November 19, 2003

Trade Policy, Bush Style

Marcelo the Pygmy Chimpanzee writes:

BONOBO LAND: Let's all try to look surprised about the U.S.'s decision to impose quotas on the growth of certain textile imports from China.

All the obvious comments apply. No, this doesn't make any economic sense at all. Yes, the Bush administration is playing the "yellow peril" card for 2004. Yes, this might get uglier in the future, although, and five years ago I would have laughed at the idea, maybe we can count on the Chinese government having a tad more self-preservation and common sense than the American. So, with luck, we'll not get all caught in another trade war (first the EU, then China... who's next, Japan?). No, neither the WTO nor the IMF are amused. Yes, the dollar did go south on these news. No, this doesn't look good for the Miami talks in a couple of days either.

And, yes, this is a headache-inducing piece of news.

I very much hope that the Bush administration economists are thinking about where the line is after which resignation-on-principle is the best option...

Posted by DeLong at November 19, 2003 07:55 AM | TrackBack

Comments

Surely, we wouldn't want the Chinese to even hint at retaliating by dumping US treasury bills at this point, would we?

Posted by: Jean-Philippe Stijns on November 19, 2003 08:52 AM

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Surely, we wouldn't want the Chinese to even hint at retaliating by dumping US treasury bills at this point, would we?

Posted by: Jean-Philippe Stijns on November 19, 2003 08:57 AM

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The first chapter in yer handy political science text will tell you that concentrated interests are more likely to organize to get what they want than the general public. Thus when the S&P sheds more in value in a single day than the quotas will possibly generate for the interested parties, even ignoring that the quotas are a dead loser for the US economy as a whole, there is not political retribution. Now, what happens if stock investors start to take this notion of a potential string of trade wars (not to mention the - admittedly unlikely - possibility that China will stop supporting de-nuclearization of North Korea) seriously and we see more than a single stock dump related to US ham-handedness on trade?

Posted by: K Harris on November 19, 2003 09:01 AM

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>>The first chapter in yer handy political science text will tell you that concentrated interests are more likely to organize to get what they want than the general public. >>

Isn't the textile importers association (or whatever it's called) a concentrated interest? There must be a clothing retailers' lobbying group.

Posted by: richard on November 19, 2003 09:25 AM

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Richard,

Your point about textile importers is correct, as is your point about cloting retailers. However, textile makers are direct employers in key electoral states. It is both union and corporate interest at work, with Bush eager to continue the Reagan legacy of prying labor voters away from Democrats. The steel case is one in which there were well organized interests on both sides of the issue. Textiles, less so. Retailers of bras and nightshirts are going to recognize their ox is being gored, but not gored as badly as makers of US durable goods were by higher steel prices. That said, there is a reasonable chance that Bush has, just as in the steel case, mistaken the political dynamics of trade.

J-P Stijns,

I doubt that the Chinese will cut off they exchange-rate-peg nose to spite their bra and nightshirt face. China's Treasury market purchases are in service of maintaining the yuan peg. Slow Treasury purchases and the yuan peg relaxes. Enough relaxation and the sucker will start to float! That is one objective of US trade policy, an objective which China apparently wants to put off till around 2008.

So China will probably employ other tools, like threatening Taiwan (as happened overnight), cancelling bogus farm product purchasing trips (yesterday) and backing away from pressure on North Korea to drop its nuclear ambitions (tomorrow?).

Posted by: K Harris on November 19, 2003 10:03 AM

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http://www.nytimes.com/2003/11/19/international/americas/19NAFT.html

Report Finds Few Benefits for Mexico in Nafta
By CELIA W. DUGGER

As the North American Free Trade Agreement nears its 10th anniversary, a study from the Carnegie Endowment for International Peace concludes that the pact failed to generate substantial job growth in Mexico, hurt hundreds of thousands of subsistence farmers there and had "minuscule" net effects on jobs in the United States.

The Carnegie Endowment, an independent, Washington-based research institute, issued its report on Tuesday to coincide with new trade negotiations aimed at the adoption of a Nafta-like pact for the entire Western Hemisphere. Trade ministers from 34 countries in the Americas are gathering now in Miami.

The report seeks to debunk both the fears of American labor that Nafta would lure large numbers of jobs to low-wage Mexico, as well as the hopes of the trade deal's proponents that it would lead to rising wages, as well as declines in income inequality and illegal immigration.

Though sorting out the exact causes is complicated, trends are clear. Real wages in Mexico are lower now than they were when the agreement was adopted despite higher productivity, income inequality is greater there and immigration has continued to soar....

Posted by: anne on November 19, 2003 10:07 AM

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Have to agree with you on this one Brad, this is a just a truly awful decision by the Bush Administration.

Posted by: Joe Blog on November 19, 2003 10:10 AM

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"I doubt that the Chinese will cut off they exchange-rate-peg nose to spite their bra and nightshirt face."

