I did not find in the quoted words of Treasury Secretary Janet Yellen the exact expression “clean energy dumping” to attack inexpensive Chinese exports of clean-energy goods (solar panels, EVs, and such). But when giving her speech at solar cell producer Suniva, she did say “flooding the market,” which means the same. And that’s how Financial Times journalists interpreted her speech: see “Janet Yellen Warns China Against Clean Energy Dumping,” March 27, 2024.
After trying to persuade us that the use of fossil fuels threatened the future of mankind, these politicians get on their high horses because some producers in the world want to sell us at low prices products that could prevent the catastrophe. In the United States, formerly called “the country of free enterprise,” the feds and state governments are heavily subsidizing domestic producers of “green products.” The so-called Inflation Reduction Act offers large tax credits. Isn’t it also farcical that the government of the United States would beg a foreign socialist government to cut its exports of green products?
For sure, Chinese producers are nearly totally dominated by their state and the latter can more easily force its taxpayers to subsidize domestic exporters. (The exporters use their national resources to produce goods for foreigners—but let’s skip this contradiction of protectionism.) Why would American consumers and importing producers reject a gift from foreign taxpayers and prefer instead to make their fellow citizens pay? It is true that some American producers (shareholders and workers of out-competed companies) would be harmed and would have to adjust: some workers would have to switch industries, some shareholders’ investments would lose value, and some companies may even go bankrupt—like Suniva already did once in 2017.
The US government—both the Biden and the Trump administrations—apparently believes that the relatively flexible American economy is threatened by socialist businesses and by Chinese taxpayers whose average income is one-fourth the average income in America. Moreover, the share of personal consumption expenditures that comes from Chinese imports (including the Chinese part of their input components) is only 1.9%, as shown by a 2011 study by the Federal Reserve Bank of San Francisco. (The low figure is partly explained by the fact that services, mostly non-tradable, make up two-thirds of American consumption expenditures. Only in certain industries do Chinese imports make up a high proportion of consumer expenditures.)
Ms. Yellen, who was an economist before she became a groupie politician, said that “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers.” Of course, any subsidy or tax preference causes distortions in prices and production, but there is not much that the US government can do to change the policies of the Chinese state, short of annexing China. A little could be done through the World Trade Organization, but both the Trump and the Biden administrations have cooperated to neuter it.
And how much distortion is caused by the annual federal spending ($6.1 trillion in FY 2023), which includes multiple subsidies—to individuals mainly, but also to corporations? Same question for federal revenues ($4.4 trillion), most of which are taxes. Same for its deficit ($1.7 trillion). How much do the federal government’s transfers to individuals distort the labor market and the charity market? How much further distortion is caused by its minimum wages and the coercive privileges it grants to trade unions? Such questions are not easy to answer, but the Treasury Secretary should at least pretend to ask them instead of blaming the government of a developing country for giving to Americans at bargain prices what her government claims they need to survive.
What damage could the forced generosity of Chinese taxpayers cause to the American economy? Let me make the most heroic assumptions against my case. Suppose the total production of green goods and services in the American economy corresponds to $1 trillion or 4% of GDP. (This is a wild assumption, which is double the maximum Commerce Department estimate for 2007. This study did not use value added as in the GDP but shipments, which include much double-counting; it also used a wide definition of green products and services.) Suppose that all of this green stuff comes from China (while it is almost certainly much less than 20%). Suppose, as unrealistically, that all American producers of green goods and services go bankrupt after being out-competed by producers from communist China. Add the assumption that after this “victory,” “China” suddenly decides to cut all green exports to the United States–which, except in case of war, is another fantasy assumption. Even this highly exaggerated scenario would not be a catastrophe.
We must not forget the savings realized from Chinese green imports up to the hypothetical cutoff point, nor the production, consumption, and investment that would have occurred in other sectors. More importantly, who doubts that American businesses could not rapidly pivot to importing the same products from other countries—even if presumably for a higher price? Who doubts that greedy American or foreign investors (whose companies are likely included in your pension fund) would not recreate an American green industry, if it is economical to do so? Four percent of GDP is not an insignificant amount, but gross investment in fixed business equipment and structures runs at about $2 trillion a year or 8% of GDP (DEA data for 2022). Moreover, building an American green-product industry would not need to be done in only one year and some imports from other countries would anyway remain economical, especially on the manufacturing side. With more realistic assumptions, replacing Chinese green imports would probably be an easy feat in a relatively flexible economy, provided there is not too much government interference.
It would of course be better for many people in the world—from Chinese taxpayers to the American investors who have sunk money in firms that cannot compete with green largesse from China—if the Chinese state stopped intervening in its exporters’ businesses. The US government should work on this persuasion enterprise instead of going full Trumpian. And it should preach by example and show what a free economy is.
