Archive for the 'Protection' Category

Apr 21 2008

China’s challenge - reestablishing its standing as an economic superpower

Live from Shanghai - OnPoint with Tom Ashbrook

The 21st century has been called “China’s Century”. With the Olympics in Beijing in a couple of months, the torch relay touring the worlds’ major cities has been met with fierce anti-China protests as angry activists have accused China of countless offenses from human rights violations to oppression of democracy movements to environmental destruction. Although it may be “China’s Century”, it sometimes seems that the rest of the world is not too happy about China’s emergence as a global superpower.

Last week, NPR’s Tom Ashbrook, journalist and host of the OnPoint radio program, visited Shanghai and featured daily stories about China in the world today. Below is an excerpt from the first of these stories, which caught my attention because it shared a minor fact that I had never heard before but which I find extremely interesting. Ashbrook’s guest, David Lampton, is a leading scholar on China’s re-emergence as a global superpower. Listen to what he says here:

 
icon for podpress  China's Challenge - OnPoint with Tom Ashbrook: Play Now | Play in Popup | Download

“Re-claim their share of global GDP?” you might be asking? Here’s the thing… for much of the last 2,000 years, China was THE leading superpower in the world. In fact, up to the 1430’s, China had the largest navy in the world, had established tributary relations with dozens of kingdoms from Southeast Asia to India to Africa, had established and secured trade routes stretching overland to Europe and by sea as far away as East Africa, and some even think Chinese explorers had made it to North America seventy years before Columbus! While Europeans were dying of the plague by the millions and struggling under absolute poverty in a feudal society where the idea of national unity was still a century off, China had grown to be the largest empire the world had ever seen, first under the Yuan Dynasty and then the Ming.

As professor Lambert says, China’s GDP, or its total output of goods and services, accounted for ONE THIRD of the world’s output during much of the common era. This fact shocked me, but made sense once I thought about it. China truly was the greatest example of a global superpower the world had known by the 15th Century. Much of its wealth and power was a result of its efforts to globalize, or to integrate itself with the economies of the foreign nations, empires and kingdoms. Trade with its neighbors, near and far, had helped enrich China, but also built among China’s leaders a rightful sense of superiority over the other peoples of the world.

It was this sense of superiority that would lead to a long period of decline in Chinese dominance of the global economy. In 1432, the Ming emperor ordered the trading vessels of Admiral Zheng He destroyed. 3,000 of the largest ships the world had ever seen were sunk to the bottom of the Yangtze river and the East China Sea. The emperor declared China as “The Middle Kingdom” and ordered that all links with the outside world be severed, as China had no need for trade with others. China, the emperor claimed, was totally “self-sufficient” and could flourish without trade with the “barbarian” outsiders.

What followed was a long period of decline in China’s superpower status. From 1432, through the fall of the Ming in 1644 throughout the subsequent Qing Dynasty, into the 20th Century which saw repeated shifts in power between KMT, the Japanese and finally the CCP, China for the most part resisted attempts by its own and by foreigners to open its doors to the world, welcome trade, and encourage globalization of China’s rapidly dwindling domestic economy. The belief that China was “self-sufficient” endured while China’s share of total economic activity in the world dwindled to nearly nothing.

In the mean time, Europeans “discovered” the New World, philosophized about the gains from trade, integrated their own markets and later the markets of the colonies in Asia, America, and Africa, and grew wealthy as a result of these global exchanges. All the while, China stuck to its path of isolationism and self-sufficiency, as its influence and power slipped ever deeper into obscurity.

This period of isolation essentially lasted until the death of Mao Zedong, who could basically be called China’s last emperor. Since 1978, China has followed a new path, one that has attempted to reverse the mistakes of past dynasties, based on the doctrine of isolation and protection of domestic markets. Since its re-emergence as a global economic superpower, China has rapidly seen its share of global GDP increase from less than 2% in the 1970’s to around 16% today; a rebound achieved only through year after year of rapid economic growth, fueled by exports to the rest of the world. Isolation, it appeared, was not the path to wealth and power. China had discovered a new path, one that has done wonders for it income and standing in today’s circles of global power.

China’s re-emergence was made possible by one simple shift in doctrine and philosophy among its leaders: the belief that trade is good. While today the country still has many obstacles to overcome, such as the environmental challenges posed by growth, achieving a more equal distribution of wealth and income, fostering the growth of a domestic market to lessen its dependence on exports, and the challenges relating to human rights and demands for democratization, it would be wrong to say that China has not benefited from economic globalization in many ways.

