Christopher Lingle’s article in the South China Post, “China must stop its destructive market interventions while it can,” (September 27 2016), highlights the damage caused by the Chinese government’s continuing interventions in renminbi exchange markets. Lingle says:
China’s authorities can promote the health of its own economy by abandoning an exchange-rate obsession over the value of the renminbi against the dollar and intervening less, not more. It turns out the primary villain in the tale is China’s dependence on export-led development that is the basis for continuing controls over exchange rates and capital flows.
Lingle disagrees with the claim that government interventions in industry, banking and exchange rates contribute to China’s economic development:
It turns out that China’s self-proclaimed “market socialism” is in fact a poisonous cocktail of neo-mercantilism (that is, export-led growth) and Keynesian stimulus policies. Alas, the resulting hangover is set to bring a painful end to the “Beijing consensus” as well as President Xi Jinping’s (習近平) “Chinese Dream”.
For a background on International Finance, floating exchange rates, and China’s currency manipulation, both Khan Academy and Marginal Revolution University offer a series of video lectures.
Khan Academy’s Review of China US Currency Situation is here.
Marginal Revolution University’s Chinese Currency Manipulation video is here.
MRU’s Tyler Cowen has a separate recent video, The Rise and Fall of the Chinese Economy, here. Text on page with video notes:
A turning point for the Chinese economy came in 2009. With the recession affecting many other countries, China’s government took steps to avoid the recession and keep the economy afloat, but at a cost. Debt skyrocketed during the period, which is proving less sustainable as China’s rate of growth declines.
Who cares whether the United States federal government substantially increases its economic and/or diplomatic engagement with the People’s Republic of China? Well, NSDA policy debaters do, or will, as they research and debate proposed policy reforms. But most people are less interested. People have limited time and lots to do, and realize time spent researching trade policy likely won’t be rewarded. Most people have little influence on public policy, and without reforms they will be stuck under whatever trade regulations are in the status quo
The people and organizations who do care enough to be active are those who benefit from current trade regulations, or expect to benefit from new regulations. So U.S. Furniture manufacturers lobby for and file “dumping” charges with the Commerce Department against Chinese furniture companies. U.S. shrimpers lobby to restrictions on frozen shrimp imported from China (and Chinese shrimp industry fights back). U.S. Steel companies care, and lobby to restrict steel imports from China (though higher steel prices raise costs for most U.S. manufacturers, whose products become competitive on world markets).
Jeff Henderson, president of the Aluminum Extruders Council cared enough to charter a plane to investigate transshipped aluminum stockpiles in Mexico (see September 9, 2016 front page WSJ story).
Union leadership lobbies for trade barriers they believe will protect union jobs here. Environmental groups concerned about CO2 emissions from China’s heavy use of coal in manufacturing look for ways to add a carbon-tax to imports from China.
Each trade barrier increases the prices U.S. consumers pay for imported goods. These price increases are rarely enough for most consumers to notice, much less spur them to protest. But the gains from protectionism to U.S. producers can be substantial, and through trade associations they invest millions of dollars to advocate new and protect existing trade restrictions.
The benefits of trade restrictions are concentrated to a handful of producers, but the costs are diffused across thousands of companies and consumers. (Over half of goods imported from China are in supply chains and integrated into U.S. manufactured goods, often for export. Raw and extruded steel and aluminum parts, for example.)
NSDA (and NCFCA) debaters will stand almost alone as motivated enough to research, sort through, and speak out on the various claims, regulations, trade agreements, and protectionist arguments.
Brink Lindsey’s Low-Hanging Fruit Guarded by Dragons: Reforming Regressive Regulation to Boost U.S. Economic Growth makes the case for first repealing “regressive regulations” in the U.S.
However, Lindsey’ Low-Hanging Fruit study focuses on domestic regulations rather than U.S./China engagement.
This October 2013 article in The Diplomat, American Protectionism Threatens US-China Trade looks at current “bilateral” U.S./China protectionist policies.
The United States and China have one of the largest trading relationships in the world, at over $550 billion per year. U.S. policymakers are right to cry foul when the Chinese government distorts that trade to protect domestic interests. Unfortunately, U.S. policymakers do the same thing and, in the process, harm the U.S.-China relationship.
