Again, US Trade with China Has Been a Good Thing

 

RTX274C4_shanghai_china_trade-e1457381972406Scott Sumner offers an interesting response to the recent David Autor, David Dorn, and Gordon Hanson paper on the China trade shock, which show some areas exposed to this new competition never recovered:

First, even if China trade was bad for the US, it was almost certainly extremely good for China, which was a vastly poorer country in 1990. So I’m quite confident that economists are justified in supporting free trade. Whether they are justified in suggesting that Chinese trade is beneficial to the US is another question.

Second, this is just one study, and as we’ll see it’s far from convincing. We don’t abandon views held for 200 years, and supported by hundreds of studies, just because of a single study. I can’t speak for other economists, but I very much doubt whether economists are holding back some sort of “secret” information that free trade is actually bad.

[Third,] the ADH paper does show a nice job of showing that Chinese exports have depressed some local labor markets. But unless I’m mistaken the paper doesn’t tell us anything about the macro effects of Chinese exports, which would require a macro model. … They also don’t discuss all the jobs created in places like Seattle and Silicon Valley, as a result of China trade. Without exports, how would China be able to buy all those Boeing jetliners? In fairness, ADH do admit that their study may miss important linkages in high tech and business services, but this admission occurs only in a footnote …

A further issue is that measured input-output linkages may miss some positive demand effects from U.S. exports. Consider the iPhone, whose back panel states, “Designed by Apple in California. Assembled in China.” From its U.S. headquarters, Apple offshores production to Foxconn, which employs 300,000 workers in its iPhone operations in China. If productivity in Foxconn rises, iPhone sales may expand, thereby increasing demand for design services among Apple’s 50,000 US employees. However not all of Apple’s design exports to China may appear in U.S. trade data. For tax purposes, Apple may attribute some iPhone revenues to overseas subsidiaries. These revenues would not appear in the US current account until the earnings are repatriated, possibly far in the future. A similar logic applies to U.S. business services that may expand as a result of increased trade with China. …

Although Chinese exports are a small share of GDP, they are very important to the sort of low and middle-income workers who shop at places like Walmart. Trade with China has improved living standards for millions of Americans. These media reports seem way too pessimistic to me, unless I’ve completely misread the ADH paper. …

Much of this is keeping with my recent The Week piece:

On the other hand, there have been gains to U.S. welfare — especially to that of lower-income Americans — from cheaper imports. Since poorer families spend a larger share of their income on such goods than wealthier families do, their inflation rate has been lower, and their purchasing power higher. A 2008 study taking this differential into account found it offset the rise in measured income inequality from 1994 through 2005. But set those potential consumer gains aside for a moment. Even knowing what we now know about the possible impact on U.S. jobs, should Washington have somehow limited trade and overseas investment with China — even at the cost of higher global poverty? Certainly the humanitarian answer is “No.”

What’s more, I’m not sure what set of plausible public policies could have significantly offset the one-time economic shock to advanced economies of hundreds of millions of low-wage workers fully entering the global trading system. There’s also a longer-term economic benefit to the U.S. and the rest of the world from poor people getting richer, healthier, more educated, and adding their brainpower to the global intellectual stock for new invention and innovation.

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  1. ctlaw Coolidge
    ctlaw
    @ctlaw

    But it should have been a better thing.

    Chinese trade barriers hurt Americans. Consider the auto industry as a prime example. US-made cars are effectively barred from China. US companies are even barred from setting up their own Chinese plants.

    Instead, a US company must set up a JV majority controlled by a Chinese partner. The JV can’t be a dumb assembly situation. The US company must provide end-to-end know how or intellectual property to basically ultimately let the joint venturer dump the US company and go out on its own.

    Hundreds of billions per year are likely lost to the US auto industry.

    Secondary effects make it even more significant. Presumably, the iPhone would be cheaper (or more profitable to Apple) if the Chinese iPhone factory did not have to compete for workers with the Chinese car factory that exists only due to trade barriers.

    • #1
  2. Misthiocracy Member
    Misthiocracy
    @Misthiocracy

    ctlaw: Consider the auto industry as a prime example. US-made cars are effectively barred from China.

    < devil’s advocate mode = on >

    I can be persuaded to agree that it’s an unfree trade barrier for China to effectively ban US-made cars, however…

    How many Chinese-made cars are sold in the US?

    If a country is going to impose retaliatory tariffs, shouldn’t those tariffs at least be on the same class of goods? What good would come of tariffs on Chinese-made cars if they aren’t sold in the US anyways?

    Any retaliatory tariff would have to be on some other class of goods that Americans do buy, but that would hurt American consumers by increasing prices.

    < devil’s advocate mode = off >

    • #2
  3. ctlaw Coolidge
    ctlaw
    @ctlaw

    Misthiocracy:

    ctlaw: Consider the auto industry as a prime example. US-made cars are effectively barred from China.

    < devil’s advocate mode = on >

    How many Chinese-made cars are sold in the US?

    < devil’s advocate mode = off >

    You miss the point.