Any economist familiar with public choice economics knows that politicians and bureaucrats demonstrate by their behavior that they are generally as self-interested as ordinary individuals. Thus, the economist is not overly surprised to observe a politician blurting out absurdities. But anybody who believes in a free society is understandably scandalized by the most extreme cases of homo politicus. These politicians have no shame.
******************************
On the featured image of this post, I had problems getting DALL-E to draw what I wanted. My idea for DALL-E was that Chinese solar panels and EVs were falling from the sky like manna; and that Commerce Department agents were trying to shoot the goodies and prevent people from collecting them. To get DALL-E half-cooperation, I had to explain to zir that the guns of the Commerce Department agents shoot roses. (It looks like the guy lying on the ground is a manna chaser who was hit by a rose straight in the heart.)
Chinese green manna witch Commerce Department agents are trying to stop from being collected
READER COMMENTS
Craig
Apr 1 2024 at 11:01am
Its not just Chinese subsidies, from my pov its all of them including potential future subsidies that may never exist. Whether China, Vietnam, State of GA, NJ, FL or TN, etc. It discourages investment generally. Looking in my closet I see my vestigial New Hermes/Gravograph engraver which I couldn’t bring myself to liquidate, alongside it are a bunch of brass plates which I couldn’t liquidate actually. 4 digits of inventory. At this point I’m not chasing those dollars.
I got this stuff even though I outsources them because the workshop I bought them from went out of business and vendor moved back to Queens so delivery went from pickup to 1 day UPS and that was too much of a delay so I brought it in at the time.
This would help me to personalize products. I had outsourced it to a guy at the Willowbrook Mall and he closed up and I needed to be able to make them.
The plates though I did want to liquidate but…..subsidies. at the time, which was the middle of 2018, if you were looking to buy those from me it’d cost more for me to ship them to you than you could get them out of China.
Apparently they did end that?
https://thehill.com/opinion/finance/418081-usps-is-done-subsidizing-chinese-package-shipping/
“n 1969, the UPU’s developed country members implemented discounts for poor nations when shipping small parcels. China then was isolated with few outward shipments.
{mosads}As a result, the shipping cost of a face cream was more affordable for American consumers from China than it was from Los Angeles. Today, however, China delivers more than 1 billion small packages a year to the U.S., but the special discount treatment continued.
Then there came change. The Trump administration announced U.S. withdrawal from the UPU as of Oct. 17, 2018. The objective was to arrive at competitive and fair global shipping rates. ”
Maybe I should roll the dice and risk my children’s entire future on a business venture in Wilkes-Barre, PA a place that looks like a bomb hit it? I see all kinds of things on alibaba that I can make for less right here.
Yeah, no, fool me once…..that subsidy doesn’t even EXIST anymore, but the mindset of industrial policy/cronyism continues to pervade. Indeed that which is seen is the subsidy and the deal that the consumer gets, whether its a Chinese solar panel or cheaper ethanol laced fuel what’s unseen is the impact on unsubsidized actors who must necessarily respond to current subsidies and to the potential threat of future subsidies.
David Seltzer
Apr 1 2024 at 11:41am
Pierre wrote: “but the Treasury Secretary should at least pretend to ask them instead of blaming the government of a developing country for giving to Americans at bargain prices what her government claims they need to survive.” Neat in it’s brevity. As for me, I would send them a box of chocolate, some flowers and a thank you card.
Richard A.
Apr 1 2024 at 2:18pm
Yellen’s speech can be found on YouTube.
In this speech, Yellen sounds more like a politician than an economist.
Green free trade is the way to go for a green economy, not green protectionism.
Pierre Lemieux
Apr 1 2024 at 4:27pm
Richard: Nothing to disagree about! Note that there is a link to the official text of her speech in the second sentence of my post.
Richard A.
Apr 1 2024 at 6:18pm
China’s foreign ministry spokesperson Lin Jian’s comment on Yellen’s claims:
Pierre Lemieux
Apr 2 2024 at 11:50am
Thanks, Richard, very interesting. Some years ago, a Chinese government mouthpiece even cited Adam Smith against protectionism. What an irony (as you suggest)! Not surprisingly though, they don’t demonstrate their knowledge of economics with such pronouncements as “the global industrial and supply chains came into shape as a result of both the law of the market and the choices of businesses”! The “choices of businesses” are not distinct from “the law of the market”; the former are merely a response to the demand of sovereign consumers–in a free society.
