[NCPA Special Publication: Wednesday, December 28, 2016]

by Doug Bandow

“Resolved: The United States federal government should substantially increase its economic and/or diplomatic engagement with the People’s Republic of China.”

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 a better explanation of the importance of U.S.-China political and economic relations than candidates’ sound-bytes.

The Complicated Relationship with China. China is an emerging great power and perhaps eventual superpower that is challenging Washington in sescreen-shot-2017-01-01-at-10-48-50-amveral key areas. The economic benefits for the United States of its relationship with China seem obvious, but many Americans wonder if the difficulties outweigh the benefits.

The PRC possesses the world’s second largest economy and has become both commercial partner and competitor with the United States. Trade between the two nations is beneficial because of comparative advantage; that is, each country is relatively better at producing some items than the other. This economic concept is the foundation for trade throughout history.

However, international commerce today is about politics as well as economics. Trade and investment disputes have multiplied between the two governments while China remains the fount of extensive cyber-espionage targeting U.S. business secrets. Continuing the relationship depends on the ability of the two governments to work through these often contentious disputes.

[See full article here.]

– See more at: http://www.ncpa.org/pub/economics-of-the-2016-2017-debate-topic-us-relations-with-china-mixing-cooperation-with-competition#sthash.X9Qp2bar.dpuf

Public health concerns can restrict individual liberty. Typhoid Mary lost her liberty and freedom of association due to a microbe she carried, even though she was in good health. Similarly, Chinese companies raising seafood safe for U.S. consumers are creating a public health crisis: microbes resistant to antibiotics.

How Antibiotic-Tainted Seafood From China Ends Up on Your Table,” (BloombergBusinessweek, 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..

The individual fish are okay to eat, but the antibiotic microbes migrate from Chinese pigs to fish to U.S. consumers, ecosystems, and hospitals.

In “China tackles antimicrobial resistance,” (Science, Aug. 31, 2016), the costs and source of the problem reported:

According to a May report from the Wellcome Trust in London, antimicrobial resistance in China could cause 1 million premature deaths annually by 2050 and cost the country $20 trillion. Antibiotics are currently widely available without prescriptions in China for both human and livestock use. The country accounts for half the world’s annual antimicrobial drug consumption. “Antimicrobial resistance is a problem created by human behavior—largely through the inappropriate use of antimicrobials in health care, as well as in animal husbandry,”

The Science article reports the Chinese government is taking the problem seriously and taking steps:

As part of a national action plan unveiled on 26 August, the Chinese central government said that it would mobilize the efforts of 14 ministries and departments including health, food and drugs, and agriculture. By 2020, the government aims to develop new antimicrobials, make sales of the drugs by prescription only, ramp up surveillance of human and veterinary usage, and increase training and education for both medical professionals and consumers on their proper use.

However, political pronouncements may or may not lead to actual reforms. Economists focus on incentives (economics is mostly about incentives, the rest is commentary). So what incentives will the announced Chinese “national action plan” create? It’s unclear. The size and scope of the problems are discussed in detail in “How Antibiotic-Tainted Seafood From China Ends Up on Your Table“:

Livestock pens are scattered among the thousands of seafood farms that form the heart of the [China’s] aquaculture industry, the largest in the world.

Beside one of those fish farms near Zhaoqing…a farmhand … hoses down the cement floor of a piggery where white and roan hogs sniff and snort. The dirty water from the pens flows into a metal pipe, which empties directly into a pond shared by dozens of geese. As the yellowish-brown water splashes from the pipe, tilapia flap and jump, hungry for an afternoon feeding.

Chinese agriculture has thrived for thousands of years on this kind of recycling—the nutrients that fatten the pigs and geese also feed the fish. But the introduction of antibiotics into animal feed has transformed ecological efficiency into a threat to global public health.

Antibiotics banned for the U.S. food industry and essential for world health have been overused in China’s “sustainable” animal waste to fish fertilizing system:

At another farm, in Jiangmen, a farmer scatters a scoop of grain to rouse her slumbering swine, penned on the edge of a pond with 20,000 Mandarin fish. The feed contains three kinds of antibiotics, including colistin, which in humans is considered an antibiotic of last resort. Colistin is banned for swine use in the U.S., but until November, when the Chinese government finally clamped down, it was used extensively in animal feed in China. Vials and containers for nine other antibiotics lie around the 20-sow piggery… Seven of those drugs have been deemed critically important for human medicine by the World Health Organization.

