2010 August 16 Monday
Krugman On China Mercantilistic Trade Policy

Paul Krugman thinks we need to do more than just lecture the Chinese on trade.

I agree with everything this NYT editorial has to say about the economics of widening international imbalances. Where I disagree is on the issue of negotiating strategy. My colleagues believe that we should lecture the Chinese on what a bad thing they’re doing, but not actually threaten sanctions, lest we start a trade war. My belief is that this gets us nowhere.

I disagree with Paul Krugman about many things. But on trade policy toward China I agree. Passiveness in the face of mercantilist trade policy is foolish. But China does much more including large scale intellectual property theft and large scale computer attacks to steal source code and data. Enough already.

Aside: American corporations need to cooperate with each other to systematically collect data on attempted penetrations. They need to allow penetrations to reach into specially designed lab environments in order to find viruses and malware that has gone undetected. New methods of attack should be discovered much more quickly.

Share |      By Randall Parker at 2010 August 16 11:48 PM  China


Comments
ASPIRANT said at August 17, 2010 3:07 PM:

What do we stand to lose by not trading with China? Other than the elites, not a whole lot.

But let's just go ahead and let our average citizens compete with third world labor on their own terms anyway. That'll work out great.

Basically everyone I think suspects the true reason for our policies regarding china is that certain influential people in our country are getting rich(er) off of it. The idea of it being so easy for the chinese to manipulate them, and them in turn us, is frigtening.

Johnny said at August 17, 2010 3:33 PM:

When Reagan put quotas on the Japanese car companies back in the 1980s, they
responded by opening up more factories in the U.S.

Protectionism, when accompanied by a high level of human capital and a free
market in the domestic market, works well. Taiwan, Korea, and Japan have
all fared really well, despite doing everything the elites dislike (tarrifs,
import restrictions, resistance to globalization, no immigration etc.). The
East Asians are completely at odds with the free trade, globalization, open borders
dogma that prevails in the West - and they don't appear to be suffering.

Mthson said at August 17, 2010 3:35 PM:

Prices of many products might go up 500% if we decide to not utilize cheaper labor abroad.

That not only makes our lifestyles more expensive, it destroys US competitiveness with the rest of the more rational world.

ASPIRANT said at August 17, 2010 5:05 PM:

>>There are bad ways to address this problem. Punish China rumblings are back on Capitol Hill, but any move to slap punitive tariffs on Chinese goods could lead to destructive tit-for-tat retaliation. // There is a proper approach to this rising threat. Chinese leaders have to finally rebalance their economy and rely more on internal demand and less on exports. // China must deliver.

This doesn't even make sense. He just said we should not have even the threat of punishing China, but he expects these grand changes out of them. Does he expect more than a shit-eating smirk when we ask for these things with nothing to retaliate if they refuse?

Another possibly is that an editor somewhere along the line has reworded it to be less incindiary than what he originally said.

>>Prices of many products might go up 500% if we decide to not utilize cheaper labor abroad.
Since we have the ability to manufacture basically everything we need locally, those foreign products will have to compete with domestic ones. As long as our resources and human masses can produce enough to satisfy local demand, the economy will adjust.

A.Prole said at August 18, 2010 12:31 AM:

Mthson,
American wages have stagnated for 40 years - simulaneously with the widespread adoption of 'free trade'.
$0 years ago there was very little trade with China, but average incomes were equal to what they are today.Clothes, shoes, electronics etc were affordable for the masses, there were no shortages or price rationgs.
And more imortantly there wasn't a potentially hostile foreign power holding America buy the ball with a $1 trillion cash pile.

Rohan Swee said at August 19, 2010 6:46 AM:

Mthson: Prices of many products might go up 500% if we decide to not utilize cheaper labor abroad.

Yeah, life was hell in this country before China got MFN status and we weren't running massive trade deficits with just about everybody. We had nothing but rags to wear old boxes with which to furnish our houses.

That not only makes our lifestyles more expensive, it destroys US competitiveness with the rest of the more rational world.

Yes! We must have more debt, more trade deficits, and ever lower wages to make America competitive! (Oh, and massive immigration. Don't forget that key factor!) We must destroy the country to make it competitive!

What are we competing for again, Mthson?

(Talking to neoliberal True Believers is like talking to bible-bashers. No matter how much evidence is adduced to demonstrate that prudent protectionist policies work, and that our current policies simply cannot go on, they just keep repeating "but we'd die without those low, low, Walmart prices!")

Mthson said at August 19, 2010 8:57 AM:

Rohan,

I understand protectionism and immigration restriction can be prudent.

