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.

haikou-95951_1280Trade 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

Listed on NCPA Debate Central.

• 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.

• Mismanaged Fisheries Key to South China Sea

Case outline with evidence for reforming Section 421 Tariffs. Dept. of Commerce labels China as NME (non-market economy) which opens door for US special interest groups to secure arbitrary trade restrictions.  Link to pdf at page.

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?

hammer-1629587_640The 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).

Screen Shot 2017-02-01 at 8.39.44 AMThe 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 ChineseScreen Shot 2017-02-01 at 8.42.01 AM 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).

• Corporations and industry associations lobby the Commerce Department for new dumping charges and for countervailing duties (AD and CVD, discussed in past post and evidence brief: Affirmative Case: Repeal Section 421 Tariffs on Chinese Imports). Recent story: “US Targets Chinese Aluminum Industry at the WTO With a New President in Town,” (MetalMiner, January 26, 2017)

• 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.

Here is a similar Bootleggers and Baptists story from November, 2014:

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.

Wikipedia entry on Bootleggers and Baptists.

Screen Shot 2017-01-28 at 8.16.49 AMHere 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.

Wyoming coal: tougher sell with U.S.-China climate deal” (Casper Star-Tribune, Nov 16, 2014) notes the then recent trade agreement hurt Wyoming coal exports:

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.

Rapid industrialization spilled pollution across China’s cities, rivers, and skies. Market-reforms in the 1989s opened first agriculture and Special Economic Zones  (SEZs) like Shenzhen to local enterprise and overseas investors. Market reforms and factories then expanded across China, bringing prosScreen Shot 2017-02-06 at 11.53.09 AMperity but also pollution from mining and manufacturing. Through the first decades of reform, pollution seems far less important than jobs when wage rates even in 1990 average income per person (GNI) was just $330 a year. By 2000 average income had nearly tripled, but was still just $940 a year, and by 2015, average income was nearly eight times higher to $7,930.

Hundreds of millions migrated from rural China to new assembly plants and textile mills. An estimated 200 million migrant workers still form the  “floating population” of informal labor.

Screen Shot 2017-02-06 at 12.01.56 PMChina’s astonishing economic progress has been uneven but lifted these hundreds of millions out of extreme poverty. As incomes pass $6,000 a year, empirical research shows countries invest in reducing pollution (the environmental Kuznets curve) even when it slows economic output. See, for example, “Does the Environmental Kuznets Curve for coal consumption in China exist? New evidence from spatial econometric analysis,” (Energy, Volume 114, 1 November 2016, Pages 1214–1223) From Abstract:

The estimation results verify the existence of the spatial correlations in coal consumption across provinces, and there is strong evidence for the “inverted-U” shaped EKC relationship between per capita coal consumption and the GDP per capita. Besides, the GDP per capita corresponding to the peak of coal consumption per capita is estimated to be higher when the spatial effects are fully accounted for.

Rapid industrialization in countries with weak rule-of-law institutions brings costs, including heavy pollution of the air and water. Early on, pollution was seen by most as a good thing, a sign of industrial progress, production, and rising wages and job opportunities.

Screen Shot 2017-01-26 at 7.53.38 PMIn Nevil Shute’s novel, Ruined City, a shipbuilding town on the English coast, whose companies had gone bankrupt in the Great Depression, is described to be: “as clean as a sepulcher,” (a small room or monument, cut in rock or built of stone, in which a dead person is laid or buried).

The factories were closed so no more smoke and noise in the air, but also no more jobs and income. Laid-off shipbuilders and others were out of work, out of income, out of hope, and mortality rates soared (in the novel, a hospitalized financier arranges new orders to bring shipbuilding, and the city, back to life).

The 1995-1996 national high school debate topic was similar to this year’s topic:

Resolved: That the United States government should substantially change its foreign policy toward the People’s Republic of China.

Attending an economics conference in Beijing in 1995, I had time between sessions to walk city streets and shopping areas. One street with vendors in small stalls offered books, movies on VHS tape, shivering dogs, and one stall with just a pile of coal. For maybe fifteen minutes I watched shoppers filling bags with coal to cook and heat their nearby Beijing homes.

Most people of Beijing are far wealthier now and incomes higher. Average income in China is approaching $10,000 a year, but in 1995 average income was just $540. People in the cities are far wealthier, but not far from Beijing, households still burn coal to heat their homes. Increasing incomes and expanding access to inexpensive electricity is key to reducing Beijing pollution.

Beijing’s Plan for Cleaner Heat Leaves Villagers Cold,” (WSJ, Jan. 25, 2017) reports the continued problem of burning coal for home heating in communities near Beijing:

Reducing emissions from heating would be among the most effective ways to limit winter smog besides cleaning up industry… Coal-burning by households is particularly dirty because it often happens without the emissions filtering required in power plants. …

But Ms. Gao, whose husband earns about $500 a month at an auto plant, soon noticed a downside.

“Electric heating has become our family’s biggest expense,” Ms. Gao said. She said she may seek a job to help pay the bill.

