Friday, March 30, 2007

US To Set New Duties On China

Commerce Secretary Carlos M. Gutierrez announced that the US is going to put duties on Chinese imports because the Chinese government is subdizing the companies in questions.

I have a couple takes on this. First, this isn't really a change in policy, we're just not applying the "Communist countries don't count" exception to China anymore. This makes a lot of sense. China is not a Communist country - I think it's best described as authoritarian capitalism with a large, decaying sector of state-owned firms.

I'm not an economist, so I don't really know whether the Chinese government is subsidizing these companies (I'd be willing to believe it though) or what the effects of such duties are likely to be.

Reflexively I tend to be a free-trade kind of guy. If the other guy wants to subsidize our consumption (and the low prices at Wal-Mart are the result of low-priced Chinese exports), let him. On the other hand I can see limits to this kind of thinking - if, say, all of America's paper producers go out of business and China starts raising the prices, it certainly won't be better for consumers (this is what Rockefeller used to do with oil back in the day). Then again, we could reopen the paper plants at that point - it's not like the technology will dissappear, and if China is forced to continously subsidize us in fear of a resurgance of domestic competition, so much the better for us.

I also wonder, what would be the effect of a sizable dimunition of Sino-American trade? We tend to think of ourselves as dependant on foreigners because of our large debt, but thinking about this has made me wonder. If our trade with China suddenly went to zero, we would be left without our cheap televisions and ipods, but with a pile of money, and start looking for other places to spend it, including domestic products, or different products alltogether. Meanwhile China would be left with a surplus of televisions and ipods that exceed their domestic demand, and are out of the price range of most of the country. They'd also be missing all the dollars that were flowing in from America. I know which situation I'd rather be in. Of course, as I said, I'm not an economist, and all of this speculation could be based on some faulty logic, so who knows.

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