The Bloomberg article also reports that tens of millions of tons of Chinese fish are likely transhipped through Malaysia and other countries, relying on loose or fraudulent paperwork on country of origin, and banned Chinese seafood still makes it to the U.S.:

But antibiotic-contaminated seafood keeps turning up at U.S. ports, as well as in restaurants and grocery stores. That’s because the distribution networks that move the seafood around the world are often as murky as the waters in which the fish are raised.

See also “U.S. seafood import restriction presents opportunity and risk,” (Science, December 16, 2016), however these new NOAA regulations are related to mammal protection and bycatch, rather than fish farming and antibiotic abuse.

New DNA results answer consumers’ demand for trust in seafood,” (Phys.org, March 15, 2016) reports:

Two-thirds (67 percent) of U.S. seafood consumers say they want to know that their fish can be traced back to a known and trusted source, with 58 percent saying they look to ecolabels as a trusted source of information. Globally, 55 percent doubt that the seafood they consume is what it says on the package. These findings are from the Marine Stewardship Council’s (MSC) latest survey of more than 16,000 seafood consumers across 21 countries.

The article notes both that the U.S. is the world’s largest seafood importer, and that much of the imported seafood is mislabeled for consumers:

Oceana’s nationwide survey in 2013 found one-third (33 percent) of U.S. seafood samples genetically analyzed were mislabeled.

The Marine Stewardship Council documents seafood origin and sustainability for ocean-caught fish:

Brian Perkins, MSC Regional Director—Americas, said, “The MSC’s DNA results prove you can trust that seafood sold with the blue MSC ecolabel really is what the package says it is and can be traced from ocean to plate. Last month, the U.S. government announced proposed rules that would require tracking to combat illegal fishing and fraud. Many businesses are left wondering whether they’re selling seafood that was produced legally and sustainably. MSC certification means consumers and businesses can be confident that MSC ecolabeled fish has been caught legally and can be traced back to a sustainable source.”

The Marine Stewardship Council 2015 Annual Report has numerous references to China seafood certification:

The MSC’s program director in China, Dr An Yan, was named the most influential figure in the Chinese seafood industry, in a 2016 survey of hundreds of seafood executives in China. The number one spot went to Ivy Wang, chief China representative at the Atlantic Canada Business Network, for “putting Canadian lobster on so many Chinese plates” – 97% of Canadian lobster is MSC certified.

More focused on fish farming certification is the Aquaculture Stewardship Council: “ASC announces partnership for development in China” (September 14, 2016):

The agreement will accelerate the growth of the ASC programme in China. Tao Ran has been contracted to lead the strategy implementation and to expand the adoption of ASC farm standards. The firm’s aquaculture staff will also work seamlessly with the ASC team to promote the availability of ASC certified seafood for consumers within China, and in the many countries that buy aquaculture products from China.

And further:

This innovative partnership will allow ASC to seize the historical opportunity of the Chinese government’s policy for a “market-oriented mode” in economic development. The agreement includes a long-term strategy to support the development, improvement and adaptation of ASC standards and engage and assist ASC Chain of Custody (CoC) certified companies. The agency will play a key role in both building new partnerships and strengthening existing ties with the Chinese seafood industry, affiliated associations, NGOs and key government agencies…

fedseafoodsafetyThough the Food and Drug Administration (FDA) “has the primary federal responsibility for safety of seafood products in the U.S.” and other federal agencies are involved, private seafood certification systems are a popular alternative. For details, see presentation “U.S. Aquaculture Regulations: A
Comparison with Seafood Certification Schemes,” (November 13, 2013), and FAO Fisheries and Aquaculture Technical Paper No. 553: “Private standards and certification in fisheries and aquaculture” (FAO, 2011):

Private standards and related certification schemes are becoming significant features of international fish trade and marketing. They have emerged in areas where there is a perception that public regulatory frameworks are not achieving the desired outcomes, such as sustainability and responsible fisheries management. Their use is also becoming more common in efforts to ensure food safety, quality and environmental sustainability in the growing aquaculture industry.

Apart from U.S. regulatory or NGO certification advances, new research may address the global health problem of microbes gaining antibiotic resistance. In “Does this 25 year-old hold the key to winning the war against superbugs?,” (The Telegraph, September 25, 2016):

“We’ve discovered that [the polymers] actually target the bacteria and kill it in multiple ways,” says Lam, who leads a half-a-dozen-strong research team. “One method is by physically disrupting or breaking apart the cell wall of the bacteria. This creates a lot of stress on the bacteria and causes it to start killing itself.”

Her research, published this month in the prestigious journal, Nature Microbiology, has already been hailed by scientists as a breakthrough that could change the face of modern medicine.

Scope of public health danger is briefly (and breathlessly) outlined in a short video embedded in Telegraph article:

Superbugs, the drug-resistant infections, are set to kill over 10 million people across the world by 2050.

