The department will spend $154 billion in 2016, or $1,230 for every U.S. household. After adjusting for inflation, spending has increased 45 percent since 2000. The department operates about 268 subsidy programs and employs 90,100 workers in about 7,000 offices across the country.
These agricultural subsidies distort trade, which adversely affects poor farmers and environmental protection in developing countries. Subsidies also impose a fiscal burden on taxpayers. Conversely, reducing agricultural subsidies in the United States (and other developed countries) could help poor farmers in developing countries compete in the marketplace, reduce ecosystem degradation and help reduce federal spending
…the United States has been a major player in the global rice trade since the 1970s. The country may only produce around 2 percent of global output, but it is consistently among the top five exporters in the world. Arkansas rice is eaten around the world — from Japan to Mexico to Turkey — and roughly half of the rice grown in the state is sold in foreign markets.
The U.S. reached an agreement that would enable rice exports to China, according to a trade group, a development that would give U.S. rice farmers their first foothold in the world’s largest market for the grain.
USA Rice, which represents growers, millers and exporters, said late Friday that officials from the U.S. Department of Agriculture had informed it that Washington and Beijing agreed on a protocol to allow U.S. producers legal access to China, which has long barred American rice.
The article reports US rice production estimates for 2015-16 at 6.1 million tons, with over half, 3.1 billion tons, for export.
But federal rice subsidies distort rice production, encouraging marginal producers and artificially boosting rice supplies for export, foreign rice producers complain and lobby to restrict rice shipments from the US. Foreign governments also subsidize and protect domestic rice farmers, so trade negotiations often turn on “level of subsidy” claims.
“US files trade complaint over China’s ‘excessive’ ag subsidies“(CNBC, September 13, 2016) reports Obama Administration formal complaints to the World Trade Organization:
“China’s excessive market price support for rice, wheat, and corn inflates Chinese prices above market levels, creating artificial government incentives for Chinese farmers to increase production,” U.S. Trade Representative Michael Froman said in a release.
Froman noted that China exceeded its allowable subsidy limits on corn, rice, and wheat by $100 billion in 2015 alone. America’s rice, wheat, and corn industries typically average $20 billion per year in export activity, according to government figures.
The Congressional Budget Office estimates that under the previous farm bills, the U.S. government provided an average of $1.53 billion in annual support for rice between 2000 and 2004. Under the Agricultural Act of 2014, CBO projects the annual outlay for rice from 2014 to 2018 will average around $231 million.
Thailand’s government spent far more:
Thailand’s rice paddy pledging program is a textbook case of how not to run a farm subsidy program. What started as an effort to win farmer support during parliamentary elections in 2010-11 became an economic disaster that cost the government of Thailand $27.7 billion before it ended in 2014.
The Economist‘s leader, “Hare-grained,” (November 14, 2015), outlines the mess that Japan, South Korea, China, and other Asian countries have made of the international rice trade:
Tariffs, quotas, floor prices, ceiling prices, producer subsidies, consumer subsidies, state monopolies—no measure is too meddlesome (see article). As a result, the market for rice is more distorted than that for any other staple. Rice growers pocketed at least $60 billion in subsidies last year, according to the OECD, twice as much as maize (corn) farmers, the second-most-coddled lot.
The full article, “Paddy-whacked,” explains the problem in its subtitle: “By meddling in the market for rice, Asian governments make their own citizens poorer.“
Rice policy matters a lot for Asia’s 4.4 billion people, about 60% of the world’s population, as Asians consume 90% of the world’s rice,
Asia consumes 90% of the world’s rice. It is used to make flour, noodles and puddings. Babies and the elderly survive on rice gruel. Steaming rice porridge is eaten for breakfast in skyscraping hotels in Hong Kong and rustic village kitchens in Hunan.
The U.S. government supports domestic rice production through tariffs on imported rice and direct taxpayer subsidies based on production, prices, and historical acreage. Those programs make rice one of the most heavily supported commodities in the United States, with ramifications for U.S. taxpayers and consumers and rice producers abroad.
Back in 2006, Dan Griswold’s Cato Institute Trade Policy Briefing looked at “Grain Drain: The Hidden Cost of U.S. Rice Subsidies.” Here is part of the paper’s Executive Summary:
Americans pay for the rice program three times over—as taxpayers, as consumers, and as workers. Direct taxpayer subsidies to the rice sector have averaged $1 billion a year since 1998 and are projected to average $700 million a year through 2015. Tariffs on imported rice drive up prices for consumers, and the rice program imposes a drag on the U.S. economy generally through a misallocation of resources. Rice payments tend to be concentrated among a small number of large producers.
