Is it time for a trade war with China?

The last couple of weeks, the United States is doing something we rarely do:  we’re thinking in more or less practical terms about the future of our democracy, boiling our values and our needs down into numbers on a balance sheet.

President Barack Obama has laid out his budget and it’s drawing serious fire.  Republicans have countered with their own spending proposals, which have also been roundly panned.

One unavoidable conclusion, looking at the mounting debt that both sides see continuing into the future, is that our current approach is unsustainable.

Put simply, our economy is no longer big or robust enough to fund through taxes all the programs and services that we want our government to provide.

Whether your particular wish-list includes an assertive global military or well-funded social welfare and education programs, the time is near when we’ll be getting big lumps of coal instead of goodies.

Yes, we can stave off the inevitable for awhile by raising taxes, but our aging population and the growth rate of health and senior care programs — not to mention the rising cost of interest on our debt — makes that a temporary solution.

The obvious solution here is to grow America’s economy as rapidly as possible, expanding tax revenues while also reducing the number of our citizens who rely on government programs.  It’s a win-win.

The problem is that none of the economic plans floating around Washington DC confront the biggest single problem crippling our prosperity:  protectionism and unfair trade by China.

Here’s something that might surprise you.

The United States is still the biggest manufacturing nation on earth.  In 2007, we produced $1.8 trillion in manufactured goods, compared with China’s $1.1 trillion.  Our goods also tend to be higher quality and higher tech.

Our workers are more efficient, better educated, and far more productive per capita.

Everyone knows, of course, that the Chinese are rapidly catching up.  But the dirty secret of our looming economic crisis is that the Chinese aren’t playing fair even by the generally crooked standards of global trade.

For decades, the Chinese have competed with US firms while paying their workers brutally low wages.  Even jobs that involve heavy labor and dangerous working conditions pay only around $200 a month.

In some factories, pay still hovers at less than $1 an hour.

It simply doesn’t make sense to grouse about greedy unionized workers in America when in order to compete they would have to accept wages that are literally Dickensian.

The Chinese have also failed to implement reasonable environmental protections, a huge savings in the cost of doing business, and an unfair advantage over nations that want to preserve a decent standard of living.

The Chinese have also refused to implement reasonable copyright and intellectual property rules, meaning that the “idea work” and innovation that fuels American prosperity is often simply stolen or bootlegged.

Their nation has also placed heavy-handed restrictions on foreign investment and trade, meaning that Chinese firms are free to compete in the US and Europe without fears of facing competition at home.

All of these hurdles would be enough to tilt the playing field dangerously, pushing manufacturing regions of the US — including the North Country — to the brink.

But the biggest factor crippling fair trade is the Chinese leadership’s refusal to allow its currency to float in value.

The dollar, the Euro and other major currencies rise and fall in value, a process that acts as a perfect breaking mechanism.

If one country’s economy is overheating, its currency rises in value so that its exports become more expensive, giving companies in other nations a chance to get back in the game.

But China has fixed its currency artificially at bargain-basement levels, even as their economy booms with double-digit GDP growth.

A company trying to export widgets from the depressed North Country will find that the value of the dollar alone makes it nearly impossible to compete with regions of China that are wildly prosperous.

Various studies of these unfair practices find that they cost Americans between 350,000 and 3.5 million jobs.  You can do the math.  Even if we take the low-end figure, New York state’s share of that would be at least 7,000 jobs.

Let me say again that I have no problem with the Chinese beating us fair-and-square.  If they out-educate, out-innovate, and out-efficiency us, that will spark American firms to be more creative and resourceful.

But that’s not the true story of Chinese prosperity, which is based on protectionism, the lack of a rule of law, and brutal labor and environmental conditions.

Yes, the idea of confronting China on these unfair practices is nerve-wracking.  And if the Chinese had shown the least flexibility on any of these points, it would be foolish to consider this kind of brinksmanship.

A trade war could result in impacts on our lifestyle very nearly as profound as restrictions on the oil flowing from the Middle East.

From the cheap products we buy at Wal-Mart to the municipal bonds that Chinese investors purchase, we are deeply intertwined with their economy.

Opposition to a more aggressive trade stance would also be fierce from American corporations, which have gleefully taken advantage of China’s trade policies to boost their profits.

But the time is approaching when American policy-makers simply won’t have a choice.

If our companies — especially those that provide crucial blue collar jobs — can’t compete and build prosperity on an even footing with China, then our country will surely fall into second-place status, beginning with our manufacturing sector.

In time, other parts of our economy will be exported, eroding prosperity and tax revenues even further.  If that’s allowed to happen, the budget woes we face today will look like child’s play.

Put simply, we all expect our government to be the government of a rich and robust nation.  But if we allow China to take away that prosperity unfairly, the downward spiral will be irreversible.

