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China poses biggest threat to world trade (WalMart buys more from China than England or Russia do)
Irish Independent ^ | 9/26/03 | Anthony O' Reilly

Posted on 09/26/2003 6:29:36 AM PDT by dead

WORLD leaders are at last recognising that there are huge imbalances in the world economy that threaten its future stability. The Group of Seven statement, following the recent meeting of the International Monetary Fund, that exchange rates should be fixed by market forces reflects this concern.

But what is the greatest cause of these imbalances? The willingness of the American consumer to carry on buying the products of the world and thereby sustain global growth? Or the economic and trading practices of what is - on some calculations - the world's second largest economy, China? China was not explicitly mentioned in the G7 statement. Neither did it figure large in the failed trade discussions in Cancun. But I believe that the growing manufacturing might of China is, in absolute economic terms, the issue.

There is a real drama that will shape our futures taking place in China. China has the capacity, the willpower, the structure and the command economy to rip the heart out of manufacturing growth in Europe and America over the next two decades. Many see this as an opportunity, and the flood of international capital into China testifies to this. China is now the largest recipient of direct investment of any country in the world.

Others will argue that China creates a real opportunity, both in terms of its own marketplace and by producing goods that represent a cap on inflationary pressures in the rest of the world, most particularly in the United States and Europe. All this is elevated on the altar of globalisation to a sort of inexorable movement towards a higher plane.

Let me demur. If the headlong pursuit of Chinese expansion is allowed, it will pose a very serious threat to employment in Europe and the United States, and most particularly to the US elections in 2004. George Bush will have enormous difficulty in ensuring a real expansion in employment if the present growth of Chinese trade with the US, at more than $100bn per year in terms of its trade balance (or 25pc of its trade imbalance), continues unabated.

With the flood of US capital - be it from Intel, Microsoft or any of the other major new-age companies - pouring into China, a great deal of US intellectual software and manufacturing skill is also being exported to China, but without any guarantees as to its subsequent expropriation.

The Chinese have waited a long time for this day, and their day has come. They are hugely inventive; they are increasingly well educated (and the flood of well-equipped students from their universities testifies to this); they accept extremely low wages and allow environmental conditions that would not be tolerated in the West. And they protect their domestic market in a manner that even the Japanese can admire.

Allied to these virtues are the vices of a society in change. In what has been a command society since 1949, the laws of property, contract and, particularly, the protection of intellectual property rights are still in their infancy. No one doubts that many in Beijing wish a level playing field, but the playing field is not level, and Western companies competing with them in their own markets will find a flexibility in their application of rules that would make the WTO blanch.

WalMart, the US retailer, now has more than 300 permanent buyers in China, and last year imported $12bn of Chinese goods, with the commendable aim of keeping consumer prices down. But the consumers paradoxically are conspiring in their own demise - or at least the demise of their own jobs.

If WalMart were a country, it would rank ahead of Great Britain and Russia in total imports.

This indicates the staggering potential of China and its capacity to move quickly. Anyone who has visited Shanghai will find a city that is among the most modern and dynamic in the world. Its architecture, work ethic and sense of commitment have almost no equal - and it is a product not of free enterprise but of the command economy.

The world has decided that the aims of the WTO are best served by including China and not imposing an undue degree of surveillance on its growing economy for a number of reasons - some good, some bad. The Beijing Olympics in 2008 will be one of these, and represents an opening of the Chinese market and mind to world influence. That, in itself, is excellent. The problem is the price that will be paid by the world in employment terms if China does not play the game the way the WTO wishes it to be played.

The threat is clear. There are possibly 450 million Chinese in the manufacturing economy. There are 850 million people on the bench, waiting to get into the manufacturing and services sector.

A company of which I am chairman, Wedgwood, is manufacturing in China a range of ceramics equal in quality and substantially lower in price than anything we could produce in Europe or the US. The Chinese have been magnificent in their co-operation, intelligent in their application of new technique, and hugely productive. This is the model of the future, and it is a frightening one.

So, what is the answer? It must be a combination of many things, but two are key. First, the Chinese have to impose and police the laws of contract, property and intellectual property rights that we enjoy in the Western world.