Globally, U.S. policy drives down prices for rice by 4 to 6 percent. Those lower prices, in turn, perpetuate poverty and hardship for millions of rice farmers in developing countries, undermining our broader interests and our standing in the world. The U S. program also leaves the United States vulnerable to challenges in the World Trade Organization.
For our own national interest, the U.S. Congress and the president should work together to adopt a more market-oriented rice program in the upcoming 2007 farm bill, including repeal of tariffs and a rapid phaseout of subsidies.
Federal government rice subsidies have changed since 2006, but still involve significant taxpayer subsidies and price distortions internationally. The U.S. could be a leader in reforming damaging rice policies in China and across Asia.
Mercantilist policies still dominate across many industries, from steel to agriculture. Rice is no exception. Governments want to be self-sufficient in rice and where possible promote exports. Subsidies to domestic rice growers cost each country’s taxpayers millions, and tariffs on imported rice (and other grains) cost each country’s consumers millions more.
Public Choice theory explains how concentrated special interests (like rice growers, millers, and exporters) gain political leverage to enact legislation that benefits them while raising costs for consumers and taxpayers (benefits of rice subsidies are concentrated and larger per rice producers and lobbyist, while total costs, though higher, are spread out across tens of millions of consumers and taxpayers).
The same mercantilist thinking and public choice pressures distort rice production and trade in the U.S.. This July 12, 2015 Wall Street Journal article, “Should Washington End Agriculture Subsidies?” offers a debate on current agricultural policies, after 2014 reforms. Vincent Smith, arguing against farm subsidies, notes:
First, many people seem to believe that farmers, like the Joad family in John Steinbeck’s “The Grapes of Wrath,” are poor, when in fact the average farm household enjoys an income that is about 15% higher than that of the average nonfarm family. What’s more, the 10% to 15% of farm families that receive more than 85% of all farm subsidies—amounting to millions of dollars a year in a few cases—have annual household incomes many times as large as those of the average U.S. taxpayer. Some estimates suggest that the farmers who receive the bulk of all subsidies—many of whom mainly raise corn, cotton, rice, peanuts, soybeans and wheat—are worth somewhere between $6 million and $10 million on average.
Rice is one of the big grain crops still subsidized, and because rice is the major food of Asia, students could argue that it should be the first to be pulled out of the world of subsidies and left to market competition and international trade.
This May 15, 2015 Bloomberg View article, “Rice Gets a Bath Amid California’s Drought,” looks in depth at subsidized rice production in California: “much of it destined for sushi … shipped to customers, about half of them outside the U.S.”:
As you read this, farmers in the Sacramento Valley are flooding hundreds of thousands of laser-leveled acres under five inches of water as they prepare to plant the annual rice crop. After that comes my favorite part. From the California Rice Commission’s “How Rice Grows” tutorial:
Rice seed is then soaked and loaded into planes. Flying at 100 mph, planes plant the fields from the air. The heavy seeds sink into the furrows and begin to grow.
They will keep growing throughout the hot valley summer (temperatures regularly top 100 degrees Fahrenheit), in the midst of a historic drought. Harvest comes in September, after which the rice — mostly medium-grain, much of it destined for sushi — will be milled and then shipped to customers, about half of them outside the U.S.
The Los Angeles Times article, June 11, 2015, “California rice farmers find Japanese trade negotiators a bit starchy,” looks at other foolish rice policies, beginning with Japanese rice protectionism:
For years Charley Mathews Jr. has exported tons of his best Sacramento Valley-grown rice to Japan, but it grates on him that very little of that has ever ended up on the tables of sushi restaurants or Japanese households.
Instead, the Japanese government, which controls rice imports under a 2-decade-old quota system, has given away most of his and other foreign rice as food aid or sold it domestically as animal feed and an ingredient for rice crackers.
Again, however, U.S. rice farmers benefit from a range of water and price subsidies. Bloomberg View’s “Save California Farmers From Themselves,” April 27, 2015, looks at the water subsidy values for California rice farmers:
In a 2004 study, the Environmental Working Group estimated that the total subsidies for the Central Valley Project added up to roughly $600 million a year. While farmers dispute that figure, they don’t deny they have a very special deal. Why else would they fight efforts to make the pricing of water more market-based and defend their “rights” to it?
This competitive advantage has been worth tens of billions of dollars. All over the West, farmers served by federal projects have benefited from 50-year zero-interest loans, with generous repayment rates, plus low-cost power. And about 45 percent of the farmers who receive irrigation subsidies are growing commodity crops (such as rice and cotton) that qualify for price supports from the U.S. Department of Agriculture — a classic example of double dipping.
