This is Your Brain on Nationalism: US-China Trade Deficit Follies

Have you ever noticed that their stuff is shit, and your shit is stuff?

–George Carlin, A Place for My Stuff

With all the recent talk about the value of the RMB and possible adjustments following a US-China bilateral rapprochement, it seems like a good time to discuss the knee-jerk reaction of some folks to characterize all US job losses as the fault of China.

Additionally, the bilateral trade deficit itself is often explained away as the result of China breaking the rules and playing dirty tricks, using unfair advantages against the honest, efficient American business community.

A recent example. Dave Johnson, writing at The Huffington Post, posts his talking points following a brief appearance on CNBC:

The trade imbalance with China is huge. This imbalance is the result of rulebreaking that has created a bubble that is expanding beyond all safe margins. If we let it get worse it could lead to another worldwide economic disaster.

A study by the Alliance for American Manufacturing and the Economic Policy Institute found that 2.4 million (oops I said 2.8 on the show) American manufacturing jobs were lost between 2001 and 2008 due to unfair trade with China. The biggest share of those job losses was in technology by the way.

The solution – the way to bring the trade relationship back into balance – is actual free trade. That is trade that follows and enforces the rules and is not manipulated and is not exploitative. Actual free and fair trade lets companies and countries compete in a free, unmanipulated market that is on a level playing field with clear rules that benefit everyone.

Take a close look at the language; it’s important. Note in particular the phrase “level playing field,” as well as “unfair trade” and “rulebreaking.”

It’s kind of odd that whenever trade deficits are discussed in the U.S., the automatic assumption is that someone must be cheating.

Why? Because, of course, America is #1 — yippee! American companies can out compete anyone, American workers can be more efficient than their counterparts overseas, and American innovators can out think anyone on earth.

If you buy into that, and many U.S. politicians talk like they do, then of course deficits must be caused by cheating. It’s certainly a logical argument.

The problem is that attributing all of these job losses to Chinese dirty tricks is nothing but an exercise in nationalism. And when your brain is hopped up on nationalism, you tend to say really stupid things. For anyone from any country to say that “Our workers are the best in the world,” is insincere at best, delusional at worst (or maybe I have those transposed). Suffice it to say that starting off a discussion of trade patterns with the assumption that your nation is “the best” and should naturally always “win” is not conducive to either smart policy making or wise international relations.

Yes, I know most people do not attribute all job losses to China or think that dirty tricks accounts for the entire trade deficit. Allow me the hyperbole – my point is that some critics inflate, or over-emphasize, the numbers when making these arguments. Coincidentally, the ones who talk up the numbers the most are often jingoistic, flag pin on the lapel wearing, chest thumpers.

Even otherwise level-headed individuals tend to get caught up in this nationalist trade trap. Here’s Commerce Secretary Gary Locke on Bloomberg:

They can revalue their currency, but if they still have market barriers or if they favor their domestic companies, then that revaluation of the currency will not make much of a difference.

Locke is talking about the trade deficit and, although his statement is factually correct on its face, it sure seems to me that he is looking at an RMB revaluation from a results-oriented point of view.

If a revaluation does not result in a narrowing bilateral trade deficit, then obviously China must be cheating in other areas. If you accept the assumptions, then the rest is simple math.

Just what is all this cheating everyone is talking about? Johnson, writing here, lists several “unfair advantages” China is using to eat the American people’s lunch:

1) Currency manipulation. China “pegs” its currency at a very low, or “weak” rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.

Let’s take a look at the “cheating” charge. In my line of work, that charge won’t stick unless you first identify what rules are being violated, and then you provide evidence to support the allegation. I assume that Johnson is talking about WTO rules when he mentions cheating.

Just What Sort of Cheating Are We Talking About Here?

Strange thing, though. I’ve looked at his list of seven things very carefully, and aside from various technical issues relating to intellectual property protection and individual subsidy programs, I’m at a loss to identify where all the cheating is going on. If I knew about it, I would certainly advocate for a WTO dispute.

That would be quite difficult, though, wouldn’t it? Lots of people have been discussing the problems with a WTO case involving the value of the RMB. Very unclear whether the U.S. would win the case. What about labor and environmental issues? I’m unclear what specific WTO rules Johnson is talking about when he includes those on his list. (I’m being disingenuous — there are no applicable WTO rules that would allow for such a dispute.)

As far as the other points on his list are concerned, there are indeed a few areas to look into, but they are fairly minor and do not in any case explain away a significant fraction of the trade deficit.

