The good thing about a big trade deficit....
To follow up on Rachel and Josh's exchange on whether foreign investors in China can alter/influence Beijing's direction:
Josh's pessimism about pressure from foreign firms is hard-earned and quite correct. The prospect of a billion potential consumers has a funny effect on multinational corporations. Regardless of the firm -- be it Google or NewsCorp -- firms will throw out any non-profit-related principle to guarantee a crack at the Chinese marketplace.
That said, market power cuts both ways. The most important lever of influence on Chinese economic behavior will not be Western producers, but Western consumers (and, by extension, Western regulators).
In my latest book, All Politics Is Global, I argue that even in an era of globalization, size still matters, and the American and European markets are still much larger than the Chinese market. As China becomes increasingly dependent on export-led growth, Beijing has little choice but to respond to regulatory strictures imposed by the U.S. or E.U. As China amasses trade surpluses with the OECD economies, and as these countries perceive China in a more negative manner, China will be responding more frequently.
Surfing the New York Times web site, one can quickly find examples. Today, the FDA "issued an alert challenging imports of five major types of farm-raised seafood from China, including shrimp and catfish, because testing found recurrent contamination from carcinogens and antibiotics."
China has already begun to respond to the recent rash of consumer health and safety fears, closing 180 food plants in recent days.
Going forward, the question is whether China's responses will be substantial, half-hearted, or intended to be substantial but in actuality half-hearted. My guess is that it will be the last option, but I'm more interested in Josh's opinion.
China can be slow to act but when the seriousness of a situation is realized can act extremely decisively. The SARS epidemic comes to mind. They acted here with ruthless efficiency. Adapting to American standards of food safety may be difficult but I believe they will do it if they so decide.
June 28, 2007 2:32 PM | Reply | Permalink
Daniel Drezner wrote of ideological considerations with regard to USA’s trade deficits. My major concern is its economic affect upon wage and salary earning families. Trade deficit’s cheaper goods do not compensate for its detrimental affect upon the median wage.
Excerpted from
www.usa-trade-deficit.blogspot.com ;
“A nation's annual trade deficit indicates some foreign production was substituted for potential domestic production. Their gross domestic production, (their GDP) was less than otherwise.
The trade deficit's detriment to the GDP exceeds the amount of the deficit itself and is detrimental to the median wage. Trade deficits are always a net economic detriment to the nation.
When local producers have perceptively modified a community's volume of production the resonating production modification to the community by other producers becomes obvious. This often affects producers of completely unrelated products; (i.e. factory production affects beauty parlor production). This modification of the community's gross production of course affects local jobs and their wage rates.
This same phenomenon occurs when the initial catalytic producers were small but acting in concert. (That's often the case single or allied industries). On a national scale, this is all generally dispersed and thus less obvious but no less real.
For over a half century USA's continuously increasing annual trade deficit has been such a significant catalyst. Our annual GDPs and median wages have been less than otherwise due to our pursuit of pure unrestricted free trade (among nations that are unwilling and/or unable to sufficiently compensate their laborers).
Our trade deficit's net detriment to USA's economy is greatly under-estimated by those influential within and outside of our government; (because its affect upon the median wage is proportionately more burdensome to lower income families)?”.
Warren Buffett's concept published in 2003 is the basis of a trade proposal to significantly decrease USA's trade deficit of goods.
For further information, refer to
www.usa-trade-deficit.blogspot.com
and www.USA-Imports.Blogspot.com
Respectfully, Supposn
February 25, 2009 4:30 PM | Reply | Permalink