This giant international rice farming mess seems endlessly complicated. But at the least the U.S. could be a leader in saving hundreds of millions of taxpayer dollars by ending the rice subsidies that also encourage rice protectionism in Japan, South Korea, and other Asian countries.
U.S. federal government policies with the People’s Republic of China (PRC) involve trade and investment plus travel for tourism, education, and employment, plus migration. People and firms in the U.S. make agreements (contracts) with people and firms in China to import or export goods and services, and to invest in companies that produce goods and services. Governments make rules and regulations limiting these investment and trade agreements between Chinese and U.S. people and firms.
Trade agreements generally restrict as well as promote trade and investment in various ways, and are influenced by lobbyists trying to protect the interests and advance the agendas of various business, union, and environmental groups.
Current and proposed trade and investment agreements tend to be complex and confusing and the interests of both China and the U.S. could be advanced by simplifying or abolishing some.
Trade agreements like the Trans-Pacific Partnership (TPP) are shaped by interest groups advocating various social, labor, and environmental agendas. The TPP excludes China as a way to promote these social, labor, and environmental policies in China.
NSDA debaters have U.S./China policy reform as their 2016-2017 resolutions:
Resolved: The United States federal government should substantially increase its economic and/or diplomatic engagement with the People’s Republic of China. (NSDA website link)
NCFCA debaters has a similar topic for the 2016-2017 school year:
Resolved: The United States Federal Government should substantially reform its policies toward the People’s Republic of China.
And posts here started a year ago for the similar Stoa Asia Trade resolution:
Resolved: The United States federal government should substantially reform its trade policy with one or more of the following nations: China, Japan, South Korea, Taiwan.
Early posts on the Asia Trade topic emphasized that these listed economies, along with the U.S., have become tightly integrated over the last two decades. For example Foxconn, a Taiwanese firm that assembles Apple and other gadgets, is China’s largest private employer. South Korean and Japanese firms have vast investments and manufacturing operations in China. General Motors sells more cars in China than in the U.S. And in March, McDonald’s announced:
… that in the next five years it plans to add about 1,500 restaurants in China, Hong Kong, and South Korea—up from its current count of 2,800—including more than 1,000 in China alone.
For an overview of major U.S./China policy debates, I recommend three articles (and recommend earlier posts).
On the the economic benefits of trade: Douglas Irwin, “The Truth About Trade
What Critics Get Wrong About the Global Economy” in the July/August, 2016 issue of Foreign Affairs. Valuable analysis and recent history that answers most concerns and claims in the next two articles that are critical of today’s mostly open trade policy with China and other Asian countries.
This November, 2015 post in The Conversation argues: “The Trans-Pacific Partnership poses a grave threat to sustainable development.” The key here is that critics of the TPP trade agreement want it to include “enforcement mechanisms” to advance U.S. policy preferences for gender, labor, environmental, and climate issues.
The labor-backed Employment Policies Institute says trade with China has caused extensive job losses and wage stagnation in the U.S.: “Hearing on U.S.–China Economic Challenges: The impact of U.S.–China trade” (February 21, 2014).
These three articles should give debaters a sense of the claims and clashes with U.S./China policy reform proposals.
(Revised September 4, 2016)
Additional notes and links to recent posts:
Pdf with more recent China posts: ET Report-JanuaryChina2017
• China and Cuba Trade, Labor, and Migration
What issues should be on the table when negotiators from two governments hammer out what trade rules are relevant and reasonable? … A couple things connect the China policy topic and the Cuba Public Forum topic. First, the refugee policy that allowed those smuggled from China to be legal citizens of (then British) Hong Kong as soon as they touched land. … U.S. policy was similar and allowed those escaping communist Cuba, once they made it to U.S. territorial waters, to stay legally…revise in 1995 to a “wet foot/dry foot” policy. Then Obama Admin. shifted policy again, as part of normalizing relations with Cuba
• US/China Engaging in Nationalist Policies
Apart for the money governments spend directing research and development to area they deem strategic (ballpoint pens?), such subsidies and policies stoke nationalist responses in Japan, the U.S. and Europe…
• Bootleggers and Baptists Agree to Restrict Trade with China
When the President and Congress consider trade legislation, a wide range of interest groups gather to advance their agendas. These agendas are not always obvious, and sometimes corporate and union interests misdirect the public about their motivations.
