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US Convinces China to Jack Up Prices to American Consumers

November 30, 2007, 2:19 pm

From the NY Times:

Bowing to American pressure on the eve of high-level talks to reduce
economic tensions, China agreed Thursday to terminate a dozen different
subsidies and tax rebates that promote its own exports and discourage
imports of steel, wood products, information technology and other goods.

Thanks a lot.  The Bush Administration crows that:

This outcome represents a victory for U.S. manufacturers and their workers

Um, not if they are consumers too, as they all are.  And not if their company buys any inputs from Chinese manufacturers.

Napoleon said to never interrupt an enemy when he was making a mistake.   I don't consider China an enemy, but it just flabbergasts me that the Chinese taxpayers and consumers see fit to subsidize lower prices for our consumers, and we feel the need to stop them.   More here and here.

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Category: Trade Policy
  • jimk

    I absolutely agree that we should do nothing to stop the Chinese from subsidizing their exports. But it is wrong to imply that there is any choice involved for Chinese taxpayers, unless by the Chinese taxpayers you mean a small group of communist leaders. The fact is that China needs to keep its currency cheap, largely because if it was allowed to appreciate to its free market level, it would likely expose the significant amount of bad loans made by Chinese banks to state-run enterprises (they are all export oriented so their revenues would be hurt while their liabilities remained unchanged). The amount of these loans is unknown but numbers have been estimated between $400 billion and 1 trillion, but no one really knows.

    Much better to impoverish domestic Chinese consumers than to expose the extent of the bad loans. Granted, we of the Subprime U.S. have no moral high ground to stand on on this issue but it goes to show, when lenders make bad loans, everyone loses.

  • Mesa Econoguy

    Please stop referencing the NYT as a credible source on anything, much less economics.

  • TC

    It won't matter to wally world what the actual costs are, they will continue to support the commies and WE will continue to purchase the goods supplied. Cuz they will still be cheaper for us to consume.

    And Wally World will continue to employ many folks at a non living wage without benefits of any kind.

  • Mark

    I am not sure what you are talking about. Your position on this seems to be counter to all of your free market idealogy. The same argument can be made for protectionism.

    THese subsidies help consumers consume more of the subsidized good than they would in a free market. This is good for consumers of those products but is similar to the government picking winners and losers that both you and I oppose.

    The proper policy is exactly what the Bush Administration is pursuing. Trade inproves welfare. So, to increase trade lets eliminate trade barriers and other manipulations, including Chinese currency manipulations, that hinder a free market flow of goods and capital across the globe.

  • http://distributedrepublic.net Brandon Berg

    I doubt this is what the Bush administration had in mind, but I don't want Chinese taxpayers to have to subsidize our consumer goods. They're poor enough already, and overall this is a net win for global capitalism. I just wish the Chinese had been able to secure some liberalization for us in exchange.

  • Bearster

    You don't consider China to be an enemy? It certainly considers the US to be its enemy!

    I think they are at a crossroads. If business continues to develop between our countries, they will lose any appetite for war. War would disrupt their business.

    But at they moment, they are a murderous dictatorship. Dictatorships always regard free countries as a threat, because our very existence gives their people a vision of what they could replace their overlords with.

  • Flash Gordon

    How typical of W to think he is helping manufacturers by protecting them from competition. Some may say, " but wait, it was unfair competition." I say no, what the Chinese do in their own country is their business and they will ultimately pay the price for it. The old mantra of what is good for business is good for America has it backwards. What is good for America [consumers] is good for business [in the long run].

    Besides, the Chicoms aren't really going to change what they are doing, although W may believe they will.

  • Anon E. Mouse

    I'll bet you can find an article in the NYT bemoaning the plumetting dollar and how that will wreck the US economy...and within two pages find one about how the Chinese depress the yuan to help China and hurt the US.

    You gotta love journalists. Not only can they ignore economics (or any other reality), they can spout internally contradicting positions without even blinking.

  • http://hallofrecord.blogspot.com Bruce Hall

    Warren,

    While I agree with you on many things, I believe the Chinese have a longer-term agenda of which the present trade dynamics [subsidizing us] are just one aspect... a cost which the Chinese government is willing to bear.

    With regard to subsidizing us, one can also interpret the actions of a cattle rancher as subsidizing his cattle. I perceive a longer-term, and much different agenda.

    http://hallofrecord.blogspot.com/2007/09/why-china-subsidizes-us.html

    http://hallofrecord.blogspot.com/2007/10/china-replacing-us.html

    Or... we can presume the Chinese government is merely stupid.

  • Mark

    Everyone makes these mysterious claims about the "long term agenda" of the Chinese, but never identifies what these could possibly be.

    Here are the facts.

    1. The current Chinese economy is following a typical economic develepmental process. We never claimed that the South Koreans have a "hidden agenda".

    2. The Chinese realize that they will never catch up to the United States militarily and that their objectives cannot be met militarily. For example, any military attack on Formosa would be destroyed in minutes by superior US air and sea power.

    3. The only way that the Chinese and other nations can catch up to the United States economically and militarily is to expand freedom in their country to what exists in the United States.

    4. China has such significant internal infrastructure problems that they will never be able to spend adequate resources in foreign policy endeavors to become other than a regional power.

  • antijap

    Dear Sir,
    Please forgive me Sir to trouble yuou when you are busy.

    Buy American!
    Boycott Japanese cars, Products, Goods, and Capitals!
    BIG3 must mean General Motors, Ford, and Chrysler!
    Remember Pearl Harbor!

    Very sincerely yours,