Scott Sumner on China and trade and me, and why it really is all about geopolitics

The first bit is mine, the second is his commentary, link here:

[TC] This [China] is an issue that predates Trump, and he deserves some credit for doing something to help solve it.

[SS] Everything in that paragraph is completely correct–except the last portion of the final sentence, which is wrong.

Scott’s is a common view in free market circles, so it’s worth outlining why I see things differently.  Like it or not, the United States is the global hegemon.  In my view this is an overall positive, but for our purposes today let’s just take it as given.

If you are the global hegemon, and another country, largely hostile to your political values and geopolitical desires, engages in widespread subversion of your power and influence, you must in some way hit back.  Otherwise you will not be global hegemon for much longer.  And unlike India or the EU, China desires to build an international political and economic order which would destroy liberalism as we know it.  Imagine a world where autocracy is a much more widespread norm, the Xinjiang detentions and North Korean nuclear weapons are considered entirely appropriate behavior, Taiwan is a vassal state, and few Asian countries could allow their media to print criticism of the Chinese government, for fear of retaliation.  Institutions such as the WTO would persist only insofar as they created loopholes which gave China the benefits of membership without most of the obligations.

Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money?  Very likely the same is underway in the United States (and other countries) right now.

You can put aside trade practices altogether, and simply look at the extreme and still under-reported degree of espionage and spying conducted by China, aimed at major U.S. corporations.  It’s not quite an act of war, but it is not the classical model of trade either (“Mercantilism is bad…what’s wrong if they send us goods and we just send them back paper dollars?”).  China is violating U.S. laws on a massive scale, and yes, I am sorry to say, trade is our main way of “reaching” them and sending a message.

Some kind of push back is needed, and I find it striking how much Westerners — and this includes free market types — who have lived in China full-time tend to agree with this conclusion.  It is also striking how many market-oriented economists, usually from the outside, don’t talk much about this issue at all.

That said, I fully agree that Trump has a poor understanding of economics, he is incapable of building the proper alliances, the benefits from Trump’s actions are likely to be marginal, and perhaps the best case scenario is simply that his provocations cause the Chinese to think twice before proceeding further along their current path.

Scott’s comparisons are with the EU and India, neither real rivals of the United States nor intended subverters of the Western economic order.  His p.s. is the part of his post that comes closest to my view:

PS.  There may be a few national security issues with China where sanctions are appropriate. I’m no certainly expert on high-tech espionage.  But that’s only a tiny faction of the trade dispute, and if it is a problem is better addressed through sanctions targeted at specific high-tech companies like Huawei.

I would have written “PS: For China, everything is a national security issue.  It is neither stable nor desirable for the world’s other major power to take exactly the opposite view.”

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Good back and forth. Point, Tyler.

Yes, I think SS is a Fifth Columnist since his wife is Asian. :) Full point goes to TC! And this "Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money?" - yes, just the other day in August I saw a headline in Australian media: "The Chinese government has reacted angrily to the Australian government's decision to bar Huawei from Australia’s 5G network, saying it was “gravely concerned”." Saber rattling over 5G! Since AU mining depends on CHN demand the Aussies must dance to China's tune; recall when China overnight banned trash from the USA from being shipped to China, it decimated the recycling business overnight.

Bonus trivia: China's population is aging so likely they've reached the high-water mark in their influence, unless--and this is key--they team up with Russia and North Korea to wear the black hat.

Mining is a commodity business, if the Chinese need the raw materials they'll buy them from Australia.

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Ray, So precisely what does Australia's decision to ban Huawei tell us about Chinese domination of Australia? Perhaps I missed your point.

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Australia banning Huawei is the result of the US subverting Australian politics to prevent peaceable free trade. The same thing happens here in New Zealand. In the crazed, paranoid worldview that has taken over the United States anything that gets in the way of their endless wars and total dominance forever is ‘aggression’. China’s political system is unfortunate for the Chinese, if they don’t like it they should do something about it. They are not trying to impose it on New Zealand, they just want to trade with us to our mutual benefit.

NZ, NZ, didn't they just elect someone to try to stop Chinese buyers from buying up their real estate? Same as Vancouver.

Nothing to do with the US at all. China is a large player and thus where it chooses to sit down can crush people.

A similar panic took place in the '80s when Japanese interests were purchasing property in the Hawaiian Islands. Being unsuccessful at towing the islands back across the Pacific to Japan the fever subsided and things became as normal as they ever get.

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Bonus trivia: China's population is aging so likely they've reached the high-water mark in their influence, unless--and this is key--they team up with Russia and North Korea to wear the black hat.

The hat would be the only thing they really had in common, though, which, compelling as that might be, probably would not lead to any sort of global realignment, I'd guess.

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This is typical Western view that is yet again creating a monster - (don't care what happens over there - they are free to decide their way) - that is resulting in West buying blood diamonds.
That monster now is trying to sustain itself by subverting West - so TC is waking up, SS is still sleeping.
USA is the big hegemon - and needs to carefully limit its favours to oppressive regimes as it upsets the power to overthrow them.
People of Pakistan hate USA for these reasons - by propping up oppressive but favorable regimes they have weakened institutions of countries and have done huge harm. BLOOD ON YOUR HANDS.

