Lincicome on the China shock
By Scott Sumner
This article by Scott Lincicome does an excellent job of dispelling the myth that “elites” sold out the working class in America by freeing up trade with China. Here he summarizes the implications of this research:
Based on the above, one can divine a simpler, far-more-benign explanation for the last 20-plus years of U.S. policy: Washington elites saw little choice but to liberalize trade with China because the available alternatives were non-existent or worse, especially given the information at the time that this “choice” was being made. Liberalization, moreover, produced real benefits (including for American workers and the poor), while also removing gross historical inequities in the previous, more protectionist system (though I doubt many elites really cared about that). The resulting disruption and adjustment was hard for some regions and workers (certainly not for all)—harder than many elites expected—and certainly post-liberalization policy mistakes were made (though often in the direction of less liberalization, not more).
The article also pushes back against the popular view that the US is an innocent free trading nation surrounded by devious mercantilist countries.
On trade, the United States still maintains significant tariffs and tariff-rate quotas on imports of “sensitive” products like trucks, apparel, footwear and food. According to the group Global Trade Alert, moreover, the United States has also long been one of the most frequent users of “harmful” non-tariff government trade interventions—ones that far outnumber its “liberalizing” measures over the same period. This includes hundreds of special duties (“trade remedies” like anti-dumping and anti-subsidy measures) on all sorts of Chinese imports, most often using a special “non-market economy” anti-dumping methodology that practically ensures sky-high duty rates (often more than 100 percent) on those goods—coincidentally, one of those “WTO-plus” accession commitments special to China and a few other economies. These duties are specifically intended to offset “unfair” trade and subsidies that injure US manufacturers and workers, and—as the numbers indicate—American companies and labor unions have been quite successful in petitioning for them. Dozens of other Chinese imports are barred from the U.S. market as a result of “Section 337” actions that target intellectual property rights violations. Chinese investment, meanwhile, can be (and has been) restricted by the Committee on Foreign Investment in the United States (CFIUS), and US technology exports to China are often blocked on national security grounds.
And let’s not forget about the auto bailouts, the steel industry bailouts, the alternative energy subsidies, the manufacturing tax credits, the ExIm Bank loans, procurement preferences like Buy American and Davis-Bacon, the Jones Act and the PVSA, and the billions of other taxpayer dollars that the United States has doled out to “blue collar” industries and workers over the last few decades at the federal level alone.
Look for the article to have little impact, unfortunately, as most people have already made up their minds.
Off topic: Paul Krugman recently linked to a Wharton study by Alexander Arnon looking at the correlation between oil prices and business investment, which has now become strongly positive. This is a point I made in an Econlog post a few months ago—I’m glad to see a much more serious study confirming this hypothesis. (My discussion is near the end of the linked blog post.)
HT: David Beckworth