The most important point is that the US China Trade War is expanding and has now become a universal trade war. - Bill Perry, US/China Trade War  

I’ve been reading Thucydides’ The History of the Peloponnesian War (431 B.C.E.) and researching the U.S./China debate topic. Thucydides mentions trade issues between Greek city-states, along with escalating passions following political and military disputes.

Graham Allison’s article “The Thucydides Trap: Are the U.S. and China Headed for War?”  (The Atlantic, September 24, 2015) features an ominous subtitle: “In 12 of 16 past cases in which a rising power has confronted a ruling power, the result has been bloodshed.” Allison argues:

The defining question about global order for this generation is whether China and the United States can escape Thucydides’s Trap. The Greek historian’s metaphor reminds us of the attendant dangers when a rising power rivals a ruling power—as Athens challenged Sparta in ancient Greece, or as Germany did Britain a century ago. Most such contests have ended badly, often for both nations, a team of mine at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged.

In “Thucydides’s trap has been sprung in the Pacific” (Financial Times, August 21, 2012), Graham Allison made a similar claim:

The defining question about global order in the decades ahead will be: can China and the US escape Thucydides’s trap? The historian’s metaphor reminds us of the dangers two parties face when a rising power rivals a ruling power – as Athens did in 5th century BC and Germany did at the end of the 19th century. Most such challenges have ended in war. Peaceful cases required huge adjustments in the attitudes and actions of the governments and the societies of both countries involved.

Classical Athens was the centre of civilisation. Philosophy, history, drama, architecture, democracy – all beyond anything previously imagined. This dramatic rise shocked Sparta, the established land power on the Peloponnese. Fear compelled its leaders to respond. Threat and counter-threat produced competition, then confrontation and finally conflict. At the end of 30 years of war, both states had been destroyed.

In “Superpower and Upstart: Sometimes It Ends Well,” (New York Times, January 22, 2011), David Sanger compares the U.K. to U.S. global power transition (peaceful) to the predicted U.S./ China power transition in the Pacific:

Just ask the British, who a century ago were struggling to come to terms with the erosion of their status as the world’s No. 1 empire. It didn’t help that they were being upstaged by a former colony that had turned into an upstart sea-power… 

Or ask Thucydides… “What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta.”…

Both Mr. Hu and President Obama seemed desperate to avoid what Graham Allison of Harvard University has labeled “the Thucydides Trap” – that deadly combination of calculation and emotion that, over the years, can turn healthy rivalry into antagonism or worse. 

After discussing events surrounding Chinese President Hu Jintao’s meetings during a 2011 visit to the U.S., Sanger concludes:

Meanwhile, Thucydides might be appalled at the nationalistic talk that resounds in both countries. In Chinese newspapers these days, it’s hard to avoid accounts of “American decline.” Meanwhile, some new members of Congress talk lightly of cutting off Chinese access to the American market — as if that could happen in today’s global economy.

In both languages, that’s fear talking.

Mostly open markets, trade, and international investment explains why America’s rise to global economic power in the 19th Century helped rather than endangered UK and European companies, investors, or consumers. British and other European firms and investors earned profits from supplying capital for expanding U.S. railroads, manufacturing, nature resource extraction, and agriculture (for example, see this history of Balfour-Guthrie:  “A British Firm on the American West Coast, 1869-1914* The Business History Review, Vol. 37, No. 4 (Winter, 1963), pp. 392-415)

Through the primaries and Presidential campaign, anti-China claims and threats seem everywhere. Yet the reality, as previous posts have noted, shows U.S. manufacturing is robust, with output expanding 40% over the last 20 years, the period of the North American Free Trade Agreement (NAFTA) and China joining the World Trade Organization (WTO). (See also: Globalization isn’t killing factory jobs. Trade is actually why manufacturing is up 40%)

Automation is the major reason the number of U.S. manufacturing jobs dropped over this period. And far from challenging the U.S., manufacturers and workers in China have been integrated into complex and cost-effective supply-chain networks, benefiting U.S., other Asian, and European manufacturers as well as consumers.