Warren Platts
Apr 2 2024 at 12:26am
Fixed that for you. Marriner Eccles once said that mass production requires mass consumption. But the obverse of that principle is that mass consumption requires mass production. The People’s Republic is exporting their unemployment. That’s an export we don’t need…
Pierre Lemieux
Apr 2 2024 at 11:12am
Warren: With due respect, your economics is very confused. Does “Mississippi” (if I may for a moment speak collectivist as somebody I know seems to like) export its unemployment to the rest of the US? Why not, for the average wage in Mississippi is 22% lower than in Michigan ($45,180 vs $58,000 per year according to the BLS data at https://www.bls.gov/oes/current/oes_ms.htm#00-0000)?
Warren Platts
Apr 2 2024 at 5:46pm
Pierre, I fully see what you’re saying. Southron states arguably do employ beggar-thy-neighbor policies against their Yankee neighbors. And it’s not just the lower wages: states like Mississippi tend to be right-to-work states. Hence it’s not surprising that Nucor — whose work force is not unionized — is building its latest steel mill in Lexington, North Carolina rather than in Pittsburg or Youngstown. Thus Lexington exports unemployment to Pittsburgh and Youngstown.
And, therefore, since we don’t complain about the South exporting its unemployment to the North (because, after all, Yankee consumers of rebar are getting it cheaper than they would if the rebar was made in Pittsburgh or Youngstown, albeit at the cost of fewer steel jobs up in the Rust Belt that they could badly use — but of course that freed up labor could be employed even more productively if only those guys had the gumption to learn how to code or go fracking!) then why should we complain if the People’s Republic exports its unemployment in exchange for cheaper consumer goods?
Well, I’m tempted to say that the Youngstown and Pittsburgh workers are free to move to Lexington if they wanted to, whereas American workers are not free to emigrate to the People’s Republic to work in Chinese factories even if they want to.
But of course, the real reason is sheer economic and geopolitical nationalism.
Economically, beggar-thy-neighbor policies are called “beggar-thy-neighbor” for a reason: because they beggar neighbors. In the early post-WW2 days when the USA was actively trying to rebuild the world, this was considered a good thing: developing countries would employ beggar-thy-neighbor policies against the United States, but this would be a good thing since we could easily afford to absorb the cost, and the help to 3rd World citizens was really needed. But now, to call the largest economy on Planet Earth a “developing” economy is Orwellian duckspeak. There is no need for the USA, anymore, to absorb the beggar-thy-neighbor policies of the so-called People’s Republic.
And geopolitically, if the Southern states embarked on a massive rearmament campaign for the next Civil War (cf. the new movie), that would be a legitiimate cause for concern. But they’re not. However, the People’s Republic is embarking on the largest rearmament campaign in world history. 1930s Nazi Germany pales in comparison. And they’re target is the United States of America. We are literally in a more dangerous position now than we were in Cold War I. That is not hyperbole. And thus, let’s admit it, since we’re in Cold War II: (A) it’s not our job to fund the CCP Empire’s rearmament; (B) they’ve already killed 2 million Americans between Covid-19 and fentanyl; (C) assuming a $10 million statistical value of an American life, the Celestial Empire’s fentanyl exports alone are causing a trillion dollar per year headwind to our economy, in addition to their mercantilist beggar-thy-neighbor policies.
Thus, niggling Libertarian complaints about not being able to order from Ali Baba tariff-free (actually you still can if the order is less than $800) and not being able to date Chinese women even if they’re spies have got to be dismissed out of hand as trivial at best, and as seditious at worst.
Jon Murphy
Apr 3 2024 at 10:32am
Pierre’s question still remains, Warren. Mississippi accounts for less than 1% of US Manufacturing (0.9%, to be precise). Why isn’t there a “giant sucking sound” of jobs to Mississippi? Indeed, as noted below, if your story is correct, Mississippi should account for most, if not all, manufacturing output.
Warren Platts
Apr 3 2024 at 2:28pm
Jon, I don’t know anything about Mississippi other than that Elvis was born there. I do know a little bit about Nucor, the company my friend Dan Dimicco used to run, and all the new billion dollar plants they have been building in recent years are all below the Mason-Dixon line. And guess what? Your prediction seems to be happening: most Rust Belt states are losing population whereas most Southern states are gaining population.
Jon Murphy
Apr 3 2024 at 10:57pm
Indeed, my prediction is coming true. Yours, however, is not. Your prediction is that Mississippi should dominate the US economy and export its unemployment. That’s not happening.
Pierre Lemieux
Apr 3 2024 at 3:11pm
Warren: I am impressed by the first two paragraphs of your comment. There, you pass the Turing test! (If I were not so humble, I would like to take some credit for that. At least, some economists who have engaged with you on EconLog or elsewhere must have something to do with this. Yet, of course, you are a rational individual and the praise must go mostly to you.
