China's Currency Policy As A Form of Technology
Don Boudreaux at Cafe Hayek argues again that Chinese subsidization of its exporters through an (alleged) undervalued renminbi means that Americans get more output at lower costs, and asks "What’s the problem?"
We could also invoke Bastiat's famous Candlemakers' Petition, and think of China as the sun, providing us with manufactured goods for prices so low that it's almost like getting free light from the sun. After all, if China was willing to ship goods for free as gifts to the American people, it would be even better than subsidized low prices, and we would really want to ask the question: "What's the problem?"
Or we could invoke Steven Landsburg's excellent essay "The Iowa Car Crop" and look at trade with China as a form of technology. To paraphrase Landsburg, "The fact that there is a place called China, with people and factories, is quite irrelevant to Americans’ well-being when we get access to cheap manufactured goods. To analyze trade policies, we might as well assume that China is a giant machine with mysterious inner workings that produces manufactured goods at incredibly low prices."
And we could ask the question: If China could produce cheap goods for Americans because it developed some amazing new technology, we wouldn't complain, so why complain when the result is the same because of a currency policy that gives us the same result. Maybe we should think of China's currency policy as an "advanced form of technology with a giant machine with mysterious inner workings" that miraculously produces products for Americans at prices that rival the sun's provision of free light.
Update: See related post at the Coyote Blog "Obama Presses Chinese to Raise Prices to the Poor and Middle Class."
17 Comments:
If China subsidized one set of goods, then the rest of the world would adjust.
But China's government will deliberately attack any industry that generates a significant number of jobs. They are not alone in this strategy: their are dozen of net exporters and wannabees playing this game. The net effect is that countries that trade with them freely face significant headwinds in developing new jobs and new industries.
Nothing new and interesting has been built in the US in scale since 2000. Is this because of lack of education or government regulation? I don't think these are the bottlenecks to the creation of production here.
It is interesting to follow Dr. Perry's posts on China and Cuba.
China is always good, despite being the largest and powerful communist nation on earth, and a fascist one at that. There is no political freedom in China.
Cuba is also a wretched little dictatorship--and they are always bad, except for heroic anti-regime individuals within Cuba.
For some reason, there are no heroic, anti-regime individuals within China. Even the slave labor problems of China hardly merit mention.
If China manipulates currency, that is good--not a commie plot to undermine America.
Why is the right-wing so enamored of China? I don't think it is just because China provides a cheap (and sometimes slave) labor base.
Is it something else?
There is no problem with what China is sending our way. The problem is that with the money they are getting they are not recipocating by buying our stuff. Rather they are opting to buy Treasuries.
But, they are paying about twice as much for those T's as they should be so in the grand scheme of things the Chinese are getting nowhere.
However, their actions are causing great unharmonous dislocation in the world's economy. They are removing jobs from the rest of the world (see our manufacturing employment numbers, down >3,000,000) while the are adding to the world's capital accounts, driving down interest rates.
When you think about it this way the Chinese by settling for a 2% return on their huge foreign reserves (now about 1/2 of GDP) they are even losing money on the income relative to what a 10% growing economy needs for their own capital investment.
One of these days some economists is going to look at the whole picture, China's GDP and their national asset destruction, and say, "How did we miss that?"
"Why is the right-wing so enamored of China? I don't think it is just because China provides a cheap (and sometimes slave) labor base."
"Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are all vastly the superior to us now, which means if you are a corporation deciding where to do business … you're starting to think, "Beijing looks like a pretty good option." Why aren't we doing the same thing? "
~Benji's boyfriend Barack.
Why is the right-wing so enamored of China? I don't think it is just because China provides a cheap (and sometimes slave) labor base.
...and that labor base is able to be used to counter upward wage pressures in the US. Much like the GOP's silent support for illegals and open support for H1-b's is used.
If currency policy is a form of technology then: Technology policy is a form of currency!
The lack of enforcement of intellectual property rights in China is essence giving currency to consumers in China. Almost all business software, dvds and movies in use in China, and produced originally, by U.S. companies has been obtained without payment to those U.S. companies.
Thus, the costly and disfunctional trade relationship with China needs to be recognized as damaging to U.S. consumers becuase of higher intellectual property product cost and less income for those U.S. consumers who also produce these products.
If the advanced technology exists in China and no manipulation on the currency, Chinese Reminbi will still appreciate under the trade. Japan could be an example. Even China had that technology, China may still put pressure on its currency.
"Much like the GOP's silent support for illegals and open support for H1-b's is used."
You're wrong on the former, right on the latter. We should encourage more skilled immigration to the US while you're sitting back on your mother's couch.
Halleluiah!
Pardon me for crowing but for the first time since I decided free trade was hogwash and abandoned it to join the side of truth, justice, and the American way I am now in the majority. Halleluiah! A new NBC/WSJ poll shows that 53 percent of my follow Americans agree with me that free trade hurts the nation. Particularly satisfying is that much of the change comes from high income Americans and now includes a broad political spectrum.
http://www.cnbc.com/id/39407846
When I first started I was with only 30 percent mostly union members and democrats neither of which I am. Lonely! To that 23 percent who have changed I say welcome aboard but there is more work to be done. The forces of the dark side will not yield to a mere 53 percent. Let us convince enough of the remaining 47 percent to send Darth Vader and his outsourcers packing.
Halleluiah!
"A new NBC/WSJ poll shows that 53 percent of my follow Americans agree with me that free trade hurts the nation. Particularly satisfying is that much of the change comes from high income Americans and now includes a broad political spectrum"...
Well James back in November of '08 the majority voted for Obama...
How's that 'hopey-changie' working out for you?
See related post at the Coyote Blog "Obama Presses Chinese to Raise Prices to the Poor and Middle Class."...
Well if the Business Insider is correct Obama's wish just might be coming true...
25 American Products That Rely On Huge Protective Tariffs To Survive
"You're wrong on the former, right on the latter. We should encourage more skilled immigration to the US while you're sitting back on your mother's couch."
Paul is right about this, sethstorm, we need you to come out of there & go to work. If you won't we have no choice but to hire immigrants. You can save the US by leaving that comfy basement.
Perhaps I'm missing something. Haven't we in America been debasing our currency for nearly a decade? Why is that we are doing ok? Manipulation goes two ways here.
You're wrong on the former, right on the latter. We should encourage more skilled immigration to the US
Explain the lack of enforcement on businesses that make it possible with regards to illegals.
As for the H1-b issue, you're not exactly making a good case by inflating the labor supply that way. You're making it worse for the US citizens, multiplying anything you find undesirable.
However, if you hire actual US citizens, make up the difference with training, and dispense with senseless qualifications, you get less lazy people.
Did the House of Representatives step on its collective organ?
From the WSJ: House Lashes Out at China
Bill Would Give U.S. Power to Levy Tariffs Over Cheap Yuan; Senate May Balk
From the Business Insider: America Will Lose A Trade War With China Because It Desperately Needs Rare Earth Metals
Juandos, we have rare earths here in the US. Really, we need to stop the insanity and start using our resources. What will it take, third world status?
"Really, we need to stop the insanity and start using our resources"...
Yeah jason for the most part we do have almost every sort of metal and energy resource needed and we have it in abundance...
"What will it take, third world status?"...
A most definitive change in who we elect to national office...
I can't help but wonder if there aren't a whole lot folks now elected/appointed to national office that won't be happy until this whole country looks like West Point in Liberia...
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