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I’m not sure where Tyler gets his information about Australian politics (Quilette perhaps?), but as an Australian with some decades of experience in the Canberra and the foreign service I would like to reassure him that China has had no success (blatant or otherwise) in “regularly subverting” Australian poltics. We have enough of our own foolish, shortsighted, authoritarian and dogmatic to meet our needs without having to import it. China has apparently (temporarily?) influenced parts of the Chinese-speaking community either strongly for or against views friendly to China’s interests. They have actively pursued influence in some academic fields. But I doubt this influences opinion much outside those communities. TC would be mistaken to think it is enough to change *outcomes* in Australian public policy. In fact, the contrary is true. Australia has recently had a period of apparently cool diplomatic relations with China over decisions and actions (on Huawei, on navigation in the China Sea etc) by the Australian government. Things have apparently warmed up again (a bit) but no policy changes were made on either side. Both governments are invested in making the relationship as cordial as possible. The Huawei decision is limited to the 5G network and was made, as far as I can tell, with advice from US and UK.

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Tyler grew some balls. Good for him!

And good for us.

Short answer: Trade has political externalities, especially when the two involved are large opposing rivals.
Doesn't mean that protectionism is good, but one needs threats, sometimes even irrational ones, to get the other side to accept any compromises.

Here's an addendum: traditional trade theory assumes corporations are private profit seeking agents. But in China there is now little distinction between large private and public agents:
Today's South China Morning Post:
"Wanted: Communist Party members for high-paying jobs at internet giants Baidu and Didi advertise for people to take charge of ‘party-building’ activities." (Baidu is China's Google)

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>Tyler grew some balls. Good for him!

The growth is very minor ("Trump deserves SOME credit for doing SOMETHING to HELP solve it"? Could he cram any more qualifiers in there?) and more importantly, it's extremely temporary.

We're about as far as you can get from the next election, so Tyler thinks it's safe to put one toe off the reservation like this, but he's learning that the left ALWAYS eats its own. He'll fall back in line very quickly, that's a guarantee.

This is, literally, all you ever do here. You drop by to remind us that Tyler Cowen is a communist at risk of being 'eaten' by his own. Really insightful stuff.

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If only you grew a brain.

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I don't see any economic sanctions solving the issue. It will buy some extra time at best. We still need a solution to change the trajectory China is on. To me that seems like a more pressing existential problem than climate change, AI, asteroids, NSA spying or what-have-you. Has anyone sketched a realistic scenario to prevent the Chinese from taking over the world?

Their population begins shrinking in 2020.

They, as the Japanese, are seen as a global threat, but probably over time, they will mellow out.

Their democratic revolution will eventually happen. Or they will just export people who don't like living there...

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More Elon Musks let into the US!

He was, after all, an illegal immigrant.

More Jeff Bezos, native born.

The problem is China has 100 for each the US has.

Consider, Trump talks about wanting factories built in the US, praises GOP governors for getting Chinese and other non-US citizens to build factories in their States using taxpayer subsidies.

But has Trump ever called for more Tesla Gigafactories built in the US with similar taxpayer subsidies? Are Tesla Gigafactories no longer desirable now that Elon Musk is a long time US citizen, and billionaire?

Trump's trade war forced Tesla to speed up plans for Gigafactory 3 in China. Where China's policy on climate change makes it the global climate action hedgemon thanks to Trump acting to end US leadership.

Trump is like Reagan vs Carter. The US was the global leader in wind power technology in 1980 and GE obtained key patents in the early 80s. Then sat on them because Reagan ensured they had no US market. Meanwhile, the EU, Germany and Netherlands in particular drove clean power, taking over global leadership. When GEs patents expired, the large European wind industry was unshackled and could now rapidly improve their already best in the world wind turbines, and expand into the US, and now lead in cheap power generation, which thanks to decades of experience in Europe, they can manage at far higher shares of electric demand. Without storage.

Thankfully, California is not part of Trump's America and is challenging China for climate action hegemony. California is leading on storage with Tesla leading on installed storage in Hawaii, Austrialia, California, creating the market for other California firms in storage. But also for others in Asia, including China.

Read this?

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+1. Only a global coalition can contain China. Here's a good list of where to start but I'm afraid Tariff Man lacks the ability and competence to get it done:

https://en.wikipedia.org/wiki/List_of_the_largest_trading_partners_of_China

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Well, it may not be a national security issue, but it most definitely is a nationalism issue. Due to China's history of foreign domination, the Chinese don't like foreign meddling. What is being ignored is that China's growth is slowing just as the Chinese people are demanding higher living standards (more consumption). And Xi has been responding, by proposing better health care and retirement benefits, social welfare programs that China lacks. Trade wars and threats will only induce a greater sense of nationalism on the part of the Chinese people. That won't be helpful. Indeed, it will delay China's natural progression. That Trump's trade negotiators demanded veto power over China's fiscal policy shows just how out of touch they are with the Chinese. How would we respond if China demanded that China have control over our budgets, and demanded that we raise taxes to balance our budget. We are a sovereign nation. And so is China.

How long have we waited for China to pursue its natural progression to a consumer society with social benefits. Is it more likely that the government will instead invest in the military with the surplus.

It's important, actually required, that the Chinese pattern their economy, society, culture and politics as closely as possible to that of the US. Then the US will love them, right?

No, but should we accept state supported export models.

Aside from subsidies, the US Department of Agriculture actually has a program, the Export Guarantee Program, that helps finance foreign purchases of US ag exports.

Credit guarantees are not exceptional if you are selling to foreign credit risks, eg, governments or entities controlled by governments. You could argue it is not much of a subsidy in that it is really protecting the bank.

Compare that to China subsidies and protectionism.