OK, so maybe China isn’t breaking a lot of rules. Perhaps critics like Johnson aren’t thinking like lawyers. Maybe instead of “cheat,” the better word is “unfair.”

With respect to the RMB, I actually think is a fair characterization. The dollar peg is unfair, and the RMB needs to be revalued for a variety of reasons. The value of the RMB does not explain away the entire trade deficit, and certainly doesn’t explain away all U.S. job losses, but sure, I’ll go along with “unfair.”

What about wage levels and the environment? If you follow the arguments of the American manufacturing lobbyists, China should pay higher wages and have higher environmental standards because not doing so is unfair to American companies.

{cough, bullshit, cough} What? China is a much poorer country, and wages here are lower. In fact, as China has grown, wages have steadily increased. One could make a similar argument on environmental standards and enforcement. It makes absolutely no sense that China should make changes in these areas in response to U.S. trade rhetoric.

China econ guru Arthur Kroeber sums all this up quite nicely:

Every time a developing economy starts growing fast, richer countries accuse it of “cheating” by keeping its wages and exchange rate artificially low. But this isn’t cheating; it’s a natural stage of development that comes to an end in every country, as it will in China.

Arthur is too nice to explain what is behind these accusations. Those who understand what’s really going on are simply exploiting the subject to engage in a bit of protectionism. Others, who actually believe in this America #1 drek, are hopeless nationalists, and when your brain is on nationalism, all rational thought goes out the window.



43 Comments

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  1. hm

    Americans always find ways to criticize others for job losses. From illegal immigrants to developing countries who provide products at a cheap price. I agree that nationalism blinds people.

    Would Americans willingly pay for a product made in the US but costs 2x the price of a product imported from China?
    Americans claim that they lose jobs but the fact is that they wouldn’t want to do some of those jobs. What jobs are they talking about? What American would willingly work in a factory with less than minimum wage because if they did work min. wage, they’d also form a labor union and with the formation of a labor union, the company would have to worry about a lot more things.
    Either way, people will want to go back to imports.

    And I for one actually question the quality of American goods…

    • lolz

      “Would Americans willingly pay for a product made in the US but costs 2x the price of a product imported from China?”

      I have been asking similar questions on the HuffPo messageboards, and most of the people replied that I am stupid to blame the consumers (themselves) and not the politicians (liberals tend to blame Nixon, Reagan, Bush Jr while conservatives tend to blame Clinton) who allowed this happen by not raising tariffs.

      On quality, if people are willing to pay for quality they shall receive quality. If people consistently value quantity over quality then the businesses who pride themselves on quality will eventually close.

  2. King Tubby

    When you line up US claims that China plays fast and loose with trade rules with Springsteen’s celebration of blue collar America, I go with China any day of the week.

    Sprinsteen should have been strangled after The Wild, the Innocent and the East Street Shuffle. He ushered in a bombastic production sound which turned the 80s into a musical desert.

    • Hey, this is a family blog! We let you guys get a way with a lot in the comment section, but criticizing Bruce Springsteen? Some things are simply not done in civilized company.

      I mean, really. Next thing you know, you’ll be dissing my man Billy Joel.

  3. Hank

    I believe the argument about the rmb being undervalued has been taken up a notch with this latest editorial from the New York Times.

    Global co-ordinated effort is now being discussed with the intent of applying group pressure on China.

    What strategy can China use to defuse this coming attack?

    So far, China has not shown much sophistication in avoiding a beggar-thy-neighbor label.

    EDITORIAL (New York Times)
    April 13, 2010

    “Mr. Obama and Mr. Hu”

    “Beijing’s aggressive undervaluation of the renminbi is a serious problem for the American economy and the global economy. Going one on one is likely to backfire. The best hope for persuading China to change its ways is with sustained pressure from many countries…

    “This is a global problem. The renminbi’s fixed and artificially cheap exchange rate is undercutting exporters throughout the developing world. It also is seriously complicating economic policy-making among China’s neighbors. So long as the Chinese currency remains so cheap, they cannot afford to combat burgeoning inflation by allowing their own currencies to rise because it could further undercut their exports…”

    http://www.nytimes.com/2010/04/14/opinion/14wed1.html?ref=global

    • King Tubby

      Hank
      To be sure, China’s rmb valuation policies are upsetting some of her immediate Asian neighbours, but the big ticket item is the US-China trade currency pegging situation. And lets face it, the US manufacturing/industrial economy is totally ***sclerotic***.

      Detriot. Motor City. Home of Motown (Standing in the Shadows of Love) and gateway to teenage highway freedom is emblematic of this failure. It just took 30 years after the fact for the cold hard truth to set in. Hardened industrial arteries and a few really rotten Springsteen records are all thats left.

