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shanghaiceltic
Board Royalty
Joined: Sep 20, 2005
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May 18, 2007 - 07:47 AM |
 
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| Post subject: Chinese & US trade. |
America's fear of China
May 17th 2007
From The Economist print edition
China is a far-from-cuddly beast; but bashing it is a bad idea
Kord.com
IF THE guest list determined a meeting's value, the Strategic Economic Dialogue between China and America on May 22nd would be a roaring success. Almost half the Chinese cabinet is trooping to Washington, DC, for the second of the twice-yearly discussions, conceived by Hank Paulson, America's treasury secretary, between the world's largest economy and its fastest-growing one. The process was designed, in large part, as an antidote to the latest case of Asiaphobia among America's politicians. It is not working.
The itch to get tough with Beijing is urgent in Congress. Brandishing China's growing bilateral trade surplus as proof, congressmen from both parties have denounced the country as a currency manipulator, an illegal export-subsidiser, a violator of rights to intellectual property and all-round trade scoff-law. China-bashers have introduced a dozen bills in the new Congress. Some are bound to languish, but others may be passed—though there would then be further hurdles to jump, not least the president's power of veto (George Bush has other conflicts on his mind). The most threatening include proposals that would declare China's cheap currency an illegal subsidy and allow American firms to seek compensatory tariffs.
Politics in Beijing is less open, but the circumstances are similarly unhelpful. Because they have no electoral legitimacy, China's Communist leaders need to deliver the economic goods even more than most congressmen do. Worried about unemployment, the Chinese are loth to let their currency, the yuan, appreciate much faster than at today's snail's pace. And as with all dictatorships, there is the need to seem tough. With the five-yearly Communist Party congress only months away, China's president, Hu Jintao, cannot be seen to be bowing to American pressure on the yuan or anything else.
Japanese lessons
Thankfully, an all-out trade war remains unlikely. Congressional leaders seem inclined to act within the rules of the World Trade Organisation (WTO), which limit the scope and scale of any barriers that America can unilaterally impose. And some friction is to be expected in a trading relationship worth well over $300 billion a year. But although today's tensions are not cause for panic, they are a costly and unnecessary distraction—and potentially worse than that.
One worrying parallel is the Japanophobia of the 1980s and early 1990s. Back then, Japan's rising bilateral trade surplus and its mounting foreign-exchange reserves were seen as “proof” of its manipulated currency and mercantilist attitude. America's paranoia deepened as its jobless rate climbed—especially when the Japanese started buying landmarks like the Rockefeller Centre. In fact, Japan's bubble economy ended up bursting; but not before an outbreak of foolish protectionism. The economic tension even undermined support in both countries for America's security alliance with Japan.
The case against China is even weaker than the one against Japan was. Its economy is far more open. Though much poorer than Japan was then, China is already America's fastest-growing export market. And in contrast to the 1980s, the WTO now exists as an umpire for trade disputes. But logic, alas, may count for less than political grievance. America's low unemployment rate looks set to rise in the wake of the housing bust. To American voters, the Chinese are likely to become more prominent rivals, whether it be displacing America at the top of some economic league tables, winning Olympic medals or buying big American firms (the Chinese are rightly keen to diversify from treasury bonds). Most worrying, though, are the strategic risks. Japan was an ally in Asia: China is potentially a military competitor. Trade tensions could make it easier to see China as a rival and harder to enlist it as a partner.
Running such geopolitical risks would be understandable if China's policies posed a true threat to America's economic health. But they do not. China's intellectual-property violations cost American firms far less than many would have you believe: pirated DVDs may sell for peanuts in the markets of Shanghai, but if Hollywood tried to sell the genuine articles at full price, it would quickly discover that most Chinese could not afford them. Similarly, a stronger yuan would do little to dent America's trade deficit (see article).
So much to lose, so little to gain
The bilateral trade imbalance, the target of so many American politicians' anger, is an economic red herring. Its rise reflects changing supply patterns in Asia: America now imports more stuff that has passed through China—and correspondingly fewer goods from South Korea and Taiwan. China's overall surplus and America's overall deficit have less to do with the value of the yuan than with Chinese saving and American profligacy. True, a stronger, more flexible yuan makes sense for China, because it would help shift spending towards imports and would give Beijing's policymakers greater control over interest rates, making it easier to prevent the economy from overheating. But the effect on America would be small.
Rather than picking fights over the currency, Congress should step back and ask why Americans are so upset with China in the first place. The answer is that China is a scapegoat for broader economic anxieties to do with stagnant wages, rising income-inequality and dwindling health and pension benefits. These insecurities, which also lie behind the bad idea of introducing labour standards in trade agreements (see article), are much better tackled head on—at home.
Comprehensive health-care reform to create a system where all Americans have access to portable health insurance would do a lot to reduce workers' anxiety and equip them for an economy that these days demands frequent job shifts. Reform of the payroll tax, a regressive levy that hits the less affluent hardest, would be a good way to shift resources to needier Americans. By contrast, raising barriers to cheap Chinese imports would disproportionately hit the wallets of poor and middle-income American consumers—the very people the Democrats in particular claim to be protecting.
