A Chinese Consumer's Perspective on Chinese Trade Policy
This is, plus or minus, a reprint of an article on trade policy written 12 years ago at our Chinese sister publication, Panda Blog.
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
- 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. We Chinese send our resources, our capital, and the output of our most productive workers overseas to be enjoyed by American consumers, and what do we get in return? A trillion dollars or so of foreign exchange surpluses that our government invests for 2% returns in US government bonds. Yes, that's right -- not only are we subsidizing American consumers, but we are subsidizing their taxpayers by financing their government's debt at low interest rates.
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 Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses.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? Decades 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 the 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 well over 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.
Dustin Barnard:
If this was an American author I would be pretty sure the bit at the end about American reactions being a plot by the 'CIA controlled media' was a joke. An american would a) not have faith in the CIA's ability to control anything, let alone the media, b) would know american's don't need shady government operators controlling them to believe incredibly stupid things. As it stands, I'm not sure...
March 5, 2018, 1:19 pmStillAnOptimist:
This is a perfect opportunity for the Democrats - All they have to do is start advertising on TV that they support Trump - and want him to expand the tariffs on more goods/services - After all, if imports get expensive and choice gets smaller, companies/industries that make such products will start making those goods/services and everyone will have a stable job and become rich (or something like that) (All Democrats need to do is adjust their increasing minimum wage formula to stopping imports and increasing exports) (Better yet, Democrats need to propose a 10-289 and Trump will sign it)
March 6, 2018, 6:36 amBistro:
WRT US security risk with trade with China. About 10 years ago McCain and others in the Senate demanded we in the military tot up all the various systems and components that we build into our weapons and weapon systems and the revelation was staggering. You literally cannot buy many of the components anywhere but from China. The industries that used to make fuzes for warheads all went out of business in the US. Almost nobody retained the technical base to build the stuff here anymore. They simply could not compete.
March 6, 2018, 8:41 amErikTheRed:
American libertarians, yes. I still think that the average American believes the CIA operates more like a Tom Clancy novel.
March 6, 2018, 11:42 amErikTheRed:
Hmmmm... a century of wage floors, costly overregulation, and labor prohibition eventually overwhelms endlessly eroding technological manufacturing advantages. No kidding.
March 6, 2018, 11:45 amErikTheRed:
Is there a link to Panda Blog?
March 6, 2018, 12:12 pmSamWah:
Fortunately (or not), the Dems are just not that smart.
March 6, 2018, 1:54 pmmlhouse:
I get free trade. I have a graduate degree in economics so I have studied trade intensely. But these points outline a significant problem in the trade debate and I have made them in this forum before: where is this "free trade".
One thing that I revere more than free trade is free markets, of which free trade is actually a subset of. WHile U.S. consumers may be the beneficiaries of these Chinese activities, when another nation subsidizes their exports with these methods the free market no longer exists. More capital and other inputs are sunk into these subsidized and often non-efficient production at the expense of capital and inputs being used where a free market allocation system would locate them. Some U.S. production and some production that the most efficient allocation system would produce is diverted to the subsidized Chinese production.
I think instead of reflexively exclaiming "FREE TRADE", sometimes we need to step back and examine if what we are looking at is "free trade" and whether the existing system of subsidies, currency manipulation, and other unfair trade practices are really the best outcomes. I know that for many lower income, blue collar workers this is for sure not true. Is putting a retaliatory tariff in place the appropriate response, on that I don't know.
March 6, 2018, 6:03 pmMaximum Liberty:
"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 the CIA-controlled American media."
Brilliant! Whether they were being sarcastic or serious, brilliant!
March 12, 2018, 12:49 pmBill Sellers:
the whole free-trade globalism of the last 70 yrs was born in WW2 ("war is the father of all things" Heraclitus), initially from 2 things: Bretton Woods ("US opens its markets, but you don't get your gold back") and the Petrodollar Imperium (devised on Valentine's Day 1945 aboard the USS Quincy, Port of Suez, Egypt). "Part A", Bretton Woods is history, coming to an abrupt close on August 15, 1971, and Part B, being "expanded" shortly thereafter by Henry-the-K, with their switch to an oil-based currency + "enforcement", from the BW agreement to sell gold for those "special dollars earned". As long as the USA was in the catbird's seat, it worked. Right on thru the collapse of the Soviet Union and the early rise of China. Now all that's in deep, dire contention. The world's biggest oil producer (Russia) doesn't want to sell its oil in dollars to the world's largest consumer (China) who doesn't want to keep recycling 'em. So what's going on is a deep paradigm shift at the lowest levels and with 2 protagonists who've discovered, among their well-meshed trade-technology-imperial intentions, that by golly, Halford MacKinder was right. The USA is up that well-known tributary, and about to lose its propulsion, if this thing isn't played out correctly. Am taking Missouri citizenship.
March 17, 2018, 10:00 pm