What does China’s economic soft-landing, after two-decades of an export-oriented economy, hold in store for the US? By George Lauriat In dynastic China a Tael was a measure of currency. Historically, the economic ideal was to retain wealth by exporting goods and importing as little as possible. There was no sense of economic partnership. Eventually, this approach didn’t work out for China. Now, the economies of the United States and the People’s Republic of China (PRC) are indisputably linked. China has become the great factory to the world, churning out consumer products at an unprecedented pace. The cash-flush PRC has also become the second largest purchaser of US treasuries that underpin the US dollar. The obverse is that US retailers are the largest buyers of China’s consumer exports. This symbiotic relationship annually fills millions of containers flowing from China to the US. The question is, should the US economy slow over the next four-quarters, what impact will it have on China and the world. Another Tael: An export economyIt’s an all together familiar tale. During the first half of the year, the gross domestic product (GDP) of the People of China’s (PRC) grew 9.5%, year on year, to 6,742.2 billion yuan ($ 812.3 billion). For almost three decades the GDP growth rate in China has averaged 9.4%. In recent years that growth has been fueled by an export-oriented economy. According to the PRC’s Ministry of Commerce (MOC), China’s foreign trade volume reached $645 billion, up 23.2%, with a surplus of $39.6 billion in the first half. Foreign-invested companies account for between 50%-57%, according to the PRC’s National Bureau of Statistics. For the period January to May (2005) the US accounted for $583.4 billion in export sales, up 35% over 2004. This makes the US the number two export market for China with, just over 21%, just ahead of the European Union (EU) and Hong Kong with 15.4% each. The US measures the trade deficit differently, but both sets of statistics concur that the trade deficit between China and the US is enormous, and without precedent. In 1985 the US had a nearly even trade relationship with the PRC. Even through the early 1990s, the trade deficit was only around $20 billion, according US Census statistics. During the mid-1990s, however, the retail trade boom ensued and the trade deficit with China ballooned to over $160 million by 2004. The US Bureau of Economic Analysis (BEA), said that July exports hit $106.2 billion while imports hit $164.2 billion, resulting in a goods and services deficit of $57.9 billion. By far the largest deficit was again with China, at $17.7 billion ($17.6 billion June), compared to all of Europe at $13.1 billion ($12.8 billion June), or Japan’s $6.6 billion ($6.9 billion). The 1990s trade boom with China coincided with the mushrooming of the retail business in the US led by mega-retailers like Wal-Mart, K-Mart and specialty stores like Home Depot, Lowes and Walgreens. In 1992, US retail sales were $1,593.4 million. By 1997 retail sales had risen to $2,062 million and in 2004 they reached $3,019.7 million. Such explosive growth in US retail sales essentially underwrote China’s double digit plus GDP growth in the three manufacturing regions of the Pearl River Delta (Guangdong region), greater Shanghai and Beijing. Nevertheless, US retailers aside, the mounting trade deficit with China has been troubling for policy makers. China’s purchase of US treasuries no doubt helps finance a US Federal Government deficit. The concern over the trade deficit is not confined to US policy makers. In February, the Royal Bank of Scotland released it’s annual look at the world economic situation entitled, “Challenges & Opportunities.” It warned, “Global financial imbalances – and especially the size of the US trade deficit are the biggest risk to our [RBS] central benign outlook for the global economy. Concerns over the sustainability of the US trade deficit – and particularly the willingness of the Japanese and Chinese central banks to finance i