Debaters can address a major source of drug-resistant bacteria at their source in agriculture and aquaculture practices in China. New Chinese government regulations may or may not reform the industry. Restrictions on antibiotic use in Chinese fish farms exporting to the U.S. would have a more immediate economic impact. Improving US/China engagement on addressing overuse of antibiotics could save millions of lives over the coming decades.

In April, 2016 China’s government launched a new effort to restrict and control its society. “Clampdown in China Restricts 7,000 Foreign Organizations,” (New York Times, April 28, 2016) begins:

China took a major step on Thursday in President Xi Jinping’s drive to impose greater control and limit Western influences on Chinese society, as it passed a new law restricting the work of foreign organizations and their local partners, mainly through police supervision.

The 7,000 foreign NGOs have until the end of the year to take steps required by the new law, but these steps were unclear until this week.

China Unveils List of Activities Permitted for Foreign Nonprofits, ” (Wall Street Journal, December 21, 2016) reports the latest developments:

BEIJING—After months of uncertainty for foreign nonprofits, China released a list of activities the groups will be allowed to pursue under a controversial new law, with a surprising number of activities falling in potentially sensitive areas such as legal services.

Civil society institution are central to US/China engagement, and include international debate societies, educational associations, and thousands of international environmental, business, religious, and cultural associations.

These non-government organizations (NGOs), along with tens of thousands of international businesses operating in China, build personal and cultural connections between people and societies that are fully or partially independent of governments.

screen-shot-2016-12-23-at-4-20-45-amRotary Clubs meet weekly in communities around the world, including China. Rotary China explains:

Rotary is a global movement of business and community leaders from different walks of life – who come together to have fun, network and do good in our communities. …

Rotary encourages like-minded business and community leaders to share ideas, about how to build our clubs and expand our service project impact.

Rotary has just 15 chartered clubs in China. Yet there are over 100 Rotary Clubs in Washington State and 15 clubs in or within 100 miles of Bucharest, Romania.

Another business and community service organization, the Lions Club, has a long history in China, and by 2015 “there were 26,000 members in 758 clubs.”

Lions Clubs of China were shut down by the communist government in 1949, but returned in 2002, leading with a signature international program to restore eyesight, SightFirst.

SightFirst is working with its partners in China to increase low-vision services, including pilot centers in Liaoning and Guangdong provinces, to assess if blinding trachoma is a public health problem in China. SightFirst in China is also working to develop a regional training program model in Liaoning Province that better links eye care services in urban areas to those in rural areas.

With these spectacular results, the formation of new Lions clubs in China was not long in coming. In 2002, with the full support and endorsement of the Chinese government, Lions Clubs International issued charters to new clubs in Guangdong and Shenzhen with about 60 members each. Lions have grown rapidly in China. By 2015, there were 26,000 members in 758 clubs, ranking China among Lions’ fastest growing regions worldwide.

Kiwanis International, the third major business service organization, similarly leads an international health initiative:

Ganzu, China: For the past 10 years, salt manufacturers and health workers such as Dr. Ray Yip have worked together to solve the problem of iodine deficiency in China. Thanks to support from UNICEF and Kiwanis International, 95 percent of the population has access to iodized salt.

Kiwanis International also runs a Key Clubs program for high school students:

Key Club is the oldest and largest service program for high school students. What makes Key Club so successful is the fact that it is a student-led organization

Key Clubs are also operating in China:

We’re excited to announce a new Key Club nation: China! This takes our “international status” to a whopping 33 countries!The first chartered Key Club in China, which is located in Nanjing, already has more than 90 members!

So far, the club has organized several activities, such as charity fundraisers and performances, and tutors English to children from low-income families.

This 2009 Daily Kos article gives a brief history of Rotary, Lions, and Kiwanis clubs.

 

Apart from service clubs are educational organizations, like China high school debate supporter Sunrise International Education, whose goals are:

Sunrise is a social enterprise dedicated to reforming global education, in middle schools, high schools and universities, through experiential learning. Founded by two American education entrepreneurs in 2011, Sunrise pioneered an innovative model of student engagement, cultivating grassroots student communities and creating a bridge between them and institutions worldwide.

The National High School Debate League of China (NHSDLC) is a Sunrise program offering experiential learning:

The NHSDLC is a project of Sunrise International Education, a social enterprise dedicated to promoting American style extra-curricular education and cross cultural exchange in China and East Asia. Sunrise International Education also organizes the Association for Global Debate, the China Youth Business League, Yale Model UN China and InterPLAY China. [More links at website.]

