Sunday Quick Hits (Mostly China Edition)
I'm back on American soil, and there's lots to note, so let's get right to it.
- China's not taking over the world, and here are a few reasons why. A nice summary from Newsweek (of all places) about why all this talk about China's inevitable global dominance is wrong. I can't say I agree with everything here (particularly the authors' assumption that direct foreign aid is a good thing), and I think they miss a few issues, but the article's still worth a read. Sample quote: "Of course, Asia is still the one region in the world where China now dominates regional trade—overall trade between China and the rest of the continent hit $231 billion versus the U.S.’s $178 billion in 2008. But most of the flows are in intermediary goods of low value (China buys cheap components and raw materials from poorer nations and uses them to make products for export, just as it supplies the same to richer nations like South Korea). This trade does not foster the skills transfer that Southeast Asian countries so desperately need in their bid to move up the technology ladder. Countries such as Malaysia, Singapore, Vietnam, Thailand, and Indonesia still rely on entrepreneurial, technological, and educational engagement with the U.S. for that. And America still accounts for a far greater chunk of regional foreign direct investment—8.5 percent versus China’s 3.8 percent, or $3.4 billion to $1.5 billion, in 2009."
- China overtakes Japan as world's second-largest economy. So what? After last week's announcement that China's GDP is now greater that Japan's, there was a lot of predictable hemming and hawing from the chattering classes. Jonah Goldberg counters the conventional wisdom with some much-needed perspective: "Last quarter Japan produced about $1.28 trillion of economic output, or about $10,085 for each of the 127 million Japanese people. China’s output was $1.337 trillion for the quarter. But China has 1.3 billion people, so that’s about $1,000 for each Chinese person. Yes, 1.3 billion poor Chinese people are collectively more productive than 127 million rich Japanese people, but I can guarantee that most sane people would rather be poor by Japanese standards than middle class by Chinese standards." Indeed. Jonah hits on several other important points - several of which I've been preaching for a long time now - so be sure to read the whole thing. My favorite line: "Economic 'competitiveness' is a con. It assumes that when other countries prosper, America loses. That’s nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States. Conversely, if China’s economy imploded tomorrow, we would 'gain' competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them." Sadly, one of those planners just happens to be President.
- More on China's big second-place announcement. When reading Jonah's aforementioned column, I kept thinking that he missed one important point about China's breakneck economic growth: it's what developing countries do because they start way, way down the totem pole. And as Cato's Dan Mitchell explains, this trend is even more pronounced in a place like China: "Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom — which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement."
- But, hey, China's still doing several things right (and the US probably shouldn't lecture). Cato's Alan Reynolds has an excellent blog post about China's growth and labor market. Here's a sample: "Prices of... multinational products cannot be arbitrarily increased to please American politicians, because higher prices would encourage more multinationals to do what many are already doing – namely, to move labor-intensive work on low-end products from China to cheaper places like Vietnam or Bangladesh.... Lacking the equivalent of Social Security or Medicare/Medicaid, China has no payroll taxes at all, no capital gains tax, and only a 15-25% tax on corporate profits. It is not such a bad thing that China does not share America’s looming “safety net” crises in entitlements and public pensions.... Imagine what your 401k would be worth with no tax on capital gains. Imagine what U.S. employment would look like with no payroll tax and a 15-25 %tax on corporate profits. American politicians are giving them advice?"
- Brookings: China-bashing won't do anything to change the US trade deficit. I can't say I agree with Robert Pozen's particular remedies for the US-China relationship (see Reynolds' post above for some reasons why), but it's worth noting that conservatives and libertarians aren't the only ones who understand that American politicians' China-bashing and trade-deficit-obsession are nonsensical. Even the good, center-left folks at Brookings get it: "Many American politicians want the yuan to appreciate relative to the dollar in order to reduce the U.S. trade deficit—by making Chinese exports more expensive, and encouraging Chinese consumers to buy more imports. However, the value of the yuan is not the main driver of the U.S. trade deficit. The wages and social safety net of Chinese workers are more important. Labor is the most significant component of most goods exported from China to the U.S. If wages go up in China, then the prices of its exports will rise—absent a proportional increase in labor productivity. Wages are direct costs of producing Chinese exports, which cannot be easily avoided by currency hedging." Pozen recommends that American politicians "support higher wages" in China. My response: that seems totally unnecessary because it's already happening (unless it's supposed to just keep our meddling pols occupied.)
- Lou Dobbs: Angry Protectionist. Apparently, there's some doubt about whether Lou Dobbs is a protectionist. I had no idea that this was even up for debate, but in case you have any doubts, Cafe Hayek's Don Boudreaux - who obviously has a higher pain/idiocy threshold than I - weeds through Dobbs' book and puts the doubts to rest once and for all. Oh, and here's a little video evidence just for good measure:
- Free trade is sexy - no really! Great video here from Matt Ridley (h/t Andy Roth):
That's all for now, folks.