      Woodward Avenue…soon to be examined by some wanky urban archaeologist. RIP.

      I drive a Korean motor and its pretty good.

  4. B-real

    It’s not just America who is playing this game. Europe is right along with it. America is just a bigger baby when it comes down to it because once upon a time they were the leaders of the trade game. But you can’t deny out sourcing is not a factor in allot of Job losses anywhere. My company is a prime example of this. When we made our move 1 of the places that got the most attention is our Chinese facility. Everything we manufactured in the US is now done here in Beijing. 2005 we had 6 facilities nation wide 2000 strong as of today, headquarters still stands minus 5 facilities and roughly 2500 people states side were let go and or immigration got the bulk of them.(no Joke)

    The owner of my company couldn’t not resist lack labor laws, lack immigration enforcement, low $200 monthly wages per person. That’s a big increase in his profit margin, don’t you think. Even the immigrants back home get 3 times that every 2 weeks, and American citizens with 5 times that of the immigrants. Do the math. True capitalist would no past that up even if God himself told him not to do it.

    With the money made the company was able to acquire 2 of the 4 competitors in our game all operating in America and all 80% downsized. With that said, lets come back to china and how we operate. Our Chinese man power is far greater than can’t keep track because its a constant rotating door in manufacturing. We get things completed in less time and then we don’t see those people any more.

    When there is boost in speed there is lack of quality. We have a higher failure rate as far as our product line goes because the lack of experience and lack of funding to pay for such quality in a the labor force. The only reason why Im here is because I have to manage and supervise operations because no one was willing to come to China and not many people have legal status. Goes to show you what kind of companies come to China.

    I would agree that China’s currency is fairly undervalued especially if it wants to play in the same playing field as the rest of the world. I see where you are going with how America says they are the are best when it comes to manufacturing, but why would Americans talk up any one else and their capabilities? But its the same story all over the world. Rich countries bitching about outsourcing.

    It wouldn’t be fair to tell the rich nations to undervalue their currency or would it?

  5. Hank

    @B-real

    Good points.

    Prior to China opening up, the world was divided into high-wages/high-standard-of-living US/EU/Japan and low-wages/low-standard-of-living Asia (China). This equation was unbalanced.

    With globalization, wages and standard of living will rise in Asia (China) and decline in US/EU/Japan. This balancing out is “natural” and inevitable and will continue regardless of how American and European middle-classes feel about it.

    However, the American and European middle-classes will fight tooth-and-nail to resist their decline.

    Unfortunately, this puts them in opposition to China’s rising middle-class who will also fight tooth-and-nail to resist a return to poverty.

    The American and European middle-class will discard “democracy,” “human rights,” “freedom,” “equality,” “peace,” etc., if they have to choose between those “luxuries” and the lost of their middle-class life-style.

    Today’s Chinese cannot imagine how ruthless “civilize” Westerners can be when faced with the lost of their way of living.

    China’s leaders need to prepare for a struggle (war?) that they have no experience in fighting.

    • Well you sure connected those dots quickly, didn’t you Hank? Was this post (or the next one) going to end in anything but “there will be war!”?

      For consideration: the consumption patterns and security of the middle class of both the US and China depends on a stable international flow of trade. How exactly do two increasingly interdependent countries (and world) get into an all-out war for prosperity?

      Option one: production and consumption both plummet as a grand war destroys the international economy.

      Option two: major economies can sustain no more than limited conflict with one another; thus disputes become legalistic and rhetorical.

      In the first option, all middle classes (and elites) lose out. Which looks most politically viable — i.e., likely — to you?

      • Hank

        @Kevin Slaten

        Kevin Slaten said:
        “How exactly do two increasingly interdependent countries (and world) get into an all-out war for prosperity?

        Duh! Is this a trick question?
        Of course, “interdependent countries” go to war. Why do you think England went to war with its trading partner Germany in 1914? Why did the US go to war with its main Asian trading partner, Japan, in 1941 and its European trading partner, Germany? Trading relations do NOT prevent countries from going to war.

        Kevin Slaten said:
        “production and consumption both plummet as a grand war destroys the international economy.

        Duh!! Yes, of course, pots and pans and all your toys get broken. Why do you think they call it war?

        Kevin Slaten said:
        “major economies can sustain no more than limited conflict with one another; thus disputes become legalistic and rhetorical.”

        Wow!! Are you serious or just dumb? How long do you think WW I lasted? WW II?