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> China's growth is slowing just as the Chinese people are demanding higher living standards (more consumption).

IMO, The Chinese People don't have a history of getting what they demand from their government.

However, I 100% agree that higher Chinese living standards = BOTH (A) increased Labor cost AND (B) increased Chinese investment in China. Downstream, both A and B should put the right kind of pressure on Chinese exchange rates.

I have noticed Southern China seems to be getting closer to Taiwanese levels, so I have been heartened. Then we moved production to northern China...oh boy. China still has a long way to go.

I do think once its been absorbed, labor arbitrage will go away quickly as the hugely increased global market will quickly industrialize India then Africa.

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"And unlike India or the EU, China desires to build an international political and economic order which would destroy liberalism as we know it."

...For their section of the planet. I think the jury is still out on whether or not China wants true global domination in the USA/Western sense of the concept. It's an awful lot of work and I think the central committee leadership is dubious about being able to pull it off. For their sphere though? Absolutely. Domination, captured market, and access denial...the 21st and 22nd century Asian version of mercantilism.

"Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money?"

Don't forget Africa.

"Some kind of push back is needed, and I find it striking how much Westerners — and this includes free market types — who have lived in China full-time tend to agree with this conclusion."

That is because, for those that have lived there (myself included), the eventual understanding that China is a low-trust/high-context society is over the long-term inescapable. This is also apparent in Chinese diaspora communities wherever you go. The hyper-pragmatism and lack of sentimentality seem admirable for a little while on the surface (incidentally Paul Krugman was seduced by this) regarding solving problems, at least until you realize they're putting minders in every home in XinJiang and requiring restaurants to chain all kitchen knives to the tables.

Let us be blunt: there is no moral difference between Red China, the Empire of Japn and Nazi Germany. Red China's goal is global enslavement. The only language the Chinese regime, with its internment camps and Tiananmen Square, understands is force.

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"Don't forget Africa."

+1

Also don't forget South America.

"Argentina also granted Xi the top honor awarded to foreign politicians, and the Argentine polo association gave the Chinese leader a polo horse. Argentina is home to the world's top polo players, and Macri said that he wants the sport to make a comeback in China.

Photos released by Argentina's presidency showed a smiling Xi petting the pony with one hand and holding the reins with the other. Macri also put a red polo helmet emblazoned with China's flag on Xi's head."

http://en.mercopress.com/2018/12/03/president-xi-on-official-visit-to-argentina-signs-30-agriculture-and-investment-deals

The rats are the first to flee a sinking boat.

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What I find is interesting is that the remedies Trump seeks will increase investment in China, and shift its financial economic risks towards the United States.

Consider this: US technology company declines to invest in China because of technology sharing requirements or weak intellectual property protection. Instead, they invest in US or elsewhere.

China then abandons joint venture and technology sharing requirements under pressure from the Administration and US companies invest more in China. Later, China changes the rules.

Or, China opens its financial system some more; later on, US banks take a hit for some of the risks they did not adequately recognize because of an opaque financial and regulatory system in China.

The model we currently seem to be pursuing is: Fight Mercantilism with Mercantilism until the other opens.

What is the game theoretic resolution to the game where one side is better off if it plays Mercantilism and the other plays Open, and if both played Open, who would be the winner.

The other interesting aspect of China's economy, even if it gets more open, is its parallel to conglomerate competition ala Japanese zaibatsu or the Korean equivalent conglomerate entereprises. Sure, an economy could be open, but the enterprises are all intertwined through the state or through large scale former state enterprises who deal only with each other.

Sometimes problems are hard. Maybe the solution is to disinvest in China and invest in Vietnam or India (which by the way, has Mercantilist traditions as well). Leave assembly operations in China and manufacture the parts elsewhere or tie up distribution systems yourself.

On technology we should be wary of plans centered on closing the barn after the horse is gone. China is high tech and has good universities, and yes miles of servers with internal US research assets. That did that with perhaps reasonable self-interest (utilitarianism with chinese characteristics), but now it's done. We can secure our corporate servers and demand different IP deals, but it's done.

The next generation will be dealing with Chinese invention, in the product sphere as well as in the creepy AI surveillance state.

Closing the barn diminishes the growth of the horse, until the horse learns otherwise.

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BTW, one little token of why China "is there" already .. ask any EE or CE you know about the ESP8266 which blindsided everyone last year.

It was an innocuous "WIFI chip" sold by a Shanghai-based manufacturer for about $1, until people noticed that it was more powerful a computer than what they were attaching it to.

And so first hardware hackers and then product engineers made the ESP8266 the CPU for their IoT projects. Boom, Chinese CPUs. I think it even surprised the maker, what they had.

No harm then if the door closes.

We'll see.

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"Leave assembly operations in China and manufacture the parts elsewhere"

You are living in the 80's and 90's.

American firms outsource all of that. There is no Nike factory. Its all outsourced. There is no Apple factory. Its all outsourced.

Its already quite apparent on Amazon that Chinese factories are selling direct now. We taught them how to make stuff, and then they cut us out and sell directly. (That's fine...its the nature of the world.)

Don't assume that westerners will be in control of any of this. They aren't unless they guard IP very carefully.

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"China is violating U.S. laws on a massive scale, and yes, I am sorry to say, trade is our main way of 'reaching' them and sending a message."

Right. The "classical model of trade" is the wrong model with which to understand trade policy with China because it's not about (the economics of) trade; it's about geopolitics. Do we want to advance our geopolitical goals through violent means like war or non-violent means like trade policy? Non-violent means seem far preferable.