A little history lesson is sometimes necessary to better understand where China is coming from and where it is going on its path towards re-emerging as a superpower in the global economy. The West, in the mean time, should pause to consider the rightful place the Chinese people believe is theirs based on their long history of economic power and dominance that for hundreds of years placed China at the pinnacle of power in the world economy.

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Apr 15 2008

The politics of free trade vs. protectionism

Bush pushes Congress to vote on Colombia trade pact. - Apr. 14, 2008The image “http://welkerswikinomics.com/blog/wp-content/uploads/2008/04/gains-from-trade_2.jpeg” cannot be displayed, because it contains errors.

Click on the graphs for full-size versions

The benefits of trade, while visibly demonstrated by two basic economic models, the production possiblities curve and a simple supply/demand diagram, are not as straightforward when politics is involved. Case in point: the Bush administration has been trying to push through a free trade deal with Columbia, one of our key allies in a region ripe with anti-American sentiment. The White House views the trade deal as a win-win for the American economy:

The administration insisted the deal would be good for the United States economically because it would eliminate high barriers that U.S. exports to Colombia now face, while most Colombian products are already entering the United States duty-free under existing trade preference laws.

On the surface it appears the US has nothing to lose from extending trade relations with Columbia, since few if any American jobs will be lost by such a deal; so why are some Democrats resisting the trade deal?http://welkerswikinomics.com/blog/wp-content/uploads/2008/04/gains-from-trade_1.jpeg

In explaining their opposition, Democrats have cited the continued violence against organized labor in Colombia and differences with the administration over how to extend a program that helps U.S. workers displaced by foreign competition.

As is so often the case, what’s best for the economy does not seem to be what’s in the best interests of Americans. Our values extend, in some cases, beyond our pocketbooks. The White House argues that the US/Columbia free trade agreement only promises to increase demand for American products while doing little to affect domestic employment. The fact that most Columbian imports are already tariff-free probably confirms this. But the Democrats oppose this deal on the grounds that it would appear that America endorses the anti-labor activities of the Columbian governments.

Labor is a touchy political issue in America, where union membership among workers has fallen from around 40% in the 1950’s to around 13% today. As Columbia and other developing economies become integrated into the global economy, there is increasing pressure for governments to liberalize their domestic labor markets, weaken unions, lower wages in order to attract more investment from abroad, lower the costs of production, thus increase the quantity of their exports demanded abroad. Labor market flexibility and liberalization is certainly an important step in attracting investment and demand to developing countries, but if it comes at the expense of the well-being of the citizens of a poor country, then perhaps standing against such anti-labor actions is a just cause.

The free trade deal with Columbia poses more of a moral dilemma than an economic one. From America’s stand-point, it appears to be a win-win situation. But from the perspective of international labor standards, approving a trade deal with Columbia threatens to undermine another set of American values: those of human rights.


Discussion questions:

  1. Why do you think the White House is so adamant about pushing through the trade deal with Columbia?
  2. Are the Democrats correct to oppose a deal that could create jobs in America while at the same time make more goods available to Columbian consumers at lower prices?
  3. Should America be trying to dictate the labor standards of its trading partners? Why or why not?

3 responses so far

Apr 15 2008

Intro to International Economics - “Making Globalization Work”

We began our final unit in AP Economics today on international economics. Some of the topics we’ll cover in this unit are trade, protectionism and exchange rates. We’ll also continue the discussion that began today about the impact of economic globalization on both developed and developing countries.

One of the big questions we’ll address is whether globalization works; whether it has contributed to real improvements in the lives of people in both the rich and poor countries, whether the international financial and trading systems in place today are adequate, and the degree to which government should be involved in controlling the impact of international economic integration.

One of the leading economists in the field of international economics is Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics and author of the recent book, Making Globalization Work. As an introduction to some of the issues we will discuss in this unit, watch the video below in which Stiglitz addresses some of the major challenges nations face in making globalization work. Leave a comment sharing your responses to the questions below the video.


