Larry Kudlow over at Real Clear Politics notes that an attempt to put a 27.5% tarrif on Chinese imports was blocked in the Senate:
Today around 2pm, news broke that Sens. "Smoot" Schumer (D-NY) and "Hawley" Graham (R-SC) gave up for now on their China bashing tariff of 27.5 percent. This is a very good thing indeed.
Placing a huge tariff barrier between American and Chinese trade would have the same effect as imposing a large tax on the consumers, businesses and investors of both countries. It would completely disrupt economic growth worldwide.
Treasury Secretary Henry Paulson deserves credit for getting this delay and preventing a vote in the Senate that surely would have passed with very bad economic symbolism.
As a general rule, I am all for free trade. Free trade is the best means of getting the best priced, best quality goods and services produced and distributed in the most efficient manner possible. Additionally, free trade does have a strong influence on diplomacy - the more economically inter-locked two countries are, the less likely it is that they'll fall in to conflict with each other. That said, I have to say that I disagree with Kudlow's take on this.
China is using dictatorial means to ensure that China's industries can undersell the industries of other nations and thus make the largest free trade area of the world, the United States, by default purchase very large amounts of goods from China. Our leftwing friends like to paint this as some sort of wicked, capitalist plot, but really its just the way business works: in a free market, a business must keep cost as low as possible. To do anything else is economic suicide - and thus when a business in America is looking to get things cheaper, China just becomes the natural stopping point. So, it isn't Evil Capitalist Amerika - but communist and increasingly fascist/nationalist China is playing us false - they are taking advantage of our economy in order to obtain the funds necessary to modernise China's military in preparation for what China's military and political leadership considers the inevitible conflict with the United States.
It has become clear over the past couple decades that China - or, more accurately, China's leadership - wants China to take at least a co-equal place in the world with the United States, and a superior position if they can swing it. For China to assume this co-equal status, they will have to conquer Taiwan and drive American military power firmly out of east Asia - including out of Japan. These things can only happen with war - and China is preparing for such a war.
I cannot imagine any set of diplomatic initiatives which could convince China's leadership that they should accept forever a second-class power status vis a vis the United States. No amount of American economic openess to China will change China's desires - in fact, at this point, the more we trade with them, the larger we are making our eventual problem. Far from maintaining free trade with China, what we should be doing is carefully phasing in tarrifs for Chinese goods while lowering tarrifs on Indian, Bangladeshi, Filipino, Indonesian and Vietnamese goods - we should, to put it bluntly, be assisinting in the economic build-up of those nations most likely to be threated by Chinese domination of east Asia while at the same time causing China no end of trouble in finding the funds for its military build up.
We won't get such a policy at this time - there is simply too much political inertia behind the concept of free trade with China - but this is an issue we, as a people, need to confront and eventually come to political consensus on. Absent a democratic revolution in China, we will eventually be at war with China. It is not a war we'll even come close to losing, but it would be a long, bloody and horrific war. Our task is to figure out the best means of preventing such a war short of surrendering east Asia to China.
Posted by Mark Noonan at September 30, 2006 09:48 AM
Comments
In June of 1999 I came up with an idea for a new appliance. I first approached US firms, then Mexican, then Taiwanese... in the first two instances neither manufacturerd in the USA or in Mexico... in the later they manufacturerd in China.
So I went to China myself...
I've flown 250,000 miles, met with experts in the field of the appliance, spent over 7 years in developement, invested close to $500,000 and am just finishing tooling for production...
These two boneheads in one swoop..Schumer and Graham could bankrupt me and destroy my future..
me thinkst I need to write them a letter
Posted by: theblksheepwasright at September 30, 2006 10:45 AM
Mark, I agree. I think that imposing a 27.5% tariff in a single step is overkill, and likely to cause huge problems of it's own, but I'm all for the careful phase-in of tariffs, just like you suggest.
A couple of years ago I attended a trade show where there happened to be good number of manufacturers who were in the process of moving their production to china. I got in a conversation with one of them about it, and told me something that somewhat surprised me.
I had always assumed that China's greatest trade advantage was its cheap labor. But this gentleman said no, that's actually just a small part of it. He said that their manipulation of their currency gives them a much greater advantage than does their cheap labor. By pegging it to the dollar as they do, they practically guarantee that goods will be cheaper in import from china than they will be to produce domestically.
Cheap labor is one thing; a lot of countries have that. But I have heard no one argue that currency manipulation can be a legitimate part of a free market.
Posted by: Nate at September 30, 2006 12:21 PM
Interesting essay. We need this sort of foresight in our policies. It is in our best interest to try to anticipate future problems and minimize them in the present.