        “If one defines an international war as any military engagements in which 1,000 or more were killed, then 353 pairs of nations (e.g., Germany vs. USSR) engaged in such wars between 1816-1991. None were between two democracies, 155 pairs involved a democracy and a nondemocrcy, and 198 involved two nondemocracies fighting each other. The average length of war between states was 35 months, average battle deaths was 15,069.”

        Peace Magazine, May-June 1999

        Go to Goggle and type in “US China war.” Here’s what you’ll get, “Results 1 – 10 of about 127,000,000 for US china war.”

        Obviously, there has been a lot of discussion about this issue.

        No matter how silly political correctness gets, it cannot wipe out war.

        Only a fool or someone without a semblance of understanding would believe that war between states are obsolete. Yes, there is going to be a war and I don’t mean the practice ones currently being held in Iraq and Afghanistan.

        China knows it must be prepared. However, I don’t think it’s doing a good job in this pre-war stage. Chairman Mao was a master strategist in avoiding war with the Soviet Union and with the US (on Chinese soil). Today, China has no Chairman Mao.

        • The comparison quickly falls apart (between WW1/2 and circumstances today).

          WW2 in particular was a war of physical aggression/territory; Hitler had all of Europe in his sights and began to take them — Poland being first. In your highly certain view of the future, Hank, who will China be invading? (And don’t say Taiwan because that is a] not likely and b] not sufficient for WW3.)

          Moreover, the level of globalization between decades past and today is not even close in degree. For example, Ben Bernanke gave a 2006 talk on the subject. In it, he said:

          “… global merchandise exports have been above 20 percent of world gross domestic product, compared with about 8 percent in 1913 and less than 15 percent as recently as 1990; and international financial flows have expanded even more quickly. But these data understate the magnitude of the change that we are now experiencing. The emergence of China, India, and the former communist-bloc countries implies that the greater part of the earth’s population is now engaged, at least potentially, in the global economy. There are no historical antecedents for this development.”

          You can read the rest here: http://www.federalreserve.gov/newsevents/speech/bernanke20060825a.htm

          As for your “Google results” point: How do Google results for “US China War” prove anything? “UK US war” turns up 114 million results. Is this evidence of America’s impending fight to the death with England?

          As for the Peace Magazine quote, name the last total war fought between two major powers that shared high economic interdependence.

          You argument is wanting. Put this is fitting, given how badly you seem to want the next global conflict.

          • Hank

            @Kevin Slaten

            I believe you’re confused about why countries go to war.

            I did not say or imply that China would do any invading. War between China and the US will be over the geo-political control of East-Asia. The question of who will initiate it will be left up to history. I only said they will go to war.

            Currently, the US, as the “sheriff,” basically maintains the “peace” in the area (East-Asia).

            It provides basic security among the three potential antagonists (China, Japan, and Korea). (No hostilities have occurred in half a century thanks to the “sheriff.”)

            The “sheriff” polices the sea-lanes so that shipping is not hampered. (All countries have benefited from this including China.)

            The “sheriff” also co-ordinates, stimulates, and organizes international trade, commerce, technology transfer, and financing to the area.

            China has benefited from this.

            But China now believes that it is ready to challenge the “sheriff.”

            (This is China’s historical right.)

            This is why China’s economic rise contains a strong military component. China has made it quite clear that it believes that, with its new “economic” power, the “sheriff’s” services is no longer needed.

            As you can imagine (maybe you can’t), the current “sheriff” disagrees.

            As a result of political weakness on part of the US, all countries in the area are now worried about the future. Will the “sheriff” leave or not?

            We now have an arms race involving all the countries in the area as a result of this ambiguity.

            A young, “strong” rising power (China) always wants to change the status quo. This is elementary.

            The old, “strong” superpower always wants to maintain the status quo. This is also elementary.

            The old must make way for the new. However, if the “new” is premature and too cocky, it will get (temporarily) crushed. (The “new” can always try again, later, when it has more strength and has learned its lessons.)

            Are you still confused? Ask yourself,
            who do you think the massive US military budget is targeting?

            Why do you think China must modernize its military and especially its navy as fast as possible?

            Had you read some of the post on Google regarding “US China war,” you would be less confused.

            There can be only 3 options available for China and the US in East-Asia: China cedes control in East-Asia to the US (China taking a secondary position a la Japan); the US relinquishes control and retreats from East-Asia (igniting the struggle among India, Japan, China, Korea for dominance); China and the US, in brotherly love, together “manage” East-Asia (never happens except in the dreams of Obama, Clinton and their ilk).

            Basically, if I understand history, I believe I do, and understand the character of the US and China, they have no choice in the matter.

