Economic News 9/12

While many people were thinking about non-state terror yesterday, the wheels of state terror were being liberally greased with a new round of arms sales. According to the Financial Times, one of the world's biggest arms fairs opened in the Docklands section of London on September 9th, and is scheduled to run through today. 1,300 companies from 30 countries will be present. There will be military delegations from some 36 countries, including Libya, Indonesia, Saudi Arabia and China, taking their pick from a plethora of grenade and rocket launchers, depleted uranium shells, warships, and the like. Who is the organizer? The second-largest arms dealer in the world, the British government. From the FT article:

"The show is a brainchild of the Defence Export Sales Organisation, a part of Britain's defence ministry devoted to promoting arms exports. British defence companies say Deso has played an important role in making sure the UK defence industry has not shrunk along with the rest of the country's manufacturing capacity."

According to a UK government website, Deso was "set up in 1966 to promote UK arms exports overseas." Deso has been dumping more weapons than usual onto the global market in recent years. Between 2001 and 2006, Britain exported £26.5 billion (or $53.8 billion) worth of weapons under the auspices of Deso, "helping to secure tens of thousands of British jobs," the FT says. British arms sales to Africa almost quadrupled between 1999 and 2004, for example, surpassing the £1 billion mark in 2005. But this is not enough. Prime Minister Gordon Brown is reportedly going to shut Deso down, not because he is worried about state violence, but because he wants to increase "institutional alignment across government." He is, the FT says, "moving [Deso's] responsibilities to where the rest of British export promotion lies - within the newly named Department for Business, Enterprise and Regulatory Reform." This is the body that handles promotions for all UK exports--from subsidized beet sugar to, now, depleted uranium tank shells.

In indirectly related news, oil prices reached a record high yesterday at $78.23 a barrel, and OPEC pledged to increase production by 500 barrels a day. According to the New York Times, this will not have much of an effect on oil prices, as "[t]he market consensus was that there would be a big drop in oil supplies in the inventory data to be reported Wednesday by the United States Department of Energy."

The Chinese trade surplus with the United States continues to widen, totalling $103.3 billion for the first eight months of 2007. But the U.S. is not China's biggest trading partner:
"China’s August exports totaled $111.3 billion, while imports were $86.4 billion, according to the customs agency. European nations were the biggest trading partners, with exports to Europe rising 31.3 percent, to $23 billion, and imports from there up 21.8 percent, at $10.2 billion."

It has to be remembered that a huge chunk of these exports are not manufactured by independent Chinese firms, but by Chinese subsidiaries of European, North American, Japanese and Korean multinational corporations using cheap Chinese labor. According to one estimate, no fewer than half of all Chinese exports are "intra-firm" trade, e.g. trade between the branches of a single, usually foreign corporation.

On the other side of the Pacific, low interest rates have stimulated deficit consumer spending on foreign-manufactured goods and real estate in the U.S., leading to a bizarrely lopsided economic situation. The combination of automation and outsourcing continues to reduce U.S. manufacturing employment (which is likely to become as marginal as agricultural employment in the near future), while employment in sectors like construction (fuelled by the housing boom), retail (fuelled by consumer spending) and health care continues to grow. As Thomas Paily puts it at Asia Times, "The overall picture is one of a distorted expansion in which manufacturing continued shriveling while imports and services expanded. This pattern was carried by an unsustainable house-price bubble and rising consumer debt burdens, and that contradiction has surfaced with the implosion of the subprime-mortgage market and deflation of the house-price bubble."