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What Damage the U.S. Raising Tariffs on Chinese Products Will Do

April 9, 2016 Leave a comment

It would be bad for the U.S. and bad for China:

…the Chinese government’s response would probably be tariffs of its own on American goods and services rather than lowering barriers for American companies doing business in China. It moved quickly to retaliate for the tariff on Chinese tires with punitive duties on American products. Because the Chinese market has become critical for many American companies — whether Apple, Starbucks or Boeing — any steps taken by the Chinese government to curtail their ability to operate in China would be bad news for them.

This might be good for India, Vietnam, Bangladesh and other countries to which at least some of the production happening in China is likely to shift.

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Categories: China, International Trade

Always The Optimist

January 19, 2016 Leave a comment

Actually, I don’t see myself as a China optimist. I just think the most realistic view is a positive one.

I have several questions for the pessimists. When someone says:

But we do know that the vast global network of mines, roads, agricultural development, and financial speculation built on the assumption that the old Chinese economy would grow at eight percent forever is running on empty.

I have to ask: was there really a lot of money invested on the assumption of 8% growth forever? Sure, some investing is irrational and can create over-capacity. But I doubt that any really big investors used “8% forever” as their basis for decision making.

Is is possible that, having seen the Chinese economy grow quickly for a far longer period of time than expected, investors were acting rationally? That they risked over-shooting by a few percentage points rather than under-shooting because it made sense in an economy that consistently grew faster for longer than had ever happened in recent history?

And does it really matter? So what if the Chinese economy doesn’t grow at eight percent a year? If it keeps growing at all, but on an ever-increasing base, won’t a lot of that demand materialize sooner or later?

But we have not yet hit bottom. The new reality of a much slower growth in China’s demand for basic manufacturing inputs is still young and its impact is only now beginning to be felt.

But…what if it is a good thing that there is “slower growth in China’s demand for basic manufacturing inputs?” What if that just means that, as China’s productivity is growing and its economy is maturing, it’s moving out of basic manufacturing?

That would mean China will demand many more goods produced from “basic manufacturing” relative to the goods it’s producing in basic manufacturing. That sounds like lots of imports to me. Those imports will have to be produced somewhere–probably they will be spread over a number of smaller economies that are able to gain comparative advantage in the manufacture of basic goods.

Really, which is more likely: that global demand for “basic manufacturing inputs” will move from China to…nowhere? Or from China to Bangladesh, Vietnam, India, Ethiopia, Tanzania?

Will that really be a bad thing?

For anyone?

 

 

 

Categories: China, International Trade

Domestic Market Size and Export Specialization

January 19, 2016 Leave a comment

A puzzle:

Exports have been growing, and China’s global market share has been rising until very recently. So China has generally been steadily becoming a more successful exporter. But as this has happened it has not shown much sign of becoming more specialized in particular types of products, which is usually one of the things that happens in countries that are successful exporters.

A possible explanation:

But perhaps, as Carsten suggests, the issue is more fundamental, and one we have not really encountered before: China’s export industries might already large enough, relative to total world demand, that even a very successful export performance will not show up as much specialization. This is one to ponder further.

(I really want to teach International Economics again.)

Categories: China, International Trade

China’s Remarkably High GDP Growth

November 6, 2015 Leave a comment

With all the focus now on China’s declining GDP growth rate, some perspective is in order:

One issue with this Solow-convergence explanation is that growth should not have stayed at 10% for very long after the reforms. That is, the Solow model says that you close part of the gap between actual and potential GDP every year, so the growth rate should slow down until it hits {g}. That happens pretty fast.

After 10 years of convergence – about 1990 – China’s growth rate should have been about 6.7%, and it was lower in the early 90’s than in the 1980s. But after 20 years – about 2000 – China’s growth rate should have been down to 5.3%. Yet Chinese GDP growth has been somewhere between 8-10% since 2000, depending on how you want to average growth rates, and what data source you believe.