• For Still-Poor China, Coal Pollution from Home Heating
The Chinese government energy policy goals are to reduce air pollution around Chinese cities, and to reduce CO2 emissions in order to address climate change. These goals overlap, but are not the same. Wind farms and solar installations don’t emit air pollution, but neither does less-expensive natural gas combined-cycle power, which can be located closer to cities and customers. New coal power plants emit less air pollution, especially compared to the dense pollution from antiquated coal-fired power and home coal burning.
• US/China Farm Wars
In “United States Challenges Excessive Chinese Support for Rice, Wheat, and Corn” (September, 2016), the Office of US Trade Representative announced new action against China. … The U.S. government also subsidizes US farmers growing and exporting rice, wheat, and corn. Comparing government between countries is complex. … reducing and reforming farm subsidies would help rationalize commodity farm production in US and China, reduce environmental harms, and reduce financial burdens to taxpayers in both countries.
There is no more important bilateral relationship than that between the United States and China. Yet the Congressional Research Service warns that ties have “become increasingly complex and often fraught with tension.” Relations appear likely to become even more fractious with the election of Donald Trump as president. Every four years the People’s Republic of China (PRC) becomes a presidential election issue, but Americans deserve [more on] U.S.-China political and economic relations than candidates’ sound-bytes.
• China’s Sustainable Agriculture: “the biggest threat to humanity?”
“How Antibiotic-Tainted Seafood From China Ends Up on Your Table,” (Bloomberg Businessweek, December 15, 2016), describes the traditional “sustainable” Chinese use of animal waste to feed fish. Since the beginning of agriculture, animal waste has fertilized crops (it’s the organic way!). But the addition of antibiotics to boost animal size and disease resistance shifts the microbe ecosystem in animal waste. Some microbes gain resistance to antibiotics, and are then flushed into Chinese fish ponds, adding antibiotic resistance to microbes in fish later shipped (or transshipped) to the U.S.. (read more)
“Foot Soldiers of China’s Shopping Boom” (New York Times, Wednesday, Feb. 1, 2017, p B1, online as For Couriers, China’s E-Commerce Boom Can Be a Tough Road, Jan. 31), looks at the low wages and long hours for Chinese delivering packages:
But for the couriers — who are largely unskilled workers from China’s interior — the work can be low-paying and difficult. It is coming under scrutiny from labor activists and legal experts who say many couriers face punishing hours and harsh working conditions.
Nearly one-quarter of them work more than 12 hours a day, seven days a week… A majority work more than eight hours a day each day of the week.
Migrants from rural China also work long hours at low wages at factories making goods for export to the United States. Should U.S. trade agreements include minimum wages and maximum hours for workers in China, Mexico, or Cuba?
A challenge for international trade agreements is scope. What issues should be on the table when negotiators from two governments hammer out what trade rules are relevant and reasonable?
The long delayed and now defunct Trans-Pacific Partnership (TPP) was criticized by some for including labor and environmental regulations, not just trade rules. The TPP was criticized by labor unions and environmental organizations for not having strict enough labor and environmental regulations.
In Mexico, China, and Cuba, labor rates are far lower than in the United States. And not just labor rates, but rules about how many hours a day or a week employees can work, and what benefits employers are required to pay.
NSDA debaters have a US/China engagement topic, and the February Public Forum topic is:
Resolved: The United States should lift its embargo against Cuba.
The last days of the Obama Administration ended the long-standing wet-foot/dry-foot policy for Cubans (see below), and the Trump Administration wants to build a bigger wall along the Mexican border, renegotiate trade agreements between the US and Mexico (NAFTA), and also with China. The stated goal is to restore jobs lost as companies automated and shifted manufacturing operations to Mexico and China.
Lifting the trade embargo with Cuba would open doors to similar job displacements as US firms open new factories and upgrade agriculture in Cuba. Cubans are very poor after a half-century of communist rule, so Cuban demand for goods produced in the US will be minimal.
China and Mexico posed similar trade and investment costs and benefits. US consumers buy lower-cost imported goods but US workers fear manufacturing work shifting south of the border or overseas to China. Factories closing in the US are easy to spot and report on the evening news. Families are hurt when jobs disappear. Harder to see and report are the widespread gains from less expensive clothes, furniture, appliances, and cars lower and middle income Americans can purchase. The gains are disbursed and rarely appear on the evening news or morning New York Times.
Cheap goods were imported from Japan, Taiwan, Hong Kong, and South Korea in the 1960s and 1970s, made by very poor people working long hours for low wages. But these jobs allowed tens of millions to escape poverty to relative prosperity. The same prosperity gains are in process now in Mexico and China, though not yet in Cuba.
