Time magazine often carries interesting articles on trade issues. And for laymen like me, they dumb it down in simple english. The following article is a personal opinion, and not a scholarly masterpiece, so take it with more than a pinch of salt. In the most recent issue of Time, there is an article called “Knitpicking the Chinese” U.S. efforts to bash Beijing reveal a remarkable ignorance about economics By MICHAEL ELLIOTT. I thought it was interesting by the way the writer brings about some simple lessons in economics, plus the way he wrote the whole thing. Some excerpts are as follows. The whole article is available here
It seems to be part of the job description of the U.S. Secretary of Commerce that every so often — usually just as an election season gets under way — the holder of the office should give an economically illiterate speech to an American business audience in some part of the world where the local economy is said to be threatening ours. But even by the dismal standards set by Commerce Secretaries in the past, the extraordinary recent performance of Donald Evans before the American Chamber of Commerce in Beijing set a new low.
in mid-November the Administration imposed quotas on Chinese-made bathrobes, bras and knit fabrics. …] Now the fragile recovery of the global economy — and Washington’s burgeoning partnership with Beijing — has been imperiled for no good reason.
Let’s return to the illiteracy of Evans’ speech. “China,” he said, “is moving far too slowly in its transition to an open, market-based economy.” …] To imagine that the change could or should have been brought about more quickly is to argue that China’s internal stability is of no concern to the U.S., a judgment less illiterate than irresponsible.
“We have been patient, but our patience is wearing thin,” said Evans. So is the President’s approval rating in textile states, for it is hard to see what else could explain the new quotas.
U.S. imports from China," Evans said, “are five times greater than our exports.” The illiteracy here is the assumption that imports are bad and that the purpose of trade between nations is to expand exports — a fallacy that was exploded, oh, sometime in the 1830s. The point of free trade is to allow economies to specialize in what they do best. Neither imports nor exports are intrinsically good or bad, though hard-pressed American consumers could be forgiven for wondering what a Commerce Secretary who wants to increase the prices of their shopping baskets at Wal-Mart has been smoking. (The giant retailer expects to buy $15 billion of products from China this year.) If the quota limits Wal-Mart’s supply of goods, then the Chinese-made robe you were going to buy Aunt Jane for Christmas might not be there.
*]China’s exports to the U.S. have increased, as economists like Morgan Stanley’s Stephen Roach and David Hale, the chairman of ChinaOnline, have tirelessly argued, not because China wants to steal American jobs and not because its currency is massively undervalued but because American, Japanese and European firms have outsourced their manufacturing there. …] The consequence is that China’s global trading account is roughly in balance. An anxious world awaits the Commerce Secretary’s latest revelation on why this is such a catastrophe.
Stephen Roach is half right. Sure it is due to outsourced ops...but trde deficits with one country are not the indicator of the general health of the economy. Whether China can sustain such an economic environment is the thing to watch. The Brics report Fraudiya posted from Goldman Sachs alludes to the long term view of things. FDI driven, export led economies are also at risk, as per this article. In the event of devaluation of the $, as it is happening and the appreciation of the Yuan, as it should happen poses a greater risk to China than to the current deficit does to the US.
And I think, this is a continuation of the discussion we were having yesterday that it is not so simple to talk about international trade in black and white, and jump to conclusions whether exports is all great and imports is all bad.
The problem from USA's stand-point, which I believe Evans didn't communicate properly is that on a net-net basis USA ain't gaining from the relations with China, specifically and so-called globalization, on a larger scale. Yes, so Wal-Mart can now buy cheaper goods from Chinese manufacturers and pass-on some of those savings to the customer in terms of Holiday Sales, but the fact remains that the US consumer is firstly a US worker, and his job is gone. So, while the reduced pricing due to cheaper manufacturing is going to allow him to carry on somewhat, in the long run, job creation becomes paramount. This is here we have to keep an eye on the rising debt rate of individual consumers and you will see whether the 8.2% third quarter jump in GDP is funded by earnings or debt. This will be interesting.
At the same time, if you notice the tune in Demcratic conventions, which pretty soon will be picked up by Republicans as well, when the focus turns back to real-life economic solutions, it sounds a lot like there is a renewed demand to go back to protectionist times... cancel NAFTA and WTO. It sounds rabid, radical and impractical right now, but if people can't see where job creation in the US is going to happen, pretty soon the pressure will mount. The whole globalization-bit is not working out quite so nicely in the States as it is in other parts of the world.
ps. On second thoughts, this thread should actually be merged with the 'Globalization' thread. They are both inter-related.
It is related to what we were talking about yesterday. There is this misperception that all manuf or services jobs are going offshore, secondly, those countries :read India/China, that want US investment will need to do more to open up their markets as well, revalue their currencies and risk capital flight to Ghana.
It is a dance that needs two. US gov't arm twisting of china is going to increase if china wants to play with the big boys. People dismiss currency valuations as a minor piece in this mosaic but I think the volumes of bilateral trade, the size of which we are seeing now and the increased amounts in the future, will require a partnership approach, not simply a one way investment.
Job creation will happen. Look at life sciences, informatics, financial services products...it is only in this country where innovation is a constant.