One example is Washington’s continued use of so-called “non-market economy methodology” when deciding whether Chinese goods are being “dumped” into the U.S. market at unfairly low prices. The designation is a holdover from the Cold War that exists today only because its mystical formula enables U.S. officials to impose higher punitive tariffs to protect inefficient domestic industries.
The practice is actually illegal under World Trade Organization rules. But when China joined the organization in 2001, the United States insisted that an exception be created, allowing it to continue discriminating against Chinese imports for 15 years. Time has passed, and unless the United States government changes its practice by the end of 2016, it will be in flagrant violation of U.S. trade obligations.
A key inherency point for debaters looking at “non-market economy methodology”:
Unfortunately, the United States is almost certainly not going to comply. There is a shameful history of law-breaking by U.S. trade officials abusing the non-market economy methodology. Both U.S. law and international trade rules have been consistently stretched or outright ignored for decades, and there is little indication that this trend will change.
Commerce, enterprise and voluntary exchange help make the world a more peaceful and prosperous place. Trade and trade policy are at the center of economic theory and political economy. As consumers we benefit from exchange, from trade. As producers we benefit when people in other places purchase the goods and services we produce. But local producers don’t benefit at first from foreign producers offering competitive goods and services here.
Foreign competition can stimulate local producers to innovate and improve their offerings, drawing from better knowledge of local markets and opportunities. Background article by Alan Blinder on “Free Trade.”
On international trade policy, Douglas Irwin writes (from EconLib article A Brief History of International Trade Policy):
The theory of international trade and commercial policy is one of the oldest branches of economic thought. From the ancient Greeks to the present, government officials, intellectuals, and economists have pondered the determinants of trade between countries, have asked whether trade bring benefits or harms the nation, and, more importantly, have tried to determine what trade policy is best for any particular country.
On Amazon.com debaters can “Look Inside” Douglas Irwin’s 2015 book Free Trade Under Fire.
America’s founders tried to limit Congressional and Executive power to intervene in the economy. Modest tariffs on imported goods were for decades the federal government’s major source of revenue, along with land sales. America’s founders believed economic interventions would excite factions, that is, special interest groups who gain from economic legislation. Trade policy through American history has been just that. Domestic producers, from farmers to manufacturers, lobby each generation for new or continued restrictions on imported agricultural and manufactured goods.
An earlier Debate Central post, China Trade: Hollowing Out or Filling In the U.S. Economy? discussed this ongoing free trade /managed trade/protectionism debate over U.S. China policy, linking to various recent studies and articles.
Current U.S. trade regulations include antidumping and countervailing duty regulations that are abused by special interests. These arbitrary and bureaucratic processes disrupt trade and sometimes cost U.S. importers millions of dollars in retroactive fines.
U.S. federal government engagement with the People’s Republic of China (PRC) mostly involves trade and investment. People and firms in the U.S. contract with people and firms in China to import or export goods and services, or to invest in the production of goods and services. The U.S. Department of Commerce makes rules and regulations regarding commerce between Chinese and U.S. firms.
Trade agreements restrict as well as promote trade and investment in various ways, and are influenced by special interests to advance the agendas of businesses, unions, and environmental groups.
Current and proposed bilateral and multilateral trade and investment agreements are complex and confusing and critics claim the interests of both China and the U.S. would be advanced by reforming or abolishing U.S.Antidumping and Countervailing Duty regulations.
Bill Perry, a Seattle-based trade lawyer explains problems with antidumping and countervailing duty regulations in a August 13, 2016 US/China Trade War post. The Department of Commerce treats China as a NME (nonmarket economy):
Under US Antidumping, Countervailing Duty and Customs laws, the Importer of Record must exercise reasonable care in importing products and in filling out Customs forms. The Importer of Record must correctly state the products’ country of origin and also whether Antidumping and Countervailing duties apply to the imported products. A knowingly false statement on a Customs form constitutes criminal fraud.