    First, many parts, subassemblies, and even cars come in from China.

    Second, the lack of quality cars coming in from China proves that US cars would sell well in China if not for China’s trade barriers. If a crappy knockoff of a US car sells for as much or more than the real thing would, then something is wrong. If a Chinese JV sells a version of a US car for much more than the original sells for in the US, then something is wrong.

    They impose tarriffs in areas where they are noncompetitive in order to build an industry. Thus, symmetry is not possible in retaliation.

    • #3
  4. mildlyo Member
    mildlyo
    @mildlyo

    The rise of china has been good for humanity, no question.
    Good for the USA? The benefits have been very mixed.
    Were the changes planned for by any part of the US government? No.
    Did the markets adjust to changed circumstances? Yes.
    Adjustments made by the ruling class to deliver good governance? No.
    Adjustments by the voters to improve delivery of governance? Too soon to tell.

    • #4
  5. Freesmith Inactive
    Freesmith
    @Freesmith

    It’s comforting to know that according to Summers America’s trade policy with China passed John Kerry’s famous “global test.”

    Here’s a quote Jimmy P left out:

    “One of the things I liked most about the ADH paper was that they recognized the massive gains from trade to China. Thus even if the effects of trade on the US were slightly negative in net terms (which I doubt) the case for free trade would remain overwhelmingly powerful, at least unless you were a nationalist who opposed any sort of foreign aid, even aid that hugely boosted world efficiency.”

    Screw America, it was good for the world!

    That’s a typically AEI donor-sanctioned opinion as well.

    Jim, did you make it to Sea Island, Georgia for your boss Arthur Brooks’s “Stop Trump” confab with the cheap labor, post-nationalist, citizens of the world tech big wigs?

    • #5
  6. Probable Cause Inactive
    Probable Cause
    @ProbableCause

    Trade is good.

    – Adam Smith

    • #6
  7. Samizdat Inactive
    Samizdat
    @Samizdat

    This graph should be hanging on every conservative’s wall:

    international-trade-2012-10-638

    • #7
  8. Cat III Member
    Cat III
    @CatIII

    Freesmith:It’s comforting to know that according to Summers America’s trade policy with China passed John Kerry’s famous “global test.”

    Here’s a quote Jimmy P left out:

    “One of the things I liked most about the ADH paper was that they recognized the massive gains from trade to China. Thus even if the effects of trade on the US were slightly negative in net terms (which I doubt) the case for free trade would remain overwhelmingly powerful, at least unless you were a nationalist who opposed any sort of foreign aid, even aid that hugely boosted world efficiency.”

    Screw America, it was good for the world!

    Your sleuthing is in vain. The first paragraph James quoted says much the same thing. Also, the word “slightly” is crucial. A possible, slight loss isn’t what I’d classify as being screwed.

    That’s a typically AEI donor-sanctioned opinion as well.

    Jim, did you make it to Sea Island, Georgia for your boss Arthur Brooks’s “Stop Trump” confab with the cheap labor, post-nationalist, citizens of the world tech big wigs?

    I hate to imagine how insipid Ricochet would be without razor sharp commentary such as this.

    • #8
  9. ctlaw Coolidge
    ctlaw
    @ctlaw

    Cat III: I hate to imagine how insipid Ricochet would be without razor sharp commentary such as this.

    Or condescending post titles like: “Again, [You Ignorant Lumpenproles,] US Trade with China Has Been a Good Thing”. Particularly when the OP does not then engage commenters who politely make valid points. Thus the snark-countersnark.

    • #9
  10. Cat III Member
    Cat III
    @CatIII

    ctlaw:

    Cat III: I hate to imagine how insipid Ricochet would be without razor sharp commentary such as this.

    Or condescending post titles like: “Again, [You Ignorant Lumpenproles,] US Trade with China Has Been a Good Thing”. Particularly when the OP does not then engage commenters who politely make valid points. Thus the snark-countersnark.

    Oh, I see how this works. Brackets are magical tools that can extract the true meaning of any statement. Let’s see what revelation they can make with one of your comments:

    ctlaw:

    But it should have been a better thing [you devil-worshiping maniac].

    Oh, it appears to be a double-edged sword.

    • #10
  11. ctlaw Coolidge
    ctlaw
    @ctlaw

    Cat III:

    ctlaw:

    Cat III: I hate to imagine how insipid Ricochet would be without razor sharp commentary such as this.

    Or condescending post titles like: “Again, [You Ignorant Lumpenproles,] US Trade with China Has Been a Good Thing”. Particularly when the OP does not then engage commenters who politely make valid points. Thus the snark-countersnark.

    Oh, I see how this works. Brackets are magical tools that can extract the true meaning of any statement. Let’s see what revelation they can make with one of your comments:

    ctlaw:

    But it should have been a better thing [you devil-worshiping maniac].

    Oh, it appears to be a double-edged sword.

    Nice try, but the preface “Again,” was the tell. No such thing in my comment.

    • #11
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