This has to be done in the most open and transparent way through their judiciary. The judiciary has to be freed from political obligation - something that will be extraordinarily difficult in China.

Second and most important of all, the hugely undervalued yuan (renminbi) must be revalued upwards, not in one immediate leap, but gradually, determinedly and as a matter of policy.

These policies will work to a gradual improvement in the entire world economy. Not to follow them would be to reignite the ghost of protectionism and the Smoot-Hawley import tariff in the United States, and a range of quotas and tariffs from other trading blocs, including of course the European Union.

There has been, quite rightly, an outcry following Cancun at the way the developed world has subsidised its agriculture. Each country can advance special pleading in regard to its sectional interests, be it France protecting its farmers or Japan protecting its rice growers, for political and cultural reasons.

We have to recognise that China is both the problem and the opportunity. Together, China and the West can build a huge, growing and more satisfying market that will bring benefit to all, particularly developing countries, if approached gradually, sensibly and legally.

The converse is the death of globalisation - the erecting of frontier barriers, the rule of clubmanship and a slow death for worldwide free enterprise.

Surely the choice is obvious. Let us make the next two years a time for decision in which China must play a most active part in policing its own economy and making it responsive to the needs of our global economy. If we fail to create a more level playing field for international trade, all of us - including China - risk losing the very thing that has so vastly increased global wealth.

Sir Anthony O'Reilly is executive chairman of Independent News and Media Plc.

TOPICS: Business/Economy; Culture/Society; Foreign Affairs; Government; News/Current Events; Politics/Elections
KEYWORDS: china; freetrade; walmart
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1 posted on 09/26/2003 6:29:38 AM PDT by dead
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To: dead
The economist, Walter Williams, I think gives an inciteful perspective on this in this article:

I'm sharing this with my economics students
2 posted on 09/26/2003 6:40:33 AM PDT by The Great RJ
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To: dead

To HP, Microsoft, Intel et al: Can you say "expropriation"?
I knew you could....
3 posted on 09/26/2003 6:43:21 AM PDT by kittymyrib
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To: dead; clamper1797; sarcasm; BrooklynGOP; A. Pole; Zorrito; GiovannaNicoletta; Caipirabob; ...
Ping on or off let me know
4 posted on 09/26/2003 6:46:34 AM PDT by harpseal (stay well - Stay safe - Stay armed - Yorktown)
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To: The Great RJ
Actually I have a request for any so called economist. Can you show one case where a tariff levied by the USA was on net harmful. I note this requires that the costs and benefits be studied with the same regreession analysis. In other words don't try to foist that Steel Consumer's study which does a use regression analysis on teh cost side but not one the benefirt side.

I believe there should be such a study somewhere out there because there are so many economists who are stating that tariffs are harmful someone must have done such research and proven at least one case. I note that there are proffs that several tariffs inb the History of the USA actually did provide a net economic benefit. Specifically, the textile tariffs of the mid 1800's. Further we have the following linked document that does provide such regression analysis here.

Clearly you would agree that decisions should be made on the best available evidence and using tariffs against Chinese goods at this time is more than justified for that specific nation at least under the rationalizations for tariffs Adam Smith recognized.

5 posted on 09/26/2003 6:55:15 AM PDT by harpseal (stay well - Stay safe - Stay armed - Yorktown)
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To: The Great RJ
Here is a reaqsonable approach to fix things.

Acknowledgement RDB3 who helped hammer out this plan.

In no particular order of importance.

1. Get rid of government subsidies for offshore investment of US companies. OPIC is the first such program which should go but support of World Bank programs that subsidize the outflow of Capital would be another.

2. Use tariffs on those nations which are engaged in unfair trade practices such as currency manipulation (China and India for example), those nations which refuse to open their markets to US products (China for example with its 50% tariffs on US consumer goods and non tariff barriers), those nations that subsidize competition to American Industry (airbus for example) and those nations which have slave conditions for their workers.

3. Use tariffs and other means to prevent the relocation of jobs offshore that are essential to the national defense. If necessary take control of the company seeking to export vital technology or industry by means of eminent domain (No I do not like this last option and I will only defend its use as an absolute last resort like say in the case of rare earth magnets essential to smart bomb technology). Provide a hardened, widely distributed infrastructure to supply all that is needed for our military units and civil defense that can be continued to be deployed in the event of any military attack.

