2007 November 17 Saturday
China Raising Regulatory Trade Barriers

Their huge trade surpluses aren't big enough for them.

WASHINGTON, Nov. 15 Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions.

Some months back I predicted that the declining dollar would, by lowering the Chinese currency against the Euro, stoke up European opposition to Chinese trade surpluses. This decline in the Chinese currency happened because the Chinese currency is pegged to the dollar and the dollar declined due to the huge US trade deficits. How twisted is that? European officials are showing increasing impatience with Chinese trade surpluses.

PARIS: Admitting that dialogue and cooperation with Beijing have failed to secure concessions for Europe, the European Union's top trade official has called for more aggressive action - in line with the United States - to hit back at Beijing.

In a document filled with hard-hitting criticism of what he terms the "Chinese juggernaut," Peter Mandelson, the European trade commissioner, said the EU should align policy more closely with Washington and be more ready to take cases against China to the World Trade Organization.

The Chinese trade deficit with Europe is rising at about $22 million per hour.

According to the European Commission, the EU trade deficit with China rose by one-fifth last year and is rising at 15 million an hour, a higher rate than that of the United States.

Beijing is now Europe's largest source of manufactured imports. But the bloc, with 27 countries and a population of around 470 million people, exports less to China than to Switzerland. Non-tariff barriers and regulatory discrimination cost European companies an estimated 20 billion a year.

Remember when Americans were told that Congress had to approve China's entry into the World Trade Organization in order to open Chinese markets to American goods? Huge numbers of lobbyists pushed for this. They sure suckered us.

China's trade surplus is up a shocking 59% this year so far.

China's trade surplus for the first 10 months jumped a massive 59 percent to $212.4 billion, according to figures released by the General Administration of Customs. The annual surplus already has surpassed the full-year record of $177.5 billion set in 2006.

October's trade gap rose to $27 billion, up 13.6 percent from the same month last year, according to the customs data. The previous monthly record high was $26.9 billion in June.

The Chinese trade surplus with the United States rose.

China's trade surplus with the United States rose 12 percent to $15.7 billion on total two-way trade of $26.7 billion, according to the customs agency.

The Chinese surplus with Europe rose much more rapidly. Why? The US dollar decline against the Euro translates into a Chinese yuan decline against the Euro because the Chinese fix the value of their currency against the US dollar. So Chinese goods have become cheaper as the US dollar has declined.

The surplus with Europe, China's biggest trading partner, rose nearly 50 percent to $13.9 billion on total trade of $31.4 billion, the agency reported.

The Europeans aren't going to be as tolerant of a big trade deficit with China the way US policy makers have been. US policy makers and economists are excessively enthralled with the supposedly (but not really) free market. It is hard to see how a fixed currency exchange rate or systematic intellectual property theft or regulatory biases against non-Chinese companies add up to something that can be called a free market.

Share |      By Randall Parker at 2007 November 17 12:51 PM  China

Audacious Epigone said at November 18, 2007 2:02 AM:

It is hard to see how a fixed currency exchange rate or systematic intellectual property theft or regulatory biases against non-Chinese companies add up to something that can be called a free market.

Right. It's called economic nationalism.

Wolf-Dog said at November 18, 2007 2:25 PM:

Let us recall that although EU has a trade deficit with China, it still has a net trade surplus that is financed by the monumental annual trade deficit of the US. Thus in the future when the US becomes unable to continue the same trade deficit, then the EU will also become far more intolerant of the Chinese surplus.

Another issue is where China might be able spend its accumulating trade surplus cash reserves. It seems that buying entire mines of raw materials all over the world is what they can do, but Europe, Canada and the United States will make it very difficult for China to buy important businesses and mines. Thus only Africa, South America, and Asia are left to buy.

Kenelm Digby said at November 19, 2007 4:37 AM:

Really, I cannot understand why any thinking person dpoubts that China will be the World's #1 economy in very short order.
As to Wolf-Dog's point, isn't the autarkic policy being pursued by China vis-a-vis ownership of raw materials just the same as that expounded by national socialist economists and philosophers in Germany and elswhere prior to World War 2 ?
Isn't that policy succeeding and the Adam Smith panacea of 'free-trade' practised by the west failing?

SepteustheParanoid said at November 25, 2007 1:13 AM:

The "free trade" Adam Smith argued for was defined in terms of absolute advantage whereas the today's "free trade" is defined in terms of David Ricardo's comparative advantage so don't be so hard on Smith. In reality neither is really practiced because we do not so much trade with China as we engage in labor arbitrage for the benefit of the top 500 transnational corporations and the UN's favorite government and no one else.

But don't worry about China, Dick Cheney has it covered with all those race specific bio-weapons DOD has been funding and if those fail then maybe the anti-matter weapons will work.

Informed Lawyer said at December 15, 2007 11:20 AM:

It's quite amusing to see the pot calling the kettle black.

The Europeans shouldn't be surprised. They taught the Chinese how to erect regulatory trade barriers ostensibly intended to protect the public interest, especially public health and the environment and consumer fraud and protection. They also taught the Chinese how to claim cultural preferences and social and ethical considerations as a pretense for regulation. In the end, it is almost always disguised trade protectionism that is at work.

The Europeans are now reaping what they've sowed. They're eating some humble pie.

If you would like to review how what is now pejoratively termed the 'Chinese Juggernaut' is derived from the 'European Regulatory Juggernaut', visit the website and blogs of the Princeton, NJ-based nonprofit organization, the Institute for Trade, Standards and Sustainable Development (ITSSD): www.itssd.org ; itssd.blogspot.com . There are many papers on precisely this subject matter.

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