However, buying products and services at the cheapest prices is surely in the best interest of everyone except the portion of 1st-worlders who are sub-100 IQ. If someone is having trouble competing against barely literate peasants here and abroad, he's doing it wrong, and doesn't deserve our charity (you and I worsening our situation for his sake).

One of the fundamental principles of economics is that going with comparative advantage instead of fighting it makes everyone richer (except low-IQ folks). We're glad an iPhone costs a few hundred bucks instead of >$1000, and we're glad all that expensive genome sequencing equipment doesn't cost 500% it's current prices.

Mthson said at August 19, 2010 9:09 AM:

A.Prole,

American compensation appears to be up 50% since 1974. The fallacy we all rely on to claim wages are stagnating is that we disregard total compensation and instead talk about only the portion of compensation that favors our argument: wages.

Although wages have fallen behind inflation for over a generation now, other nonwage components of worker compensation, particularly health care benefits, have grown more quickly than inflation. The graph below shows that in fact total compensation shows a steady long-term upward trend relative to inflation that has if anything accelerated in recent years. [The graph shows total compensation is up 50% since 1974] http://www.econbrowser.com/archives/2005/12/declining_real.html

Also, we say "American compensation," but really we're talking about American compensation + 100 million NAMs who have been replacing low-fertility, high IQ whites/asians. That's generous of us to advocate for greater compensation for NAM additions to the economy.

Rohan Swee said at August 19, 2010 2:00 PM:

Mthson: One of the fundamental principles of economics is that going with comparative advantage instead of fighting it makes everyone richer (except low-IQ folks).

Oh well, yes, there's "everyone", and there's the half of the population with below average IQs. Or, more likely the more-than-half with sub-110, 115 IQs. If (what you think is) comparative advantage leaves over half the population worse off, why the hell should they sign on to it?

Mthson, I would wager that there is absolutely no one who's ever shown up on a blog this who doesn't understand what comparative advantage is and how it's supposed to work. So it's highly improbable that people think unilateral globalization is an ongoing disaster for this country because they bizarrely missed out on that basic concept, or found it too difficult to comprehend. The fact is we are not operating in a system of classical Ricardian comparative advantage. At any rate, even if you believed that competitors with low wage levels, industrial polices/subsidies, tariffs covert and overt, lack of labor/environmental protection, etc., could correctly be conceptualized as a type of Ricardian comparative advantage, why on earth would you think it would disadvantage only low-IQ folks? That ain't what's happening.

We're glad an iPhone costs a few hundred bucks instead of >$1000, and we're glad all that expensive genome sequencing equipment doesn't cost 500% it's current prices.

So I can get an iPhone for a few hundred bucks, and my dad lived and died without ever having any such thing. Obviously, we live in the best of all possible worlds. Of course, I might perversely weigh that miraculous iPhone against the ability to raise 10 children in decent comfort, and send them all to private elementary and high schools on a single middle-class salary, as well as help them out a little as they all worked their way through college and emerged debt-free with reasonably confident expectation of getting decent jobs...

Competition was lowering the price of goods long before we started ceding industry after industry to low-wage countries. Once again, are you arguing that technology and production (with attendant price declines) would have stagnated but for the race to the bottom? Surely you're not under the impression that we just send the low-skill, assembly type work offshore, and keep all that high-end, high-IQ work for ourselves? Anyone who believes that we're "winning" in any but the shortest term by ceding so much productive capacity needs a long, serious meditation on the subject "innovation starts on the shop floor".

(Just as an aside, Mthson, do you think it's a good idea to be totally dependent on foreign suppliers for critical drugs, with cost the only consideration? How about the military sourcing from, ffs, China in some cases, for critical components? You think only stupid people would have reasons to oppose things like that?)

Although wages have fallen behind inflation for over a generation now, other nonwage components of worker compensation, particularly health care benefits, have grown more quickly than inflation.

I think we've been through this before here. A rise in non-wage compensation is of no benefit to the worker if he never sees any of it, if it doesn't represent any real gain in the value he receives for working. Health care benefits have grown more quickly than inflation because health care costs have grown more quickly than inflation. It'd be one thing if we were getting huge increases in quality of and access to care to go along with the obscene jumps in cost, but we don't. Why would one consider a huge slurping, drooling, metastazing subsidized ongoing revenue grab by insurance companies to be any kind of compensation at all to the worker?

Mthson said at August 19, 2010 6:23 PM:

Rohan, if we shifted all compensation to wages, the abstraction would be gone, and people would stop claiming our compensation has decreased rather than increased.


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