Johan Norberg‘s 2003 documentary looks at the dynamics of international trade in Taiwan, Vietnam, and Kenya. This first segment shows some of the history of Taiwan where:
…just thirty years ago people…were poorer than many Africans today. Malnutrition was widespread and there were no natural resources. Today its people are as rich as the Spanish.
The New York Times article cited above quotes a courier from rural China about his job and long hours:
“I’m here to make money,” said Mr. Zhang, a 28-year-old former coal miner from Shanxi Province who is saving money to build a home, widely seen in the countryside as indispensable in attracting a wife. “If I’m not diligent now, I’m going to regret it. I’m almost 30 and still single.”
How do we compare Mr. Zhang’s long hours delivering packages in a city to the life he had mining coal in rural China? “The World’s Deadliest Profession: Coal Miners Pay for China’s Economic Miracle” (TheWorldPost, March 4, 2012) offers a glimpse of rural China:
“… Everywhere in rural China poor people, who can no longer sustain themselves as farmers, rush to coal mines, where wages are about equal (7 to 12 dollars a day) to what they would be paid in factories in the big cities. But in the cities, workers have a rough life and get cut off from their families and homes, so they prefer to stay in their village and work in the mines. Sometimes three generations in one family have worked the same mine.”
The Economist reports some progress in “Shaft of Light: The coal that fuels China’s boom is becoming less deadly to extract” (July 18, 2015), but work as a city courier, even with long hours, is likely preferred to rural coal mining by many young people.
The New York Times article further takes the opportunity to compare China’s low-paid couriers to growing “gig-economy” jobs in the U.S.:
Labor standards in the industry vary widely, but many couriers work under arrangements that might, for example, provide no overtime pay or no employer contributions to their government health care and pension benefits. Just as in the United States, where Uber drivers and many others work as contractors, those arrangements raise questions about what defines work and employment.
If future legislation or trade agreements allow government in China or the US mandate higher wages, benefits, or shorter work days, they will raise costs and lower demand for these jobs and services.
We can wish for higher wages and more benefits for Uber and package-delivery drivers in the U.S. as well as in China. But mandating higher wages and benefits doesn’t automatically raise worker productivity.
Across China some 50% of the working population still live in rural areas with average annual incomes of just $2,000. Migrant laborers in Chinese factories earn similar incomes on average to couriers, about $6,000 a year. Migration is how poor people can most quickly and dramatically raise their incomes, whether from rural China to cities, or from China, Cuba, or Mexico to the United States.
According to a study cited in the New York Times article, Chinese couriers earn about 15 cents per package delivered:
Most couriers make about $300 to $600 a month, according to the Jiaotong study — an amount roughly equal to the wages of China’s migrant factory workers. They can deliver 150 packages on a weekday, drivers said, sometimes helped by making mass deliveries to office buildings.
New legislation or trade agreements that try to force earnings up for delivery or factory workers in China will result in many returning to even lower-pay work in rural China.
In the Izzit.org documentary A Taste of Chocolate, Jimmy Lai describes his first days of factory work in 1960 after being smuggled as a 13-year-old into capitalist Hong Kong from communist China. The YouTube video below is queued to 2 minutes 36 seconds, when Jimmy Lai is introduced. At 8 minutes in, Jimmy Lai describes arriving after all night in a fishing boat crowded with others escaping mainland China:
And by the afternoon we arrived in Kowloon. And at that time, when you arrive in Hong Kong you touch base, you’re legalized… You’re considered legal. I was taken to my mother’s sister and she paid $370 dollars for the smugglers. Later I found out how poor my mother’s sister was…
The narrator continues: “Their poverty meant that Jimmy was sent to work the same night he arrived in the Kowloon District of Hong Kong.” And Lai remembers that first day:
I was taken to a factory to work as a odd-job worker. And I was very happy in the morning. I smelled a lot of food that I had never smelled, the great aroma of food. And the manager gave me ten dollars. That… that was a lot of money at that time. I was very happy, as if I had arrived in Heaven. Although as a young kid we had to wake up before seven. We got to sweep the floor, finish everything, open the door before eight o’clock. People come, and then we work until like ten o’clock, but it was a very happy time. It was a time that I know I had a future…
A couple things connect the China policy topic and the Cuba Public Forum topic. First, the refugee policy that allowed those smuggled from China to be legal citizens of (then British) Hong Kong as soon as they touched land.