Despite electricity subsidies for residential consumers, villagers interviewed about their state-supplied heaters said their overall costs had risen substantially. Several said it costs around $300 to heat their homes for the winter, compared with about $200 with coal.

The income divergence between city and rural families is extreme across China. “Here’s What China’s Middle Classes Really Earn — and Spend,” (Bloomberg News, March 9, 2016) shows in an income chart of China’s 770 million workers, just 19% are middle-income earning $11,733 a year. Another 31% are migrant workers earning an average of just $5,858 a year, and the rest are rural people earning an average of $2,000 (plus a .2% slice of the very rich at $500,000 a year).

China’s migrant workers, the”floating population,” migrated informally (illegally) to cities for factory jobs. They earn more than they could in their rural villages, but Bloomberg reports: “food and clothing make up nearly half their personal spending” which is just $7 a day.

Anything that adds to the cost of electricity pushes poor workers living around Chinese cities to shift to burning coal in their homes for heat.

And this challenge highlights government spending and subsidies for expanding wind and solar power. Electricity from new natural gas and new cleaner coal power plants emit little air pollution (especially compared to families burning coal or wood at home). But both natural gas and new coal plants emit carbon dioxide as they generate electricity (burning natural gas emits about half as much CO2 as burning coal).

China Aims to Spend at Least $360 Billion on Renewable Energy by 2020,” (New York Times, Jan. 5, 2017) reports on Chinese government plans for expanding wind and solar power, and also notes problems delivering power to consumers:

…Thursday’s announcement was missing any language on curtailment, or the amount of electricity generated by wind and solar that never finds its way to the country’s power grid. In China, wind power curtailment was 19 percent in the first nine months 2016, Mr. Myllyvirta said, many times higher than in the United States, where curtailment levels are often negligible.

The main reason for curtailment, he said, is that China is plagued by overcapacity in electricity generation and operators of China’s grid often favor electricity generated from coal.

A 2016 report, “China Scales Back Solar, Wind Ambitions as Renewables Cool,” (Bloomberg News, Nov. 7, 2016) noted problems connecting new wind and solar, often at distant locations, to China’s existing grid:

…lowered its solar and wind power targets for 2020, a reflection of how record installations of renewables have overwhelmed the ability of the nation’s grid to absorb the new electricity …

The rapid growth in capacity has left China struggling to integrate power supplies from renewable sources even as the government continues to promote clean energy as an alternative to more polluting fuels like coal and natural gas.

China idled 33.9 billion kilowatt-hours of wind power last year, up 69 percent from a year earlier, the NEA said in August. Idled capacity at solar farms has also begun to appear, especially in the nation’s northwest, it said.

[Update, see also “It Can Power a Small Nation. But This Wind Farm in China Is Mostly Idle,” New York Times, Jan 15, 2017)]

See also Bjorn Lomborg’s op-ed “A ‘Green Leap Forward’ in China? What a Load of Biomass,” critical of China’s spending on solar and wind energy, even as coal use expands:

It is peculiar—though unsurprising given the sensibilities of Western environmentalists—that those who celebrate China’s “Green Leap Forward” almost always focus on wind and solar technology. By far the largest source of renewable energy used in China is traditional biomass—that is, people burning charcoal, firewood and dung, as China’s poor do to stay warm. Biomass is the biggest source of killer air pollution in the world.

The Chinese government energy policy goals aim to reduce air pollution around Chinese cities, and also to reduce CO2 emissions 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.

China’s push to lead the world in wind and solar power combined a push for promoting domestic companies making and exporting solar panels and windmills, with a strategy to appeal to environmental organizations upset that China had become far and away the largest emitter of CO2.Screen Shot 2017-01-27 at 10.08.32 AM

U.S. CO2 emissions have dropped 12% since 2005, according to the U.S. Energy Information Administration, but China’s CO2 emissions increased significantly over the same time.

Though China’s CO2 emissions are estimated to have fallen 3% in 2015, but China’s Carbon Emissions Report 2015  (Belfer Center, Harvard Kennedy Center pdf) notes:

Total carbon emissions in China already equal the emissions from the U.S. and the E.U. combined, however, the per capita emissions are still significantly lower than that of the U.S., but are approaching the average level of the E.U. countries. (p. 1)

Screen Shot 2017-01-27 at 10.18.31 AMThe Belfer Center report cover and first pages have images of heavily-polluted Chinese cities, but these show air pollution not CO2 emissions. China’s business and government leaders have long feared that influential environmental organization could join with US and EU labor unions, and protectionist manufacturers associations to enact new tariffs on Chinese exports, including carbon taxes (taxes on CO2 emissions), which would hit Chinese manufactured goods hardest.

Now the new Administration and Republican-controlled Congress are dialing back on CO2 emissions concerns and regulations and at the same time threatening new tariffs on Chinese goods. So China’s strategy of major spending on wind and solar power to address CO2 emissions loses traction as a strategy to persuade environmental groups not to join US and EU protectionists.

China may shift focus to expanding less-expensive electric natural gas power sources to deliver lower-cost electricity to the many still-poor households surrounding China’s cities and factories.

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