If AD or CVD rates go up in a subsequent review investigation, the Importer of Record is retroactively liable for the difference, plus interest. Retroactive liability for AD and CVD cases is a particular problem involving goods imported from China, because the Commerce Department treats China as a nonmarket economy (“NME”) country. Dumping is generally defined as selling products in the United States below their normal value, which generally means selling products in the United States below their prices in the home market or below the fully allocated cost of production.
Since China is a NME, Commerce refuses to use actual China prices and costs to determine whether a company is dumping. It instead uses complicated consumption factors for raw materials and other inputs and multiplies the factors by surrogate values from five to ten constantly changing countries to calculate a cost of production for the Chinese company. All this makes it impossible for the Chinese manufacturer/exporter to know whether it is dumping, never mind the US importer.
Perry then looks at two AD/CVD cases, one involving wooden furniture imported from China and the other involving Chinese mushrooms (along with Columbian straw and cow manure!):
In the Mushrooms from China antidumping case, from the time the antidumping order was issued in 1999 through numerous subsequent yearly review investigations, many antidumping rates were in the single digits because Commerce used India as the surrogate country. But when in 2012 Commerce switched from India to Columbia as the surrogate country, the Antidumping rates went from less than 10% to more than 200% because of surrogate values for straw and cow manure in Columbian import statistics. The Importers of Record then became liable for the difference in the duty rates, plus interest.
The furniture case is similarly bizarre (AD is “Anti-Dumping”):
In the Wooden Bedroom Furniture from China initial investigation… In the initial investigation, the Chinese furniture company received an AD rate of 16%. In the first review investigation, however, Commerce determined that the questionnaire data did not verify and issued the Chinese furniture company an AD rate of 216%.
The US company estimated that the Chinese producer exported $100 million, which created $200 million in retroactive liability for US importers. The Chinese company then decided not to do the second review investigation creating another $200 million in retroactive liability for a total of $400 million in retroactive liability created by just one Chinese company.
Perry notes that Anti-Dumping and Countervailing Duty cases even more financially dangerous when the “False Claim Act” is added to the trade policy mix:
The real hammer against evasion of US AD and CVD orders, however, is the False Claims Act (“FCA”). The FCA ( 31 U.S.C. § 3729) allows people or companies, designated a “Relator”, to file what are termed “qui tam” lawsuits against individuals or companies that directly or indirectly defrauded the Federal government. Through qui tam lawsuits, the informants or “whistleblowers” may recover triple damages on the government’s behalf. Anyone who knows of the fraud, including a competitor company, may file a qui tam lawsuit, and they do.
The most likely to file these lawsuits are your foreign competitors, Chinese competitor, U.S. competitors, U.S. importers, your employee at your Chinese exporting company, your employee at your U.S. importing company. But sometimes they are brought by someone who simply learned of what you are doing. Because the person or company that brings such an action can be awarded millions and even tens of millions of dollars, the incentive to file is huge. If you want to get a better idea of just how lucrative these lawsuits can be, do a Google search for lawyers looking to take on qui tam lawsuits. There are hundreds, if not thousands of lawyers, willing and eager to take such suits. Reportedly the most lucrative Google keyword search is “qui tam”.
In a separate August 12, 2016 post, Bill Perry reports the Department of Commerce seems to rubber-stamp nearly all Anti-Dumping charges:
Commerce finds dumping in 95% of the cases, and the ITC extends antidumping and countervailing duty orders for 20 to 30 years to protect one company US industries. Those policies dramatically increase the perception of international trade victimhood—we US companies cannot compete because all imports are unfairly traded, a perception that is simply false.
The final article in my next blog post will be about the only trade program that works and saves the companies and the jobs that go with them—The Trade Adjustment Assistance for Firms/Companies program. The Article will describe the attempts by both Congress and the Obama Administration to kill the program, which may, in fact, have resulted in the sharp rise in protectionism in the US.
Congress must again restore the trade safety net so that Congress can again vote for free trade agreements and the United States can return to its leadership in the Free Trade area. The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.