Those that oppose a tougher trade approach towards China must make a case for their alternative approach for *achieving geopolitical aims*. The classical economic argument for free trade is off point.

What are our geopolitical goals?

A world of ordered liberty in which people are free to pursue their own Happiness.

The attempt by the U.S. government to impose ordered liberty on the world will succeed only in producing less ordered liberty for Americans.

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Unless they're critical of Mohammed bin Salman, of course. ;-)

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Don't tie yourself up with specifics.

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A planet where people are rich enough and live long enough that global wages are no longer driven down to subsistence-level? Basically, helping the planet do what the developed world has done? Seems like a plan...

https://www.gapminder.org/tools/#$state$time$value=2018;;&chart-type=bubbles

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There's no doubt that the US violates scads of laws of other countries. What should they do about it?

Easy. They should change their so that whatever the US will not violate those laws.

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"Geopolitics" or "cosmopolitics"? Folks here as in East Asia seem to be sputtering that the entire Universe is simply ours for the taking . . . .

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This back & forth commentary resembles the worst case pot calling the kettle black. There are no examples of criticism heaped upon others that the US Gov't is not already guilty of & has been practicing for over 100 years. The US Gov't does not get to dictate global issues merely by decree or mandate based on America First at the detriment to every other human being on the planet. The last time we saw this global imperative by one nation ended badly in 1945.
The lack of integrity found in this kind of commentary is appalling - go look in the mirror, but watch out for flying glass.

Godwin strikes again.

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American exceptualism means only the US gets to steal ideas from more powerful nations, e.g. stealing from Britain from 1750 to 1850, stealing from Germany post 1940.

Oddly, Reagan marked a movement by conservatives to give other nations the best US ideas so cheap labor could produce better lower cost products to destroy the infrastructure needed by US labor unions: the best ideas built in products manufactured in the US by union labor.

Note, conservatives claim its impossible to compete with cheap Asian labor, so US labor costs must be slashed by destroying US manufacturing infrastructure to destroy US labor unions.

Yet, an illegal immigrant Elon Musk has proved ideas used in China, Asia, can be merged with the not-Trump's America culture to build the biggest factory in the world.

If only there were more Elon Musks, and Jeff Bezos, building capital assets rapidly in the US, assets built by US labor, used by US labor, to disrupt the economy, and drag the US into the global future Trump and conservatives are fighting to prevent.

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I think I see an ideological binding to Tyler's concern, and a blind spot.

TC: "Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money? Very likely the same is underway in the United States (and other countries) right now."

Am I correct in thinking that Tyler is still libertarian enough to think that money in US politics is a good thing, that Citizens United was a good call, and so the only problem is that it is foreign oligarchs messing around in our values?

And therefore we must face outward and brink upon war?

Seems to me that we could clean our own house, remove money from our politics, and serve again as a beacon to better democracy and human rights around the world.

Removing money from almost any area of human life (sports? entertainment? religion? agriculture? manufacturing? retailing? marriage?) is impossible.

It's always funny when someone claims that something done in other countries is just impossible, in the abstract.

One of my old punchlines is that this is what "American exceptionalism" really means.

So repeal the first amendment.

You’re correct, that is a uniquely American constitutional protection.

The meaning of the amendment was (mis)interpreted. I'm not sure what all the legal strategies would be to inform the courts, but "money is speech" certainly is not itself claimed specifically in the Constitution.

And that's the key. We should have free speech, with limits on money.

Are movies speech?

Those countries listed in the link above, and the US actually, have campaign finance laws. So, it is kind of dumb to argue that we can't because campaigns are like marriage(1) or speech is like movies(2).

https://www.fec.gov/help-candidates-and-committees/candidate-taking-receipts/contribution-limits/

What we have, unfortunately in parallel to that, is this idea that money can move through vague committees and intermediaries and then do anything it wants.

As I say up top, Tyler thinks it's bad when it is Chinese money (and presumably Russian!) but not when it's some American of equally low moral character.

A difference without a distinction.

Like I said, you can repeal the first amendment. Then you can do whatever you want. Those other countries don’t have a first amendment, and thus your comparison is irrelevant.

Buckley v Valeo established a precedent. It’s been settled law for over 40 years.

The movie reference which you clearly missed is about the actual Citizens United case, which you apparently know nothing about.

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Annymous is an incorrigible leftist - don't blunt your pick on that stone.

He he hates the USA.

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Gosh, I hope Tyler isn't consciously defending the interests of those domestic oligarchs.

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Sumner's analysis is basically correct.

I agree. Tyler's response is very disappointing - he sees China as monolithic - a classic nationalist trap. China, like the US, contains multitudes of people with all sorts of different agendas from good to bad. China itself cannot be good or bad, maybe there are people within China who are, but they are not China itself. Also, in terms of a threat, exactly how bad could the Chinese armed forces be to the Continental US? I will start to worry when the Chinese Peoples army starts to build invasion barges to cross the Pacific.

"Tyler's response is very disappointing - he sees China as monolithic -..."

Here's how I commented on Scott Sumner's blog:

"When writing about what “China” and “Russia” want, it’s probably a good idea to remember that both China and Russia are ranked 7 out of 7 (absolute worst) for political freedom by Freedom House."