Posted by:
Dr. Jeff at September 30, 2006 01:12 PM
China is building auto plants to sell us cars and we are closing auto plants.
What is wrong wth this picture?
Posted by: Ames Tiedeman at September 30, 2006 04:11 PM
You know there has always been this stink when it comes to trading with China for the exact reasons stated. My gets me is all these US firms that do business with them, no questions asked.
Like Mark said, I'm all for free trade, but when those that are making the goods we are offered, it just does not smell right. Kind of makes you wonder why all those people who demonize and make such a ruckus over sweatshops are silent.
Posted by: Finn Grove at September 30, 2006 04:13 PM
blacksheep,
That is why if we are to put tarrifs on China, we have to do it slowly - the economic dislocations of what amounts to a sudden trade embargo (and that is what a 27.5% tarrif really amounts to) would be rather horrrif...you wouldn't be the only businessman adversely affected.
Slowly phase them in while phasing them out on nations more in tune with US interests...that would give you, as a business, time to adjust while working towards correct US policy.
Posted by: Mark Noonan at September 30, 2006 04:21 PM
Boy Did I butcher my last post: Here let me try again, sorry for the clutter :(
You know there has always been this stink when it comes to trading with China for the exact reasons stated. What gets me is all these US firms that do business with them ask no questions.
Like Mark said, I'm all for free trade, but when those that are making the goods we are offered are not free, it just does not smell right.
Kind of makes you wonder why all those people who demonize and make such a ruckus over sweatshops are silent.
Posted by: Finn Grove at September 30, 2006 04:31 PM
Mark, again I actually agree with you...to some degree anyway. First thing, china is not communuist, read about communism, and then you have the right to call governments communist (clearly you currently have no understanding of what communism is).
I wont even comment on "I cannot imagine any set of diplomatic initiatives which could convince China's leadership that they should accept forever a second-class power status vis a vis the United States.", its jsut more self rightous dribble.
No one should be nice to china, china should be 100% isolated from the rest of the world until it becomes democratic. That means no trade with china at all, no talking to china, no allowing chineese airlines to use international airports etc. This in my mind is the only method to deal with dictators.
Everytime you post about china all I see is "cheap labour, cheap labour, cheap labour", do you really think its moral to allow for slave labour (and thats what it is at their wages) if its outside of your own country?
And on the topic of taiwan, please show me one quote where bush clearly told china "you do not own taiwan", just one. From what I've seen bush clearly supports chineese rule over taiwan.
Posted by: kiwi at September 30, 2006 06:17 PM
kiwi,
While always willing to be further instructed, I think I am pretty familiar with communism both in theory and in practice - while you might not like the way it has been practiced in China, it is not for you to arrogantly assert that they are not what they say they are...though, as I've noted, they do become more fascist/nationalist all the time.
That aside, I don't think you fully understood my post - the labor of China, slave or otherwise (and my view is that all one billion people of China are, in effect, slaves of the Chinese government), isn't the issue - the issue is the manner in which the Chinese government unfairly takes advantage of our free markets in order to obtain the hard currency they need to build a military force to go to war with us in the by and by.
As for Taiwan - we still maintain the fiction of Chinese sovereignty over Taiwan, but in practical terms we recognise Taiwan as an indepedent polity, and we are pledged absolutely to its defense against an attack from China.
Posted by: Mark Noonan at September 30, 2006 06:49 PM
Mark,
China is using the funds from its exports to finance the trillions of dollars of debt our government is running up. China could easily destroy our economy without firing a single shot. All they have to do is stop buying U.S. Treasury Bonds.
Posted by: Brian at October 1, 2006 01:22 AM
Brian,
And if our Treasury bonds become worthless, then what is China left with? They dare not do anything which would make US securities lose value.
One should think carefully about things before making comments.
Posted by: Mark Noonan at October 1, 2006 01:49 AM
how does china pegging its currency with the usa work exactly? They continously buying or sell US currency so that it remain at a fixed price? Whats the cons of pegging?
If theres none, I think maybe the US should peg its dollar with the China at a price favourable to the US
Posted by: 4rc at October 1, 2006 01:55 AM
Mark,
It would hurt China far less than going to war with the U.S., as you suggest they will do.
Posted by: Brian at October 1, 2006 02:54 AM
Brian,
Not in the minds of China's leadership - like all corrupt, dictatorial oligarchies, China's leadership has some pretty thick blinders on...they think they can overthrow us without having a protracted war.