Alden Abbott’s Heritage Foundation Backgrounder #3030 on Trade, U.S. Antidumping Law Needs a Dose of Free-Market Competition (July 17, 2015) explains:
Perhaps the best-known category of special tariff is an “antidumping duty,” assessed to counteract export prices that allegedly are set at “unfairly lower” rates than the prices for the same products sold in their domestic market. Thus, for example, dumping of steel bars would occur if Korean steel producers set “unfairly lower” prices for their steel bar exports to the U.S. than they did for steel bars sold in Korea, and an antidumping duty would be assessed on each imported steel bar to raise the import sales prices and counteract the alleged unfairness.
Economists define dumping as international “price discrimination”—the charging of lower prices (net of selling expenses and transportation) in a foreign market than in a domestic market for the same product. Despite its bad-sounding label, price discrimination, whether foreign or domestic, is typically a perfectly legitimate profitable business practice that benefits many consumers.
The fear is of foreign firms that might try to drive U.S. competitors out of business with low prices, then later raise prices dramatically to make up for their earlier losses. Abbott explains:
In reality, harmful “predatory” dumping occurs seldom if ever. In the words of one leading commentator, although “U.S. antidumping law is ostensibly concerned with the kind of international price discrimination that stems from” predation, “one would be hard-pressed to find any real-world example of dumping causing competitive markets to become monopolistic.” Despite this fact, however, antidumping law is a widely invoked staple of U.S. trade policy because it is based on legal standards that have nothing to do with true economic predation. Rather, dumping reflects a set of arcane rules, unmoored from free-market principles, that are designed to shield domestic producers from competitive forces at the expense of American consumers rather than promote competition on the merits.
Antidumping is in fact a form of special-interest cronyism that imposes high costs on Americans and thwarts beneficial competition.
Appendix I of the Backgrounder provides a helpful “Summary of U.S. Antidumping Procedures.”
Mark J. Perry, in his May 25, 2011 post Do Anti-Dumping Tariffs on Furniture from China Create U.S. Jobs? Only for Washington Lawyers, notes that U.S. anti-dumping charges against Chinese furniture companies let many to relocate operations to Vietnam.
In Why Antidumping Duties On Chinese Furniture Don’t Save U.S. Jobs in Forbes (May 15, 2011), Cato Institute’s Dan Ikenson provides some background to the expansion of Chinese furniture manufacturing
At the time this case was initiated, the same U.S. furniture producers who were petitioning for relief from imports from China were investing in furniture operations in other countries. There’s nothing illegal or objectionable about investing in foreign production, but the assertions of the petitioning U.S. producers that their aim was to restore U.S. production and U.S. jobs were clearly false. It is testament to the laughably modest standards for finding a domestic industry injured by reason of dumped imports that duties were ever imposed in the furniture case.
Of course nowhere in all the regulation of furniture imports and concern over U.S. furniture jobs and companies is there recognition that the great majority of Americans are consumers rather than producers of furniture. Lower cost furniture means, for millions of Americans, that they can purchase new rather than used furniture, and can afford high quality and enjoy wider choices.
The NSDA September/October Lincoln-Douglas Debate is: “Resolved: Countries ought to prohibit the production of nuclear power.”
Nuclear power concerns include:
The pronunciation problem… see this short Ask the Editor video for guidance.
Safety concerns from Hollywood’s Jane Fonda, Jack Lemmon, and Michael Douglas in The China Syndrome (1979). The movie premiered just twelve days before the Three Mile Island nuclear accident.
Safety concerns from three real world nuclear power accidents:
Total deaths from these and other nuclear accidents are hard to measure. Online sources say 56 direct deaths from Chernobyl accident and “no confirmed casualties” from Fukushima, nor direct deaths from Three Mile Island. The debate over increased mortality from radiation exposure caused by these accidents is complex. Radiation exposure risk, like poisons, is a matter of dosage. Exposure to small amounts of radiation doesn’t seem to be harmful.
Jon Basil Utley, in his July 6, 2014 article, “Raising the EPA Radiation Limit Will Save Thousands of Lives and Billions of Dollars,” reports:
The Government Accounting Office (GAO) has recently insisted that the EPA establish realistic limits in accordance with the latest science. …
… After the catastrophic meltdown at the Japanese nuclear power plant in 2011, some 130,000 people were forcibly removed from their homes in accordance with strict radiation standards. This resulted in the unnecessary and unfortunate deaths of some 1600 elderly and ill persons. Yet no residents died—or even became ill—from the radiation. Even so, Japan closed down 48 nuclear plants and Germany announced it would close all of its plants. The cost to their citizenry in higher electricity prices—and higher carbon emissions—is staggering.