"So it’s orders of magnitude sillier writing about what “Russia” and “China” want than writing about what the “United States” wants. And writing about what the “United States” wants is itself pretty ridiculous, given Donald Trump’s unpopularity–the most unpopular president since presidential popularity polls have existed, unless I’m mistaken–and given how close the 2016 presidential election was. Oh, and the U.S. federal government might shut down in a couple of weeks."

China is a one party dictatorship, with a heavily state-guided economy. So in that sense at least its *more* monolithic than the comparatively fractious US. Xi has far more power over China than Trump has over the US.

Also, China is about 90 percent Han, ethnically. The Han themselves of course have regional differences, but its still far more ethnically homogeneous than the US, especially in China proper.

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Half-baked push back is better than no push back? Is that the essence of TC’s argument?

As with so many issues, Trump is far from great, but he's the only one who's even trying.

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Chinese treatment of the Ughars, lack of freedoms, "disappearance" of people like the Interpol director, and censorship give us all the legal excuses to just ban US investment in China and trade. Global Magintsky Act etc.

[Bonus freezing of 7% of Treasury debt.]

A short term blow to us, a likely death blow to them imho.

We can Red China to the wall along with the skins of Imperial Germany, Nazi Germany, Imperial Japan and the USSR.

The survivors of the Branch Davidian affair concur whole-heartedly.

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China is one of the few countries where the longer a foreigner lives there, the less sympathetic they are towards it.

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Sumner's assessment of Trump is predictable and not predicated on anything Trump says or does vis a vis China.

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I still think that most reports about state commercial espionage from China is overblown, and the fear over Huawei is rooted in ignorance. With those said, I do think something has changed with regards to China. I think people who defends China over western criticism justifies it by stressing that China is moving in the right direction. It just needs time to adjust itself to liberalism. With Xi, this argument gets weaker and weaker. It seems that more drastic measures like sanctions are more justified than before. But, of course, with Trump at the helm, those moves are becoming squandered opportunities. By arbitrarily applying sanctions, US lost its moral authority and element of surprise, China is feeling like a victim and therefore sees no reason to change.

I do think "give Trump credit" annoys the hell out of people. If someone who is unqualified, ill informed and does not have the best interest of the country at heart does several random things, do we have to give him credit for the thing that in spirit looks like the right thing to do, but in practice worked terribly? Credits should be harder to earn than that.

I have a friend who was a general counsel of a US tech firm that went to China, only to have some of the technology stolen. Another friend is a lawyer who lectures on Intellectual Property through a US trade association in China. Both say it is the Wild West and that it would be unwise to to R&D there and recount how they were burned. China is shooting itself in the foot. There are other places to manufacture.

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Very well said, Tyler. Freedom isn't free; free markets aren't free.

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speaking as a woman,
heres why we hate canada, china, and india
the $200 canadian worm medicine from india doesn't work
too good on the chinese worms.
the generic American worm medicine for chinese worms1 works better
but it costs 600$ a pill whereas before the sociology dept fubared worms &generic drugs it used to cost about 5 dollars if you happened to get worms from being in china

1 check em out on google
they are pretty cool
so does anybody else besides the American medical association think mebbe we should revoke b.b.s.
bonesaw privileges?

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Context. Sumner responded to Cowen's Bloomberg column and blog post because Cowen credited Trump with doing something good; Sumner does not care for Trump, believing as I do that Trump is an ignoramus. I suspect that Sumner has become alarmed by Cowen's turn toward admiration for the ignoramus: has Cowen's brain been taken over by body snatchers? For those who don't watch interviews of Cowen on his book tour, he is crediting the ignoramus with more than our relationship with China. It could be that Cowen is coming around to behavioral economics, complimenting the ignoramus in order to induce the ignoramus not to do any more damage. In the words of Michael Corleone, "it's a smart move".

You need an ignoramus to take on the tyrant. The nice guy won't be able to do it.

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Yes context. Tyler said: "he [Trump] deserves some credit for doing something to help solve it."

But under TDS, it is axiomatic that Trump can do nothing that isn't awful, as you remind us in your characteristically long-winded way.

Sumner simply could not let this go unchallenged.

That's exactly opposite. Every effort Obama made to redirect Chinese mercantilism is forgotten because "Obama was a socialist" ODS, whereas the new TDS is to see the rantings of an imbecile as genius.

The derangement curve has become inverted.

Yeah, ODS was a thing, people said a lot of stupid shite about Obama.

I don't see how this fact addresses my comment.

Look, I can see the impulse of some to try to be even handed, by looking for the better, less dumb things, that Trump might do.

But it's Lucy's football. Each is a promise unfulfilled(*).

Just as when those kind of people congratulated on North Korean diplomacy that went poof. Just now as they congratulate .. Tariff Man for making a lot of noise about nothing.

Trump's Aides Struggle to Detail Deal He Says He Cut With Xi

* - as in the early gag "I thought this was Infrastructure Week."

This isn't about being even-handed, it's about avoiding being a knee-jerk putz, like ODS and TDS sufferers.

But you are calling out people who understand what just happened.

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The stock market spent the night fretting about the yield curve, and Donald opened the day calling himself "Tariff Man" on Twitter. Mayhem ensues.

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China has had a forty year deliberate strategy to catch up in technology. And the US helped. Check out the story on today's South China Morning Post: "Now locked in head-on rivalry, the US once helped China kick-start its science and technology ambitions"

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Why am I surprised that Tyler has come out against free trade? He didn't seem to be a protectionist years ago. Why does this seem new?