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23 Responses to “Is it time for a trade war with China?”

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  1. JDM says:

    Brian says, “Put simply, our economy is no longer big or robust enough to fund through taxes all the programs and services that we want our government to provide.”

    I can restate it this way: Obama is a failure as a President.

    Brian says, “President Barack Obama has laid out his budget and it’s drawing serious fire.”

    Because Obama is proposing spending MORE than we take in. He just doesn’t get it.

    The sooner he is out of a job, the sooner we will see a REAL ECONOMIC RECOVERY.

    It happened last with Jimmy Carter. You watch what happens if and when we get another Reagan supply-side man or woman in the White House.

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  2. TurdSandwich says:

    So we should raise taxes like Raygun did?

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  3. JDM, If you think that this is new since Obama became president you must have been living under a rock for the last several decades. It came to a head under “W” and has been growing for a long time before that. I don’t really see anyone in either party that has a plan for dealing with the core problems. Just bandaids.

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  4. oa says:

    “Is it time for a trade war with China?”
    No, but evidently it’s time for another yahoo-baiting, uninformed-comment-inducing headline. Not enough juice on the chili cook-off, I guess.
    Next post, Abortion!

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  5. JDM says:

    James B.

    I think the American people have what it takes to get this country back on course.

    If everyone was allowed to work and keep most of what they earned, and give a single percentage to have a non-intrusive government, we can do better than we have for the past several presidents.

    And I need to chime in here – because there is not a better place. Where are the calls for civility in public discourse in Wisconsin? I see a lot of Hitler signs, death threats, etc.

    Media bias and mind-numbed robots on display, here. If NPR doesn’t give the fax permission to go-ahead and comment on civility, then apparently civility will NOT be discussed.

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  6. Mervel says:

    Good points Brian M.

    The other issue however is our inability to cover our own debt and the influence the Chinese hold because they hold so much of our debt. So what would a real trade war mean for us? I don’t think we can afford it as long as China being a totalitarian state can make a uniform choice to simply dump our debt; causing panic and a crisis for our own country.

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  7. Pete Klein says:

    No to a trade war with China.
    Why every time there is a real or just a perceived problem, must we always talk about it in terms of war?
    Increasing taxes may not be the single solution for our economic problems but should be part of the mix, along with a freeze on incomes and benefits.
    By the way, I would love to know what all is included in the claim of $1.8 trillion in manufactured goods in the US.
    Food is probably high on the list but it certainly can’t include much in the way of other goods purchased in retail stores.
    Just curious what is included.

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  8. Bret4207 says:

    My first question would be just what or how would YOU wage a trade war with China Brian M? I have my own theories, but am curious how you think it would best be handled if we were to undertake such a thing.

    JDM, with respect, this has far less to with The One than the general tone set in Washington and our various States over the last 30-40 years. We’ve made the US a less desirable place to do business, we’ve let our politicians borrow us into a ridiculous position to finance their prolonged tenure in office. We’ve even had Presidents sell defense technology to China in exchange for campaign contributions, and we let this treason go virtually unnoticed and surely unpunished. We created this mess willingly. Doesn’t matter if it’s Romney, Paul, DeMint or any other Republican in the White House, this is way bigger than one man is going to fix. Well……Pat Buchanan might “fix” it, but at what cost I don’t know.

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  9. Myown says:

    Should we start a trade war with China? No.

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  10. Pete Klein says:

    Since no one answered my question about all goods being manufactured in the USA, I offer two items I did find.
    1 – http://www.industryweek.com/research/iw50best/2010/iw50Bestnames.asp
    Major products often listed as made in the USA often include fighter jets and air conditioners, automobiles and pharmaceuticals, industrial lathes and semiconductors.
    But the problem here for the American worker is as I have so often pointed out, whatever is made here takes fewer and fewer workers to make it every year. This is very good for businesses selling all over the world but not so good for Americans looking for work.

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  11. Bill G says:

    We have NO leverage with China. We are addicted to their inexpensive products, reliant on their support of our debt, and powerless in enforcing standards for labor or intellectual property. The forces that will begin to address the economic advantages they presently enjoy will be found in their success. As their economy grows, their workers will demand higher wages, they will be forced to adopt more conventional monetary policies, and they will become invested in things such as intellectual property rights (in recent years I believe that they have filed for more patents than the US). What I find somewhat amusing about some of the criticisms is that many of these behaviors are forms of raw, unregulated capitalism, a concept romanticized by my more conservative brethren.

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  12. Myown says:

    Pete, I would think military supplies and equipment might be a big export of ours? Just guessing. But we seem to sell a lot of it to countries that we give money to so they can buy weapons from our military corporations. Wait, that wouldn’t be a form of corporate welfare and entitlements would it?

