a reference to the latest aircraft being developed by the European consortium Airbus Industrie.

To come up with an exact number of shirts China has to export to purchase 80 Boeing planes, one has to take into account the price difference between these Boeing jets and the Airbus A380, and the current profit margin of Chinese textile exports. But a rough guess can easily put that number at the level of billions, if not more.

It is clear evidence of China's trade power that its delegation is going on a shopping spree in the United States, ostensibly to help reduce a massive trade gap between itself and the world's largest economy.

Making full use of its comparative advantage has allowed China to stand out in the manufacture of cheap low-end products like shirts. But its tiny profit margin contrasts sharply with that of developed countries' high-tech exports such as airplanes.

While making many Chinese people uncomfortable, the vivid comparison of an astronomic number of shirts being exchanged for just one jet may not be heeded by US politicians eager to be tough on China's trade surplus over the United States.

Yet, the shirt-for-jet story does tell us much about the driving forces behind the growing trade volume between the two countries.

Obviously, the bilateral trade is mutually beneficial.

US consumers can benefit hugely from imports of cheap but good quality made-in-China shirts; and the latest airplane purchase can also help China meet the rising market demand for domestic air travel.

Less obvious but more important, both the making of billions of shirts and the manufacture of Boeing airplanes are in themselves a cause and a result of economic globalization.

China imports cotton and textile machines from a number of countries, including the United States, to produce shirts for the world. The US-based Boeing company assembles jets with outsourced parts and components, a considerable portion from China, and then flies them around the world.

If such interwoven economics is a reflection of the times, one should better accept exports of made-in-China shirts and imports of Boeing airplanes as the two sides of a coin. It makes little sense to try to have a one-sided coin.


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