But speaking about “individual,” here is what you are still missing. Take the second half of your red pill. Everything you said in your two first paragraphs only makes sense if you are speaking about individuals. Speaking in terms of “countries” or “we” is largely meaningless. For example, imagine that your individual neighbor (the guy or the family next door) starts paying your mortgage, your meals, your medical care, and your guns and ammo. So much so that you stop working. Who is the “beggar-thy-neighbor” individual: you or your neighbor? Is your neighbor “exporting his unemployment” to you? These questions are simply meaningless if you are an individual–which your two first paragraphs suggest that you are.
To pass the whole Turing test, you have to try and see the world in terms of individual choices, not in terms of (coercive) collective choices except to criticize the latter, in America or in China.
Note in passing that “the largest economy of the planet” is only the largest because it comprises 1.4 billion poor prisoners, who earn 75% less than the average American. Note also that, if the life of an American still belongs to him individually (not collectively!), people elsewhere in the world who sell him the drugs he wants (because his own government bans domestic suppliers including, in some cases, sellers of pain killers) are not more guilty of murder that the government of Maine is guilty of killing adults who drive motorcycles without helmets.
Another characteristic of collectivists is that they see sedition everywhere, or treason to one’s identity group if they are on the other side of the largely artificial left-right frontier.
Please, Warren, don’t be or stay Chinese (“Chinese” in the sense of the Chinese state or the individual Chinese who have bought or been coerced into collectivism).
Warren Platts
Apr 5 2024 at 2:31pm
Thank you for your kind words, Pierre. I have learned a lot from this blog and you in particular over the last (it’s getting to be) several years now! I have your book. It inspires me to write one myself!
We’ve been through this before. We’re really talking about metaphysics and ontology. Back in my zoology and philosophy days, there was constant back-and-forth argument over “What is a species?” “Are species individuals or just collections of individuals?” “Should the superorganism be revived?” “What are the units of selection?”
Guys like George Gaylord Simpson argued that species were mere collections (Simpson said that to say otherwise was tantamount to advocating fascism!) Meanwhile, Ernst Mayr and philosopher Eliott Sober were saying species have emergent properties that the individual organisms don’t have. Hamilton & Maynard Smith were saying selection only happens at the individual level (Dawkins at the gene level), but Wynne-Edwards, David Sloan Wilson provided mathematical models that prove group selection can happen under the right conditions.
If so, then functional organization can arise at the group level. And actually, human groups are a paradigmatic example of likely group selection. Therefore, we can conclude that human groups are functionally organized and thus we are entitled to say that they are ontologically real.
Indeed, this is how Mearsheimer’s offensive realism views nation states and empires: as real entities that can harmed or benefited per se. And what does a great power “want” more than anything? A good life for its citizens? Nope. It wants to SURVIVE. And how does it do that? By acquiring POWER. And what is power? There are two or three main dimensions: economic, military, and technological.
So when China embarks on beggar-thy-neighbor economic policies, this must be understood mainly in terms of international relations theory rather than economic theory. It’s a geopolitical problem. Their goal is to increase their national power. And if increasing their economic power diminishes the economic power of their rivals, that’s all for the better. Because what counts in offensive realism theory is RELATIVE power, not absolute power.
Thus by failing or willfully refusing to recognize this dynamic — at the group level — we are placing our own national survival at risk. The Thucydides Trap is real. Pierre, you are living through the most dangerous time of your life right now in terms of world peace, and that’s including the Cuba Missile Crisis….
Pierre Lemieux
Apr 6 2024 at 3:44pm
Warren: Methodological individualism not only is not inimical to social emergence theories but was at the origin of it: Adam Smith, Adam Hume, Adam Ferguson, etc. These theories of social autoregulation inspired Darwin in the biological field. Social explanations in terms of game theory are a paradigm of methodological individualism and emergence. (For a very simple example, think of Reynold’s boids.) In fact, to explain any social emergent phenomenon, you need to start from individuals; otherwise, it’s circular reasoning. Methodological individualism claims that you cannot understand social phenomena except by building them up from individual interactions. Those, like Marx, who were methodological collectivists–Marx tried to explain the behavior of individuals by starting with social classes instead of the other way around–were notably inefficient in their predictions.
I have mentioned the issue in a number of EconLog posts, including “The Unbearable Lightness of Collectivism.”
Warren Platts
Apr 7 2024 at 1:58am
Pierre, I agree 100%! How else can one understand social phenomena? After all, any society is composed of individuals, and any properties that emerge at the group level must necessarily be the result of interactions of individuals. How else could it be? There is no group “entelechy” running the show.
