WSJ's "Chinese Slapped in Steel Dispute" Rewrite: "Americans Slapped in Steel Dispute"
WALL STREET JOURNAL --
The ruling Wednesday will result in
On Tuesday, the U.S. imposed preliminary
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Thursday, December 31, 2009
The ruling Wednesday will result in
On Tuesday, the U.S. imposed preliminary
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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19 Comments:
I don't think there's a been an instance yet where Obama sided against his union goon buddies who gave the Democrats $60 million in the last election.
Strange how those subsidies have resulted in such a robust growth in the U.S. economy while the Chinese economy has been gutted by those practices.
If a U.S. company used the same business practices as the Chinese, it would have long ago been hauled into court. Our legal system cripples U.S. business while favoring predatory foreign countries.
Good for immediate prices; catastrophic for the long run.
Mark,
This is a fascinating post but is it a satire? It reads like a real news story, but I am afraid it is like the Daily Onion -- seems real, but is simply really funny.
Greg
Our legal system cripples U.S. business while favoring predatory foreign countries.
I wouldn't dispute that our legal system cripples U.S. business, but "predatory foreign countries"? China's currency policy provides a huge subsidy to U.S. consumers. In effect, a massive transfer of wealth from Chinese workers to the U.S. consumers. How is that predatory? China isn't so much competing with U.S. firms as it is with South Korean, Japanese and Taiwanese firms.
US manufacturing output has more than TRIPLED since 1970. The reason that manufacturing is a smaller part of our economy is because the other parts have grown so much.
You will always have trade disparities between rich and poor countries, but those should dissipate as the poorer country grows more affluent and starts to consume and not just produce. The value of free trade to U.S. consumers should not be undermined to satisfy the demands of a labor cartel.
This story about the "Buy American" provisions in the Democrats "stimulus" bill is a perfect example of how anti-free trade policies can come back around to bite American workers. In this case, unionized American workers:
Take, for instance, Duferco Farrell Corp., a Swiss-Russian partnership that took over a previously bankrupt U.S. steel plant near Pittsburgh in the 1990s and employed 600 people there.
The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company’s coils do not fit the current definition of made in the USA—a designation that the stimulus law requires for thousands of public works projects across the nation.
In recent weeks, its largest client—a steel pipemaker located one mile down the road—notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.
“You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs,” said Bob Miller, Duferco Farrell’s executive vice president. “I’ve got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?”
Washington Post
Massive trade surpluses and high tariffs are not a sign of economic strength. Just the opposite.
The dispute is effective because it grabs headlines. This is basically a trivial footnote to the big trade issues between China and the U.S.
The big issues the U.S. should be adressing regarding China:
Pervasive piracy in China.
Rampant counterfeiting in China.
Export subsidies for Chinese manufactures.
Joint ventures in China being a synnonym for tech expertise transfer.
Varying local certification standards for imports.
Chinese stimulus funds only available if use Chinese manufactured machinery.
The biggest issue of all is currency manipulation by the Chinese of Yuan/Dollar. This gives the world's second largest economy a competitive advantage in virtually all of the world's markets.
Here is a chart that shows the amazing flat line of Yuan/Dollar for the last year - precise manipulation!
This is why there is no float to the Yuan unlike every other major currency.
gettingrational,
The Chinese Yuan is currently pegged to the USD at 7.2730, so I wouldn't expect any float. This allows Chinese import prices in the US to remain low, but as the USD is dropping against other currencies, so is the yuan, so goods imported by China from other countries become more expensive.
Greg,
This IS a real news story. Mark has rephrased it to reflect the true effects import duties have
in the US. Everything made with steel in this country costs more as a result of the duties on imported steel. This hurts US businesses and consumers, but is not easily seen. In other words, this story is about BAD news, not GOOD news.
Ron H, The current value of the Yuan is 6.8259 and on 1/1/09 it was 6.8225. I meant float in the sense of against major world currencies; then the second largest economy would have a major currency finally.
China is a mercantilist export driven economy so they want low currency value. The masses of these wonderful people would be much better off with a stronger currency. The elites that control the subsidized export companies won't allow compeition to interfere with their enriching circumstances.
I challenge Tim Geithner to look at the precise peg of the yuan to the dollar and not say this expert currency manipulation.
China is a fascinating study--I favor free enterprise and democracy, and I hope that leads to higher living standards for all.
China favors a type of sometimes enlightened fascism, mercantilism and little democracy--yet they are growing gangbusters, and seem sure to outstrip the USA in the next 20 years.
I expect Far East Asia to boom for decades, while the USA lolligags around, sagging under debt piled up by our feckless left and right wings. Our living standards will improve slowly.
China will eclipse the USA as a world power, due to their vast wealth. They will never fire shot.
Interesting times ahead.
gettingrational,
You're right about the value of the yuan. I'm ashamed to say I failed to check the date of the article I was reading before opening my mouth. Removing foot now.:-)
The Chinese people would be better off if the yuan floated, as it would no doubt float up relative to the dollar, so their imports would be cheaper, but we certainly wouldn't be better off as OUR imports would become more expensive.
I wonder what we will do when they start cashing in all those IOUs they are holding?
I was talking with a supplier to a former client one time and they benefited greatly from cheap foreign steel.