4. An immediate end to guest worker programs. If people wish to come to the USA to work and make a life let them immigrate according to the rules.

5 Provide economic development zones where the corporate income tax is zero for operations within these zones. In order to operate in this zone a company must agree to only purchase American components if available and employ only American citizens or legal immigrants in these operations. These economic development zones shall be eventually be expanded to include every bit of every state once the benefits are shown I would like them to be totally implemented immediately but I realize that may be overreaching. It must be stated for clarification that simply being in the geographic area of the zones does will not subject any company to any new mandatory regulation. Everything is voluntary for getting the exclusion from corporate taxation. The profit attributable to direct imports is subject to the same rules that exist everywhere else in this nation for corporate taxation. Only free from such taxation is the profit attributable to American content and any American improvement. In short no new mandatory regulation will be a part of this. It is my opinion that there will not be a lack of companies seeking this tax relief. And no the regulation implied is absolutely minimal in order to get this through.

6. Scale back unnecessary regulation including the tort system. Institute a cap on punitive damages, limits on class action suits, and limits on liability to the actual percentage of liability with no plaintiff able to collect if said plaintiff was involved in the commission of a felony at the time of the alleged tort or was more than 49% negligent in the alleged tort. Note that the loser in a frivolous lawsuit shall pay the attorney fees of the winner. There are many other regulatory structures that also need to be included that need to be included such as repealing the Family leave mandate, getting rid of OSHA etc.

7. Increase the domestic content in purchases by the Department of defense and give absolute preference in non-domestic content to proven allies of the USA over say the French or Germans. The only reason any content for DOD purchase may come from non US allies is that content is not available elsewhere and is essential.

8. Do not allow expense involved in moving operations overseas to be included in business expenses under the IRS code.

9. Prosecute for perjury anyone who has made a false statement in order to employ an H1B or L1 visa worker. I will be lenient on the actual perjurer if he/she was ordered to make this false statement and he/she provides testimony to aid in the conviction of the person ordering the perjury. Just because a person is a CEO does not give them a pass on criminal behavior.

10. Prosecute anyone who orders the transfer of vital defense technology or funds a R&D project that could be of use to our military overseas except to strong allies of the USA. Make the necessary enhancements to our espionage laws so that continued support or funding of any R&D in a nation whose government has threatened the USA is guilty of espionage. The UK and Australia come to mind as meeting these criteria for being eligible for transfer of technology first. There will be other nations and a gradation of what can be transferred to which specific nation. Under no circumstances may technology be transferred to any nation whose government has threatened the USA within five years without a complete change of government or specific exemption from Congress and the administration.

11. Deport all illegal aliens immediately and take measures that prevent the entry of any more illegal aliens. Fine all companies knowingly employing illegal aliens Criminal sanctions should be imposed on anyone helping an illegal alien stay in the USA in violation of our laws.

12. Decrease the punishing levels of taxation on companies and eliminate the double taxation on corporate dividends. See effects of item 5 for how minimal this will be if item 5 covers the entire USA. Eliminate all IRS provisions that inhibit free use of independent contractors by businesses for example section 1706.

13. Eliminate the minimum wage so that the worker can be paid based on productivity. Overtime compensation will remain the same but instead of 150% of the "wage" the worker would receive 150% of the production pay. If one through 13 are enacted # 14 becomes an irrelevancy as no one will be working for that low a wage.

Now since I started posting this plan another idea has come up that in my opinion is a very good policy that stands on its own. Now I give credit to Jim Gibson and Freeper Ed_in_NJ for coming up with the idea, separately to the best of my knowledge. However I can be corrected on that. The tariff phrasing is from Jim Gibson.

“I suggest that the US Customs Department charge a $1,000-per-container inspection fee on every container entering the United States. This fee would be used to completely fund the cost of inspections. If we assumed that a four-man team could fully inspect two containers a day or about 500 per year, it would require 48,000 inspectors. Allowing for at least 2,000 support personnel, we would need at least 50,000 workers. Because these workers would require high intelligence and skill levels they should earn at least $30 per hour. At 40-hour weeks plus benefits, I estimate the cost per worker to be over $75,000 per year, all paid by the foreign manufacturers. Even so, this would still leave over $2.25 billion to cover all other costs. Any revenue not used would be used to compensate American workers displaced by foreign imports. “

I urge and encourage everyone who agrees with this plan and or the terror tariff idea to communicate this to every politician you can think of.