Still, not everyone benefits from rising global trade and investment. Some labor unions and domestic firms and industries have declined, and blame China. With the slow recovery since the 2008-2009 “great recession” some manufacturers and trade associations have pushed their governments for domestic subsidies and restrictions on imports.

For an overview of recent trade U.S./China trade disputes see Bill Perry’s “UNIVERSAL TRADE WAR, TPP IN LAME DUCK, SPOTTING POTENTIAL AD CASES, CUSTOMS, FALSE CLAIMS ACT, VITAMIN C ANTITRUST, IP AND 337″ (US/China Trade War, October 7, 2016), which spells out the downward spiral:

The most important point is that the US China Trade War is expanding and has now become a universal trade war. Although the US continues to bring numerous antidumping (AD) and countervailing duty (CVD) cases against China, the Chinese government is now bringing and will bring numerous AD and CVD cases against the US.

In the recent Chinese antidumping case against Distiller Grains from the US, the Chinese government has levied a 33% rate against $1.6 billion in US exports to China. There are rumors that the Chinese government may soon bring AD and CVD cases targeting $15 billion in US exports of soybeans to China.

Meanwhile numerous countries have adopted their own AD and CVD laws modeled on the US and EU and are bringing cases not only against China, but also against the US.

The only recent trade developments that would break the retaliation cycle are the Trans Pacific Partnership (TPP) and the TTIP deal with Europe and both trade agreements are in serious trouble.

Debaters should be familiar with arguments for increasing as well as reducing trade restrictions with China. Economist Don Boudreaux explains the case for more open trade in this April 20 2015 Mercatus Center post “The Benefits of Free Trade: Addressing Key Myths.”

Economist Peter Navarro (an advisor to Donald Trump), advocates increased trade barriers with China. See “Trump Economic Advisers Denounce Trade Deals in Theory, Practice,” (Bloomberg, August 3, 2016).

Mike Rowe of Dirty Jobs fame, advises people to read, think, reflect, and debate, before they vote. Rowe writes:

“Spend a few hours every week studying American history, human nature, and economic theory. Start with “Economics in One Lesson.” Then try Keynes. Then Hayek. Then Marx. Then Hegel. Develop a worldview that you can articulate as well as defend. Test your theory with people who disagree with you. Debate. Argue. Adjust your philosophy as necessary. Then, when the next election comes around, cast a vote for the candidate whose worldview seems most in line with your own.”

screen-shot-2016-10-11-at-12-07-27-pmHenry Hazlitt’s Economics in One Lesson, long popular in high school debate classes, is online here from the Foundation for Economic Education.

(And classroom sets of a small new paperback (50 for $70) are here.)

David Beers explains the value of Economics in One Lesson for debaters and extempers in this article, noting:

Henry Hazlitt, probably this century’s greatest journalistic expositor of the economic way of thinking wrote: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

He went on to say that nine-tenths of the economic fallacies that work harm in the world today are the result of ignoring this lesson. While Hazlitt’s Lesson is not exactly a separate economic principle, it is a form of mental discipline that must be exercised when constructing or analyzing policy…. protective tariffs and quotas harm American consumers and workers… In each case the counter-intuitive result is found by consistent application of Hazlitt’s Lesson: look not just to the immediate effects on one group, but the long run effects on all groups.

So, lots for debaters to ponder.  — Greg Rehmke, Debate Central

Chinese firms marketing goods and services in the United States focus on customers and the cities they live in, rather than Congress, the President, or the Department of Commerce.

Both Americans and foreign businesses benefit from known and predictable legal institutions protecting property rights and contracts. Both the Chinese and U.S. central governments disrupt and distort trade relations between U.S. and Chinese firms and consumers.

U.S. firms investing in and marketing goods and services in China work with provincial and cities leaders and with local businesses. If local government officials have a reputation for corruption or incompetence, international businesses invest instead in other regions with better governance.

Similarly, economic growth is strongest in those U.S. cities and states with less corrupt and heavy-handed government.

Though many politicians and pundits blame China for America’s slow recovery since the 2008-2009 “Great Recession,” Texas and other states with lower taxes and lighter regulation have flourished. It is the high-tax states where the recovery has been unusually slow.