By scaling back its China-bashing, Congress could avoid such blunders. It would also leave more room to engage Chinese officials on subjects that actually matter. Top of the trade agenda ought to be the successful conclusion of the Doha round of global talks. No country has more at stake in a vibrant WTO than China, yet Beijing has been scandalously unwilling to help push for a Doha deal.
But the greatest prizes of Sino-American diplomacy are nothing to do with trade. Avoiding war and conflict, naturally, comes top of the list, whether by co-operation over North Korean and Iranian nukes or by building the trust that minimises the odds of a clash in the Taiwan Strait. Then there is China's expansion into Africa, particularly its cosy relations with genocidal Sudan. Global warming, too, ought to be centre-stage. China is building a new coal-fired power plant every week and is set to surpass America as the biggest source of greenhouse gases within a year. If the world is to contain its carbon emissions, America must not only clean up its own act but also help China to green its economic growth.
Mr Paulson wants the strategic dialogue to address some of these broader issues. Congress should stop distracting him. |
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after27
Rocker
Joined: Aug 31, 2006
Posts: 792
Location: Melbourne, Australia
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May 18, 2007 - 10:49 AM |
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Article is too long,
can someone make a summary? |
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dfoo
Post Roaster
Joined: Jan 19, 2005
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May 18, 2007 - 11:00 AM |
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Executive summary: The Americans are focusing on the wrong issues (again). The whole thing is a joke and a distraction from the really idiot policies... If they *really* wanted to help their economy how about stopping spending billions on the war in Iraq? |
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p1atl10
Board Royalty
Joined: Mar 18, 2005
Posts: 6259
Location: Shanghai
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May 18, 2007 - 04:09 PM |
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dfoo
The healthiest economic times for the US have been during our various "idiosies" (sic) as you put it.
Wartime spending boosts the US economy......Macro economics 101. Read a book or two.
And the big question....
How do you get from:
a thoughtful editorial on the real issues that should be discussed between two of the largest economic powers in the world on the eve of an important summit?
To:
Ungrounded and uninformed American bashing about Iraq?
I do not agree with some of our foreign policies... I do believe in staying on topic in forums.
Give it a rest....or at least put it in the correct thread. |
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Not all chemicals are bad. Without chemicals such as hydrogen and oxygen, for example, there would be no way to make water, a vital ingredient in beer.....Dave Barry |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
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May 18, 2007 - 04:42 PM |
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After WW2 there were very large economic boom. Other than that what exactly are you talking about? How are you measuring the so called healthiest economic times? The wartime spending during the Iraq war isn't exactly boosting the economy is it? Furthermore, what war exactly fueled the tech boom during the 90's? What caused the economic downturn immediately after the Vietnam war in the late 70's and early 80's?
Ok, course you know more than me... and academics for that matter... http://www.firsttennessee.com/index.cfm?Fuseaction=ExecutiveHighlights Newsletter.ViewContent&Item=Commentary
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The longer the war lasts, the bigger the potential economic impact will be. In the war on terror, the bill has risen to just under five percent of GDP – similar to the cost of the Gulf War. The duration, however, has already stretched to several years. And the potential cost of nation-building remains unknown.
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Also note from an article written in 1999 http://mba.tuck.dartmouth.edu/paradigm/back_issues/fall1999/articles/k netter_newec.html
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| As noted earlier, the current expansion is in its 100th month, making it the longest peacetime expansion in U.S. economic history. The only expansion that lasted longer was the 106-month boom of the 1960s, which was fueled in part by wartime spending. But even that record is now clearly within reach. The 1980s expansion lasted 92 months, making it the second-longest peacetime expansion on record. Taken together, these observations suggest that business cycle expansions are gaining longevity at a greater rate than the population. |
Clearly the expansion lasted past the writing of this article. So does your assertion really hold true? Evidence says otherwise.
And thank you very much, but my post is precisely on topic. The US administration wants to place blame on anyone but themselves for their failings. China is a prime scapegoat. The reality is that the problems are their own making. |
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hc
Post Roaster
Joined: Apr 04, 2007
Posts: 4545
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May 18, 2007 - 06:23 PM |
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dfoo
Post Roaster
Joined: Jan 19, 2005
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May 18, 2007 - 07:16 PM |
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What really gets me about this post is that even if it is the case that economic expansion during periods of war what does that mean? That the US should periodically go to war to fuel the economy? That killing millions of innocent people the simply the cost of economic prosperity? |
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p1atl10
Board Royalty
Joined: Mar 18, 2005
Posts: 6259
Location: Shanghai
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May 19, 2007 - 06:12 PM |
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dfoo,
An apology, an explanation and a question....
Apology.... for making it a pissy (sp?) reply.....Screwed up the sleep/work/caffeine balance. Not called for. My apologies.
Explanation...
Knowledge, like software, needs updating.....
I was quoting academics, Galbraith included, from my college days. But....
