In his op-ed in USA Today chiding the U. S. for President Trump’s tariffs and attributing China’s enormous trade imbalance with the United States to the workings of the market, I wish that Cui Tiankai, the Chinese ambassador, had addressed several questions.
How do enormously subsidized state-owned enterprises fit in his market theory?
How do China’s 25% average tariffs (in comparison with 5% U. S. tariffs) comport with a free market?
How does the dumping (selling below production costs) of steel on world markets, something the World Trade Organization found that China did, facilitate free trade?
How is a non-convertible currency and opaque state-owned banks that lend to favored businesses consistent with a free market?
What is the role of slave labor in a free market?
And those do not even touch the thorny issue of intellectual property.
There is one issue on which I agree whole-heartedly with the ambassador:
With all of this as a backdrop, it is absolutely beyond our understanding that the U.S. government initiated the trade war with such determination. Does the U.S. government genuinely believe that China would possibly yield to such unreasonable policy? Anyone familiar with Chinese history knows that “maximum pressure†doesn’t work for our nation.
The tariffs are unlikely to change China’s behavior. But they might change ours.
Heh. Rhetorical questions obviously. But it’s his job to carry the water.
If it only changes our behavior so be it. All he said was, we can cheat and we don’t care. FU. The Chinese may dump, er, place some of their products in other countries. Too bad for those country’s manufacturers. We can find the vast majority of currently Chinese made goods elsewhere, including here, too. Those who will get the sympathetic press are those exporting or sourcing hard to get materials or sub-assemblies. My usual ask no/give no quarter attitude will probably get me in trouble, but if you dance with the devil……. reversing years of bad policy is hard, and messy.
In other news, Kevin Kisner is the leader in the clubhouse with a 67 at Carnoustie. A damn good score for that venue. No word on whether his instruments were particularly ill suited.
One example of such materials is rare earth metals. Not long ago we were the world’s greatest producer. Now we don’t produce much. We didn’t run out. We regulated the industry into unprofitability.
Prudent policies mean we can have our cake and eat it, too. Less prudent policies render us beholden to the Chinese authorities.
I know. We’ve talked about this before. We declined a magnet company over rare earth availability concerns. Score one for the environuts.
“The tariffs are unlikely to change China’s behavior. But they might change ours.”
This is something I haven’t looked at much, and so I’d be interested in any links/analysis of why tariffs won’t work to change China’s policies and what alternatives might work.
Is there any chance our domestic politics would let tariffs work? Trump is really counting on a strong vote by his base. How long will those rural voters in the Midwest hold out if they start losing money? Would Trump fold if his base started to desert him?
Steve
Here’s a couple of interesting articles involving aluminum.
https://www.wsj.com/articles/why-u-s-metals-tariffs-are-unlikely-to-change-trade-patterns-1531819800
https://www.seattletimes.com/business/wenatchee-waits-and-wonders-about-aluminum-smelters-future/
From the two articles I make the following points.
1. Aluminum production is electricity intensive – that appears to be a main input cost.
2. The US is dependent on Canadian production of aluminum, from Northern Quebec because they have a lot of cheap hydro power – and state of the art plants.
3. The US also has lots of cheap hydro power in the Pacific Northwest, but because of lack of investment over the last 20 (maybe even 50 years), the aluminum plants are outdated and uncompetitive.
4. A 10% tariff is probably too small to get anyone to take a risk and upgrade these aluminum plants.
Like NATO allies that have under invested in the military and probably have to spend over 2% GDP for extended period to get their military back to normal, the US may have under invested in certain industries for far too long and it may take an “over investment” to get them to a “normal” state.
That perhaps is the question for the US government/Congress. Is it worth it to “over invest” in these industries. Both choices (yes/no) have a cost.
Curious
There are better, more fundamental, studies of the industry. But a few observations.
First, you must separate (all) big time metals production into extraction/refining vs finishing. The dynamics are different. So for refining, yes, electricity is king. Hence Canada. China, interestingly, restricts primary metals export. In fact, China government manages its entire aluminum industry. Who knew? Finishing is less energy and more labor intensive, and market access and certain finishing capabilities are more important. The US capabilities are just fine.
So that jumps us to point 4. Will 10% tarrifs work? I don’t know. But China dumps all kinds of wrought product here, especially foil and other low end products. Eff’m. Canada is a mixed bag. Raw ingot is their forte. Wrought products less so. But we need ingot. A more nuanced, less ham fisted approach is probably better with them.