Various scenarios can be developed on how China will reach for the predominant position - my personal belief is that they'll stir up trouble for us in one area, and then pounce on Taiwan when we're ill-position to provide aid...that accomplished, it would be more a matter of applying diplomatic and economic pressure on the rest of east Asia to renounce their ties with the US, thus ejecting US power from the area without having to engage the US in all out war. They are somewhat smart in China's leadership - they can see what happens when you too directly attack America.
Thing is, we won't lie down for it - and Japan, Vietnam, India, etc will join with us in order to defeat China's ambitions, if it comes to that.
I see the war as being an inevitible thing because I don't see any move on our part to put China in to proper perspective, and I don't see China's leadership suddenly getting an attack of the smarts. When thinking of the US-China rivalry, the best historical analogy is the rivalry between Great Britain and Imperial Germany...war will come, mostly because the tyrants simply don't understand the free peoples, and thus cannot take in to consideration what will actually happen.
Posted by: Mark Noonan at October 1, 2006 03:08 AM
Mark,
It is possible that the U.S. could go to war with China in the future, but I wouldn’t call it inevitable. China most likely will not be able to challenge the U.S. militarily for many years. Right now their military technology is far behind the U.S. in most areas. There is no way to predict what will happen with China in the future. Thirty years ago, no one would have believed that one day American companies would be investing billions of dollars in mainland China and Chinese and Americans would be able to travel freely between the two countries.
Posted by: Brian at October 1, 2006 04:50 AM
Brian,
Thank Nixon for that. Conservative will never forgive Nixon for opening China, but, that's history.
Remember the amount of Treasury Instruments the Chinese own is not a significant part of our economy, it is however a very significant part of theirs!
Posted by: Bane of Liberals' Existence at October 2, 2006 01:03 PM
China is the biggest consumer of 700 series BMW's and Mercedez. We need to turn aournd and be able to sell American luxery items to these wealthy consumers, not to mention the ever growing middle class. There are websites such as www.pricetranslations.net whose function is to create sites that target the Chinese consumers, it's time to flip the script and earn, by selling to the Chinese. There are as many Chinese Millionares as there are Americans. Keep that in mind as we look to the future.
Posted by:
John Price at November 7, 2006 08:49 AM
Please report any inappropriate comments to abuse (at) blogsforbush (dot) com. Be sure to include the title of the blog entry, the name of the commenter, and the text of the offending comment.
Post a comment
In June of 1999 I came up with an idea for a new appliance. I first approached US firms, then Mexican, then Taiwanese... in the first two instances neither manufacturerd in the USA or in Mexico... in the later they manufacturerd in China.
So I went to China myself...
I've flown 250,000 miles, met with experts in the field of the appliance, spent over 7 years in developement, invested close to $500,000 and am just finishing tooling for production...
These two boneheads in one swoop..Schumer and Graham could bankrupt me and destroy my future..
me thinkst I need to write them a letter
Mark, I agree. I think that imposing a 27.5% tariff in a single step is overkill, and likely to cause huge problems of it's own, but I'm all for the careful phase-in of tariffs, just like you suggest.
A couple of years ago I attended a trade show where there happened to be good number of manufacturers who were in the process of moving their production to china. I got in a conversation with one of them about it, and told me something that somewhat surprised me.
I had always assumed that China's greatest trade advantage was its cheap labor. But this gentleman said no, that's actually just a small part of it. He said that their manipulation of their currency gives them a much greater advantage than does their cheap labor. By pegging it to the dollar as they do, they practically guarantee that goods will be cheaper in import from china than they will be to produce domestically.
Cheap labor is one thing; a lot of countries have that. But I have heard no one argue that currency manipulation can be a legitimate part of a free market.
Interesting essay. We need this sort of foresight in our policies. It is in our best interest to try to anticipate future problems and minimize them in the present.
China is building auto plants to sell us cars and we are closing auto plants.
What is wrong wth this picture?
You know there has always been this stink when it comes to trading with China for the exact reasons stated. My gets me is all these US firms that do business with them, no questions asked.
Like Mark said, I'm all for free trade, but when those that are making the goods we are offered, it just does not smell right. Kind of makes you wonder why all those people who demonize and make such a ruckus over sweatshops are silent.
blacksheep,
That is why if we are to put tarrifs on China, we have to do it slowly - the economic dislocations of what amounts to a sudden trade embargo (and that is what a 27.5% tarrif really amounts to) would be rather horrrif...you wouldn't be the only businessman adversely affected.
Slowly phase them in while phasing them out on nations more in tune with US interests...that would give you, as a business, time to adjust while working towards correct US policy.
Boy Did I butcher my last post: Here let me try again, sorry for the clutter :(
You know there has always been this stink when it comes to trading with China for the exact reasons stated. What gets me is all these US firms that do business with them ask no questions.