All energy production is dangerous, as is walking, swimming, driving, rock climbing, and jumping out of airplanes even with a parachute.
The U.S. Department of Labor’s Mine Safety and Health Administration (MSHA) lists fatalities per year in the coal mining industry. From 1960 to 1982 fatalities fell gradually from 325 per year to 122 per year. Annual fatalities continued to fall most years, dropping below 50 in 1993, then to 20 and below since 2011.
Oil and gas workers also face risks, with 142 deaths in 2014. Fatal oil and gas injuries listed in this 2015 article (Oil And Gas Worker Deaths Rise In 2014) were at 98 or higher almost every year since 2004.
Critics of nuclear power can counter that risks from a potential nuclear accident are far higher than alternative energy sources, and can argue that we’ve been lucky to avoid bigger nuclear disasters so far.
Related concerns are the complexity and age of U.S. and other nuclear power installations: The average age of U.S. commercial reactors is about 35 years. Most people understand that driving a 35-year-old car is risky because key component are worn out or wearing out. And both cars and nuclear plants designed and built decades ago lack today’s safer designs and features.
Additional nuclear power concerns include political, engineering, and economic problems with transporting and storing nuclear waste. However coal production also involves storing waste. This 2009 Economist article discusses problems with coal ash waste from coal-powered energy production:
A worrying loophole in America’s rules was revealed in December of last year when a collapsed dyke sent a billion gallons of toxic sludge pouring into 300 acres of rural Tennessee. The sludge, a mixture of water and ash from a coal-fired power plant, contained significant amounts of poisonous heavy metals. Officials say the local drinking water is still safe, although the spill has killed fish in nearby rivers. The utility concerned, the Tennessee Valley Authority, says it is spending $1m a day on the clean-up.
That coal-ash pond in Tennessee is just one of about 1,300 similar repositories across America. The EPA believes that lax disposal of coal ash has led to the contamination of groundwater in 24 states. But under pressure from utilities it had previously dropped plans to classify coal ash as hazardous waste.
So all energy production (including installation and operation of onshore and offshore wind mills plus molten salt and rooftop solar power) involves costs and risks. Lincoln-Douglas debaters calling for prohibiting nuclear power are calling for increasing energy production from fossil and renewable fuel sources.
Interestingly too, this 2007 Scientific American article claims Coal Ash Is More Radioactive Than Nuclear Waste
… the waste produced by coal plants is actually more radioactive than that generated by their nuclear counterparts. In fact, the fly ash emitted by a power plant—a by-product from burning coal for electricity—carries into the surrounding environment 100 times more radiation than a nuclear power plant producing the same amount of energy.
Though the notes above and sources quoted are critical of coal as an energy source, modern coal-power plants pollute far less than in the past. A recent Wall Street Journal article reports General Electric is investing billions in new cleaner coal power production (GE Wants to Bring More Life to Coal, August 17, 2016).
Wired magazine’s March 25, 2014 cover story, Renewables Aren’t Enough. Clean Coal Is the Future makes the case for technology innovations to supply inexpensive yet clean power from coal. Charles Mann argues that coal is as key an energy source today as in the 19th Century:
Because most Americans rarely see coal, they tend to picture it as a relic of the 19th century, black stuff piled up in Victorian alleys. In fact, a lump of coal is a thoroughly ubiquitous 21st-century artifact, as much an emblem of our time as the iPhone. Today coal produces more than 40 percent of the world’s electricity, a foundation of modern life. And that percentage is going up: In the past decade, coal added more to the global energy supply than any other source.
And Mann notes that coal is key to China’s ongoing industrialization:
Nowhere is the preeminence of coal more apparent than in the planet’s fastest-growing, most populous region: Asia, especially China. In the past few decades, China has lifted several hundred million people out of destitution—arguably history’s biggest, fastest rise in human well-being. That advance couldn’t have happened without industrialization, and that industrialization couldn’t have happened without coal. More than three-quarters of China’s electricity comes from coal, including the power for the giant electronic plants where iPhones are assembled.