Your reply led me to do some digging and "update my software"....
http://www.firsttennessee.com/index.cfm?Fuseaction=ExecutiveHighlights Newsletter.ViewContent&Item=Commentary
http://eh.net/encyclopedia/article/tassava.WWII
http://www.washingtonpost.com/ac2/wp-dyn/A15918-2003Sep15?language=pri nter
Economists have been fairly united in their view that a wartime economy pulled the US out of a depression post WWII, and carried it through he Korean "Police Action", and the Vietnam war. (Police Action? Jeesh....war is war)
"Traditionally, war has been viewed by economists as both blessing (thanks to the economic stimulus it provides) and curse (as the government piles up debt rather than raise taxes). More recently, however, economists have tilted toward concern about the inflationary supply-and-demand imbalances that occur when billions are spent on weapons production. Military production, after all, generates billions in income – which means billions in spending power – without creating any goods or services to absorb the stimulus. That leaves dollars sloshing around in the economy, competing for the goods produced by everyone outside the military-industrial complex. At least some of the cyclical inflation that cropped up in the 1970s and '80s over the course of the typical business cycle probably resulted from this imbalance."
War was a good thing ,economically, when war spending was 40% of the US Budget for WWII, 16% for Korea, and 9% for Vietnam. With the growth of the US Economy and a budget last year of $2.6 trillion, defencse spending was $350 billion...barely 5% of GDP.
Interesting side note: The Gulf War in 1990-91 came with minimal direct cost to the U.S. Eighty percent of the expense was picked up by Arab countries interested in stopping the threat of Iraqi invasion. The United States had an estimated total cost of $80 billion spread over a little less than a year.
Even with the spool up of spending due to the current war, Defense spending stands at ~4.8% of the economy. Much less of a stimulus.....
And a possible detriment as the war (and the costs) drag on and ballonn the deficit.
So....I am swinging to the other side. It is much less of a force in the economy.
You wrote:
"And thank you very much, but my post is precisely on topic. The US administration wants to place blame on anyone but themselves for their failings. China is a prime scapegoat. The reality is that the problems are their own making."
The question....
I am still struggling with the leap from an economic summit with the Chinese to a discussion of war time economics.... when both your sources and mine confirm that other than a concern about the inflationary pressures of the deficit spending incurred, there is little effect from the war spending on the US Economy.
I agree you that US "China Bashing" over lost jobs and the trade imbalance is hysterical, mis-informed, and ridiculous.
The point of the editorial was the the US Congress should move on to the more important discusions of the DOHA Agreement, opening, not closing the trade between the US and China, and a saner set of domestic economic policies that actually do some good.
Your perspective?
Thanks |
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Not all chemicals are bad. Without chemicals such as hydrogen and oxygen, for example, there would be no way to make water, a vital ingredient in beer.....Dave Barry |
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after27
Rocker
Joined: Aug 31, 2006
Posts: 792
Location: Melbourne, Australia
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May 19, 2007 - 08:50 PM |
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Too long again.
Summary please. |
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Santorini...hmm...yes...da SEXY beach...Greeks & Europeans...dark skin...innocent smile...endless intercourse.)) |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
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May 20, 2007 - 09:38 AM |
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I'd also note that wartime spending certainly didn't help the UK economy. Despite "winning the war" the UK entered a massive depression after WW2. My mother still remembers rationing vividly despite being born at the end of the war.
The reason why I brought up the Iraq war in the first place was twofold. Firstly, the article itself mentioned war (iran, north korea and such) and that made me think of the Iraq war. Secondly, congress focusing on trade imbalances with China causing economic harm in the US is a bit ridiculous when they should be focusing on the illegal war in Iraq! This is costing lives, and its costing money -- and lots of it! Some estimates put the cost at more than $2 trillion http://www.guardian.co.uk/Iraq/Story/0,2763,1681119,00.html, or perhaps even more http://www.informationclearinghouse.info/article15499.htm.
This article is also interesting:
http://www.nytimes.com/2006/02/11/business/11trade.html?pagewanted=2&e i=5088&en=bce394b5fe013dbb&ex=1297314000&partner=rssnyt&emc=rss
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| While China draws most of the attention, perhaps the most important factor behind the swelling deficit last year was the rising cost of importing oil and other energy supplies. Trade in petroleum products accounted for 29 percent of the total deficit, up from 25 percent in 2004. Imports of petroleum goods climbed 39 percent, to $251.6 billion, after rising by 39 percent in 2004. |
What is one of the major reasons why the cost of oil is rising? |
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jacobbarnes
Barker
Joined: Dec 14, 2006
Posts: 127
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May 23, 2007 - 11:45 PM |
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If the economic stimulus is a reason for these wars they are all the more repugnant, and oil prices are approaching inflation adjusted historical highs in the U.S. right now.
The people who complain about jobs lost to China are misinformed. Those jobs were already being lost to Mexico, Indonesia, India, the Carribean and Central America. LArgely the Chinese are undercutting them. The jobs would go to places with lower wages any ways.
Why resent those in the developing world for needing those jobs more? |
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jacobbarnes
Barker
Joined: Dec 14, 2006
Posts: 127
Status: Offline
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May 23, 2007 - 11:46 PM |
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Good treatment of this topic in China, Inc., by Fishman I believe. |
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