During this election season, China has become the global boogeyman, responsible for all our economic problems. Such a perception is not true and it is not good for us to think so.
It's bipartisan. Both political parties feature ads associating the targeted opponent with China. Professor Dan Drezner thinks (here):
Well, it's not that surprising to see this. Americans think about trade through a mercantilist, relative gains lens, as opposed to the radical concept that trade can generate win-win outcomes.
And, Shikha Dalmia thinks it is not only bad economics but bad politics (here):
Hostility to trade is par for the course for Democrats perennially beholden to Big Labor, but what is the excuse of Republicans – the alleged believers in free markets? In race after race, they too are hitting China to beat Democrats. In West Virginia, Spike Maynard, a Republican running for the House is airing ads against his opponent, complete with Asian music in the background, castigating him for giving stimulus money to a Texas company that happens to be buying windmills from China. Meanwhile, in Virginia Republican Robert Hurt is accusing Rep. Tom Perriell of supporting tax breaks for foreign companies “creating jobs in China.”
But the idea that selling abroad creates jobs at home and buying abroad destroys jobs at home is an old mercantilist fallacy that Adam Smith handily refuted more than 200 years ago. Back then it at least had intuitive plausibility, but today it is obviously false given that the manufacturing chain spans the whole globe. Indeed, under the intricate global division of labor that currently exists, the whole idea of “Made in China” is largely a bureaucratic fiction.
Think about the IPod, for instance. It is designed in America and its 451 parts are made in dozens of different countries. But just because it is finally assembled in China, it officially counts as a Chinese import and therefore a contributor to America’s trade deficit — never mind that the Chinese add only $4 to the IPod’s $150 final value. Imposing duties on IPods to slash the deficit, then, won’t just cost Chinese jobs in Beijing assembly plants, but American jobs in Cupertino (Apple’s headquarters) computer labs.
But if raising the barricades against Chinese products will hurt highly-paid techies in America, it will hurt working class folks even more.
Consider the research by University of Chicago economist Christian Broda. Contrary to conventional wisdom, he found that inequality in this country has gone down – not up — thanks to trade with China. Between 1994 to 2005, he found, any rise in income inequality was offset by a decline in prices of goods consumed by poorer households. Indeed, inflation for the richest 10% of U.S. households, which tend to spend more on services, was 6% higher than the poorest 10%, who spend more of their income on household goods supplied by China. “In sectors where there is no Chinese presence,” Broda has pointed out, “inflation has been more than 20%.” In short, China has likely done more to help America’s poor than the stimulus, TARP or any other program invented by Uncle Sam.
Here are several sample ads featuring the China bogeyman.: one against Oregon’s own Kurt Schrader, a Democrat., and two against Pennsylvania’s Pat Toomey, a Republican.
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