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Base the analysis on the tax efficiency, tariff taxes vs domestic income taxes vs value added taxes. Put them all in one category and evaluate them by the ability of Treasury to cover interest expenses.

Traded advocates are free marketers, they wan the domestic market reforms driven by global trade such that the most efficient governments win and inefficient government reform. So. analyze it on that basis, use their own theory.

I speculate that they are mostly right, global trade prevents voters in the USA from going off on a debt splurge\, not the other way around. The global market identifies us voters who vote for the stuff, then raises prices specifically on those voters. Double entry accounting is getting nothing but extremely accurate these days.

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The US ain't going to fix nothing until we recognize that China merely sold us the rope we hung ourselves with - willing participants in our own cannibalization. The process of which was accompanied by a pervasive multi-decade PR campaign to convince our nation that this was necessary and righteous. Which was accompanied by legislative bulldozing and subsidizing to make sure it happened.

Trump at least hints towards understanding this, but shows no real inclination to actually pursue that thread to its logical conclusion, leading us to assume it is merely opportunistic posturing and grandiose arm waving.

The fact that China was violating IP, stealing technology, and building up their own industry was hugely obvious from early on, surely the free market types of Americans living there were aware of that. Some even came home and complained about it.

Yet our corporations continued to bring the business, and even agreed to technology sharing and ownership/access relationships that blatantly enabled further pilfering and reverse engineering.

Now we are shocked, shocked to learn that they have ambitions beyond being our manufacturing beyatch.

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Ooh scary, China interferes with other nations and wants them to conform to their model and serve their wishes.

The US, meanwhile, totally kept to itself and honored other models for doing things.

I prefer the US model to China's, don't you?

Depends on:

(1) what year you start the clock
(2) Are we speaking as a citizen of the US, or as a citizen of, say, Iraq. or, Chile...

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From the World Bank (https://www.worldbank.org/en/country/china/overview): “Since initiating market reforms in 1978, China has shifted from a centrally-planned to a more market-based economy and has experienced rapid economic and social development. GDP growth has averaged nearly 10 percent a year—the fastest sustained expansion by a major economy in history—and has lifted more than 800 million people out of poverty. China reached all the Millennium Development Goals (MDGs) by 2015 and made a major contribution to the achievement of the MDGs globally. Although China’s GDP growth has gradually showed since 2012, it is still impressive by current global standards.”

First, add up all off China’s crimes, at home and abroad. Second put a value on the economic transformation of one sixth of humanity. If the first number is higher, then by all means take a strong stance towards Beijing (though keep in mind Eric Schlosser’s warnings about the new nuclear arms race - https://www.newyorker.com/news/news-desk/the-growing-dangers-of-the-new-nuclear-arms-race). But if the second number is higher, at least consider whether one of the greatest anti-poverty engines in world history deserves the benefit of the doubt.

Ultimately, I think a lot of Western commentators aren’t mad at China because it’s a bad actor. The list of bad actors that America has done, and still does business with is long and infamous; and it’s worth remembering that not too long ago Japan and Germany, now close allies, murdered millions upon millions of people, often in the most barbaric ways imaginable. Rather, I think they’re upset that China keeps rising, and is increasingly able to pursue its interests at a global level. Put differently, communists, even market oriented communists, weren’t supposed to be better at economics than people like Paul Krugman, Ken Rogoff, Larry Summers, and yes, Tyler Cowen (my take from 2014: https://ivan-anya.blogspot.com/2014/02/the-problem-with-china-bearishness.html?m=1).

There is much to detest about China, first and foremost it’s absolutely atrocious human rights record. But there is also a lot to like. Don’t buy into the idea that a new Cold War is inevitable, if only because the last one came uncomfortably close to ending in a really cold nuclear winter. A thaw is possible; America is still the preeminent global power; Washington has options.

"it’s worth remembering that not too long ago Japan and Germany, now close allies, murdered millions upon millions of people, often in the most barbaric ways imaginable"

I am fine with treating the Chinese as a friend after we have militarily defeated them and occupied the country.

PS, the Chinese still murder people, often in the most barbaric ways imaginable.

That’s one way to look at it, though perhaps an inadvisable one in the nuclear age. Also, note that, by occupying a big chunk of troops and resources, China’s war against Japan during WW2 made America’s advance across the Pacific a lot easier. As for the human rights dimension, it’s huge and important; but it is not the whole story, and it’s certainly not the part that’s driving current US policy.

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SS wrote, "The US is a bully - that's what we do."

He's projecting.

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Did I mention that politics in Australia and New Zealand are subverted regularly and blatantly by Chinese influence and money? Very likely the same is underway in the United States (and other countries) right now.

Priorities, Tyler. One hundred thousand dollars of Facebook ad space by some clickbait shop in Russia.

One. Hundred. Thousand. Dollars.

A convenient stolen email drop was probably a bigger unacknowledged campaign contribution then those Facebook ads.

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Coincidentally or not, talking about Robert Mercer:

"The US billionaire who helped bankroll Donald Trump’s campaign for the presidency played a key role in the campaign for Britain to leave the EU, the Observer has learned."

I wonder how Tyler wraps his head around that. He is for money in politics. He might be for American values abroad in the world. He probably likes billionaires. But he didn't like Brexit, and he appears today to not like foreigners messing around in other people's internal politics.

So Mercer funding Trump and Brexit. Which is it, money as free speech, or tyranny of the oligarchs?

It's intra-elite competition, part of the Turchin cycle.

