Hypothetical Question: What would be the point of selling automobiles to China, if that drives up the demand?

Question

for oil so much that Americans can no longer afford to drive their cars?

Answer 1

Looking at the economic picture, if the profit from selling car to China is "X" amount of US dollars, and the rise in oil price is "Y" amount of US dollars, as long as "X" is greater than "Y", then it will make economic sense to sell the car to China, as the American will generate enough income and be rich enough to pay the higher oil price.

However, the truth is that it is a more complicated problem than what is mentioned above. First, when the oil price increases, many things also follow...groceries, etc. Thus, the cost of living increases more than usual. Also, if US stop selling cars to China, some other countries will take the opportunity to sell their cars to China...stupid move for the American, right? So, if US stop selling cars to China, it simplily just stop its revenue of China cars sale, while the oil price will still go up.

So we can see that it is not a simple solution. That is the reason many are talking about alternative fuel. If some genius can come up with an alternate fuel that is so abundant, this fuel price can be kept low and affordable to everyone even when the number of car on the road increases. What the US administration should do is to pour in significant sum of money to promote good research for such alternative fuel. So far, this administration is only telling its people which wars they need to fight, and how much they need to spend to fight these wars for the glory of freedom. The effort on alternative fuel research is kept at its minimum. The Japanese produces a lot better hybrid car than the American these days, even though the American invented the car. The administration has only spoken that American is too dependent on oil. Hello, people, if food is running low in supply, can the president tell the people don't eat or eat less. We will all die or get malnutrition, don't we?

I hope that more Americans can voice their concerns. Support alternative fuel research. US spends about US$100 billion dollars on Iraq war for each of the past 4 years. If the administration channel this amount of money on the alternative fuel research, we might already found a good solution.

Answer 2

Well if you are assuming that the United States can produce the cars more efficiently it will drive up demand. The price of oil is determined by a cartel (OPEC) which doesn't set the price but rather sets the quantity it will produce. If America selling cars to China had a large impact on the world demand for vehicles you will find that two things will occur. The quantity OPEC set will probably increase (due to the fact that profit maximising is based on marginal revenue = marginal cost and in this case marginal revenue would have increased) However this increase would probably not offset the increase in price caused. The question then would be, is the benefit to the economy in exporting cars greater than the increase in price for oil?

However this is all assuming that America can produce cars cheaper. If this isn't the case there would not be any significant change as demand would be satisified elsewhere if not by America.

Answer 3

Selling automobiles satisfies existing demand.

Chinese will buy cars anyway, they might as well buy them from us to offset the huge huge trade deficit that we have with them.