China's Trade Surplus

As a complex subject that closely connected with people’s daily life, economics is haunted by more fallacies than any other study known to man. The main reason of that was the special pleading of selfish interests, which indicated in Henry Hazlitt (2012)’s “Economics In One Lesson”. He pointed out that the fallacies came from two aspects. One is the pleading of self-interest, people from a special group tried their best to argue for the policies from which they would benefit driven by the direct interests while their benefits were based on other people’s expenses. The other is the persistent tendency of men to see only on a special group, neglect to inquire what the long-run effects on all groups, which means people are more likely to focus on the immediate effect of some policies on some special groups and ignore the long-run effects on the whole community.

Nowadays “Made in China” can be seen in every corner around the world. As a country with a fast-growing economy, China produced trillion dollars of goods and service every year and became the second biggest national economy of the world. Due to the cheap labor and the enormous production capacity, more and more foreign companies invested there and China became one of the biggest exporting countries as a result (Yang Yao, 2009). China had trade deficits when early 1980s, but from 1990s, the national trade deficits turned to trade surplus, which reached to 155 billion dollars until 2010. High GDP growth was achieved primarily through exports and large investment expenditure. All of these indications were what people would like to see because trade surplus is the sign of fast-growing economy.

We can prove that why it is preferable for people from the angle of short-run. Based on the formula of gross domestic product,

GDP (Y) = C + I + G + NX

Where the value of net exports, NX, equals to (Ex - Im), which has either positive or negative value. If it is positive, the value of GDP increases, which means the...