Posted on 09/26/2003 6:29:36 AM PDT by dead
WORLD leaders are at last recognising that there are huge imbalances in the world economy that threaten its future stability. The Group of Seven statement, following the recent meeting of the International Monetary Fund, that exchange rates should be fixed by market forces reflects this concern.
But what is the greatest cause of these imbalances? The willingness of the American consumer to carry on buying the products of the world and thereby sustain global growth? Or the economic and trading practices of what is - on some calculations - the world's second largest economy, China? China was not explicitly mentioned in the G7 statement. Neither did it figure large in the failed trade discussions in Cancun. But I believe that the growing manufacturing might of China is, in absolute economic terms, the issue.
There is a real drama that will shape our futures taking place in China. China has the capacity, the willpower, the structure and the command economy to rip the heart out of manufacturing growth in Europe and America over the next two decades. Many see this as an opportunity, and the flood of international capital into China testifies to this. China is now the largest recipient of direct investment of any country in the world.
Others will argue that China creates a real opportunity, both in terms of its own marketplace and by producing goods that represent a cap on inflationary pressures in the rest of the world, most particularly in the United States and Europe. All this is elevated on the altar of globalisation to a sort of inexorable movement towards a higher plane.
Let me demur. If the headlong pursuit of Chinese expansion is allowed, it will pose a very serious threat to employment in Europe and the United States, and most particularly to the US elections in 2004. George Bush will have enormous difficulty in ensuring a real expansion in employment if the present growth of Chinese trade with the US, at more than $100bn per year in terms of its trade balance (or 25pc of its trade imbalance), continues unabated.
With the flood of US capital - be it from Intel, Microsoft or any of the other major new-age companies - pouring into China, a great deal of US intellectual software and manufacturing skill is also being exported to China, but without any guarantees as to its subsequent expropriation.
The Chinese have waited a long time for this day, and their day has come. They are hugely inventive; they are increasingly well educated (and the flood of well-equipped students from their universities testifies to this); they accept extremely low wages and allow environmental conditions that would not be tolerated in the West. And they protect their domestic market in a manner that even the Japanese can admire.
Allied to these virtues are the vices of a society in change. In what has been a command society since 1949, the laws of property, contract and, particularly, the protection of intellectual property rights are still in their infancy. No one doubts that many in Beijing wish a level playing field, but the playing field is not level, and Western companies competing with them in their own markets will find a flexibility in their application of rules that would make the WTO blanch.
WalMart, the US retailer, now has more than 300 permanent buyers in China, and last year imported $12bn of Chinese goods, with the commendable aim of keeping consumer prices down. But the consumers paradoxically are conspiring in their own demise - or at least the demise of their own jobs.
If WalMart were a country, it would rank ahead of Great Britain and Russia in total imports.
This indicates the staggering potential of China and its capacity to move quickly. Anyone who has visited Shanghai will find a city that is among the most modern and dynamic in the world. Its architecture, work ethic and sense of commitment have almost no equal - and it is a product not of free enterprise but of the command economy.
The world has decided that the aims of the WTO are best served by including China and not imposing an undue degree of surveillance on its growing economy for a number of reasons - some good, some bad. The Beijing Olympics in 2008 will be one of these, and represents an opening of the Chinese market and mind to world influence. That, in itself, is excellent. The problem is the price that will be paid by the world in employment terms if China does not play the game the way the WTO wishes it to be played.
The threat is clear. There are possibly 450 million Chinese in the manufacturing economy. There are 850 million people on the bench, waiting to get into the manufacturing and services sector.
A company of which I am chairman, Wedgwood, is manufacturing in China a range of ceramics equal in quality and substantially lower in price than anything we could produce in Europe or the US. The Chinese have been magnificent in their co-operation, intelligent in their application of new technique, and hugely productive. This is the model of the future, and it is a frightening one.
So, what is the answer? It must be a combination of many things, but two are key. First, the Chinese have to impose and police the laws of contract, property and intellectual property rights that we enjoy in the Western world.
This has to be done in the most open and transparent way through their judiciary. The judiciary has to be freed from political obligation - something that will be extraordinarily difficult in China.
Second and most important of all, the hugely undervalued yuan (renminbi) must be revalued upwards, not in one immediate leap, but gradually, determinedly and as a matter of policy.
These policies will work to a gradual improvement in the entire world economy. Not to follow them would be to reignite the ghost of protectionism and the Smoot-Hawley import tariff in the United States, and a range of quotas and tariffs from other trading blocs, including of course the European Union.
There has been, quite rightly, an outcry following Cancun at the way the developed world has subsidised its agriculture. Each country can advance special pleading in regard to its sectional interests, be it France protecting its farmers or Japan protecting its rice growers, for political and cultural reasons.
We have to recognise that China is both the problem and the opportunity. Together, China and the West can build a huge, growing and more satisfying market that will bring benefit to all, particularly developing countries, if approached gradually, sensibly and legally.