The same principle works in practically every other branch of science, albeit it’s usually called “reductionism” rather than “methodological individualism”. But the idea is the same: that the properties of the whole should in principle be explainable in terms of the properties of the parts.
BUT: What we must beware of, however, is conflating methodological individualism with ontological individualism. Methodological individualism is a useful research technique. But ontological individualism is the much stronger claim that only individuals are real but that groups are shorthand theoretical placeholders.
The problem, I guess, is downward causation. We explain the peculiar properties of a water molecule in terms of the oxygen and hydrogen atoms, such as the polarity that causes water molecules to join together to form icebergs. But once the iceberg forms, does not the drift of the iceberg determine the subsequent movement of the water molecules and hydrogen and oxygen atoms?
It is the same with societies. It was Darwin himself who first proposed that different human tribes might differ in fitness. But there’s no need to rely on natural selection when it comes to sovereign states. Just as we can genetically engineer viruses these days, we can engineer sovereign states.
I understand the ethical implications. I am not saying that the individual ought to be subservient to the state. Ideally, anarchism would prevail. All human interactions would be one-on-one. Every person on Planet Earth would be free to do business with any other person on Planet Earth person-to-person with no other considerations.
The problem of course is that once you get more than 2 or 3 people together, power relations automatically form. It is the same with animals. You should’ve seen that one time when I was a kid and we mixed two groups of horses of nine each! But when it comes to humans, once you get into groups above say a hundred people or so, it’s better that the power relations be formalized.
That is to say, we’re better off as individuals-who-desire-freedom to be living in a social structure (that we must ourselves engineer) that best promotes individual freedom. But that raises the next problem: that social structures themselves compete against each other. Thus it could be the case that the social structure that maximizes individual freedom will not fare well against more ruthless social structures that care nothing for individual freedom.
So choose your poison. And don’t kid yourself: Libertarianism is just another poison in the sense that it’s just another power structure. Maybe it delivers maximal individual freedom (within reason), but in the current international ecosystem, can it survive? As the Canadian muse Leonard Cohen said late in his life: “You’re not going to like what comes after America…”
vince
Apr 2 2024 at 10:12pm
Analogizing Mississippi to China??
Jon Murphy
Apr 3 2024 at 8:15am
Why not? If Mr Platts’s claim about “exporting unemployment” is correct, then it should also hold domestically, not just internationally. Indeed, one would expect it to be stronger domestically than internationally.
Warren Platts
Apr 3 2024 at 9:12am
Pierre is of course correct that southern states engage in what could be called a beggar-thy-neighbor policy of nonunionized workers having a right to work. Hence Nucor (who doesn’t like unionized workers) is building its latest steel mill in Lexington instead of Pittsburgh, thus exporting unemployment to Pittsburgh. The difference is laid off steel workers from Pittsburgh can relocate to Lexington. The other difference is that North Carolina isn’t rearming in order to fight a war with the rest of the United States, whereas the People’s Republic is.
Jon Murphy
Apr 3 2024 at 9:36am
Your explination here would imply that Mississippi is the bigger threat to other US states than China. Manufacturing would not flow to China but to Mississippi. So, if your theory of trade as a zero-sum game is correct, then your concerns about China are baseless.
Jon Murphy
Apr 3 2024 at 9:44am
One thing I should note:
While your economics* is indeed incorrect, you are correct that the decline in the rust belt is due to labor unions. A recent paper in the JPE finds that the decline in manufacturing in the Rust Belt is due to labor market conflict. International trade has almost no effect. Indeed, this result should be no surprise. The empirical evidence finds that international trade has a zero-to-mildly positive effect on employment in a country (for a detailed discussion of the literature, see Free Trade Under Fire, in particular Chapter 4).
*It is very hard to tell what your theory of economics really is. There is no consistency in your claims. For example, here you claim that cheaper imports are bad because it is a beggar thy neighbor policy (a claim which is in and of itself contradictory) but multiple times recently you have claimed cheaper imports are good because they improve terms of trade.
vince
Apr 3 2024 at 1:03pm
It’s much more complex than the mere economic issue of exporting unemployment.
Jon Murphy
Apr 3 2024 at 11:00pm
Indeed so! Mainly because there is no such issue. But, again, if Warren’s argument is correct, then the analogy holds in that case. But, as you rightfully note, Warren’s argument is incorrect because the world is more complex than his simple confusions.
Warren Platts
Apr 3 2024 at 3:18pm
Deducing conclusions by argument from analogy is of course a logical fallacy. But analogies can help explain stuff sometimes. However, in this case the analogy breaks down entirely.