The National High School Debate League of China (NHSDLC), for example lists its civil society activities:

We organise over 75 tournaments a year in cities all over China with 10,000 students competing. Our regionals vary in size from around one hundred students in smaller cities to more than 300 in the largest cities. The best students from each city qualify to compete at our yearly National Championship in Beijing; this year’s Championship had over 400 students participating, making it the largest ever in China 

So… here is hoping that high school debate societies continue to flourish in China, along hundreds of other international education, and business service clubs, and associations.

In “The Legacy of China’s One-Child Policy,” (Time, Dec. 13, 2016), Hannah Beach reports on the sad reality of China’s misguided 1979 policy of limiting most families to one child.

Some costs of China’s family planning, which limited most urban families to a single child, are well known. Because of the abrupt lowering of the birth rate, China will grow old before it grows rich. The nation is already facing a labor shortage.

Fears of worldwide overpopulation and natural resource depletion influenced 1970s textbooks and classroom instruction around the world. Videos from ZPG (Zero Population Growth) shown to high school classes highlighted year-by-year population growth that accelerates rapidly with the Industrial Revolution in 1800s (similar YouTube world population video here). (Actually, the birth rate stayed much the same, but the death rate fell dramatically. Costs of food and clothes fell as farms and factories were able to produce far more at lower costs. Plus transportation costs fell some 80%, so food, raw materials, and people could travel less expensively around the world).

Here is abstract from ZPG report from 1985 critical of the Reagan Administration for ignoring the benefits of China’s one-child policy:

The Reagan administration refuses to recognize the achievements of China’s population program and the practical and humanitarian considerations which lead to China’s adoption of vigorous family planning policies. … The national census of 1982 revealed that China’s population doubled between 1949-1982 and in 1982 exceeded 1 billion. Severe famine and economic chaos were forecasted for the near future if population growth was not severely and immediately curbed. 

But forecast by whom? Economist Julian Simon in his book The Ultimate Resource, emphasized that though every new child was at first a burden (as well as a joy) to parents, new mouths to feed soon became new hands able to produce and new minds to create and innovate. In open societies (unlike China under communism) people can produce far, far more in their lifetime than they consume.

Environmentalists and population-control advocates also feared the world was running out of resources, and demand for the oil, coal, natural gas, copper, zinc, aluminum, and other natural resources would soon exceed supplies that could be found. For more on 1970s overpopulation and natural resource fears see the 1977 Global 2000 Report to the President, and 1972 Limits to Growth study from The Club of Rome. (Students are encouraged to research both scholars who believed in natural resource depletion and other scholars (often economists) who believed markets and innovation would continue to innovate and discover new natural resources.)

Along with government population control, international ownership and planning of scarce world resources was advocated. For example, the 1975-1976 national high school debate topic:

Resolved: That the development and allocation of scarce world resources should be controlled by an international organization.

Hannah Beach in Time reports another legacy of China’s population policy:

But for the 13 million or so unregistered Chinese, most of whom were born in contravention of family-planning regulations, the one-child policy’s devastating effects still endure. …

Since their births were not officially recorded, many of these individuals live in the shadows of Chinese society. They could not go to school or get a passport. All too often, their parents were fined prohibitive amounts or forced out of their jobs. Although some have managed to fight the system, others spend their days mired in endless paperwork. Their goal: to get their very existence recognized by the Chinese state.

An alternate path for China’s unregistered is to exit the country that does not recognize their rights as Chinese citizens or human beings.

In “Start-up cities” for refugees: a long-term solution to the migration crisis?,” Pieter Cleppe argues new charter cities could help millions of refugees around the world. New charter cities could help millions wishing to escape China. And there is no better example than the charter city that gave economic freedom to millions of impoverished Chinese refugees:

What was Hong Kong other than a city governed by Western officials and populated largely by refugees from Maoist China? If it was possible for the British to provide a safe home for millions of people on the run in much more challenging times, why wouldn’t it be possible for the whole of the developed world – not just Western countries – to give any refugee the most precious thing the developed world can offer them: the protection of the rule of law, which has propelled the US, Canada, Europe, Japan, and parts of East and Southeast Asia to the levels of wealth they enjoy today.

Desperate for economic reforms so China could catch up to the West (and with Hong Kong, Taiwan, SK, and Japan), Chinese government officials since the 1960s have implemented disastrously destructive economic policies.

