The Wal-Mart trade deficit

As the U.S. economy craters, Wal-Mart throws a lifeline to China.

By Andrew Leonard

Published November 13, 2008 7:19PM (EST)

Here's a stunning number: The Census Department reported on Thursday that the U.S. trade deficit declined to its lowest level in a year, to $56.5 billion. But Calculated Risk observes that the bilateral trade deficit with China rose to an all-time high of $27.8 billion. Fully half of the U.S. trade deficit is accounted for by one country -- China.

The first conclusion to take from this is simple: No wonder China's government announced a $586 billion economic stimulus plan last weekend. China exported $33.1 billion worth of goods to the U.S. in September, but how shaky is that crown? The U.S. economy is in free fall.

The second takeaway is a little more subtle. Among all the bad economic news today, I saw one headline that was tinted optimistically: "Wal-Mart Remains Upbeat." The retailer reported a 9.8 percent rise in profits for the third quarter of 2008, and CEO Lee Scott professed himself "optimistic about the upcoming holidays."

Wal-Mart's recipe for success is no secret:

Wal-Mart, which is often viewed as a barometer for the retail industry, has benefited from its low-price position as shoppers curtail discretionary purchases and seek bargains. In contrast, sales at department stores and specialty retailers have been lagging, in part because of their bigger exposure to discretionary merchandise.

But how does Wal-Mart get the lowest price? In significant measure, by sourcing production of its goods in China. A rough estimate holds that fully 10 percent of the annual trade deficit between the U.S. and China is accounted for by one company -- Wal-Mart.

The Wal-Mart effect may partially explain the seeming disjunction between the U.S.'s failing economy, shrinking overall trade deficit, and yet growing trade gap with China. The worse things get in the U.S., the more Americans are relying on goods "made in China" just to get by.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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China Globalization Great Recession How The World Works Wal-mart