The converse is the death of globalisation - the erecting of frontier barriers, the rule of clubmanship and a slow death for worldwide free enterprise.
Surely the choice is obvious. Let us make the next two years a time for decision in which China must play a most active part in policing its own economy and making it responsive to the needs of our global economy. If we fail to create a more level playing field for international trade, all of us - including China - risk losing the very thing that has so vastly increased global wealth.
Sir Anthony O'Reilly is executive chairman of Independent News and Media Plc.
I believe there should be such a study somewhere out there because there are so many economists who are stating that tariffs are harmful someone must have done such research and proven at least one case. I note that there are proffs that several tariffs inb the History of the USA actually did provide a net economic benefit. Specifically, the textile tariffs of the mid 1800's. Further we have the following linked document that does provide such regression analysis here.
Clearly you would agree that decisions should be made on the best available evidence and using tariffs against Chinese goods at this time is more than justified for that specific nation at least under the rationalizations for tariffs Adam Smith recognized.
That is a superb collection of readily applicable measures that could be taken to reverse the flow of jobs and technology out of the country. Definitely a keeper.
<Now you know why I call Walmart "Waah-mat!" If it isn't make in China, it is probably from Brazil.
Did sanctions on trade imposed on Iraq or Cuba help or hurt their economy? By your reckoning, making it more expensive or difficult to get foreign goods would invigorate the embargoed economy by requiring self-sufficiency. Calling for sanctions on the U.S. won't help it's economy.
"The claims of these organizers of humanity raise another question which I have often asked them and which, so far as I know, they have never answered: If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind? The organizers maintain that society, when left undirected, rushes headlong to its inevitable destruction because the instincts of the people are so perverse. The legislators claim to stop this suicidal course and to give it a saner direction. Apparently, then, the legislators and the organizers have received from Heaven an intelligence and virtue that place them beyond and above mankind; if so, let them show their titles to this superiority." -Bastiat
The rest of the essay is a pretty good read as well: The Law
You stated it proably made the Great Depression worse. I have also seen analysis that states it may have mitigated the Great Depression worst effects. Do you have numbers to specifically back up your assertion that is regression analysis looking at the effects of the tariff both beneficial and harmful or is this your or some other economists "gut impression."
I further note the Fordney-McCumber(SP?) tariffs of the 1920's which were the larget tariff increase until that date seem to have resulted in Boom years but that is also unproven and may be just an historical coincidence. There are analysis out there in print that show teh Textile tariffs of the 1800's provided a net benfit to the American textile industry. Further there is an analysis of China trade using the full regression analysis technique for both the positive a negative side showing a net benefit from tariffs vis a vis China.
I really have been looking for such a piece of analysis as it would tend to validate those who believe in the theories of Adam Smith and David Riccardo. However, even if we use Riccardo and Smith tariffs would still be justified for the USA to levy against China as Smith notes four reasons for tariffs: Defense, Retaliation, Cracking open markets, and Encouragement of domestic industry.
I have done my homework on this issue and I note the current traiff structure under the WTO is very much a wealth transfer plan becuase of the special considerations given developing nations.
I am not sure he is right, didn't Cobden predate Pareto? (Cobden led the charge in England for repeal of the Corn Laws and as low import tariffs as possible.)
The reality is not economic, however, but political. The trade with East Asia will result in the Left taking power in the United States unless there is a steady increase in employment before the next presidential election. On the long term we obviously cannot export all manufacturing without becoming a natural resource and agricultural economy. The plea that China respect "intellectual property" will not stop the service industries collapsing with the collapse of the American employment.
We are, on the other hand, moving towards an equilibrium marked by a collapse of the dollar associated with the international rejection of the dollar as a reserve corrency. This has many ramifications. As I read the tea leaves the Chinese are banking on it.
The reality of the situation is that half of Americans have a less than the median American intelligence and cannot compete with the world's best minds except with the labor of their hands. Forcing these people to compete with Asian labor directly will force an equilibrium of Asian manual labor and American manual labor wage rates. At the very least this would cause the election of "a man on horseback". I do not see how this can result in other than a command economy.
If you are interested in economic arguments against William's position Paul Craig Roberts is well noted for his public criticism of William's point of view.
Economics does not operate in the intellect but in the real world of politics. It is intellectually fun to work with, and I love searching data sets statistically, but it exists in a real world of human beings. We cannot escape taking human nature into account.
The best classical "economics" book dealing with human nature is, IMHO, Mackey's _Popular Delusions_. (I am of the school that "man is not a rational but a rationalizing animal."!!!)
Political reality, however, cannot not be successfully ignored. My #14 is a reply to RJ, but argues this thesis.
To be uncharitable, impementation of these suggestions is on the same order as the mouse deciding to bell the cat! I wish the situation were otherwise.
Just one more example of your Marxist lying.
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