More on charter cities for refugees: “A Place for the Stateless: Can a Startup City Solve the Refugee Crisis?” And a longer history of charter cities “The Politically Incorrect Guide to Ending Poverty” (The Atlantic, July/August, 2010). Economist Paul Romer suggests “A Charter City in Cuba?” to address a US problem, and poverty for Cubans:

An existing treaty between the United States and Cuba currently gives the United States administrative control over a piece of sovereign Cuban territory straddling Guantanamo Bay that is twice the size of Manhattan.

Imagine that the United States and Cuba agree to disengage by closing the military base and transferring local administrative control to Canada. Canada works with Cuba to draft a charter for this special zone and promises to enforce its terms. Under this charter, a new city blossoms. It does for Cuba what Hong Kong, administered by the British, did for China; it connects Cuba to the global economy.

Some students debating the Mexico/Venezuela/Cuba debate topic from a few years ago researched Romer’s proposal for a new Hong Kong in Cuba.

See also “Could Refugee Camps Be Startup Cities?

Back to China’s One-Child Policy
Nicholas Eberstadt in the Wall Street Journal (October 29, 2015), calls China’s population control policy: “The one-child mandate is the single greatest social-policy error in human history.”

The Chinese government’s draconian one-child policy followed soon after Mao Zedong’s death in 1976, and was a response to incredible poverty across China following decades of top-down economic planning.

The one-child policy created an utterly new social system for China, notes Eberstadt:

And China’s cities are now producing a new family type utterly unfamiliar to Chinese history: only children begotten by only children. They have no siblings, cousins, uncles or aunts, only ancestors (and perhaps, one day, descendants). 

China’s population problems aren’t yet fixed. It’s current two-child mandate still has government officials trying to regulate families, limiting those without wealth or political connections to just two children.

On the positive side, there is this recent article: “Researchers may have ‘found’ many of China’s 30 million missing girls,” (Washington Post, November 30, 2016):

Academics often talk about between 30 and 60 million “missing girls” in China, apparently killed in the womb or just after birth, thanks to a combination of preference for sons and the country’s decades under a repressive one-child policy.

Now researchers in the United States and China think they might have found many — or even most — of them, and argue they might not have been killed after all. …

“If we go over a course of 25 years, it’s possible there are about 25 million women in the statistics that weren’t there at birth,” Kennedy said.

So, it is very good news that millions of Chinese girls long thought lost by academics may be found in rural areas and among the 200 million floating population (those who migrated illegally to work in Chinese factories).

However, many of these young people long fenced out of official Chinese society might well wish to depart regulated China and migrate toward opportunities in freer and more prosperous cities around the world.

This year’s scholarship winners will be announced late January 2017.

More on contest here.

The topic for the 2016-2017 scholarship essay contest is:  

“Are international free trade agreements in the best interest of the United States? Why or why not?”

Contest participants have the opportunity to:

  • Earn a college scholarship of up to $5,000.
  • Have your essay published on Debate Central.
  • See your essay posted on the National Center for Policy Analysis (NCPA) home page.
  • Have your essay shared with 200,000 NCPA Policy Patriots via email.
  • Have your winning entry be sent to your hometown newspapers, radio and TV.

Please read the following pieces as you consider the above topic:

The two readings are required. Your submission will be graded in part according to how carefully and thoughtfully you engage with these challenging articles. They are:

Make sure to include a bibliography citing any outside sources you choose to reference.  Incorporating outside research into your writing, although not required, may improve the overall quality of your essay. Your bibliography does not count against your word total.

Entries will be judged on the quality of their writing (style and mechanics), their level of engagement with the topic, and the strength of their reasoning. Essays that make an argument and support it well will out-perform essays that only provide a neutral overview of both sides. Judges will not consider their personal feelings on the topic when evaluating the essays.

More on contest here.

screen-shot-2016-12-09-at-10-14-50-am

Earlier posts have discussed supply-chain networks that bind U.S. manufacturers with Chinese and Mexican factories producing intermediate goods and materials. “Trump’s Tough Trade Talk Could Damage American Factories,” (New York Times, December 2, 2016) examines the US/China trade debate, looking first at a successful and growing manufacturing firm in Michigan:

But many existing American manufacturing jobs depend heavily on access to a broad array of goods drawn from a global supply chain — fabrics, chemicals, electronics and other parts. Many of them come from China. At Mr. Reid’s factory, imports account for roughly two-thirds of the cost of making a recliner chair.

In short, Mr. Trump’s signature trade promise, one ostensibly aimed at protecting American jobs, may well deliver the reverse: It risks making successful American manufacturers more vulnerable by raising their costs. It would unleash havoc on the global supply chain, prompting some multinationals to leave the United States and shift manufacturing to countries where they can be assured of buying components at the lowest prices.

