November 25, 2003

China Bashing Is a Bad Idea

The Wall Street Journal's Bob Davis says China-bashing is a bad idea:

WSJ.com - Sanctions on China Aren't the Answer: Over the coming year, the White House will have dozens of opportunities to impose trade restrictions on China as clever lobbyists exploit election-year politics and rising anger over China. Trade fights can spook markets, hurt import-sensitive industries and raise prices for consumers. But President Bush and his Democratic opponents are having a hard time finding any voter-pleasing alternatives. The problem is trade sanctions are ham-fisted instruments to reshape the Chinese economy.

Think of the differences between battling China and battling Japan, the last big trade foe that outraged Americans. (No congresswoman has yet taken a sledgehammer to a Chinese-made TV as one once did to a Toshiba radio.) The Japanese economy is dominated by large companies that make brand-name goods that compete directly with U.S. alternatives. Limiting imports of Toyotas and Nissans, as the U.S. did during the 1980s, was supposed to give a breather to Ford and GM to retool their product lines so they could compete better. (That was the theory, anyway; they often used import restrictions to boost short-term profits instead.)

The Japanese also were able to ease trade pressure by setting up automobile plants in the U.S., blurring the distinction between a Japanese car and an American one. China is different. There, mostly no-name companies make products for big-name U.S. manufacturers, which ship them to the shelves of Wal-Marts and Best Buys. Restricting imports of Chinese-made shirts, computer parts and toys could hurt many U.S. companies and consumers as much as Chinese producers. It is unclear whether U.S. workers would benefit much either. Companies could shift their production elsewhere in Asia. That reality has extinguished some trade threats. The National Association of Manufacturers started talking tough during July about suing China for unfair trade practices, saying China's exporters were unfairly subsidized by an undervalued currency. The result? Nothing. The group hasn't even hired a lawyer, let alone filed a complaint. "We are still involved in moving forward," says NAM official Pat Mears, but lobbyists say the NAM and its allies are split because many companies would be hurt by any trade sanctions.

The White House understands that China isn't mostly to blame for the loss of 2.5 million manufacturing jobs since Mr. Bush took office. In congressional testimony, chief White House economist Gregory Mankiw pointed out that much of the growth in Chinese exports to the U.S. comes at the expense of other Pacific nations, and that U.S. productivity gains have made it easier for companies to shed workers. "U.S. job losses are more closely related to declines in domestic investment and weak exports than to import competition," he said...

Posted by DeLong at November 25, 2003 02:38 PM | TrackBack

Comments

Did we ever have a trade war with Japan over radios and TVs? I think we gave up the consumer electronics battle pretty early and with not too much fuss. Autos are another matter. I did see people smashing up a Toyota on TV, but that was a UAW demonstration. There was a lot of anger directed against the Toshiba Company itself in the 1980s because they sold advanced milling machinery to the Soviet Union. If you recall the Soviets used this machinery to mill very quiet submarine propellers greatly complicating our ASW capability. A lot of people were very mad at Toshiba over that one.

Posted by: A. Zarkov on November 25, 2003 04:09 PM

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Actually, some congressmen smashed a Toshiba radio on the steps of the Capitol over the deal with the Soviets, and I think losing the consumer electronics battle had something to do with it, too. It was a big deal when TVs went away, and even the fact that we didn't make VCRs got people angry, since we had invented the technology.

Posted by: James Surowiecki on November 25, 2003 04:25 PM

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It was a US company that invented and patented the Trinitron picture tube, but no US firm wanted to commercialize it. So the patent was sold to Sony. The rest is history.

Posted by: A. Zarkov on November 25, 2003 05:36 PM

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That's incredible. I didn't know the U.S. invented the Trinitron also. It fits, though, with something I've been thinking about, which was how few important innovations were introduced by big American companies in the 1970s and 1980s. (Intel, Microsoft, etc. not being big companies at that point.)

Posted by: James Surowiecki on November 25, 2003 07:56 PM

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That's incredible. I didn't know the U.S. invented the Trinitron also. It fits, though, with something I've been thinking about, which was how few important innovations were introduced by big American companies in the 1970s and 1980s. (Intel, Microsoft, etc. not being big companies at that point.)

Posted by: James Surowiecki on November 25, 2003 08:01 PM

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The US also invented the technology behind digital high definition TV and aced out Japanese who tried to use an analog approach. This took a number of conceptual breakthroughs to accomplish. First came the discrete cosine transform (DCT) circa 1985. Once you realize that the DCT provides a close approximation to the optimal Karhunen-Loeve transform, you can build hardware that can do the encoding without knowing the image beforehand. Thus JPEG image compression was born. Then you have to know what information you can throw away and yet is unnoticed by the human audio-visual system. These ideas led to MPEG and video compression so you can fit high definition TV signals into reasonable bandwidth. In the 1970s and early 1980s lots of people thought digital TV was impossible in reasonable bandwidths. Wrong assumption. And it cost the Japanese dearly when they invested heavily in the dead-end analog approach. Itís too bad we gave up the consumer electronics industry to the Japanese, perhaps thereís a good economic explanation as why we did this. In the 1950s American electronic hardware was first rate. Think of Collins Radio for example.

Posted by: A. Zarkov on November 25, 2003 09:36 PM

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Actually graphical user interface software was first developed by Xerox research in Palo Alto.

Posted by: john c. halasz on November 25, 2003 10:15 PM

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Re: GUI, that's kind of what I was interested in, that even big companies that did make technological breakthroughs in the 1970s and 1980s did a poor job of turning them into real products (or, as in the case of Xerox or the Trinitron, didn't even try to make them into products).

Posted by: James Surowiecki on November 26, 2003 06:12 AM

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Thereís yet another good example. The VCR. Ampex invented the VCR but only sold expensive professional units. Japanese companies bought or licensed the patent and scaled down the hardware for home use. Where is Ampex today? On the ignominious pink sheets thatís where. Selling OTC for about a buck and a half on a measly average volume of 10,000 shares.

Posted by: A. Zarkov on November 26, 2003 10:09 PM

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