6 posted on 09/26/2003 6:55:58 AM PDT by harpseal (stay well - Stay safe - Stay armed - Yorktown)
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To: harpseal

That is a superb collection of readily applicable measures that could be taken to reverse the flow of jobs and technology out of the country. Definitely a keeper.

<Now you know why I call Walmart "Waah-mat!" If it isn't make in China, it is probably from Brazil.

7 posted on 09/26/2003 7:25:40 AM PDT by SpinyNorman
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To: harpseal
Can you show one case where a tariff levied by the USA was on net harmful.

Did sanctions on trade imposed on Iraq or Cuba help or hurt their economy? By your reckoning, making it more expensive or difficult to get foreign goods would invigorate the embargoed economy by requiring self-sufficiency. Calling for sanctions on the U.S. won't help it's economy.

8 posted on 09/26/2003 7:37:42 AM PDT by Gunslingr3
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To: dead
But the consumers paradoxically are conspiring in their own demise - or at least the demise of their own jobs.

"The claims of these organizers of humanity raise another question which I have often asked them and which, so far as I know, they have never answered: If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind? The organizers maintain that society, when left undirected, rushes headlong to its inevitable destruction because the instincts of the people are so perverse. The legislators claim to stop this suicidal course and to give it a saner direction. Apparently, then, the legislators and the organizers have received from Heaven an intelligence and virtue that place them beyond and above mankind; if so, let them show their titles to this superiority." -Bastiat

9 posted on 09/26/2003 7:39:42 AM PDT by Gunslingr3
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To: Gunslingr3
That's a GREAT quote. Thanks.
10 posted on 09/26/2003 7:42:07 AM PDT by dead (All that is not mandatory is prohibited.)
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To: dead
That's a GREAT quote. Thanks.

The rest of the essay is a pretty good read as well: The Law

11 posted on 09/26/2003 7:53:32 AM PDT by Gunslingr3
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To: harpseal
The Smoot-Hawley tariff passed during the Great Depression caused a trade war with foreign markets and probably made the Great Depression worse.
12 posted on 09/26/2003 9:24:30 AM PDT by The Great RJ
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To: The Great RJ
The Smoot Hawley act passed in 1930 did not cause a trade war as it was a response to traiffs passed in France, Germany, and England prior to its enactment. It was passed in combination with an Income tax hike.

You stated it proably made the Great Depression worse. I have also seen analysis that states it may have mitigated the Great Depression worst effects. Do you have numbers to specifically back up your assertion that is regression analysis looking at the effects of the tariff both beneficial and harmful or is this your or some other economists "gut impression."

I further note the Fordney-McCumber(SP?) tariffs of the 1920's which were the larget tariff increase until that date seem to have resulted in Boom years but that is also unproven and may be just an historical coincidence. There are analysis out there in print that show teh Textile tariffs of the 1800's provided a net benfit to the American textile industry. Further there is an analysis of China trade using the full regression analysis technique for both the positive a negative side showing a net benefit from tariffs vis a vis China.

I really have been looking for such a piece of analysis as it would tend to validate those who believe in the theories of Adam Smith and David Riccardo. However, even if we use Riccardo and Smith tariffs would still be justified for the USA to levy against China as Smith notes four reasons for tariffs: Defense, Retaliation, Cracking open markets, and Encouragement of domestic industry.

I have done my homework on this issue and I note the current traiff structure under the WTO is very much a wealth transfer plan becuase of the special considerations given developing nations.

13 posted on 09/26/2003 9:49:32 AM PDT by harpseal (stay well - Stay safe - Stay armed - Yorktown)
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To: The Great RJ
I am a hundred percent familiar with William's arguments. Paul Craig Roberts says Pareto first argued that Adam Smith's arguments that industrialization and specialized labor would increase national wealth should be applied to the world as a whole, increasing world total wealth.