            They will accept none of the above without a war.

            Both sides hope there will be no war but they are preparing for it will.

            The US’ “Prompt Global Strike” program potentially give the Americans a strategic military advantage. This is why it is making noise about eliminating nuclear weapons. There obsolete. This new weapons program is directed towards two countries – Russia and China.

            The US is not in contention with Russia for East-Asia. It is in contention with China.

            There will be war, not because I want it, but because of the dynamics of geo-politics involving the US and China in East-Asia.

            Oh, regarding your statement about “US UK war,” I’m a little embarrassed for you. Of the “115,000,000” hits for “UK US war,” I only found 2 discussing war between the US and the UK – one was on the War of 1812. Is this the kind of academic tricks you played to get a Fulbright Grant?

          • Your entire response can basically be boiled down to an overview of some of the security tensions in East Asia. But it ignores all sorts of evolutions of the past decade as well as any future trends. For example, Korea and Japan both have domestic gov’ts that are more aligned with China than in recent memory. Both are trying to restructure the US presence in their country — i.e., both are trying to lessen the presence on their territory.

            This is all part of a larger pattern in China toward regionalism. But you, in your “geoplotical” view, didn’t seem to take the entire balance into perspective. On one side are the security tensions, but on the other side is a region that is — in various ways — moving toward a more peaceful and interdepedent bloc. See: Shangri-la Dialogue, East Asian Community, ASEAN-China FTA, future ROK-PRC-Japan FTA, SCO, and other legal and organizational phenomena.

            Moreover, your entire response flat-out ignores the premise I provided for a more interdependent global system. You didn’t even try to respond. Should I take this as a submission to my point?

            On you paramount view of geopolitics, I can refer you to geopolitics scholars who, looking at the same world, do not come to the same conclusions as you. For example, see Parag Khanna, Fareed Zakaria, or George Friedman. (The latter sees limited war between major powers, but he doesn’t think it’ll be between the US and China.) You hardly have a handle on the various possibilities of geopolitics.

            Finally, on Google, I’m not even going to justify this line of discussion anymore. The number of Google hits about a topic signifies interest, not evidence of manifestation.

        • You guys wrestling each other down the wrong hole.

          Hank, when was the last time two major interdependent economies with nuclear weapons engage in war? “Past performance is not indicative of future results.” At worst, you’ve gotten proxy wars, but you’re going too far and employing faulty reasoning in your rush to laugh off Kevin. Your Google example is ridiculous as well. Are you from Fool’s Mountain and do you go by any other different names?

          • Hank

            Damn!

            I knew at some point you had to pop up with some pompous asinine statement.

            This proves your argument “Past performance is not indicative of future results.” false.

            A famous strategist once wrote, “No investigation, no right to speak.”
            In other words, if you don’t do your homework, shut the fuck up.

            You obviously do not know history or international relations. Only the whites at this blog are able to discuss these events without deleting or censoring their opponent.

            Well, I’m outta here. Once you come in and muddy the waters. There’s no way to debate an issue.

            You would eventually use your little “power” to delete and censor me.
            Ha!

            Sorry, Kevin.

          • Jones

            Geez, Hank. Way to make it about race. What if a Mexican-American were to come in and debate? African-German? Native-American-Polish? RANDOM-MUTATION-WHITE-CHINESE?!

            Anything is possible. Seriously. With how genetics and DNA works, and all the things that can go wrong (or white…I mean, right), it’s a real possibility. Being white has nothing to do with it.

            And no, there will be no war over trade issues or anything else like that.

    • Idk

      Your economics is faulty. It doesn’t have to be a zero sum game in which, for China to rise, the US/EU/Japan must fall. It’s possible for everyone to gain.

      • Hank

        @Idk

        Hey! Wake up!

        “The wage rate for the average GM factory worker was about $74 per hour (pensions and health care) versus $3.50 for a factory worker in China.
        [April 19, 2006]

        “GM’s plans to close 16 U.S. manufacturing plants and cut about 21,000 jobs while also planning to increase vehicle imports from GM plants in lower-wage economies such as Mexico, South Korea and China.”
        [May 18, 2009]

        “GM Brownstown electric car workers may see lower wages.
        Automaker pushing to pay less than $14 per hour.”
        [March 13, 2010]

        Idk, a global economic rebalancing is taking place. This is logical, economical, and irreversible.

        The wage scale in the US/EU/Japan will fall and that of China’s will rise. In addition, the standard of living in the US/EU/Japan will fall and that of China’s will rise.

        There is no ying-ying (win-win) in this scenario; only a (shu-ying) – a win for China and a “loss” for the US/EU/Japan.