Categories: China

Chinese Tourism by the Numbers

October 13, 2015 Leave a comment

Christopher Baulding shows what fact-checking journalists‘ story lines with data looks like:

The problem with this simplistic analysis is that it relies on incredibly narrow data points to read into an economy of 1.3 billion people.  In statistics parlance, these are all incredibly biased samples for different reasons on very narrow sub-groups.  As I have noted before, China is not nearly data poor as is widely believed though not as data rich as other places.  However, we have much better and wider data on the state of Chinese tourism than such simplistic narrow measures.

For my students: keep in mind, journalists writing about economics often studied journalism, not economics, and even less likely, statistics or other disciplines requiring rigorous analysis. Read Bloomberg, WSJ, etc. with caution. Check the numbers against other known data. Make simple assumptions to test the reasonableness of the story.

I’m afraid I didn’t do much myself to help last week: just a bike ride through the countryside with friends and a few stays at budget hotels.

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Notes from China

October 10, 2015 Leave a comment

Seems about right:

…the story that formed is, I think, backed up by stories emerging from elsewhere. In short, the downturn was expected, is real, with varying severity, but there is an underlying story of innovation and entrepreneurship that is hopeful for the future.

When Travel Writers Write About Economics

October 6, 2015 Leave a comment

Paul Theroux is an excellent travel writer. Economics? Not so much.

The Chinese success, helped by American investment, is perhaps not astonishing after all; it has coincided with a large number of Americans’ being put out of work and plunged into poverty.

Mr. Theroux is too careful with words to say American companies’ investment in China has caused American unemployment and poverty, but that’s the clear gist of the article. No simple coincidence here!

In fact, U.S.-China trade is not a zero-sum game. China has not become richer at the U.S.’s expense. Sure, certain industries have been hit hard by Chinese competition. Others have greatly benefited from access to more efficiently produced clothing, toys, industrial machinery, auto parts, etc. (OK, cheaper, if you insist–has it occurred to Mr. Theroux that the one who can produce the good more cheaply should be free to gain a cost advantage in the market?)

Big companies have always sought cheaper labor, moving from North to South in the United States, looking for the hungriest, the most desperate, the least organized, the most exploitable.

Yup, that’s what all big (bad) companies do. Haven’t you noticed that almost all the employees of Google, BMW, and Sony are in now in Bangladesh and Burundi? And that GE can’t wait to move it’s headquarters to Malawi? The only thing that counts to big companies is hungry, exploitable workers. That’s why only little companies employ people in places like New York City, Paris, and Hamburg. Right? Rank silliness.

It seems obvious that executives of American companies should invest in the Deep South as they did in China. If this modest proposal seems an outrageous suggestion, to make products for Nike, Apple, Microsoft and others in the South, it is only because the American workers would have to be paid fairly. (emphasis mine)

This, for a writer, is awfully sloppy use of language.

What Mr. Theroux must know is that for these workers to make Nike, Apple and Microsoft products, they would have to be paid more than Chinese or Vietnamese workers. Its not even legal for Nike to offer the same wage to an American worker as it offers to one in Vietnam. The U.S. government requires it to pay Americans more.

So, what, pray tell, is fair about getting paid more to make the same shoe just because someone is an American?

What in the name of fairness demands special economic treatment for Americans? If Americans want to be paid more than Chinese, there is a fair way: they must produce goods and services of greater value.

Maybe Southerners aren’t so backwards that they can’t move up the economic value chain. Or should they just make shoes and cell phones for the next 100 years?

One last point: if Mr. Theroux really wants Southerners to be paid a “fair wage,” he can insist his books only be published in the U.S. South. Oddly enough, not one of his publisher’s offices are in the Deep South. Why not? Could economics have something to do with it? Or is Houghton Mifflin avoiding giving fair-paying jobs to Southerners, like those other bad companies Nike, Apple and Microsoft? Is Mr. Theroux benefiting from that? Isn’t that hypocrisy?