Granted.

But I can flip this argument around and say that any trade policy that would -would, of course- succeed at reducing the trade dificit with China WILL bring about a decrease in Chinese purchases of treasury bills. (I don't see Snow telling the Chinese that he's happy with the market forces bringing about a devaluation of the renminbi.) And that would hurt, very very badly, as the last thing the US economy needs right now is an increase in real long-term interest rates...

But I aggree with you, a floating renminbi would probably be a wonderful thing to see, at some point.

Posted by: Jean-Philippe Stijns on November 19, 2003 10:29 AM

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I wonder what impact China has had on the benefits Mexico hoped to see from NAFTA. When NAFTA was ratified, I thought Mexico was going to be the low cost supplier of a whole variety of goods for the US market. But in reality that role has been filled by China. From what I have read, the typical factory worker's wage in China is $0.50-$1.00 per hour versus $2.00-$3.00 per hour in Mexico.

Posted by: Joe Blog on November 19, 2003 10:33 AM

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Brad, well, I have to admit that I really am obliged to admire your courage.We all know that quotas are nowadays counterproductive and if this current foreign-policy (FDI as a function of market-confidence?) won't find an end, I personnally do think that a crisis will be the result of (lack of demand,Coyote and Road-Runner?)+("Well, how about your choice? What's your best guess?I think financial crisis, and then how it falls out is 50-50, either New New Deal or back to McKinley...")
Numbers cannot lie when you've got all the informations needed (importance of the information => Akerlof,Stiglitz + Wittgenstein + ...ad eternum) aswell as the relatively corresponding interpretation.I take off my hat and only add:Go,go Brad go!

Posted by: Bernadette on November 19, 2003 11:10 AM

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Why would anyone think this would improve manufacturing in the US? Isn't this more likely:
http://www.nytimes.com/2003/11/19/international/asia/19CND-CHIN.html?hp


"Peter Shay, the managing director of MMG Asia Ltd., a fashion consulting firm here, said restrictions on imports from China would probably prompt American companies to import more goods from low-cost factories elsewhere. "Most likely, it'll mean a shift to other plants in Asia, but not necessarily a return to American makers," he said."

Posted by: Masaccio on November 19, 2003 01:59 PM

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I've come to the conclusion that this administration is run on the behalf of a very powerful, concentrated, special interest group: stupid people.

The stupid people are in a conspiracy to make bad policy, you see. Destroy 200,000 jobs in manufacturing to save 3,000 in steel? That's an EXCELLENT policy decision, as far as the coterie of stupid people goes. This quota is another very good policy choice, stupidity-wise.

You can only see the true brilliance of the Bush administration by seeing how stupid they are. They are truly ingenious in that respect.

Posted by: Julian Elson on November 19, 2003 02:26 PM

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Julian it is myopia. They look at policy only in a narrow context. They miss the big picture.

Narrow context- steel tariffs help steel. Big picture lose mfg jobs

Narrow- Saddam is gone. Big picture-Chaos, big money and they are shooting back.

Narrow- Tax cuts for the campaign donors. Big picture- long term structural deficits.

The list goes on.

Narrow- Textile tariffs are next. Big picture- Dollar drops like a rock.

TOKYO, Nov 19 (Reuters) - The dollar floundered near all-time lows against the euro and three-year troughs versus the yen on Wednesday after Washington said it would impose import quotas on Chinese textiles, fuelling fears of protectionism.

"Not long ago, the United States was struggling over whether to lift controversial tariffs on imported steel. But it has suddenly moved against clothing, and it was a surprise to the market," said Mitsuru Sahara, vice president of UFJ Bank's forex dealing group.

"Pressure from U.S. congressmen seems to be very strong, and this sparked speculation that protectionism could sooner or later move Washington to weaken the dollar," he said.

The dollar, already battered by escalating tensions in the Middle East, fell against the euro early on Wednesday, hitting a record low of $1.1975 per euro

At 0104 GMT, it stood at $1.1975/80, and the market was adjusting its gaze to the key $1.20 level.

New York-based traders said the euro also got a boost after it breached a key technical level of $1.1860, prompting investors to step in quickly and buy

Posted by: bakho on November 19, 2003 05:23 PM

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Haven't most of them passed that line already?

Posted by: JoeF on November 19, 2003 06:47 PM

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Haven't most of them passed that line already?

Posted by: JoeF on November 19, 2003 06:49 PM

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It seems to me worth commenting that there are internationalist and nationalist right-wingers, and the lot in power now are clearly the nationalist sort. I dislike both sorts, but the nationalists are usually the ones who start wars.

Posted by: Randolph Fritz on November 20, 2003 12:11 AM

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Without friends no one would choose to live, though he had all other goods.

Posted by: Green Mark on December 10, 2003 02:28 PM

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