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Sometimes people confuse how bad a country’s domestic policy is versus its foreign policy. I’ll agree that China is a very illiberal and autocratic power domestically, but I believe its foreign policy is no more autocratic than that of the United States. It is not trying to subvert existing global institutions; for instance, at the most iconic global institution, the UN, China has exercised its veto power the least out of the five major powers, even less than France. China’s foreign policy is more respectful of foreign countries’ sovereignty; whereas the US is quite open about its desire to remake other countries in its image, China has never advocated for regime change in another country. Unlike the US, China has not gone to war or militarily intervened in a foreign country since the 70s. It does not tell foreign companies they can’t trade with Taiwan the way we tell foreign companies they can’t trade with Iran. And its spying and influence operations are par for the course; Snowden revealed the US spied on Airbus for Boeing, and countries use money to influence each other’s politics all the time; as long as there is no fraud, I do not think a country trying to influence a foreign country’s politics is any less legitimate than a corporation donating to influence politics, and this is especially true of efforts to influence US politics, which ultimately have a major impact on all other countries in the world. Thus, even though China oppresses its own people, I believe the world will be freer if China gets big enough to be an alternative trading partner and political ally for smaller countries, people, and organizations that would otherwise be completely at the mercy of the United States.

Thanks Comrade Xi for the input.

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Of course you are correct, for the influence of a constitutional republic with constitutionally protected free speech, freedom of the press, right to privacy, right to peaceably assemble, right to petition the government is not any better than that of a totalitarian kleptocracy.

Amazing.

"a constitutional republic... is no better than a totalitarian kleptocracy"

Are you certain China is a constitutional republic?

You are usually more clever than that.

The fatuous false dichotomies bring out the worst in me

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Could you reduce the font size by about 80% on this blog? What is the point of this enormous font size currently being used?

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I object. To what? The fifth column comment by Ray Lopez. About someone's spouse, no less. It's appalling. I've wondered whether the heat and humidity has altered his brain, but there's no excuse for the third column comment. There are many ridiculous comment at this blog (it's a blog), but what Ray did is inexcusable. Cowen must not let it pass.

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Assuming a pushback is indeed required for geopolitical reasons, it begs the question of whether proteccionism is the right kind of answer; specially considering its harmful effects on the global & american economies. Targeted sanctions and political countermeasures in those countries where we deem China’s influence harmful seem, intuitively, a more sensible approach.

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I'll give Trump credit for caving to the Chinese with style. No one caves more and often than Trump. No one. He's the best.

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I remember the 80s. People were even more worked up about Japan and its growth, despite Japan being much smaller than China as well as a de facto US vassal state hosting American bases and troops and being integrated in the US economic and political order. Trump was also famously hostile to Japan back then. This reveals what this issue is really about: nationalism. Of course nationalism is unfashionable these days, so all sorts of alternative issues are raised to talk around and past the main issue. The EU and India are brought up in order to suggest that this is not the main issue, but in reality, the EU is moribund and regarded as a vassal, and India is not regarded as a potential challenger.

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Sumner is right, Tyler. And while we dally and become excluded from Chinese supply chains, even Israel and Japan are abandoning us. They know where the growth opportunities are. Japan is playing both sides, as a trilateral nation and a schmoozer with China. We are fighting a losing battle and we will lose. http://www.talkmarkets.com/content/global-markets/are-policy-refugees-jumping-the-trump-tariff-ship?post=199715&uid=4798

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Every Chinese company is a proxy for the government.

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Long time reader, first time commenter.

Tyler has consistently under-performed in his geopolitical commentary. This has led to a series of underwhelming commentary on China in general.

To begin, Tyler is a renowned economist and generalist blogger and author with a wide range of interests including travel, food, sports, arts, politics, culture at large. He is able to bring a unique perspective to all these subjects on his blog with the “Tyler Cowen production function” of bringing the economist’s tool-set of generalizing models and empirical evidence supplemented by a large amount of personal reading, discussions, and travel. Why then, is Tyler’s geopolitical commentary so uninspired?

At first this may not seem puzzling. After all Tyler is an economist by training and not a foreign policy or international relations expert. But in fact, geopolitics is very closely related to economics via economic history, development economics, trade, and game theory. In addition, Tyler has consumed volumes of tomes on the subject and is more widely traveled than most experts in the field. If anything, Tyler’s geopolitical commentary should be much more unique and insightful than his culture commentary if not his economics commentary.

So why then, does Tyler’s geopolitical commentary read like something from the Hudson Institute or The National Interest? I’m not saying that these think tanks or magazines don’t produce good work, but you don’t need to be Tyler Cowen to write this ****.

The answer to this puzzle, I submit, is a severe case of mood affiliation, a term that has fallen out of use recently. As evidence by Tyler’s cultural comments generally and exemplified by those on geopolitics such as China or Scottish independence, Tyler’s holds a romanticized view of the Western tradition, going beyond a philosophical preference for liberalism to a rawer tribal identification.

Now there is nothing wrong with being “on a team”, or have one’s normative views influenced by such an identity in addition to rigorous philosophy. That is natural and unavoidable if not desirable. But under severe mood affiliation, such an influence has spread to positive analysis and has seriously undermined, not just the breadth of the common base of audiences who may identify differently or with differing intensity, but the core of the arguments even to those of a similar mind.

What results in the case of China is an incoherent and muddled view, unbecoming of Tyler’s intellectually rigorous and consistent (if not always correct) treatment of his subjects in general.

