China overtook the United States last year to become the world’s biggest trading nation as measured in exports and imports of goods, ending America’s postwar trade dominance, according to the latest official annual data released by the two countries.
The U.S.’s total imports and exports for 2012 stood at $3.82 trillion, according to the U.S. Commerce Department’s report released last Friday. China’s total trade for the same year hit $3.87 trillion.
This is not China’s first significant economic victory. Back in 2009, Beijing overtook Berlin to become the world’s largest exporter. In 2010, China eclipsed the U.S. to become the world’s thirstiest energy consumer, a milestone that reflected both China’s extraordinary economic growth and its multiplying clout as an industrial giant.
But the U.S. is not yet overthrown.
The U.S. economy is still double the size of China’s, with a gross domestic product in 2011 of about $15 trillion, compared to China’s $7.3 trillion for that year.
Still, it was China that reported a 2012 trade surplus of about $231.1 billion. For the same year, the spend-today-worry-tomorrow U.S. reported a total trade deficit of $727.9 billion. This colossal deficit weighs heavily on the U.S., and is only expected to grow larger in the years ahead.
China’s Commerce Ministry came out on Wednesday saying the earlier reports were wrong due to use of differing systems of measurement, and that the U.S. is still slightly ahead of China in international trade.
Nevertheless, China’s economic might is rapidly growing. Its mushrooming influence threatens to unsettle regional trading blocs as it becomes the most important commercial partner for nations not only in Asia and Europe, but also in distant countries like Brazil, where the U.S. has played second fiddle to Beijing since 2009.
“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” said Jim O’Neill, chairman of Goldman Sachs’s asset management division.
China’s economic ascendancy also has near-term implications for the dollar as go-to currency for the pricing of tradeable goods. As China’s economic power grows, and as global dissatisfaction with the U.S. economy/debt/dollar increases, the influence of the yuan will multiply. But it actually will be the European currency—not the yuan—that will depose the U.S. dollar.
At present, European leaders are not unified in the handling of their financial crises. In the absence of strong central leadership, they bicker and debate. They dither and prevaricate. The result is an unstable euro that the world isn’t yet prepared to invest its financial faith in. But the dithering and hesitation is injecting European leaders with a desire for an unflinching leader willing to take the drastic action necessary to rectify the Continent’s fiscal ailments. This rising desire will prompt these policymakers to cede national sovereignty over to a central EU leader who will take blitzkrieg action in every facet of European affairs. When this leader takes the reins, the European currency will rapidly replace the dollar—and obliterate it.
To understand more, read “The End of the Dollar System.” ▪