U.S. policy was similar and allowed those escaping communist Cuba, once they made it to U.S. territorial waters, to stay legally. The Clinton Administration revised this in 1995 to a “wet foot/dry foot” policy. After 1995 those escaping Cuba had to get their feet on dry land before they could stay in the U.S. legally. Then in early January the Obama Administration shifted Cuban immigrant policy again, as part of normalizing relations with Cuba: “Obama Ends Exemption for Cubans Who Arrive Without Visas,” (New York Times, Jan. 12, 2017)
President Obama said Thursday that he was terminating the 22-year-old policy that has allowed Cubans who arrived on United States soil without visas to remain in the country and gain legal residency, an unexpected move long sought by the Cuban government.
Countries like the United State, China, Mexico, and Cuba engage through voluntary exchange (trade), travel and migration, as well as through international capital flows (investment). Cubans were coming in larger numbers to Mexico and once they set foot in the U.S. Embassy they could stay in U.S. legally.
Many from China also come to Mexico on their way to the U.S. “California sees surge in Chinese illegally crossing border from Mexico” (Los Angeles Times, June 7, 2016) reports:
Between October and May, the first eight months of the fiscal year, Border Patrol agents in the San Diego sector apprehended an estimated 663 Chinese nationals, compared with 48 in the entire previous fiscal year and eight in the year before that, according to data provided by U.S. Customs and Border Protection.
People from poor countries, especially young men, are often willing to migrate long distances for a chance to make a better live for themselves. Wage and work rule restrictions slow the process of poor people working long hours to escape poverty.
Opposition to globalization has expanded and energized in the U.S. by both the Bernie Sanders and Donald Trump campaigns. “Globalization” sounds unappealing, like throwing goods and traditions from around the world in a blender and chopping them up. Consumers appreciate lower prices but worry about factories closing and “jobs being shipped overseas” to lower-paid workers in Mexico, China, Vietnam, or India.
Globalization, multilateral trade agreements, and “the international order” are regularly attacked by populists and nationalists in the US and Europe. And also in China.
China leadership has shifted nationalist in recent years, as discussed in “China Protection Writ Large,” (Wall Street Journal, January 31, 2017, online title “With Pen Plan, China Etches Nationalist Economic Policy“):
Studies rank China’s economy, the world’s second largest, among the most closed. From cars to wind turbines, Beijing limits foreign participation in domestic production. Citing “food safety,” Beijing insists that almost all grains consumed in China are domestically grown, and sets artificially high prices to support bumper harvests. State media touts locally made consumer products including bidets and rice cookers.
The WSJ story begins with a discussion of Chinese state initiatives to fund Chinese steel firms to produce higher-grade steel, such as needed for the tip or point in ballpoint pens. (The WSJ article offers a nice video overview telling the story.) China’s Ministry of Science and Technology funded this “meaningful breakthrough”:
The ministry provided $8.7 million for the research, which Beifa undertook with state-owned Taiyuan Iron & Steel Group Co., China’s largest stainless-steel mill. By September, the mill produced its first fully-domestic ballpoint pen.
Fortune also runs a story “China Couldn’t Make Its Own Ballpoint Pens—Until Now” (Jan. 10, 2017), noting Chinese firms produce 38 billion ballpoint pens each year but import ballpoint pen tips from Japan, at a cost of $17.3 million a year.
Premier Li Keqiang first drew the nation’s attention to the pen tip dilemma in January last year, lamenting that China still relied heavily on imported high-grade steel despite producing more than half of world’s crude iron and steel. State media reported that Li’s inability to make the tips reflected badly on Chinese manufacturing in general.
The article says Chinese firms spent “half a decade of research” to produce the pen tips. So here is a problem with politically-directed nationalist policies. Divide the $17.3 million a year pen tip “savings” over 38 billion pens. Chinese firms making tips themselves may reduce costs by some part of $0.000455 (about 1/20th of a penny per pen).
The Pen Addict reviews the top five ballpoint and other pens. The top rated ballpoint pens sell for $2.50 to $20 with $62 for the most expensive.
Probably there are better ways for Chinese ballpoint pen engineers to focus their attention than on that learning to make their own tips. A key challenge for Chinese firms is developing brands people worldwide will recognize and pay more for. But brand recognition usually follows innovation and marketing, not politically-directed manufacturing advances.
“Why You Haven’t Heard of Any Chinese Brands” (The Atlantic, April 8, 2013) looks at the challenge China has faced developing brands:
Here’s a little thought exercise: Think of a Chinese brand. Any Chinese brand. Go on, I’ll wait. Give up? Don’t feel too bad: According to a recent poll conducted by HD Trade Services, 94 percent of Americans cannot think of a single brand from the world’s second-largest economy.
Strange, isn’t it? Japan and South Korea, countries China zoomed past in the GDP-rankings, boast globally-respected brands across a variety of industries. Even Sweden and Finland — mere minnows in comparison to China — offer IKEA and Nokia, respectively. Given China’s incredible transformation into an economic powerhouse over the past three decades, why doesn’t the country have more recognizable brands?