Exhibit one is the filtering of opinions. The most widely linked China expert on this blog is of course Christopher Balding, a “perma-bear” proponent of both China pessimism and China threat. (This was the case even before they became co-columnists at Bloomberg). Along these veins are Michael Pettis, Patrick Chovanec, Victor Shih, and once, Gordon Chang.

Now these authors produce work and arguments of varying quality, brings attention to data supporting their views, and otherwise brings important contribution to the overall picture. Tyler acknowledged this with his one Gordon Chang link in a “even a broken clock is right twice-a-day” way. But the mood affiliation error here is the over-representation, not in terms of frequency, which may simply be indicative of the strength of the arguments, but in the lower barrier of novelty before they are linked. Because let’s be honest, their models haven’t been altered for a long time now, and each article is a trivial application of the theory or presentation of some new supporting evidence. Compare this with someone like Andrew Batson whom Tyler also frequently links, but each contributing much greater marginal novelty.

As an aside, I find these pessimist – threat views unsatisfying. If China’s trajectory is so unsustainable (demographics, debt, low trust, lack of creativity, neighborhood push-back), then why is it such an existential threat that requires lose-lose confrontation. Of course the authors reconcile this with the “dangerous failing China” argument, but it is straining. Is a pure strategy of containment always optimal? Should we be glad China is wasting money overseas or mad that it’s successfully executing “debt diplomacy”? The lack of varied responses to a vastly differing scenarios of rising or falling China suggests to me that the response itself (containment) is the goal and not the means, a symptom of mood affiliation. I find rising-accommodation (Hugh White), rising-confrontation (Peter Navarro, Michael Pillsbury, Steve Bannon) or assimilating-engagement (Scott Sumner) strategies to be much more internally consistent.

This goes back to Tyler’s view. Tyler appears at a loss when it comes to China’s economic outlook. In addition to the broken record bearish links, he also frequently links to anecdotal China rising stories and his own traveling experiences (“dynamism”), but gives no overarching conclusion, giving the readers a feeling of “something feels wrong” but “something feels wrong about feeling wrong”. On the political side, Tyler is just as undecided on whether China will strengthen its grip or how that may or may not happen. This lack of a sound foundation of a coherent economic and political predictive model of China should make a geopolitical strategy, if not impossible, at least require a multitude of nuances and branches to handle each uncertainty. However, on this Tyler is quite certain that “we must do something” and that something is now trade. The rest is just mood affiliation filling in the justification blanks with polemics (“they are stealing from us and subverting us and wants to destroy world liberalism”).

This is amateur hour. The arguments are full of holes. Global hegemon won’t last if you don’t confront? Global hegemon won’t last if you confront and fail. Cyber-theft of technology is not free market? Technology export control is not free market either. Tyler’s arguments are not wrong per se, just shallow. Is there no nuance between confrontation and accommodation? All I get is a vague sense of we need to do something to win the game, much like what the foreign policy establishment has served up these pasts few years, from the Pivot to the TPP to the Trade War.

And never mind the normative arguments. Is this about liberalism or is it about winning? Are the two really identical to the first approximation? Are we really at the stage where it’s OK if we lose economically as long as China looses more? That seems to be Balding’s opinion when he says the jobs won’t come back to America but we win if we can move them to Vietnam. Is this really a negotiating strategy towards some end or is lose – lose-more decoupling the goal itself? However adversarial China may be, I haven’t heard this type of strategy from China, at least they purport to gain something material and not just play zero-sum Cold War style. Perhaps we are indeed at that point and this is the right strategy, but you haven’t come close to showing your work.

+1 - good summary of the Tyler approach to China. As I noted above there is no "China" for the "USA" to win against. There are only people in either sides with all sorts of different agendas. There is a subset of people who think of countries as like sports teams of course and of course at times this is fine, but if you happen to live in a neighborhood and don't care for the local sport, should you be forced to contribute and cheer for your local team regardless?

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"That seems to be Balding’s opinion when he says the jobs won’t come back to America but we win if we can move them to Vietnam."

Vietnam is an authoritarian, communist state like China. The difference is that it's a lot smaller, weaker, and not a potential challenger to the US in the future. This suggests that "values" are not the issue here, but nationalism. But nationalism is not fashionable. Cowen, Balding et al can't just simply say that China is a foreign out-group, an Other that is large and powerful and thus worrisome, like they would have a hundred years ago. You have to talk obliquely about this stuff.

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"The answer to this puzzle, I submit, is a severe case of mood affiliation, a term that has fallen out of use recently. As evidence by Tyler’s cultural comments generally and exemplified by those on geopolitics such as China or Scottish independence, Tyler’s holds a romanticized view of the Western tradition, going beyond a philosophical preference for liberalism to a rawer tribal identification."

Nationalism is part of it. The other factor is that some of Cowen's main influences are Austrian economics and Classical Liberalism, which have moralistic tendencies and, for at least the latter, a certain Whiggish, progressive teleology.

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China has 60 million workers in state owned enterprises (SOE). This number hasn’t changed much in 10 years. SOE are so inefficient, they could easily lay off half the employees without any revenue change.

However, if you lay off 30 million people at once, they all go to Tianamen Square, and we know what that means.

China needs to cautiously deflate the SOEs, but we may need to accept that some level of trade protection is needed to ensure that China (a nuclear power) doesn’t disintegrate into chaos. Imagine a nuclear Syria.

The last person in the world capable of cautious and understanding trade negotiation is Donal Trump.

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