        Review your Econ 101.

  6. Hank

    Oh, I meant to add, in context with Springsteen, Motown, and Billy Joel: “democracy,” “human rights,” “freedom,” “equality,” “peace,” etc., will be just “dust in the wind” before America’s middle-class accepts the rise of China’s middle-class at America’s expense.

    There will be war.

    • B-real

      I can’t find any reasons to disagree. That is exactly how I see, it minus the wars. I sure wouldn’t want to go backwards in my way of life although I sort of did go back in time coming here.

      But as you put it in your post, should the minimum wage for poor chinese be higher than as it stands today? Yes it has gone up from 800 to 880 over the years, but wow what can you buy with that? If the poor get more the middle class gotta follow suit. Most of the time the rich are the ones who are getting rich off the lower classes.

      I understand China has a huge population and its poverty is a huge burden on the system but the system is making a killing off the worlds consumption. To get back to unbalance trading with china. Isn’t it fair to say if every nation was at a somewhat even playing field and the world had a choice between Chinese made products or some other nation other that the USA (because im tired of comparing them to everyone) let say Singapore as it stands in today’s standard. Who would actually come out on top as far competition goes, given the knowledge, experience, products possessed by yourself? It would come down to whose quality is better and not price.

      Now again don’t get the wrong ideal that i’m bashing China. China doesn’t play by the same rules which works for China (I think) and makes fair competition amongst the world nearly impossible. If they play their cards just right, they can ride this horse all the way to the bank.

      I don’t see an actual war to come of it. This isn’t the 1900’s. But I do see allot of withdrawals from agreements and trade deals, diplomatic ties in other words, would benefit 1 nation more than the other creating a different type of imbalance. I would see allot of campaigns and PSAs like the ones all the Asian nations and the US did after the invasions or attack of japan. What ever japanese product you had in your house smash it, burn it and buy *** products. People start going nationalistic with products like we did with overseas oil in the US. Tell people middle eastern oil supports terrorist and patriotic Americans stopped buying it.

      • B-real

        Oh shit and I forget its not just China, but its pretty much all of south east Asia give or take a few places. When there is a country that can be exploited, money hungry business men are there for the picking. China just happens to be the biggest problem evident to the world because the juice was too good not to drink.

  7. Jay (a different one)

    all this talk about breaking the rules… pah! didn’t China actually import more than export last month? how do you explain that? and nobody is complaining about Germany, which exports much more than it imports, and which also “steals jobs”. not a vote-winner? if the USA does not want to have a big trade deficit with China, why don’t they A) stop buying cheap Chinese goods (made by US companies who personally moved the jobs to China — stealing my foot) and B) sell some goods that people want to buy. Like BMW’s or Audi’s or Merc’s. Hummer is okay too, but instead of making hummers in the US and selling them to China, the US tries first to sell the production of hummers to China, and then that went south too afaik. And it is not just a matter of price. Who would buy that bizarre looking orange cheese? Drop the price by 90% and it is still orange cheese. orange! yuk. really…. Add point C) US jobs don’t need to move to China at all. Just work for $0.95 an hour like my niece does. Problem solved!
    Okay, no more coffee for me today.

  8. Bin Wang

    Nice piece in the Wash. Post.

    Rhetoric is key as election season looms I’m afraid, and Americans tend to also believe that our own Kool-Aid is the best and will drink large quantities. Re-valuation of the RMB not a cure-all tonic to the nation’s economic woes, really? Promise them the same old approach (i.e., continuing to ride the coat-tails of the greatest generation), while still being able to keep up with the Joneses, and they will eagerly and happily condemn and blame others for their woes. A rolling up of the sleeves and a tightening of belts is not what the masses want to hear, even though it is necessary.

    US over-consumerism and demand for cheap goods is what keeps manufacturing overseas in this globalized economy. If we can rationally define a living wage, make the manufacturing wage match it such that a blue collar worker can still live a decent life, and accept the elevated cost of goods this would entail as both something that’s necessarily and probably good with regard to curbing our over-consumerism, we have a chance of bringing some manufacturing back. Won’t be easy though at this rate.

    • King Tubby

      Yeah, Good points. RMB revaluation is not the total panacea. I can’t find the source, but recently read a calculation which purported to show how every point the rmb was revalued meant X additional US jobs and Y Chinese job losses. Sort of like 1 new US job, 10 China job losses. As if international politico-trade relationships could be reduced to an economic model.