We should look also to the billions in the developing world working for a more prosperous future. The mortality rates attributed to coal and other fossil fuel exploration, mining, drilling, transporting, and processing are tiny compared to the mortality rates attributed to not having access to electricity. The World Health Organization (WHO), February, 2016, reports:
Around 3 billion people cook and heat their homes using open fires and simple stoves burning biomass (wood, animal dung and crop waste) and coal.
Over 4 million people die prematurely from illness attributable to the household air pollution from cooking with solid fuels.
Nuclear power and fossil fuel power production do involve risks: radiation exposure and particulate matter pollution, plus risks from waste storage. But these risks are much lower than the risks to children face living in homes without electricity and relying for cooking and heat on wood, dung, and coal stoves.
Bjorn Lomborg, in Why Africa Needs Fossil Fuels (January 22, 2016), notes:
More than 600 million people in Africa have no access to electricity at all. … All this is not because Africa is green, but because it is poor. Some 2% of the continent’s energy needs are met by hydro-electricity, and 78% by humanity’s oldest “renewable” fuel: wood. This leads to heavy deforestation and lethal indoor air pollution, which kills 1.3 million people each year.
Apart from the deaths caused by lack of access to electricity is the burden lower-income women across the world bear without enough electricity for washing machines. Swedish statistician Hans Rosling explains in his famous TED video: The magic washing machine (now viewed over 2 million times).
Many advocates for nuclear power were mainly concerned about U.S. dependence on oil imports from the Middle East, Venezuela, Nigeria, and other unstable regions and countries. However, the astonishing production increases in recent years from Canadian oil sands and U.S. shale oil and gas fields have made US and Canada major oil exporters.
Here is the U.S. Energy Information Agency August, 2016 Drilling Productivity Report For key tight oil and shale gas regions (pdf)
So where can affirmative debaters look for values supporting ending nuclear power production? One possibility: the U.S. has strongly opposed Iran’s efforts to it develop and generate nuclear power. The concern follows the dual use of technologies that enable refining high-grade uranium fuel supplies. These technologies and knowhow can also provide uranium for nuclear weapons. That seems are reasonable concern, and probably the strongest among the various issues with nuclear power production and waste storage.
Also, a search of the NCPA website for “nuclear power” returns various studies and Debate Central evidence files.
The Wall Street Journal’s Aug. 11, 2016 front-page story How the China Shock, Deep and Swift, Spurred the Rise of Trump tries to explain the “Rise of Trump” and the popularity of candidates attacks on trade with China and Mexico. The article blames reduced trade barriers, especially with China, for millions of lost American manufacturing jobs.
HICKORY, N.C.—In the late 1990s, this furniture-making hub seemed sheltered from the disruptive forces of globalization. Laid-off steelworkers from West Virginia, Tennessee and beyond streamed here for new jobs building beds, tables and chairs for American homes. The unemployment rate fell below 2%.
Then came a flood of inexpensive furniture from China driving Hickory furniture firms out of business and unemployment up to 15% by 2010. The WSJ authors, Bob Davis and Jon Hilsenrath, write:
What happened with Chinese imports is an example of how much of the conventional wisdom about economics that held sway in the late 1990s, including the role of trade, technology and central banking, has since slowly unraveled.
The aftershocks are sowing deep-seated political discontent this election year. Disillusionment with globalization has fed one of the most unconventional political seasons in modern history, with Bernie Sanders and especially Donald Trump tapping into potent anti-free-trade sentiment.
The authors cite recent research on the costs of open trade with China:
David Autor, a Massachusetts Institute of Technology economist who has studied trade, labor markets and technological change, calls China’s economy a “500-ton boulder perched on a ledge.” At some point, it would tumble and splatter what was below, but “you just didn’t know when,” he says.
International trade has always been hard on domestic firms facing direct competition from overseas. But consumers benefit from wider choices and lower prices. Autor argues that the immense size of China’s emerging economy made these international impacts wider and deeper than imports in past decades from emerging Japan, Taiwan, and South Korea.
