They Should Get Out More

When I read the editorial in this morning’s New York Times, cautioning against initiating a trade war with China, something leapt out at me.

You know how it is—you see something, it strikes a discordant note, and you just can’t leave it alone.

Here’s the snippet:

What must be avoided are the kinds of misunderstandings — intensified by growing anti-China sentiment in this country — that lead to tit-for-tat tariff reprisals until things spin out of control. A trade war would do more harm to American business than to China’s subsidies. What would happen to Boeing if the steel used in its jets became more expensive? The last thing a country with a record trade deficit can afford is to hurt its exporters.

The new Boeing 787 is about 10% steel, an amount that’s expected to decrease over time. The weight of the aircraft is estimated to be about 360,000 lb or roughly 180 tons. Ten percent of that is 18 tons so there are roughly 18 tons of steel in the aircraft.

For the sake of argument let’s estimate the price of steel as $800 per ton (Chinese steel sells for roughly $350 per tonne domestically). That would put the cost of the steel at roughly $15,000. If the price of steel were to double as the result of a trade war, that would increase the cost of the steel by…$15,000.

The price of a 787 is something like $150,000,000 so the increase would result in a change of .01% or no appreciable change.

All of this assumes that the Chinese actually produce the highly-specialized steel that goes into a 787 or that the Chinese are able to influence the cost of specialty steels in a meaningful way. I’m not going to get into the details but I have no doubt that the cost of the Chinese-produced electronics in a Boeing 787 dwarfs the cost of the steel in it by orders of magnitude.

Now I agree with the NYT editorial writer: a trade war with China would injure both countries and might well injure the U. S. more than China.

However, what this editorial reflects more than anything else is that the editorial writer has no idea of what the Chinese produce, what we buy from the Chinese, or what goes into a modern aircraft.

They really should get out more.

5 comments… add one
  • Plus, he’s clearly innumerate.

  • My reaction to the editorial was somewhat stronger than I’m making out, James. I thought it was demeaning, condescending, and patronizing to the Chinese.

  • The article reads like a Democratic talking points paper, which hardly helps its credibility.

    I must admit my ignorance in general on trade with China, but if there is a dispute, isn’t the WTO the proper forum to address and adjudicate it?

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