      Sufficient US govt regulation to produce a decent income for blue collar workers is however a total pipe dream. Pollsters and spin merchants will always opt for the easier politics of resentment as you noted. That’s the American way today and corporate outsourcers (quick shareholder profits) get a free pass. The idea of social capital and corporate responsibility never grew legs in the US unlike Europe.

  9. lolz

    I found a pretty good article which went over some of the items listed here. One of the authors taught economics at harvard and the other the director of International trade at world bank.

    http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=40364

    On RMB pegging the dollar

    “About 60 countries peg their exchange rates to the dollar today, and they are not all currency manipulators. The real question is whether a country systematically pegs its currency at an artificially low rate in order to gain competitive advantage—a violation of IMF and WTO rules.

    The evidence against the RMB is mixed at best. China pegged the RMB to the dollar at the end of 1997, in the midst of the Asian crisis. At that time, the United States and other countries applauded the peg as a generous act that promoted stability in the region. Serious complaints did not emerge until 2003, when China’s trade surplus and America’s trade deficit (with the world and with China) began to rise sharply.

    The immediate effect of RMB appreciation would be to raise prices for U.S. consumers.

    However, the RMB/dollar rate, which had not changed, was not the primary reason for the growing imbalance. Rather, in the United States, the fiscal surpluses of the final Clinton years had shifted to large deficits and the Greenspan Fed was pursuing very loose monetary policies while the financial sector generated additional liquidity as a result of inadequate oversight and regulation. In China, aggressive domestic reforms had prompted exceptional productivity growth in manufacturing, while the government promoted both exports and import substitution.

    Recognizing these shifts, China adopted a policy of gradual RMB appreciation in July 2005. Three years later, the RMB had risen 21 percent against the dollar. Because of the sharp, crisis-induced drop in export orders, however, China suspended the policy. China’s central bank governor recently confirmed that the suspension is a special, crisis-related measure, implying that gradual appreciation will resume as the crisis abates.”

    On the effects of RMB revaluation

    “The immediate effect of RMB appreciation would be to raise prices for U.S. consumers. A 25 percent revaluation of the RMB, which some economists have said is needed, would—if not offset by a reduction in China’s prices—add $75 billion to the U.S. import bill. Since the United States imports three times as much from China as it exports there, higher U.S. exports to China would not nearly offset the welfare loss to U.S. consumers from higher Chinese prices. It would take years for adjustment to a higher RMB to occur, but in the end, though some U.S. firms would gain and some export jobs would be created, the U.S. consumer would be the loser, and the net welfare effect on U.S. workers would probably be negative.”

  10. asdf

    Good piece. I wonder if the NYTimes or some other paper will publish it in their editorial? They need exactly this kind of rational counter-arguments they are so lacking in.

  11. xian

    Right, “cheating” doesn’t exist, because there’s no such thing as “free trade” to begin with.

  12. yangrouchuan

    Look at all of the blatant crap youth and panda hugging “moderate” small time expat business people come out to defend the Han empire.

    What other top 5 or top 10 economy has a pegged exchange rate? Having a pegged exchange rate is deliberate undervaluing. None other than Beijing’s various lead bureaucrats openly defend exchange rate fixing and you losers basically say that China’s blatant bad behavior with the RMB peg is merely a “point of view” from the bad, broken West.

    And how about this headline when it comes to China’s dirty play:
    http://www.bloomberg.com/apps/news?pid=20601087&sid=a52HOpvTQ5cQ&pos=9

    How about the 25% to 45% tax that China levies on all foreign branded products, even products made in China with a foreign brand.

  13. Jones

    So when will the Chinese release the brand new ai-pad?

  14. Hank

    @Kevin Slaten

    “Some of the security tensions in East-Asia” you refer to are reflections of basic disagreements among China, Japan, and Korea.

    The contradiction between China and Japan is fundamental to the region in several areas:
    Geopolitical – If the US leaves, who will rule?
    Trade – Whose economy will be dominant, China’s or Japan’s, if the US leaves East-Asia?
    Military – Will Japan remain non-nuclear while China has nuclear weapons?
    Resources – Who will control the fishing, oil and gas rights in the East China Sea?

    The quasi-“evolutions” you talk about concerning Japan, Korea, and China are temporary and only a reflection of appeasement forces in their respective governments similar to the ones in the Obama Administration.

    Former South Korean President Roh Moo-Hyun’s domestic policies towards China and North Korea earned him nothing but a disgraced memory and a suicide exit.

    His replacement, President Lee Myung-bak, is a strong supporter of a US presence in East-Asia.

    As long as China does not control its attack dog (North Korea), Korean ties with China will be limited to trade and commercial dealings.

