The Paper Dragon

The editorial in the National Review today highlights all the reasons US policy should be geared towards a more protectionist stance towards China, namely, it subsidizes all aspects of its economy through state controlled banks, making it hard to determine to what degree each industry is subsidized. In the US, we subsidize corn heavily. If the EU or other countries wish to block our corn to their market, it is their right to do so. With China it isn’t so easy to tell.

The interesting part of the editorial is this:

That’s bad enough, but consumers should have bigger worries on the heels of this announcement. The Commerce Department ruling opens the door to new tariffs on everything from steel to textiles, because it reverses a decades-old policy of treating China as a non-market (Communist) economy for the purposes of assigning “countervailing duties,” which are tariffs that offset subsidized exports. Because it’s difficult to know which exports are subsidized in a Communist country, Congress has traditionally exempted non-market economies from countervailing duties, subjecting them instead to lower tariffs called “antidumping duties.” The new policy at Commerce doesn’t change China’s status from non-market to market economy. Instead, it treats China as both in order to maximize the political payoff.

Lowry and company are upset that Bush and congress want to use the rules that apply to democracies (countervailing duties) to communist, non-market China. What’s all this talk I hear about open markets in China, then? If China wants to step up to the plate with the big kids, it should be prepared for a little blowback. Chinese policy has thrived on this ambiguity for too long, seemingly open markets for deep-pocketed investors, but a good deal of governmental control over property rights for the little guy. If this is a token gesture by the White House to gain approval for a free trade deal with South Korea, it is one of the wiser trade moves this admin will make (a low standard, for sure). South Korea is a thriving democracy and has been an ally, and wages there are comparable to ours, so we will be less subject to the kind of dumping of low-quality cheap goods that we get from China.

Trade agreements should make geopolitical and economic sense. Economic trade with China during the cold war made sense because it further alienated the Soviets, in a post cold war world, it only makes sense that trade be more diversified.

Then, when I read stories like the Chinese lady who fell six stories onto a pile of human excrement, I breath a sigh of relief. Perhaps China is a paper dragon after all.

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