The article emphasizes that in addition to fabrics imported from China, Mr. Reid’s firm, First Class Seating, uses U.S. materials as well as employing US workers:

Mr. Reid takes pride in using American products. His designers here in Michigan dreamed up his sleek recliner. Local hands construct the frames using American-made steel, then affix molded foam from a factory in nearby Grand Rapids. They staple upholstery to hunks of wood harvested by timber operations in Wisconsin. They do all this inside a former heating and cooling equipment factory that shut down a decade ago when the work shifted to Mexico.

New and higher tariffs on materials imported from China would raise costs for First Class Seating, likely leading to lost sales to competitors still able to access Chinese made goods and materials.

In “Globalization isn’t killing factory jobs. Trade is actually why manufacturing is up 40%,” (LA Times, August 1, 2016), Daniel Griswold also emphasized the key role of imports for US manufacturing:

Imports also play a critical role in the success of U.S. manufacturing. Measured in terms of value, more than half of what Americans import each year is not for consumption but for production. Being integrated into global supply chains allows U.S. manufacturers to source more affordable parts, components, raw materials and production equipment, making their final products more competitive. 

Around the world women wash clothes and most wash by hand since they lack access to electricity, or access to enough electricity to power a washing machine.

Access to modern washing machines, like access to cars, matters for teenagers and adults in wealthy countries as well as poor. Protectionist policies that tax foreign goods can shield some jobs and companies, but taxes on imports raise prices that especially hurt low-income families and limit consumer choice. Protectionism shelters domestic firms, which may protect jobs in the short run also leads to less competitive domestic firms over time by reducing incentives for innovation in domestic companies.

Tariffs on foreign cars and washing machines reduce the competitiveness, profits, and, over time, employment of U.S. firms. So Whirlpool’s dumping charges against Korean/Chinese washing machines will hurt Whirlpool employees and stockholders in the years to come as well as hurting U.S. consumers now. (See “U.S. to Charge Duties on Some Samsung, LG Washing Machines Built in China,” (WSJ, July 20, 2016) and “Whirlpool Wants Tariffs for Chinese Washers,” December 30, 2015, and more on Asian washing machine protectionism below.)

The U.S. Commerce Department is:

upholding a complaint by competitor Whirlpool Corp. alleging that the companies [LG and Samsung] sold their washers in the U.S. for less than they cost to produce.

The concern is “predatory pricing,” where large firms care said to sell goods below cost for a time to drive competitors out of business, then later raise prices to recover early losses. So have LG and Samsung, both South Korean companies with Chinese factories, been manufacturing washing machines and selling in the US below their cost of production?

In “The Mounting Costs of Antidumping Laws: Time for Action?” (Truth on the Market blog, May 23, 2016), Alden Abbott argues for reforming US Antidumping laws:

Although the original justification for American AD law was to prevent anticompetitive predation by foreign producers, I explained that the law as currently designed and applied instead diminishes competition in American industries affected by AD tariffs and reduces economic welfare.

Abbott cites and quotes from an October 2015 World Bank study, “Antidumping and Market Competition: Implications for Emerging Economies,” he says “confirms that the global proliferation of AD laws in recent decades raises serious competitive concerns.”

Over a century, antidumping has gradually evolved from an obscure and rarely used policy tool to one that now constitutes an important form of protection not subject to the same WTO [World Trade Organization] controls as members’ bound tariff rates. Rather, antidumping is one of several instruments that allow members to exceed their bound tariffs, albeit subject to very detailed WTO procedural disciplines. Moreover, while the application of antidumping was until the WTO era mainly the province of a few traditional users, emerging markets have become some of the most active users of antidumping and related policies as well as important targets of their application. And though these policies are known collectively as temporary trade barriers, WTO rules governing the duration of antidumping measures are much weaker than for safeguards.

Antidumping policies have, under pressure of special interests at home and abroad, developed into a complex network of trade barriers used both by and against US manufacturers.

Virginia Postrel’s New York Times column, “Economic Scene: Wealth Depends on How Open Nations Are to Trade,” (2001) quotes from economists Stephen L. Parente and Edward C. Prescott’s book Barriers to Riches on the cost of protectionism in India:

In other words, says Professor Parente, “poor countries are poor because some groups are benefiting by the status quo,” and those groups use the law to block change. India has a long history of this. In the early 20th century, strikes kept Indian textile mills from increasing the number of looms each worker operated, and the government protected the old ways through steep tariffs on foreign textiles. As a result, from 1920 to 1938 textile productivity rose by only a third as much in India as it did in Japan, which was beginning its climb to prosperity.