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  13. wys says:

    soon a more prosperous china will make it second to none in the world

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  14. phahn50 says:

    Protectionism and trade wars are bad for everybody in the long run. (but can be good in the short run) In the case of China, the multinational corporations are using cheap and disciplined labor in China to make consumer goodies for the rest of the world (ipods/ipads for us). The corporations make lots of money, American consumers get cheap stuff, but have to work at McDonalds flipping burgers in order to buy the stuff. The alternative is more jobs making stuff – jobs that seem to pay better, but ipods (and refrigerators) cost thousands and/or dont work very well.

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  15. phahn50 says:

    The hope is that the Chinese workers will demand more. An undervalued currency means that their purchasing power is artificially low. In part that means they cant buy our stuff or even their own stuff. They also have to breath polluted air and will someday have to clean up their environment. As they relax their political system, some things will take care of themselves. But there are too many poor people in the world who would be happy to work blue collar jobs for $2.00 an hour for steady work. Making widgets in the North Country will never be possible. nanotech-based pharmaceuticals can be made in the Albany area though, but they wont require many people, and they will all have advanced degrees.

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  16. PNElba says:

    I’m pretty sure we could compete with China if we ran our labor force like China does. Workers/Middle class in this country need to start taking personal responsibility for their circumstances. They need to take personal responsibility for their vote. They are getting exactly what they voted for. Once we get rid of collective bargaining rights in Wisconsin, we can start getting rid of worker’s rights in the other states. We can relax our laws on the use of child labor and maybe even forced labor. Getting rid of social security would help alot. We could work into our advancing years or retire on whatever benefits the corporations decide are sufficient. And, are all these worker safety regulations in the USA really necessary? Surely workers in this country can decide whether they want to work in an unsafe mine without the government’s help. I’m guessing that in the coming years we should be well on our way to being able to compete with China.

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  17. Bill G says:

    I believe that most people understand that we have little-to-no impact on Chinese behavior. Logic would dictate that we should then focus on those things we can control. Although it’s fashionable in some circles to pooh pooh investment and characterize it as another form of spending, there is a powerful argument for addressing educational reform, R&D, and infrastructure improvement. These are things, IF DONE PEOPERLY, will have an impact on our ability to compete.

    The stuff that’s going on in Wisconsin is a microcosm of the confused approach to solving our problems. I believe that there is general agreement that the municipal unions should be amenable to givebacks but the bigger issue of educational reform is muted by efforts to cut spending. And, where that discussion does take place the emphasis is on teacher unions and disinterested parents. However, there’s fairly good evidence that the single most effective reform to education we could take is to restructure and lengthen the school year, an approach that has been employed by many of the countries that have leap frogged us in educational achievement.

    Bottom line: if there is a single-minded focus on cutting spending, areas such as education, research, and infrastructure will suffer. If they do, competitive advantage over the long term will be affected.

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  18. oa says:

    PNElba is right. The only way to really compete is to win the race to the bottom. We’re trying, but not hard enough yet.

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  19. Pete Klein says:

    Yes, Myown, arms manufacturing is big in the USA. Our guns go south to help the drug dealers in Mexico and they go to just about every dirt bag dictatorship throughout the world.
    There was a song back in the late 80′s or early 90′s that had the line, “Send lawyers, guns and money,” something we are number one at doing.

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  20. If Clapton is God, Warren Haynes is Jesus says:

    We are the largest weapons dealer in the world and have been for some time. And as has been mentioned already, we the tax payers fund much of this international business by sending aide to dictators, monarch’s, democracies, royal families, etc. all over the world to then purchase weapons systems from our defense contractors which we the tax payers, in many cases, also funded to develop in the first place. It’s a nice little scam that ensures corporations like Ratheon, TRW, General Dynamics, Boeing, Northrup Gruman, GE, General Motors, Chrysler, etc. get their little piece of the corporate welfare pie. It’s also another part of the gargantuan military/industrial/congressional complex that receive so little scrutiny from our cowardly politicians and the public at large.

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  21. Bret4207 says:

    It was our defense spending that gave us the internet, our present day computers, microwaves, etc. While I would agree that there needs to be a major cut in our Defense Dept spending, painting the entire industry as evil lacks that “nuance” Brian M speaks of so often.

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  22. PNElba says:

    It was NASA spending on the space race and the National Defense/Direct Student loan program that gave us the leg up in technology. Unfortunately, NASA and student loan programs are severely being cut. Part of the new program which should be named the “National Race to the Bottom”.

    Good-bye middle class, hello oligarchs.

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  23. LOL says:

    One US balances her budget and prevents financial ruin like 2008 economic meltdown, then it can proceed to lecture China on how they should run their economy.

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