Like Mark said, I'm all for free trade, but when those that are making the goods we are offered are not free, it just does not smell right.
Kind of makes you wonder why all those people who demonize and make such a ruckus over sweatshops are silent.
Mark, again I actually agree with you...to some degree anyway. First thing, china is not communuist, read about communism, and then you have the right to call governments communist (clearly you currently have no understanding of what communism is).
I wont even comment on "I cannot imagine any set of diplomatic initiatives which could convince China's leadership that they should accept forever a second-class power status vis a vis the United States.", its jsut more self rightous dribble.
No one should be nice to china, china should be 100% isolated from the rest of the world until it becomes democratic. That means no trade with china at all, no talking to china, no allowing chineese airlines to use international airports etc. This in my mind is the only method to deal with dictators.
Everytime you post about china all I see is "cheap labour, cheap labour, cheap labour", do you really think its moral to allow for slave labour (and thats what it is at their wages) if its outside of your own country?
And on the topic of taiwan, please show me one quote where bush clearly told china "you do not own taiwan", just one. From what I've seen bush clearly supports chineese rule over taiwan.
kiwi,
While always willing to be further instructed, I think I am pretty familiar with communism both in theory and in practice - while you might not like the way it has been practiced in China, it is not for you to arrogantly assert that they are not what they say they are...though, as I've noted, they do become more fascist/nationalist all the time.
That aside, I don't think you fully understood my post - the labor of China, slave or otherwise (and my view is that all one billion people of China are, in effect, slaves of the Chinese government), isn't the issue - the issue is the manner in which the Chinese government unfairly takes advantage of our free markets in order to obtain the hard currency they need to build a military force to go to war with us in the by and by.
As for Taiwan - we still maintain the fiction of Chinese sovereignty over Taiwan, but in practical terms we recognise Taiwan as an indepedent polity, and we are pledged absolutely to its defense against an attack from China.
Mark,
China is using the funds from its exports to finance the trillions of dollars of debt our government is running up. China could easily destroy our economy without firing a single shot. All they have to do is stop buying U.S. Treasury Bonds.
Brian,
And if our Treasury bonds become worthless, then what is China left with? They dare not do anything which would make US securities lose value.
One should think carefully about things before making comments.
how does china pegging its currency with the usa work exactly? They continously buying or sell US currency so that it remain at a fixed price? Whats the cons of pegging?
If theres none, I think maybe the US should peg its dollar with the China at a price favourable to the US
Mark,
It would hurt China far less than going to war with the U.S., as you suggest they will do.
Brian,
Not in the minds of China's leadership - like all corrupt, dictatorial oligarchies, China's leadership has some pretty thick blinders on...they think they can overthrow us without having a protracted war.
Various scenarios can be developed on how China will reach for the predominant position - my personal belief is that they'll stir up trouble for us in one area, and then pounce on Taiwan when we're ill-position to provide aid...that accomplished, it would be more a matter of applying diplomatic and economic pressure on the rest of east Asia to renounce their ties with the US, thus ejecting US power from the area without having to engage the US in all out war. They are somewhat smart in China's leadership - they can see what happens when you too directly attack America.
Thing is, we won't lie down for it - and Japan, Vietnam, India, etc will join with us in order to defeat China's ambitions, if it comes to that.
I see the war as being an inevitible thing because I don't see any move on our part to put China in to proper perspective, and I don't see China's leadership suddenly getting an attack of the smarts. When thinking of the US-China rivalry, the best historical analogy is the rivalry between Great Britain and Imperial Germany...war will come, mostly because the tyrants simply don't understand the free peoples, and thus cannot take in to consideration what will actually happen.
Mark,
It is possible that the U.S. could go to war with China in the future, but I wouldn’t call it inevitable. China most likely will not be able to challenge the U.S. militarily for many years. Right now their military technology is far behind the U.S. in most areas. There is no way to predict what will happen with China in the future. Thirty years ago, no one would have believed that one day American companies would be investing billions of dollars in mainland China and Chinese and Americans would be able to travel freely between the two countries.
Brian,
Thank Nixon for that. Conservative will never forgive Nixon for opening China, but, that's history.
Remember the amount of Treasury Instruments the Chinese own is not a significant part of our economy, it is however a very significant part of theirs!
China is the biggest consumer of 700 series BMW's and Mercedez. We need to turn aournd and be able to sell American luxery items to these wealthy consumers, not to mention the ever growing middle class. There are websites such as www.pricetranslations.net whose function is to create sites that target the Chinese consumers, it's time to flip the script and earn, by selling to the Chinese. There are as many Chinese Millionares as there are Americans. Keep that in mind as we look to the future.