United States: Export Tiger
Barrack Obama and most of the Democratic Party (as well as a sizable Lou Dobbs contingent in the Republican Party) fear trade and globalization. But like it or not, much of our economic growth is driven directly or indirectly by trade. In particular, even I found the export growth rates in this chart from Mark Perry surprisingly large:
US Convinces China to Jack Up Prices to American Consumers
Bowing to American pressure on the eve of high-level talks to reduce economic tensions, China agreed Thursday to terminate a dozen different subsidies and tax rebates that promote its own exports and discourage imports of steel, wood products, information technology and other goods.
Thanks a lot. The Bush Administration crows that:
This outcome represents a victory for U.S. manufacturers and their workers
Um, not if they are consumers too, as they all are. And not if their company buys any inputs from Chinese manufacturers.
Napoleon said to never interrupt an enemy when he was making a mistake. I don't consider China an enemy, but it just flabbergasts me that the Chinese taxpayers and consumers see fit to subsidize lower prices for our consumers, and we feel the need to stop them. More here and here.
China Continues to Subsidize Lower Prices for Consumers
Turning aside growing congressional anger over low everyday prices, President George W. Bush's administration today will reject demands that it formally accuse Beijing of subsidizing lower prices for U.S. consumers.
With U.S. lawmakers gearing up to punish China for using Chinese funds to subsidize low U.S. consumer prices, Treasury Secretary Henry Paulson is expected to use a semiannual currency report, to be released today, to reinforce his calls for Beijing to allow prices in the U.S. to rise faster....
OK, I confess I fibbed a bit. The actual article reads:
Turning aside growing congressional anger over the U.S. trade deficit with China, President George W. Bush's administration today will reject demands that it formally accuse Beijing of "manipulating" its currency to give Chinese companies an edge over American businesses.
With U.S. lawmakers gearing up to punish China for keeping the yuan artificially weak against the dollar, Treasury Secretary Henry Paulson is expected to use a semiannual currency report, to be released today, to reinforce his calls for Beijing to allow the yuan to rise faster. But Mr. Paulson won't brand China a currency manipulator despite congressional demands that he do so.
But it means the same thing as my version. Thanks to Congress for looking after us consumers. Our Chinese sister publication Panda Blog addressed these issues from the Chinese perspective a while back. In short, the Chinese are wondering what we are complaining about:
Our Chinese government continues to pursue a policy of export promotion, patting itself on the back for its trade surplus in manufactured goods with the United States. The Chinese government does so through a number of avenues, including:
- Limiting yuan convertibility, and keeping the yuan's value artificially low
- Imposing strict capital controls that limit dollar reinvestment to low-yield securities like US government T-bills
- Selling exports below cost and well below domestic prices (what the Americans call "dumping") and subsidizing products for export
It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers. A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese. So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts. And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange. Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.
This policy of raping the domestic market in pursuit of exports and trade surpluses was one that Japan followed in the seventies and eighties. It sacrificed its own consumers, protecting local producers in the domestic market while subsidizing exports. Japanese consumers had to live with some of the highest prices in the world, so that Americans could get some of the lowest prices on those same goods. Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses. And surpluses they did create. Japan achieved massive trade surpluses with the US, and built the largest accumulation of foreign exchange (mostly dollars) in the world. And what did this get them? Fifteen years of recession, from which the country is only now emerging, while the US economy happily continued to grow and create wealth in astonishing proportions, seemingly unaware that is was supposed to have been "defeated" by Japan.
We at Panda Blog believe it is insane for our Chinese government to continue to chase the chimera of ever-growing foreign exchange and trade surpluses. These achieved nothing lasting for Japan and they will achieve nothing for China. In fact, the only thing that amazes us more than China's subsidize-Americans strategy is that the Americans seem to complain about it so much. They complain about their trade deficits, which are nothing more than a reflection of their incredible wealth. They complain about the yuan exchange rate, which is set today to give discounts to Americans and price premiums to Chinese. They complain about China buying their government bonds, which does nothing more than reduce the costs of their Congress's insane deficit spending. They even complain about dumping, which is nothing more than a direct subsidy by China of lower prices for American consumers.
And, incredibly, the Americans complain that it is they that run a security risk with their current trade deficit with China! This claim is so crazy, we at Panda Blog have come to the conclusion that it must be the result of a misdirection campaign by CIA-controlled American media. After all, the fact that China exports more to the US than the US does to China means that by definition, more of China's economic production is dependent on the well-being of the American economy than vice-versa. And, with nearly a trillion dollars in foreign exchange invested heavily in US government bonds, it is China that has the most riding on the continued stability of the American government, rather than the reverse. American commentators invent scenarios where the Chinese could hurt the American economy, which we could, but only at the cost of hurting ourselves worse. Mutual Assured Destruction is alive and well, but today it is not just a feature of nuclear strategy but a fact of the global economy.