International trade is governed by the equation S = I. In a closed economy (and Planet Earth is a closed economy), when mercantilist countries like China employ subsidies and suppress wages in order to run big trade surpluses, that entails that other countries MUST run equivalent trade deficits (the obverse of the fact they must absorb the mercantilists’ savings gluts) in order to balance the above equation.
Now, if it were the case that the U.S. was a developing country, as it was in the 19th century, where savings were much less than desired productive investment, running a trade deficit can be a good idea.
But 21st century USA is not a developing country. Thus the trade deficit represents an export of demand to China. This must result in either higher unemployment or (what amounts the same thing) lower wages. This results in a headwind to economic growth due to consumption being lower than it otherwise would be (because mass consumption requires workers who have money in their pocket) or else an increase in household and/or government debt in order to maintain the same level of consumption. Meantime, China receives a tailwind to its economic growth that helps fund their rearmament that’s specifically designed to fight the U.S. Navy. So why are we doing this? Economic ideological purity, apparently, because the old altruism argument certainly doesn’t carry water anymore.
Ahmed Fares
Apr 3 2024 at 10:01pm
re: conservation of deficits
The US could ban all trade with China, and China would still cause the US to run trade deficits.
Tariff Man Has Become Deficit Man
This explains how it works:
Dethrone ‘King Dollar’
Jon Murphy
Apr 3 2024 at 11:01pm
That’s not true, as evidenced by the definition S = I.
Jon Murphy
Apr 3 2024 at 11:02pm
I should also note, Warren, that earlier you said trade deficits are a good thing and created by tariffs since they keep jobs here in the US.
Warren Platts
Apr 5 2024 at 4:10pm
Yup. Exactly right. If USA decides to run trade deficits at all, and the other deficit countries refuse to accept China’s entire surplus, then the difference must increase USA’s trade deficit by the amount of that difference, even if the US-China bilateral trade is zero or balanced.
Your mere assertion couldn’t be more wrong, as can easily be demonstrated. If an economy has balanced trade, S = I and NX = 0. That is to say, the overall quantity of goods and services demanded equals the overall quantity of goods and services supplied.
However, if Home is running a huge, chronic trade deficit, then S < I and NX I and NX > 0. They are producing more than they can consume. Therefore, Foreign’s overall quantity of goods and services supplied exceeds Foreign’s overall quantity of goods demanded.
Because Foreign is suffering from a Foreign surplus, it imports Demand from Home and adds that to Foreign’s Demand curve. And since Home is suffering from a Home shortage, then it imports Supply from Foreign that is added to Home’s Supply curve. Since Home’s I – S equals Foreign’s S – I, then then the global equation S = I is satisfied, even though Home exported Demand. QED
I never said, “Trade deficits are a good thing and created by tariffs since they keep jobs here in the US.” I have no idea how you came up with that mangled paraphrase, so I can’t comment unless you show me the exact quotation you’re thinking of.
Warren Platts
Apr 5 2024 at 4:21pm
That was weird. This editing platform can be glitchy.
The above paragraph should read as follows:
(see if it works this time)
Warren Platts
Apr 5 2024 at 4:24pm
My apologies. Try this:
Ahmed Fares
Apr 5 2024 at 4:57pm
Trade deficits are part and parcel of being a reserve currency, something which the US chose to be when it asked the Gulf States to price oil in US dollars in exchange for protection, which leads to the Triffin Dilemma:
Once you have a trade deficit, you have to run budget deficits to prevent unemployment. This leads to debt-trap dynamics.
Warren Platts
Apr 5 2024 at 6:34pm
I don’t know if I agree with that because the USD has basically been the global reserve currency since 1945, yet for around half that time, the U.S. was running trade surpluses. Nor is the twin deficit hypothesis necessarily true. If the U.S. government managed to balance its budget, foreign savers would simply invest in U.S. non-governmental assets, resulting in an expansion of private household debt. Thus ending the trade deficit will require more than just tariffs: capital inflows will also have to be controlled.
Mactoul
Apr 2 2024 at 1:50am
Economists are mostly employed either in government or in universities.
I wonder what does public choice theory say about their incentives.
Pierre Lemieux
Apr 2 2024 at 11:35am
Mactoul: That’s a good question and the answer is pretty straightforward. Economists working in government will, in general, respond to their narrow self-interested incentives. (Economists have known this at least since William Niskanen’s work in the 1960s and 1970s, if not since Max Weber. My admittedly imperfect 2004 Regulation article “The Public Choice Revolution” will give you a rough idea.) This observation is also valid in more independent parts of government, such as the Fed, where the incentives to toe the official line, although present, are less pressing–as you can often see just by reading their intellectual production. It is also true in universities, although to a still lesser degree because other self-interested incentives, such as reputation in “the profession,” carry a heavier weight.
