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Is China driving up the price of oil?
China's oil imports have increased dramatically during the past five years; the country now imports 3.5 million barrels a day, compared with U.S. daily imports of 12.2 million barrels. But it's far less obvious that Americans are really paying a price for this.
If you've been to the mall lately, you've probably noticed that China is making scads of plastic. As the world's second-largest plastic producer, it is furiously turning oil and petrochemicals into everything from lobster souvenirs to sneaker soles. By embedding oil in products, China is, in effect, importing oil on behalf of U.S. consumers -- as much as 1 million barrels per day.
While China's demand for energy is driving up oil prices worldwide, its cheap goods are having the opposite effect on the cost of living in the United States. A recent analysis by the U.N. World Economic and Social Survey suggests that Chinese pressure on oil imports may have raised U.S. inflation by 0.23 percent from 2001 to 2005, but cheap imports of Chinese goods decreased U.S. inflation over that same period by 0.28 percent. For the moment, the net winners are U.S. consumers.
I wouldn't put too much stock in those exact numbers but the general point still holds. Here is my earlier post on this topic.
Posted by Tyler Cowen on June 6, 2007 at 06:11 AM in Economics | Permalink
Comments
Wait a second. Cheap Chinese goods (made from oil) may lower overall inflation, but that certainly doesn't mean that oil prices themselves are lower!
Wait til after I've taken my prelims to try and pull the wool over my eyes. By then I'll have forgotten general equilibrium, and you'll be able to convice me that lower plastic prices mean lower oil prices. ;-)
Posted by: Mr. Noah at Jun 6, 2007 10:25:19 AM
This makes you wonder what will be used as a replacement for cheap, oil-based plastics in the future.
non-petro chemical Resins and carbon fiber?
Bakelite?
Posted by: Xmas at Jun 6, 2007 10:25:56 AM
This is an excellent and unexpected insight. One point that I would add is that if production of plastic-based products had not been outsourced to China,
the store price of these products would be at some higher level and therefore the demand somewhat less, leading to some reduced level of net oil consumption.
However, I believe that some significant part of today's crude oil prices is due to political/production fear factors and not due to the actual supply levels. I have
been tracking US crude oil inventories as reported by the US EIA's This Week in Petroleum website at my blog Wasatch Economics and those inventories have
been at the top of their historical ranges for at least a year. One would expect that imports would decrease to at least bring inventories down to the middle range
as refiners are maxed out on refining capacity and therefore wouldn't need to import crude until their crude inventories dropped quite a bit.
Posted by: Ravenor at Jun 6, 2007 10:57:35 AM
After oil comes bioplastics:
http://www.rsc.org/chemistryworld/Issues/2006/August/DownPlasticsFarm.asp
"Last year, Dirk Carrez, director of public policy for industrial biotechnology at EuropaBio was quoted in Chemistry World (November 2005, p36) as saying: 'Biomass as a source for making chemicals currently becomes competitive when the oil price is at or above $55 per barrel'. And he predicted that within six years biomass could become competitive even with oil at $40-45 per barrel. With oil prices now regularly exceeding $70 per barrel, it seems clear that the price of oil is set to make bioplastics an increasingly attractive option."
More info:
http://en.wikipedia.org/wiki/Bioplastic
Posted by: Mr. Econotarian at Jun 6, 2007 1:08:29 PM
One can certainly make a similar argument regarding the value of the Yuan.
Posted by: China Law Blog at Jun 6, 2007 11:11:43 PM
without question China is driving up prices due to the sheer number of persons in a growing economy. something to consider is that American and European consumerism for small goods is driving up the costs drastically too because of the amount of money being spent in china.
I just hope to see more people cut back on their gas usage. I have decided to close my office and work from home so that I can do my part. Yeah, extra money so I can get more Air Force Ones. Yeah, they are made in china, but they have very little plastic on them :-P
Posted by: Nice Kicks at Jun 11, 2007 8:39:06 AM
tiffany rings
tiffany earrings
tiffany necklaces
tiffany pendants
Tiffany Engagement Rings
Posted by: aion kina at Mar 19, 2009 8:30:27 PM