Indian government policies blocked imports of Japanese and other foreign cars and blocked foreign direct investment. Special interests limited competition within India (blocking new firms). Established companies working with labor unions and government blocked imports of foreign manufactured goods. So India protected existing firms and jobs and stayed poor through the 1960s, 70s, and 80s, and only started prospering after barriers to international trade and foreign direct investment were lifted in the early 1990s.

Here is a three-minute video from The Commanding Heights documentary (and episode 2 on India’s Permit Raj, and the stagnation of India’s protected Ambassador car company vs. Japan’s Toyota:

This is a lesson for the U.S. as well. Domestic regulations coupled with protectionist policies can slow and even stop advances across whole industries. Plus protectionism is often advanced under the guise of various policies claimed to be pro-consumer, antitrust, environmental, and pro-labor.

China is both a developed and an undeveloped country, much like Europe after the fall of communism. When Deng Xiaoping’s reforms began in 1978, parts of “China” were already market-based (Taiwan and Hong Kong). Agricultural reforms allowed mainland China families to essentially own farmland, which immediately and dramatically increased food production.

Reforms also opened a handful of southern and coastal regions, Special Economic Zones, to foreign investment and the most important early investors were returning Chinese investors who had earlier fled China and prospered in other countries.

By the 1990s firms and workers in these free-enterprise zones had surged ahead, with 40% annual growth rates in Shenzhen, for example. By 2016, hundreds of millions in China have enjoyed decades of sustained economic development. Western and rural regions, though, have been slower to enjoy the gains from market reforms and international trade and investment.

Access to electricity and washing machines plays a larger role in reducing poverty and gender inequality around the world. Swedish statistician Hans Rosling explains the magic of washing machines in his famous TED talk (now with over 2 million views).

http://www.ted.com/talks/hans_rosling_and_the_magic_washing_machine?utm_source=tedcomshare&utm_medium=referral&utm_campaign=tedspread

Washing machines, or the lack of them, impact every family on the planet. Rosling is passionate in advocating access to electricity and washing machines for Earth’s five billion people still living below the “wash line.” Rosling says one billion live above the “airline,” with access to all sorts of machines and gadgets and even flying machines! Another billion can’t afford all that, but do have electricity and washing machines. But below the wash line, five billion live in families where women take dirty clothes to the river each week, bring water from wells, or, for those lucky enough to have running water, wash clothes by hand at home.

(My mother had a washboard in the utility room before we had any machines for cleaning. We later bought a washing machine and mom hung clothes out to dry in the patio or front yard (depending on rain). Later we bought a dryer and still later a dishwasher. These magic appliances made daily chores much, much easier for my mother and my sister.)

There are important ways this washing machine progress story connects to the U.S./China debate topic. Central to Hans Rosling’s TED presentation: Some environmentalists believe Earth’s ecosystems unable to cope with the economic expansion and surge in electricity use needed to power washing machines for the billions still washing clothes by hand. Rosling mentions his environmentally-conscious Swedish students who ride bicycles each day to reduce their “carbon footprint.” He asks for a show of hands on bicycles first, then on clothes washing. None of his students wash their clothes by hand.

U.S. trade policy with China is impacted by environmental concerns (especially CO2 emission) with policies involving energy use and global climate change (as well as separate labor, antitrust, and other policies).

Environmentalists want more renewable energy used in China, and find common cause for protectionist policies that would also protect relatively more energy-efficient U.S. manufacturers from Chinese competition. Chinese manufacturers are shifting to more efficient and less polluting natural gas power, especially in China’s more-developed southern and coastal provinces.

The Chinese government though, is spending billions to heavily-subsidize solar and wind power installations, and also running heavily-polluting coal-power for electricity in the north, and coal-powered state-owned steel production. These costly policies are driven by politics. Fears of jobs losses, plus local corruption sustain coal and steel subsidies.

Concern about foreign environmentalists and protectionism energize solar and wind power subsidies. Unless the Chinese government makes a big show of spending billions for solar and wind power, and being a leader in renewable energy, they risk U.S. and E.U. environmentalists joining with manufacturing and labor interests to build new protectionist barriers. This 2011 article, “Prospects for Green Protectionism under China-US Energy Cooperation” discusses this dynamic:

A typical example was that the US threatened to impose unilateral trade sanctions, especially the so-called “carbon tariffs”, on energy-intensive products imported from those developing countries that would not adopt CO2 mitigation policies “comparable” to that of the US. The Waxman-Markley bill, passed in June 2009 by the US House of Representatives, and most other proposed [laws/legislation] in recent years all contained such provisions, [with/regarding] China as the major target.

The Chinese government understands the threat of “carbon taxes” so continues to subsidize solar and wind power generation.

