In trade policy, China is neither a free trader nor a protectionist.
- So how do we define what China's trade policy is?
Of all the explanations of China’s trade policy, this one – ‘Power Trader’ - makes the most sense.
BIG IDEA | ‘The theory of power trade better explains China’s economic and trade policies than does the theory of free trade or protectionism,’
‘China employs its vast array of policy tools to use trade to increase its relative economic power not only over the United States, but over other nations that it seeks to influence as it strives to become the new global hegemon.’
This from 'A Remarkable Resemblance' by Robert D. Atkinson, president of the Information Technology and Innovation Foundation, in the journal, The International Economy.
Dr. Atkinson brilliantly lays out how China resembles Germany as a power trader from 1900 to 1945.
- But the comparison itself is not as important as how well the appellation 'power trader' explains so much about why China does what it does.
One of the most interesting things this explains (although Dr. Atkinson offers no evidence) is China's motive, besides commercial gain, in encouraging U.S. companies to offshore to China:
- ‘According to [Albert O.] Hirschman [author of the the 'largely forgotten book, National Power and the Structure of Foreign Trade, was published in 1945' and the basis for this analysis], to “prevent the industrialization or even the removal of already existing industries is an important part of trying to preserve or to increase the influence acquired in these countries by an industrial nation.” ’
- ‘And while Hirschman was talking about less-developed nations, this is the goal of China vis-à-vis the United States’
- ‘China succeeded in the “removal of existing industries” when it accelerated the offshoring of significant components of U.S. manufacturing in the 2000s.’
- ‘By massively subsidizing manufacturing in China, including through currency manipulation, free land, tax incentives, cheap loans, and cash grants, China induced the offshoring of critical manufacturing sectors to China.’
- And thus weakened its main rival, the United States.
Another of the things it explains is China and the WTO.
- Letting China into the WTO 'was like letting the ravenous fox into the free trade henhouse.’
And here's why the WTO can't restrain China:
- ‘The WTO was created with the idea that nations were either free traders or misguided protectionists.’
- ‘And by joining the WTO, the idea was that protectionists would be, for the most part, turned into at least mostly free traders.’
- ‘The WTO was not set up to deal with power traders, which makes constraining Chinese power trade difficult.’
- ‘Because most of China’s power trade tactics are opaque and not rules-based, it is difficult for the WTO to effectively discipline China.’
- ‘With its one-country, one-vote system, coupled with the difficulty of enforcing opaque, non-rule-of-law power trade policies in the WTO, the options for it constraining China’s power trade are limited.’
Lots more in this terrific analysis, plus the bonus of introducing economist Albert O. Hirschman.
- A fascinating guy with an interesting youth – fighting in the Spanish Civil War and working in great danger in Marsailles to get Jews out during WWII - and a way of looking at economics that certainly is making me reconsider some of my long-held assumptions.
- To a get feel for Dr. Hirshman the person as well as his thinking, here’s a great profile, ‘The Gift of Doubt’ by Malcolm Gladwell in The New Yorker.
Note: I left out a lot of the explanation about what made Germany a Power Trader - that and the entire essay are well worth your time.