China’s middle class is now larger than the entire U.S. population. Taiwan’s 23 million plus South Korea’s 50 million and Japan’s 126 million add to 200 million in these advanced economies. But the bigger story is that these Asian economies, along with Singapore (5.5 million), are more and more integrated with China’s economy. The Economist, in A Bridge over troubled waters (Nov 8th 2014), subtitled “Taiwan, Japan and South Korea employ huge numbers of mainland Chinese,” notes:
At the latest count 88,000 firms from Taiwan employ 15.6m Chinese workers. About 11m are employed at 23,000 Japanese firms or their suppliers. Throw in 2m more workers for South Korean enterprises, and companies from around the troubled East China Sea have approaching 30m Chinese on their payrolls.
Any U.S. policy changes that raise tariffs or otherwise restrict imports from China will hurt to the economies of Japan, South Korea, and Taiwan. New U.S./China trade restrictions would also hurt U.S. firms. General motors in 2015 sold 3 million cars and trucks in the U.S., but sold 3.6 million in China. Other U.S. firms, from Yum!, Starbuck’s, and McDonalds, to Apple, Intel, and other technology firms, have huge sales in China. Yum! Brands’ Kentucky Fried Chicken (KFC) has 7,200 restaurants in 1,100 Chinese cities, and Yum!’s Pizza Hut runs 1,600 restaurants in 400 Chinese cities. Yum! expects China’s middle class to grow from 300 million to 600 million and plans to have 20,000 locations in China.
Back to Economic Research and Hickory, North Carolina…
The U.S./China trade debate continues in economic journals, and MIT’s David Autor seems the most highly-respected China trade skeptic. For an overview, see MIT’s March 2016 Press Release: Trading places: Economists take a new look at the evidence that the U.S. has lost millions of jobs to China:
As some economists now recognize, the formal trade relationship between the U.S. and China, established in the 1990s and solidified with a World Trade Organization agreement in 2001, dramatically affected a large number of labor-intensive industries in the U.S. In those fields, jobs moved en masse to China, where workers are available at even lower wages.
Skeptical of Autor’s claims is Phil Levy in Foreign Policy, May 8, 2016, Did China Trade Cost the United States 2.4 Million Jobs?, which begins:
The question of whether trade with China has inflicted lasting harm on the United States is the subject of some much-celebrated research by three distinguished economists: David Autor, David Dorn, and Gordon Hanson. They argue that import growth from China cost the United States about 2.4 million jobs over a dozen years. To give an idea of this work’s reception, economist Tyler Cowen referred to it as “some of the most important work done by economists in the last twenty years.”
Levy’s next paragraph begins: “I strongly disagree.” (See story for why.)
An April 18, 2016 NPR segment, China Killed 1 Million U.S. Jobs, But Don’t Blame Trade Deals, discusses the debate, and quotes Autor:
If you look at NAFTA and trade with Mexico, Autor says, not that many U.S. workers have been harmed. But China, his research shows, is a different story. “China’s rise is really a kind of a world historical event,” Autor says. “This is the largest country in the world. It has caused a wholesale substantial contraction of U.S. manufacturing employment.”
Autor says from 2000 to 2007, trade with China destroyed nearly 1 million U.S. manufacturing jobs. That’s apart from other job losses due to technology and productivity gains and automation.
For more on the role of technology advances causing changes in U.S. manufacturing, see Mercatus Center’s Dan Griswold’s August 1, 2016 Los Angeles Times Op-Ed, Globalization isn’t killing factory jobs. Trade is actually why manufacturing is up 40%:
American factories and American workers are making a greater volume of stuff than ever — high-tech, high-value products that are competitive in markets around the world. In the last 20 years, which include enactment of the North American Free Trade Agreement and China’s entry into the World Trade Organization, real, inflation-adjusted U.S. manufacturing output has increased by almost 40%. Annual value added by U.S. factories has reached a record $2.4 trillion.
Griswold explains that manufacturing jobs lost to international trade are much smaller:
According to a recent study by the Center for Business and Economic Research at Ball State University, productivity growth caused 85% of the job losses in manufacturing from 2000 to 2010, a period that saw 5.6 million factory jobs disappear. In that same period, trade accounted for a mere 13% of job losses.