Separate from green energy policies are more traditional protectionist policies claiming foreign firms are hurting the U.S. by selling manufactured goods below cost. Cited above are efforts by Whirlpool to slap tariffs on Korean washing machines made in China. Courthouse New Service December 30, 2015 story, “Whirlpool Wants Tariffs for Chinese Washers.”

Appliances maker Whirlpool wants the federal government to impose tariffs on imported Samsung and LG washing machines made in China, claiming they are priced too low. Whirlpool Corp. filed an anti-dumping petition with the U.S. Department of Commerce and the U.S. International Trade Commission, accusing its Korean rivals of circumventing federal orders. Dumping refers to selling a product in the United States at a price that is lower than “the price for which it is sold in the home market,” or the fair value, according to a government handbook.

Does it seem reasonable that Samsung and LG would invest hundreds of millions in design, factories, tooling, production, and shipping to sell their new washing machines in the U.S. for less that it costs to produce them?

The popular theory is that firms engage in “predatory pricing,” with big firms selling below cost in order to drive their smaller competitors out of business. Once competitors are bankrupt or leave the business, these “predatory” firms plan to recoup their losses as monopolists by raising prices much higher.

It is an interesting theory, but according to economists, doesn’t work in practice. “Antitrust,” an article in The Concise Encyclopedia of Economics, notes:

Likewise, belief in the efficacy of predatory pricing—cutting price below cost—as a monopolization device has diminished. Work begun by John McGee in the late 1950s (also an outgrowth of the Chicago Antitrust Project) showed that firms are highly unlikely to use predatory pricing to create monopoly. That work is reflected in several recent Supreme Court opinions, such as that in Matsushita Electric Industrial Co. v. Zenith Radio Corp., where the Court wrote, “There is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.”

Those researching US/China trade policy should ask: who benefits from current and proposed trade policies? Past posts have noted that trade restrictions are often proposed and promoted by concentrated interest groups expecting to benefit from anti-dumping policies and other trade barriers.

Trade policy is not so different from other regulations. Regulations restricting Uber and Lyft ride-sharing, for example, are passed in the name of protecting the public but serve to protect established taxi and limousine companies from competition.

Everyday people benefit from wider transportation options, but not enough to lobby, protest, or vote because of this single issue. Taxi companies and drivers are concentrated and motivated, and they will lobby and protest to defend their government-protected privileges, just as Whirlpool and worker unions do to try to raise costs for Korean/Chinese companies.

Relatively open trade with China was originally easy because in the 1980s China was so poor and rural that manufacturing there was little threat to U.S. firms. As China under Deng Xiaoping opened up parts of the economy to foreign direct investment, manufacturing boomed. The Chinese economy integrated with the U.S., South Korean, Japanese, and Taiwanese economies. Now hundreds of millions of jobs across these five economies are woven together through tens of thousands of interconnected companies, supplier contracts, and distribution agreements.

The results of this relatively open trade and investment policy over three plus decades has been lower costs for goods for world consumers and astonishingly good news for hundreds of millions across China. A Huffington Post article, “Global Poverty Will Hit New Low This Year, World Bank Says,” reports the amazing story that as world population grew by billions since 1990, extreme world fell:

…a stunning decline from the numbers reported over the last 25 years. According to the World Bank, 37.1 percent of the world’s population lived in extreme poverty in 1990. In 2015, that number is estimated to drop to 9.6 percent.

In an October 7, 2015 Cato at Liberty post, “The Dramatic Decline in World Poverty,” Ian Vasquez connects this poverty reduction with the expansion in economic freedom, especially in China:

The drop in poverty also coincides with a significant increase in global economic freedom, beginning with China’s reforms some 35 years ago and the globalization that followed the collapse of central planning in the late 1980s and early 1990s. As we celebrate this achievement and strive for further progress, we should not lose sight of the central role that voluntary exchange, freedom of choice, competition and protection of property play in ending privation.

Relatively open U.S./China trade and investment policies have been the major factor reducing world poverty, along with India’s economic reforms in the early 1990s. Tyler Cowen in “Trump’s Disastrous Pledge to Keep Jobs in the U.S.” (Bloomberg, November 29, 2016) argues that policies designed to protect US manufacturing jobs will backfire:

If regulations prevented, say, Ford Motor Company from transferring its own capital funds to Mexico, what would keep it from using affiliates, subsidiaries, commercial alliances, or a complex web of foreign transfers to achieve more or less the same ends?…

Furthermore, if we limit the export of American capital to Mexico, the biggest winner would be China, as one of its most significant low-wage competitors — Mexico — suddenly would be hobbled.

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