I am not sure he is right, didn't Cobden predate Pareto? (Cobden led the charge in England for repeal of the Corn Laws and as low import tariffs as possible.)

The reality is not economic, however, but political. The trade with East Asia will result in the Left taking power in the United States unless there is a steady increase in employment before the next presidential election. On the long term we obviously cannot export all manufacturing without becoming a natural resource and agricultural economy. The plea that China respect "intellectual property" will not stop the service industries collapsing with the collapse of the American employment.

We are, on the other hand, moving towards an equilibrium marked by a collapse of the dollar associated with the international rejection of the dollar as a reserve corrency. This has many ramifications. As I read the tea leaves the Chinese are banking on it.

The reality of the situation is that half of Americans have a less than the median American intelligence and cannot compete with the world's best minds except with the labor of their hands. Forcing these people to compete with Asian labor directly will force an equilibrium of Asian manual labor and American manual labor wage rates. At the very least this would cause the election of "a man on horseback". I do not see how this can result in other than a command economy.

If you are interested in economic arguments against William's position Paul Craig Roberts is well noted for his public criticism of William's point of view.

Economics does not operate in the intellect but in the real world of politics. It is intellectually fun to work with, and I love searching data sets statistically, but it exists in a real world of human beings. We cannot escape taking human nature into account.

The best classical "economics" book dealing with human nature is, IMHO, Mackey's _Popular Delusions_. (I am of the school that "man is not a rational but a rationalizing animal."!!!)

14 posted on 09/26/2003 12:51:13 PM PDT by Iris7 (Victory, always Victory, at any cost, though the beasts of Hell march against us!!!!!)
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To: Gunslingr3
I liked your Bastiat quote. I always have found him fun to read.

Political reality, however, cannot not be successfully ignored. My #14 is a reply to RJ, but argues this thesis.

15 posted on 09/26/2003 12:59:36 PM PDT by Iris7 (Victory, always Victory, at any cost, though the beasts of Hell march against us!!!!!)
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To: dead
Perhaps, it is a protectionist idea, but I think the country would be better off if we spent a little more on consumer goods. Admittedly, I am no economist but we have lost much in terms of national character and jobs due to our overwheling investment in China. We need a manufacturing base, we need to keep high paying jobs here, someone like Bill Gates should stop sending money and jobs abroad. The super wealthy are not patriotic. We are seeing a deficit of good nationalism and a surplus of ego and greed. Never have we had a less patriotic CEO class-- it is appalling. The Dems coiuld get traction with this.
16 posted on 09/26/2003 1:00:31 PM PDT by faithincowboys (Defeat the Fifth Column Leftist Bastards)
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To: harpseal
I liked your list, and see all you suggest as highly desirable, and see that even if one or two suggestions were implemented it would make a big positive difference. I am of the opinion that, at least on the scale of months rather than years, implementation is politically very unlikely.

To be uncharitable, impementation of these suggestions is on the same order as the mouse deciding to bell the cat! I wish the situation were otherwise.

17 posted on 09/26/2003 5:01:05 PM PDT by Iris7 (Victory, always Victory, at any cost, though the beasts of Hell march against us!!!!!)
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To: harpseal

Since you continue to post your lies about the level of Chinese tariffs, I'm going to continue to refute them.

Here's are the correct #s for those who care to check:

18 posted on 09/26/2003 5:46:12 PM PDT by jas3
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To: jas3
Now would you please explain what the actual ratio of duties collected to imports has to do with the actual tariff schedules you lying anti-American. The actual duties collected would imply that the cost prohibitive tariffs which consumer goods are subject to were still resultingin imports. Certainly if we levied a 400% tariff on Chinese imports there would be almost none. Or alternatively if we levied a high tariff on all but raw materials and certain specific items we wished to purchase with zero on those items the average duty would be far lower.

Just one more example of your Marxist lying.

19 posted on 09/27/2003 11:08:30 AM PDT by harpseal (stay well - Stay safe - Stay armed - Yorktown)
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To: harpseal
Here's yet another source document disputing your figure of 70% average tariffs, Marxseal:

"On January 2002,China reduced the import tariff rates on 5332 items,which bring the average tariff rate form 15.3% to 12%."

20 posted on 09/27/2003 9:32:06 PM PDT by jas3
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