Jon Murphy
Apr 2 2024 at 12:31pm
James Buchanan had an excellent book Anarchy in Academia where he goes through a lot of those incentives, not just for economists but for students, administrators, professors, and so on. Unfortunately, the book is difficult to find, but it’s a fascinating read if you can get your hand on it.
Jose Pablo
Apr 2 2024 at 11:39pm
Despite the fact that politics in Academia are the most vicious and bitter, the subject is less interesting because of the size of the stakes.
Contrary to what happens with the politicians’ politics. Vicious, bitter and all relevant. These “worst” (the politicians) even control the nuclear arsenals. This fact is truly disheartening when you look at the level of their reasoning.
Jon Murphy
Apr 2 2024 at 8:51am
Good stuff Pierre.
This episode (as well as the various episodes that occured both under the Trump and Biden Administrations) show a significant flaw in any sort of interventionism: the interventions must be politically correct.* They need to serve a political goal above the supposed justification for the intervention. That the political goal may be in direct conflict with the supposed justification is irrelevant: the political goal matters.
To adapt from HL Mencken: the urge to save the market is always a false-face to control the market.
*By “politically correct,” I use its original meaning of adhearing to a political ideology above all else.
Jose Pablo
Apr 2 2024 at 11:28pm
“Ideology” drives political interventions because “ideology” drives votes.
This is a vicious circle that is very difficult to break. “Reason” is never going to drive votes. So “reason” is never going to drive political interventions.
The only solution then is applying the “Federal Reserve Model” to most of (if not all) the economy. Take the ability to intervene out of the politicians’ hands.
Amendment 10 + Article I, Section 8 was, maybe, a good try. Still, it would have been better to let one line out of Section 8: “to regulate Commerce with foreign Nations and among the several States, and with the Indian Tribes”. That is a back door through which uncountable “ideological political interventions” have been pushed in.
Pierre Lemieux
Apr 3 2024 at 3:28pm
Jose: You raise a very interesting question when you write:
This can be taken as an argument for the administrative state or the “deep state.” As you suggest, the administrative state may not be more dangerous than the politicians’ state. Imagine if Trump or Biden had a free hand with monetary policy! This is why I have been against Ron Paul’s “stop the Fed” campaign. Yet, without political competition, we would end up with Anthony de Jasay’s Plantation State.
The solution to the conundrum–the Plantation State or the politicians’ state–is what classical liberals were after: a limited state where neither politicians nor bureaucrats can do much damage (short of increasing state power).
Jose Pablo
Apr 3 2024 at 8:57pm
Very interesting Pierre. What classical liberals are after is, then, and indeed narrow path. They are caught between a rock and a hard place.
I highly doubt that the state can be “contained”. Eliminated, maybe, I hope so, contained never.
And they seem to have an unjustified confidence in “political competition”. The Farce of Clean Energy Dumping is, precisely, political competition at play.
Jon Murphy
Apr 2 2024 at 6:29pm
Really, you could have dropped “clean energy” from your title and had a perfectly valid claim. US anti-dumping legislation is so riddled with poor incentives and incoherent rules that the whole body of legislation is a farce.
Pierre Lemieux
Apr 3 2024 at 12:01pm
I agree, Jon!
Warren Platts
Apr 5 2024 at 5:34pm
Maybe so, but the clean energy sector really is a special case. China is clearly attempting to corner the market in the solar sector. Twenty years ago, China had virtually a zero percent share of the global market for solar grade polysilicon. Now it’s at 80%. About 97% of the global share of the thin wafers upon which photovoltaic cells are built are made in China.
This is doubly problematic because although China has cornered the global market for solar cells, China is also the dirtiest economy. Last I checked, China’s CO2 per dollar of GDP is 3.5 times that of the USA. Thus if the goal is to reduce CO2 emissions through the use of solar panels, then importing them from China kind of defeats that purpose.
China’s Solar Firms Are Surviving on CCP Subsidies – Coalition For A Prosperous America
Jose Pablo
Apr 5 2024 at 10:13pm
Why is China “attempting to corner the market”?
In fact, what does “corner the market” mean?
And, if “corner the market” is a good thing, why is not the American “clean energy sector” trying to “corner the market” too?
Warren Platts
Apr 6 2024 at 6:48am
Here is the answer to your questions from the article you couldn’t deign to read:
Jose Pablo
Apr 6 2024 at 10:26am
I did Warren, but none of the arguments make any sense. And you are right, the whole article is below “economic dignity”. You should only quote articles that actually make economic sense.