    Japan’s Prime Minister, Yukio Hatoyama’s China policies are not popular with the Japanese people. For all his efforts in kissing China’s butt, he has nothing to show for it. He will soon have to call for new elections and take his place in line with the previous weak, incompetent prime ministers.

    Japan and Korea are establishing closer geo-political ties to the US.

    Vietnam is also making overtures for ties with the Americans.

    This is an expression of deep concern regarding China’s future intentions as a regional power.

    I have to smile at your naiveté or gullibility (you could not possibly be serious) when you discuss how the region is “moving toward a more peaceful and interdepedent bloc.”

    The ASEAN nations are already complaining about how Chinese exports are hurting their domestic industries. Some countries are calling for renegotiations of the ASEAN-China FTA.

    The “legal and organizational phenomena” that you mentioned are simply talking shops and public relations efforts to help China build its so-called soft power. These feeble efforts will not change the basic dynamics of a future military clash.

    I’m sorry if I did not address your premise “for a more interdependent global system.”

    Actually, the people who call for a multi-polar world should hope they DO NOT get what they pray for.

    For silly Chinese who do not know their own history, I cite the history of the “Warring States Period” involving 6 Chinese kingdoms. It was a classic multi-polar world – with constant war for over 200 years.

    It only ended when all the kingdoms were defeated leaving the winner who later established a unified China.

    In the world today, there are regional “kingdoms” (Russia, Venezuela, Iran, India, the EU, China, silly African “countries,” etc.) all making noise for a multi-polar world.

    Some of these “kingdoms” (China, Russia, Iran, Brazil, EU) would like to take on the mantle of “superpower” or, at least, “regional superpower.”

    Of course, the reigning “superpower” (US), will not take kindly to this change.

    As these regional “kingdoms” maneuver and jockey for advantage, they will come in conflict with each other and with the US.

    This is why I say a war in East-Asia will take place.

    Oh, the “geopolitics scholars” (Parag Khanna, Fareed Zakaria, or George Friedman) you recommend are too avant-garde for my taste. I prefer the classics: Machivelli, François Leclerc, Bismarck, Churchill, LeMay, and Mao.

  15. Hank

    @Jones

    Sorry, Mate.

    Kai knows the reason why I made the comment, “Only the whites at this blog are able to discuss these events without deleting or censoring their opponent.”

    Kai has a history of deleting and blocking comments that ridicules his long-winded or stupid remarks.

    Blogs maintained by foreigners (whites) will allow heated debates and arguments to take place as long as a certain amount of decorum (no heavy or obscene profanity) is maintained.

    Chinese bloggers, with limited language skills, are very sensitive when it comes to debates especially if they feel they’re “losing face.”

    Because Kai’s ability to debate is limited, he uses control/censorship to block comments he disagrees with.

    I am also very sensitive to the race issue. This is China and race is a big thing here. Kai played a very cowardly role when there was a national attack (ChinaSmack) on a little black Chinese girl some months ago. He did not like my comments about his behavior.

    To make long story short, my background is in economics and international affairs. I debate these issues if they relate to China.

    I lived in Shanghai when Chinese were not able to enter Peace Hotel. I know this country. I’ve seen it when it had nothing. I knew the people when they were quite different from what they are today.

    Regarding the question of war, Mate, you need to review your history. If reading is too difficult for you, try and find some videos on WWI and WWII to watch. You’ll discover that war is a human activity like sex. It will not go away.

    • Jones

      I agree that people should learn from history, but there is some things that have changed since then that make part of it irrelevant. For example: a wintertime invasion of Russia, although devastating for Napoleon and Hitler, would be much less dangerous (climate-wise) today thanks to new technology, strategy, training, survival techniques, medical knowledge, etc. War won’t go away, of course, but the reasons for it, especially between more important/developed/etc nations, will be over much more drastic things besides trade spats. In history it was certainly common, but today it’s very highly unlikely.

      • B-real

        I agree with your reasoning but all they have to do is slap a matter of “international security” at the end of each trade dispute you might hear about a plan to go to war. I highly doubt it myself but the Iraq thing really has me questioning allot about how wars are started these days.

      • Hank

        @Sillies and gullibles who believe war is obsolete

        “PLA navy warships are this weekend exercising southeast of Japan’s strategic offshore islands – part of a recent series of Chinese naval war games in East Asia unprecedented in their reach and scope.”
        [April 18, 2010]
        South China Morning Post

    • Ah, Hank, so you really are the troll that was going by multiple identities pissing Fauna off trying to spam and flood her website. Well then, now that we know…