A key problem with nationalist policies follows from politicians supporting domestic “champions”– state-funded or subsidized firms state officials hope will succeed in the global economy. But governments have a poor track record choosing the best firms to support. Japan’s MITI tried for years to stop Honda from expanding from manufacturing motorcycles to cars, in part due to influence by successful and established Toyota and Nissan.
See also, China’s National Champions: The Evolution of a National Industrial Policy — Or a New Era of Economic Protectionism? (2013, pdf), which begins:
An increasing concern of foreign governments is the emerging pattern of industrial policies established by the government of the People’s Republic of China (PRC)…favoring Chinese state-owned enterprises (SOEs) at the expense of their foreign counterparts.1 According to the US Chamber of Commerce, concerns that the Chinese government is retreating on opening its economy to foreign direct investment (FDI) are at a 10-year high among US companies directly investing in China (Reuters, 2010).2
Apart for the money governments spend directing research and development to area they deem strategic (ballpoint pens?), such subsidies and policies stoke nationalist responses in Japan, the U.S. and Europe:
While President Xi defends globalization abroad, his nationalist policies favor state-run companies back home. Many foreign companies and governments say China unfairly restricts access to its markets while flooding markets with low-price exports such as steel, helping to stoke a populist backlash abroad against globalization.
[Update: new Foreign Policy article, “Surprise Findings: China’s Youth Are Getting Less Nationalistic, Not More” (February 7, 2017):
For the United States’ part, its policymakers’ concern about a new crop of stridently anti-American Chinese youth may be overblown. If anything, future Chinese leaders may emerge from a generation noticeably less nationalistic than those that produced Xi and his predecessors.
When the President and Congress consider trade legislation, a wide range of interest groups gather to advance their agendas. These agendas are not always obvious, and sometimes corporate and union interests misdirect the public about their motivations.
• Unions want to protect union jobs in the U.S., and extract revenues for retraining workers displaced by imports. Here is the AFLCIO’s page on why it opposes the TPP (Trans-Pacific Partnership for Free Trade), a trade agreement Congress long considered, before it was blocked by the new Administration).
• Environmental organizations work to add their environmental goals to trade agreements. Here is the Sierra Club’s page opposing the TPP (and other “dangerous trade agreements”). This page includes a Sierra Club video with claims against the TPP, including the claim that allowing exports of coal and natural gas from the U.S. would be dangerous.
• Human rights and women’s rights groups advocate trade restrictions to pressure China and other countries to reform. Here is a 2013 article focused on China: “China: The West Needs to Promote Both Trade and Human Rights.” The article notes the danger of mixing rights advocacy with trade policy:
Some, both in Europe and the U.S., are demanding a much tougher approach towards China, including the imposition of punitive sanctions and high import tariffs. But this is undeniably motivated more by a desire to protect vested domestic economic interests, rather than as a way to put political pressure on the Chinese government. Crucially, such an approach risks fueling the perception that the voicing of human rights concerns is only used as a means of criticism in order to justify protectionist measures against China.
• Christian groups consider trade policy a way to pressure China’s government to increase religious freedom. Robert Sirico, in a 1998 Cato Trade Briefing Paper notes:
The freedom of Americans to trade and invest abroad is being challenged in the name of promoting human rights. Conservative Christian activists and others seek to impose trade sanctions against nations that do not protect human rights. Proposed sanctions include the Freedom from Religious Persecution Act and the revoking of China’s Most Favored Nation status.
“Free Trade and Human Rights: The Moral Case for Engagement” begins with an overview:
Three fundamental misunderstandings cloud the current debate over free trade and human rights. First, cutting government aid to target countries is not the same as raising barriers to trade and investment. Ending foreign aid and corporate subsidies actually promotes development by removing market distortions. Blocking trade, in contrast, hurts U.S. consumers and exporters as well as the most economically vulnerable people in the targeted nations.
Second, some advocates of free trade in the U.S. business community have weakened their case by failing to acknowledge that human rights abuses exist. U.S. multinational firms further undermine their credibility by supporting government intervention through such agencies as the Export-Import Bank and the Overseas Private Investment Corporation.
Third, Christian conservatives who support sanctions betray a lack of understanding of how trade promotes freedom and development. Economic reforms in China have transformed daily life for hundreds of millions of people who now enjoy greater opportunity, freedom of movement, material abundance, and access to Western ideas. Trade with China benefits Americans through lower prices, wider consumer choice, and greater returns on investment.