1a) Subsidies, there are a whole lot of subsidies flowing to the American and European renewable sector. It is a case of “our subsidies are good theirs are bad” (and argument that aligns well with the kind of nationalistic arguments that you usually make but have no economic sense).
1b) Investments, there is a lot of investment flowing to the American and European renewable sector. I don’t really understand what the problem with investment is. Should the rest of the world refrain from investing in markets “reserved” for American companies?
2) Practices to circumvent duties owed on their exports are the consequence of the arbitrary duties imposed by the US. You need two to tango. And everybody has an unalienable right to circumvent arbitrary behaviors.
3) Low-cost suppliers. So, the Chinese prefer to lose money on the raw polysilicon global market (selling the product domestically at low prices) in order to be able to lose even more money in the global market of finished solar panels? That is not a very sensible strategy. To what end?
The whole endgame of this “cornering the market” is still not clear to me.
Jose Pablo
Apr 2 2024 at 10:44pm
These politicians have no shame.
You shouldn’t be surprised, Pierre. Hayek was right: in politics, the worst do get on top.
You can either have a strong desire for power and enjoy extorting and coercing people or be honest and fair with others. But you cannot do both at the same time.
Politicians are just the worst. I have come to believe that particularly so in liberal democracies. Afterall tyrants don’t need to pretend they don’t enjoy being tyrants. That includes a level of honesty absent in democratic politicians.
Jose Pablo
Apr 2 2024 at 11:06pm
It would of course be better for many people in the world—from Chinese taxpayers to the American investors who have sunk money in firms that cannot compete with green largesse from China—if the Chinese state stopped intervening in its exporters’ businesses.
Don’t worry at all about the American Investors fate. To sunk money into firms that maybe don’t work is, precisely, their business. It is not for the faint of heart, but it is very lucrative. And exciting.
“Creative destruction” is a concept more than 80 years old. We cannot keep learning what we already know.
If the government really want to help the American Investors, the best it can do is come up with a one-page tax code (instead of the unbelievable “monster” they have created) and scrap most (if not all) regulations. The amount of time and ingenuity that investors have to devote to regulation compliance and tax optimization is a social waste of immense proportions.
The capital and ingenuity devoted to the clean energy industry in the US is not only a waste, it is also making more difficult for American investors the developing of the next Nvidia, the next Facebook, the next Amazon, the next Google. And all of this “next” are companies that cannot (and will not) be created in China or Europe.
Anders
Apr 4 2024 at 11:11am
What exactly does the us find so threatening?
If China is subsidizing and dumping, that would only benefit the US, no? And given that five decades of climate action and impending doom has barely made a dent in emissions, in stark contrast to public spending, prices, and opportunity costs, how on earth can we forsake intense cooperation with a country at the cutting edge in areas such as panels, evs, platform commoditization, data use, and dozens of pilots in all kinds of nuclear energy?
Knowing China a bit, they would more than welcome closer relations with the West in this area as a counterweight to much more fissiparous areas of conflict. We should just stop short of learning from uyghur reeducation camps to reprogram Trump supporters and climate deniers. But then again, once we have something better that fossil combustion, those deniers will switch as well…
America fascinates me. Incredibly dynamic despite so many reasons it should not be. Unfortunately here in Europe we tend to emulate the worst…
Jim Glass
Apr 5 2024 at 10:25pm
Remember how China has been trying to form up a BRICS alliance to counter the West (North America, Europe, Japan, etc)?
Well, guess who all is loading up on anti-dumping actions against China now: The BIS — Brazil, India, South Africa. (Not Russia for some reason, and China’s not suing itself.)
Xi Jinping can’t help but make enemies. When his Leninist state represses civilians into consuming 20% of GDP less than the international norm so manufacturers will produce 20% more, where’s that imbalance in production going to go? Everywhere.
Ah, Leninist economic policy, all more-production, less civilian consumption, all the time. How the Soviets put cosmonauts in space before they had toilet paper.
Point is, these EV, solar panel, etc., disputes aren’t temporary problems to be managed until economies balance out, like the Japanese car exports in the 1980s. This is fundamental Party policy and Xi is doubling down on it. There’s a lot more coming on a lot wider scale, and the whole world has fun ahead.
We thought we left the Leninists behind in 1991. People under 50 mostly don’t even know who they were. But they’re baaaack. And they are bringing back a lot more (and more dangerous) problems than trade disputes.
Ahmed Fares
Apr 6 2024 at 3:36pm
Pierre Lemieux writes:
Alex Tabarrok came out with an article today making the same point.
Your Subsidies are Undercutting My Subsidies!
Pierre Lemieux
Apr 6 2024 at 3:45pm
Thanks, Ahmed, I had not seen that.
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