Texas, Florida, and other states across the south have seen steady economic growth, seemingly unhampered by imports from China. (This April 29, 2015 Brookings Institution article and paper looks at recent research on the influence of tax policy and state-level economic growth.)

In “The Texas Miracle Isn’t All About Oil” (The Federalist, June 9, 2016), Vance Ginn writes:

Since the last national recession started in December 2007, Texas has created 36 percent of all civilian jobs added nationwide in a state with less than 10 percent of the country’s population. 

Just as Dallas/Ft. Worth, Houston, Austin, and San Antonio lead the robust Texas economy (see “Fastest growing U.S. cities: Texas is king“), so in China it is dynamic major cities, not the central government, that are engaging the world economy.

In “China’s Key Cities: From Local Places to Global Players”  (December 1, 2015),  Xiangming Chen notes Shanghai (population estimate: 24 million!) is “the country’s financial and trade centre, largest port… and gateway to China’s huge domestic market.” Xiangming continues:

Besides Shanghai, a variety of other cities have become more important for China, and the world economy, for that matter. A number of these cities are well known for their significant historic and contemporary economic and cultural roles such as Guangzhou and Xi’an. Other cities have risen from unknown origins to prominent economic centres like Shenzhen.

In “Globalization Goes National,” (BloombergView, September 15, 2016) economist Tyler Cowen writes:

The Chinese economy has had a tendency to cluster around megacities, such as the Beijing-Tianjen-Hebei, Shanghai-Nanjing, or Guangzhou/Shenzhen/Hong Kong clusters. In the past, a Chinese port might have had better trade connections to Korea or California than to many parts of the Chinese interior. But these days the story in China is the rise and extension of national brands. The internet is bringing the whole country’s economy together through Alibaba, WeChat, and other services that ease the online purchase, shipping, and advertising of goods at the national level.

Cowen argues that as Chinese brands improve, Chinese consumers purchase more locally and this may register as a decrease in globalization:

The more economically integrated China becomes, the more it may retreat from some kinds of global trade. If a Chinese customer can buy a smartphone or pharmaceutical from the domestic market, she may stop looking for foreign imports. That will register statistically as a decline in globalization, but actually it is an increase in efficient economic integration. Some parts of the Chinese economy were prematurely hyper-globalized at the same time domestic economic integration lagged, and now that state of affairs is being remedied.

As people in China continue to prosper, demand for name-brand U.S. goods and services will also continue to grow. Americans might not think of McDonald’s or Pizza Hut as high-end dining, for hundreds of millions of Chinese just joining middle income levels, these American restaurants will long be popular.

“Mapping China’s middle class” (McKinsey Quarterly – June 2013) predicts:

By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000 to 229,000 renminbi ($9,000 to $34,000) a year.

In purchasing-power-parity terms, that range is between the average income of Brazil and Italy. Just 4 percent of urban Chinese households were within it in 2000—but 68 percent were in 2012.

China’s middle class is already bigger than the U.S. middle class (“China has a bigger middle class than America,” (CNN Money, October 14, 2015)

Still, China has a long way to go, and is still both a developed and developing economy. “Here’s What China’s Middle Classes Really Earn — and Spend,” (Bloomberg, March 9, 2016), reports:

China’s average annual wage was 56,360 yuan ($8,655) in 2014, and Goldman Sachs estimates that 387 million rural workers — half the working population — earn about $2,000 a year.

The average Chinese consumer spends $7 a day, according to Goldman Sachs. Food and clothing make up nearly half of all personal spending, with 9.2 percent allocated to recreational activities like travel, dining out, sports and video games. The average American spends $97 a day, 17.3 percent of it on recreation.

Though U.S. politicians often blame Chinese firms for U.S. job losses and income stagnation, and paint China as an opponent of the U.S., Chinese consumers with fast-growing disposable income mean surging sales of international goods and services.

New trade barriers on Chinese goods would not only disrupt global supply chains key to U.S. manufacturing, but would also disrupt demand of U.S. goods and services in China.

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