Griswold says half of imports are related to production rather than consumption. Leading U.S. firms employ complex global supply chains to manufacture high-value products that are in turn sold around the world. Plus, Griswold says U.S. jobs in trade industries pay nearly 20% higher wages:
In fact, globalization and trade agreements have made a huge contribution to the ongoing success of American manufacturing. Access to expanding global markets allows U.S. manufacturers to enjoy economies of scale, reducing their per-unit production costs and enhancing their competitiveness. The additional revenue can be reinvested in research and development, leading to new products and expanding market share. This is why U.S. jobs in trade-oriented industries typically pay 18% more than non-trade-connected jobs.
Increasing U.S. manufacturing productivity plays a role in Hickory, NC as well. Eric Cunningham, irked by the WSJ cover story, counters No, Wall Street Journal, Chinese Imports Didn’t Kill My Hometown (August 16, 2016, The Federalist). Alongside the decline of Hickory’s furniture industry, trade-dependent manufacturing, surged:
At the height of Hickory’s furniture boom in the 1990s, another boom was beginning: technology. The rising popularity of the Internet led to rising demand for access. Even as the dot-com bubble imploded, telecommunications kept flourishing, and Hickory had become a hub for it. By 2000, Hickory produced 40 percent of fiber-optic cable in the world. Rather than being content with furniture and textiles, the region had—wisely, in retrospect—expanded its reach and diversified into fiber optics.
Today, two multinational fiber-optic cable corporations, both reliant on trade and globalization, call Hickory their home: CommScope and Corning Optical Communications. Although Corning is set to move its headquarters to a new building in Charlotte, this won’t affect the hundreds of jobs at their manufacturing plant.
Productivity increases reduced furniture employment, and North Carolina manufacturing has been seen healthy expansion:
In fact, the U.S. Bureau of Economic Analysis estimates that my state’s manufacturing output rose from about $63.5 billion in 1997 to more than $100 billion in 2015, with top industries no longer being textiles or furniture, but computers, chemicals, and food products.
And Cunningham offers more to suggest the Wall Street Journal‘s reported death of Hickory is greatly exaggerated:
Certainly, manufacturing jobs have declined here (as they have nationally and around the world), but the state’s unemployment rate is now at or below the national average and our labor force participation has bucked the national trend by actually adding 100,000 workers in the last year. Remarkably, the Hickory region now boasts a 4.6 percent unemployment rate—lower than the state unemployment rate of 4.9 percent and lower than in some of the state’s larger cities like Fayetteville and Greensboro.
On the manufacturing and employment side, international trade has winners and losers. On the consumer side though, are mostly winners who gain from access to lower-cost furniture as well as other goods and services. Firms hurt by imports join trade associations and lobby legislators. Political pressure for protectionist policies is explained by Public Choice theory: gains to consumers from trade with China are disbursed but costs are concentrated in specific firms, industries, unions, and trade associations, which actively lobby for higher trade barriers.
High school debate students researching this year’s U.S./China debate topic have an opportunity to gain deeper understanding of key issues surrounding this important and controversial topic, one that’s front and center in national politics.
To prepare for the upcoming CX debate topic, Debate Central has compiled a list of topic overviews that address certain aspects of the resolution. The tenth topic overview explains China’s relationship with Saudi Arabia. Prepare yourself before the season starts by reading our topic overviews which contain historical analysis, arguments, and handy evidence to help you write cases and briefs!
CX Topic for the 2016-2017 year: The United States federal government should substantially increase its economic and/or diplomatic engagement with the People’s Republic of China.
To prepare for the upcoming CX debate topic, Debate Central has compiled a list of topic overviews that address certain aspects of the resolution. The ninth topic overview explains China’s relationship with Iran. Prepare yourself before the season starts by reading our topic overviews which contain historical analysis, arguments, and handy evidence to help you write cases and briefs!
CX Topic for the 2016-2017 year: The United States federal government should substantially increase its economic and/or diplomatic engagement with the People’s Republic of China.