They actually imported steel, made their products, and sent them back to China to be used in Chinese manufactured goods, which were then exported to the US. This wasn't high tech stuff. They were planning on opening a manufacturing facility there to cut out two trips across the Pacific.
That client was of course getting a less expensive product by buying a product made with Chinese steel in an American plant, which they then used in their American made product. Almost all of their other materials were imported as well. Not necessarily from Asia, but almost none was US sourced except I think the shipping materials.
One main component had such high tariffs on the raw material, that an assembled component was cheaper than importing just the raw material. So they were able to cut out a whole process and of course the employees.
That tariff was to protect a now almost non-existent industry and only hindered the barely hanging on customers.
While it is true that industrial production has grown since 1970, the last decade reflects the structural change from a producer nation to a consumer nation concomitant with greater outsourcing of materials and goods from Asia.
http://www.federalreserve.gov/releases/g17/Current/ipg1.gif
It is difficult to foresee future economic growth as a debtor nation of consumers... especially with a government leading the way in that regard. Will we measure our wealth in government debt and government subsidies?
Meanwhile China and India disregard such nonsense as "subsidizing the U.S." and build their nations' wealth.
Bruce Hall said...
...It is difficult to foresee future economic growth as a debtor nation of consumers... especially with a government leading the way in that regard. Will we measure our wealth in government debt and government subsidies?
Meanwhile China and India disregard such nonsense as "subsidizing the U.S." and build their nations' wealth.
Your post points out one of the fundamental problems in claiming victimhood of a weak Yuan or whatever people want to claim.
The only reason we are in so much debt to China is US Government spending is out of control. Even if the US overnight went to a trade surplus with China, it's just about guaranteed that the Treasury would still be selling boatloads of debt.
And we could also have a trade deficit without having a budget deficit. But of course politicians conflate the two so they can point fingers away from themselves.
i continue to be confused as to why we should be upset when another country dumps materials on our shore at less than the cost of producing them...ie, why look a gift horse in the mouth?
Benny,
My Dad worked in the defense and aerospace industries in the 60s through the early 90s. He told me that the U.S. military was always worried about the Soviets catching up economically and technically. Over the course of over three decades that he constantly heard the same thing, the Soviets are five to ten years behind, but they are catching up fast.
Benny "Never had a clue" Cole blathered:
> China will eclipse the USA as a world power, due to their vast wealth. They will never fire shot.
You're a fool, Benny. All major future wealth in the USA, and much of that in the world, will come from IP & Services, not from manufacturing.
China cannot compete in that arena anytime within 50+ years, and likely never, due to differences in social structure. The closest they can come is to eat their own dogfood, and that's a largely circular process of wealth creation, far less effective than an open one.
The world is shifting to a third-gen economy. The vast majority of new wealth comes from creating IP or providing services.
The only reason that manufacturing is still done by "hand" is that, for the time being, manual labor in some places is sufficiently cheap that it's not really a major improvement over a robotic factory.
Think of the Mitsubishi car maker in Minority Report and you'll see what works in the long run. Notice the lack of lots of little chinese (indian, sudanese, whatever) workers.
The food for all the developed nations is produced by 2-3% of its work force. As other nations get mechanized, the same will be true of them.
Robotic is to industrial goods what mechanization was to agricultural goods. In the end, all the world's mfr. goods will be produced by 2-3% of the available work force, the vast majority of which will have moved on to doing other things in the IP&SE, just as the ag workforces went to work in the factories at the turn of the last century.
Short of a major international collapse (or one massive nuclear hot war), the process is inevitable.
"China cannot compete in that arena anytime within 50+ years, and likely never, due to differences in social structure."
Sorry, but I think this kind of complacent or over-confident thinking is what's causing us to over-spend our money and under-educate our kids.
Having researched the competitive dynamics between small companies in emerging markets and big multinationals, I can assure you that nothing stops countries like China from being leaders in IP & Services industries. Their social culture is surely different and it has its weaknesses, but it also has amazing strengths that allow their people to work together very cohesively. Also bear in mind that an increasing number of scientific papers are published by authors from these emerging markets. The rest of the world are quick learners (they are hungry to learn, in fact) and there's nothing magical about the American aura to prevent them from surpassing us.
The threat to America's competitiveness is VERY real, and we should not be complacent. But I want to tackle it by improving our education system, and encouraging responsible spending (at state and individual levels). NOT by protectionism policies.
Chinese hi-speed rail photo gallery:
http://www.skyscrapercity.com/showthread.php?t=1014837
American Education vs OECD:
http://feedproxy.google.com/~r/Understandingsociety/~3/c5fJAp1-XOk/finish-line.html
one more link to add Outsourcers Go Global - India's IT sector, born out of the forces of globalization, is undertaking some globalization of its own. In search of new sources of rapid growth, the country's outsourcing giants are aggressively expanding beyond their usual stomping grounds into the developing world, setting up programming centers, chasing new clients and hiring local talent from Santiago in Chile to China's far-west metropolis of Chengdu. Through geographic diversification, Indian companies hope to regain some momentum after a dismal year, at the same time becoming even tougher competitors to IBM, Accenture and other industry leaders. India's companies "clearly realize that if we want to be global players, we need a presence in emerging markets,"
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