Imposing sanctions against China will disrupt this mutually beneficial relationship while doing nothing to improve human rights. Like the failed embargo against Cuba, trade sanctions isolate the victims while strengthening their persecutors. Sanctions imposed in the name of human rights also serve the interest of domestic protectionists by limiting competition. The best policy for promoting freedom and human rights remains economic and moral engagement.
So… industry, unions, environmental, human rights, and Christian organizations lobby to restrict trade agreements. The story of the Bootleggers and the Baptists can be helpful in sorting out opposition to international trade and to trade agreements.
Climate negotiations offer an illustration of the problem, explained in this PERC page and paper. Though from 1998, the lessons apply to current trade policy issues with China:
As nations argue over global warming policies, PERC economist Bruce Yandle brings fresh insights to the discussion. In “Bootleggers, Baptists, and Global Warming,” a new paper from PERC, Yandle sheds light on puzzling features of the international negotiations over climate change.
Yandle looks at the post-Kyoto negotiations in the light of a theory that he has coined as the “bootleggers and Baptists” theory of regulation. Yandle points out that in the South, Sunday closing laws make it illegal to sell alcohol on Sunday. These laws are maintained by an inadvertent coalition of bootleggers and Baptists. The Baptists (and other religious denominations) provide the public outcry against liquor on Sunday, while the bootleggers (who actually sell liquor on Sunday) quietly persuade legislatures and town councils to maintain the closing laws.
In June of this year, EPA administrator Gina McCarthy announced the Obama administration’s far-reaching, anti-coal-burning Clean Power Plan. It drew wide support from the environmental community for its promise to reduce carbon emissions and mitigate climate change. Speaking for environmentalists worldwide, McCarthy said: “This plan will clean the air we breathe while helping slow climate change so we can leave a safe and healthy future for our kids.” Put another way: Those who love their children and the environment would surely leap on President Obama’s anti-coal bandwagon.
Here similar story “Bootleggers, Baptists and e-cigarettes” (R Street, Jan. 14, 2016)
Environmentalists were happy, but so were producers of other fossil fuels that compete with coal (natural gas producers, for example). Interestingly, dirty coal producers were pleased with the new legislation too. They are the bootleggers of the story.
Before the imposition of the new requirements, producers of clean coal, which comes mainly from Wyoming and Montana, were in the catbird seat because their clean coal met high air-quality standards without the use of expensive technology. But now, with the new technology required, coal-burning plants can burn cheaper, dirty coal. Sellers of dirty coal see their business growing faster while the pace for clean-coal shippers is weakening.
All this gets more interesting when it turns out that dirty-coal producers in Obama’s home state of Illinois are chief among the bootleggers laughing all the way to the bank as they ship trainloads of coal to generators far and wide. The Obama administration’s Clean Power Plan has made lots of people happy — environmentalists, producers of clean-power technologies, and producers of dirty coal. We think the plan should receive a medal for bringing together such a disparate set of bootlegger–Baptist interests, provided it can clean the dirt off, of course. [Link to National Review article.]
Students researching the China topic should note that coal from Wyoming and Montana burns cleaner than coal mined in China and burned for energy production there. Also, shipping costs from Montana and Wyoming to South China coal plants is actually less expensive than shipping by rail to coast then shipping along China’s coast. “Cleaner” coal with lower shipping costs (though coal burning is still more polluting than natural gas, wind, solar, and hydro power).
Environmental groups strongly oppose permits and trade policies enabling Wyoming and Montana coal to be shipped by rail and river to the Washington coast, and exported to China. Dirty coal producers in China and around the world also oppose exports of clean coal from the U.S., but not for the best of reasons.
CASPER, Wyo. — Wyoming coal exports will likely suffer as a result of an agreement by the United States and China to cut carbon dioxide emissions, analysts said Wednesday.
The surprise announcement Tuesday by President Barack Obama and his Chinese counterpart, Xi Jinping, commits the world’s two largest carbon emitters to greening their respective power sectors.
And this Bloomberg News story has more, “China’s Clean-Fuel Focus Tests U.S. Coal-Export Lifeline.” And with exports from US ports blocked, coal is headed out through Canada, “Coal company shifts to Canadian port to reach Asia markets,” (US News, October 13, 2016)
In all the above stories of special interests and trade policy, we shouldn’t impute bad motives to most of the people and organizations involved. People see the world through their own interests and often persuade themselves that policies they benefit from also benefit the world.
There are people and organization who know policies they benefit from personally and as interest groups will raise costs and limit freedoms for others. Debaters should be alert to see the bootleggers behind various proposed restrictions on trade with China.