Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the U.S. doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!
The very good and very smart James Fallows, author of an excellent piece on China in the Atlantic, writes:
Becoming actually dangerous.
Chinese could write off TW call as ignoramus blunder. Now he’s digging in.
(& CN now holding curr UP, not down)
There are similar reactions from Jon Favreau and others.
Here is the problem. Someone wrote an op end last February:
we need to crack down on currency manipulation – which can be destructive for American workers. China, Japan and other Asian economies kept their goods artificially cheap for years by holding down the value of their currencies.
That of course, was Hillary Clinton. And on March 4th – IN DETROIT she said:
Hillary Clinton redoubled her vow to confront China and other nations over currency manipulation on Friday, telling a rally in Detroit that she wants to use new ways to fight a practice that she said harms American workers.
I will expand the ways we respond to currency manipulation, to include effective new remedies like duties and tariffs,” Clinton said. She named China as a chief culprit of the practice but said other countries must also be prevented from gaining an unfair price advantage.
The New York Times noted the similarity in their positions and then said something very very true:
Presidential candidates vow every four years to do more to help American workers facing competition from abroad. After taking office, they have consistently pursued more conciliatory trade policies toward China, seeing a strategic benefit to warm relations with Beijing.
And this is unquestionably true. Barack Obama promised, after all, to re-open NAFTA during the Ohio primary in 2008. More recently, his Treasury Department found China was not manipulating its currency.
Writing last year Krugman agreed with the Treasury Department.
So here is the gaping contradiction. Democratic candidates in the last two open cycles promised to “get tough” on trade. It is highly probably that neither one of them meant it.
In both Clinton and Obama’s case it was more a case of wanting to be sympathetic to those effected by trade.
Which is why some elites I have been reading are so aghast.
Trump looks like he may actually try to do something about it
Let’s take a step back. This is from the liberal EPI on the Clinton Administraion’s arguments for passage of a bill allow China to join the WTO:
the Clinton Administration is confidently forecasting that the huge U.S. trade deficit with China will improve if Congress accords China permanent normal trade relations (PNTR) in order to accommodate Beijing’s membership in the World Trade Organization (WTO). President Clinton claims that the recently signed trade agreement with China “creates a win-win result for both countries” (Clinton 2000, 9). He argues that exports to China “now support hundreds of thousands of American jobs,” and that “these figures can grow substantially with the new access to the Chinese market the WTO agreement creates”
Trade deficit with China, 2000: 83.3 Billion.
Trade deficit with China 2015: 357 Billion
Heckuva job forecasting there, Bill.
It is worth going back and reading EPI’s take – they were far more accurate in predicting the future.
Last year they noted:
As earlier EPI research has shown, trade with China between 2001 and 2011 displaced 2.7 million workers, who suffered a direct loss of $37.0 billion in reduced wages alone when re-employed in non-traded industries in 2011 (Scott 2013). In addition, the nation’s 100 million non-college educated workers suffered a total loss of roughly $180 billion due to increased trade with low-wage countries. These indirect wage losses were nearly five times greater than the direct losses suffered by workers displaced by China trade, and the pool of affected workers was nearly 40 times larger (100 million non-college-educated workers versus 2.7 million displaced workers)
Perhaps the single most revealing quote on elites and trade comes from Joseph Stiglitz:
Large segments of the population in advanced countries have not been doing well: in the US, the bottom 90% has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago.
Read that again.
And the money paragraph:
Under the assumption of perfect markets (which underlies most neoliberal economic analyses) free trade equalizes the wages of unskilled workers around the world. Trade in goods is a substitute for the movement of people. Importing goods from China – goods that require a lot of unskilled workers to produce – reduces the demand for unskilled workers in Europe and the US.
This force is so strong that if there were no transportation costs, and if the US and Europe had no other source of competitive advantage, such as in technology, eventually it would be as if Chinese workers continued to migrate to the US and Europe until wage differences had been eliminated entirely. Not surprisingly, the neoliberals never advertised this consequence of trade liberalization, as they claimed – one could say lied – that all would benefit.
The failure of globalization to deliver on the promises of mainstream politicians has surely undermined trust and confidence in the “establishment.”
When Stiglitz says neo-liberals misled, I think he is being accurate. I don’t actually think the Clinton Administration believed their own numbers in 1999 – no one else did and certainly the experience with NAFTA suggested the opposite result would occur.
They did so because they believed it was in humanity’s interests to integrate China into the World, and that there were other reasons for building a relationship with China.
I believe they consciously decided that the effect on wages was outweighed by those larger advantages.
I do NOT believe they ever expected the effect to be as large as it has proven to be.
I was in China last month. To deny that free trade with China has not had a role in lifting millions out of poverty is absurd. But there has been a price that elites did not listen to.
It was inevitable that there was going to be a confrontation with China over Trade. It would have been much better for the World if Clinton or Obama had had that confrontation. Trump is hardly the person I want wading into a VERY complicated situation.
But in the end Trump isn’t doing different than Clinton promised to do.
And that creates an incredible problem for Democrats.