I both agree and disagree with Lawrence Summers’s observations in his op-ed in the Washington Post. For example:
More broadly, the United States’ economic future is shaped much more by policy choices made in Washington than those made in Beijing. To the extent that China trade has caused disruption in the United States, it is the result of China’s remarkable growth and increase in capacity to produce, not unfair trade policies.
I agree that we’ve been making problems for ourselves. Under the Clinton Administration China was granted Most Favored Nation trading status, something that should never have been afforded to a command economy the size of China’s, and then granted World Trade Organization membership under certain conditions which it has never satisfied.
Since then China engaged in massive currency manipulation in the 1990s, has tariffs twice as high on average as ours, imposes quotas on imports of U. S. goods and services, places obstacles in the way of U. S. banks and financial services companies, and subsidizes its own domestic and export companies on a colossal scale. It has also been challenged in claims before the WTO far more frequently than should be expected in a country with an economy China’s size as I’ve documented here.
In other words China has not been a good trading partner and we should not expect it to become one in the foreseeable future. China’s behavior is complicated by its lack of a robust system of civil law, something else it won’t have in the foreseeable future.
But I think that Dr. Summers falls victim to the all of nothing fallacy. If China were to import just 10% more than it does now, not 100% or 200% as might be the case under something more closely resembling market conditions, it would result in millions more jobs in the United States.
I think that a carbon border adjustment tariff or health and safety border adjustment tariff are good ideas that we don’t need an agreement with China to implement. All that is needed is a more general recognition of just how damaging a trading partner China has been and that it’s not likely to get much better.
If Dr. Summers wants American businesses to take a longer-term view, I’d appreciate it if he fleshed out that idea a bit. It’s hard to think long-term when your compensation depends on quarterly reports (or even daily stock moves) and when you’ve got to report your results to the federal government every quarter.
Dr. Summers is always a “day late and dollar short”.
I had proposed the concept of something like a carbon border adjustment tariff or health and safety border adjustment tariff. This not only “levels the playing field” for domestic manufacturers, but it provides an incentive for other countries to “get with the program”, also.
Essentially, those country which want to trade with a modernized country must support those modern standards. Otherwise, the modern standards have no value.
How much is too much causing a product to be outlawed in the US. Are products manufactured using slaves OK? Are products manufactured in inhumane conditions OK? Are products manufactured using human sacrifices as an incentives OK? Are products manufactured using extreme animal cruelty OK?
As long as we do not know about these things, is it OK?
I would like to know what are the red-lines and how vigilant will they be enforced.
For it to be applicable, China’s currency manipulation must be discussed using credit backed monetary concepts.