Discussion Questions:

  1. What are some of the pressures faced by Americans in the era of globalization?
  2. What does Stiglitz think it means to “manage globalization well”?
  3. “Social protection doesn’t mean protectionism” - discuss…

One response so far

Dec 06 2007

America: Land of the free, home of “jackass” economists

Recently, in AP Economics, we have been learning about Labor markets; in IB Economics we’ve been focusing on the benefits and costs of international trade and global economic integration. As students of market economics, it is ingrained in us that economic liberalization, the freeing of markets, enabling resources to be allocated based on the price mechanism; these are all are good things. Removing barriers to the free movement of products and resources across national and political boundaries should eventually result in greater world output, and subsequently increases in living standards and wealth for the citizens of all free trading countries.

Nations will produce the products for which they have a comparative advantage, and trade with their neighbors for those products for which they don’t. Resources will flow from markets in which they are in low demand to those where they are in high demand. Prices in both product and resource markets will rise and fall, allocating scarce resources to the markets where they are needed most.

So why, in an era where the benefits of free trade and free flow of productive resources seem so visible around the world, do Americans seem so susceptible to views like those exhibited in the video below:


Continue Reading »

One response so far

Nov 06 2007

Burgernomics and Purchasing Power Parity

The Big Mac index | Economist.com

In IB Economics we’re studying the theory of exchange rates. A floating exchange rate system should be in equilibrium when the rate enables people in different countries to buy the same basekt of goods with an equal amount of money. In other words, If I walk into McDonalds in the US and have to pay $3.00 for a Big Mac, then board a plane, land in Shanghai and walk into a McDonalds there, the price I pay in Shanghai should, given current exchange rates, be the same as what I paid in the US. In reality, a Big Mac in Shanghai costs about 56% less than one in the US. This tells economists something about the value of the Chinese RMB. Continue Reading »

3 responses so far

Oct 23 2007

The World Trade Organization - a podcast introduction by IB Econ students at SAS

Understanding the World Trade Organization

Below is an audio introduction to the World Trade Organization, courtesy of my year 2 IB Econ students here at SAS. Our current unit (IB Unit 4) examines free trade, global economic integration, and the WTO among other topics. As an introduction to the WTO, student were asked to record a two-minute podcast of the main ideas from a specific page on the WTO’s website. Below are their summaries of the basic functions and agreements of the organization, summarized and podcasted for your listening pleasure!


 
icon for podpress  Marco Garafolo: "What is the WTO?": Play Now | Play in Popup | Download

 
icon for podpress  Enno Zhang: "Principles of the Trading System" [2:40m]: Play Now | Play in Popup | Download

 
icon for podpress  Manon Van Thorenburg: "Tariffs": Play Now | Play in Popup | Download

 
icon for podpress  Dennis Melzer: "Textiles": Play Now | Play in Popup | Download

 
icon for podpress  James Hannam: "Standards and Safety" [2:36m]: Play Now | Play in Popup | Download

 
icon for podpress  Kaj Nieman: "Anti-dumping, subsidies, etc.": Play Now | Play in Popup | Download

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Oct 23 2007

WTO - a podcast introduction, continued…

Introduction to the WTO, continued…

 
icon for podpress  Carlos Siu: "Intellectual Property": Play Now | Play in Popup | Download

 
icon for podpress  Lucas Topham: "Non-tariff Barriers": Play Now | Play in Popup | Download

 
icon for podpress  Wan Jin Park: "Services": Play Now | Play in Popup | Download

 
icon for podpress  Danny Witters: "Agriculture" [1:20m]: Play Now | Play in Popup | Download

 
icon for podpress  Daniel Yeung: "Plurilaterals" and "Trade Policy Reviews" [1:57m]: Play Now | Play in Popup | Download

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Oct 19 2007

Protection in the sugar industry- don’t taste so sweet no more!

Seeing Sugar’s Future in Fuel - New York Times

“The sugar producers say whatever its costs, the new farm bill is needed to save their industry.”

We’ve all heard the news about this amazing new fuel that just might save the world from the perils of global warming… ethanol, food fuel, alternative energy, replacement for oil, the panacea to all of America’s energy, climate, and geo-political woes! Corn farmers in America’s grain belt have benefited hugely of late due to large subsidies bundled with America’s latest farm bill.

The new version of this bill, being debated in Congress now, contains a proposal to prop up the country’s 12,000 sugar farmers by promising to buy any surplus sugar resulting from cheap sugar imports from Mexico (themselves the result of market liberalizations accompanying the North Atlantic Free Trade Agreement) at a profitable price. The sugar lobby insists that sugar should play a larger part in the production of ethanol, currently which is made mostly from corn.

To effect that policy, the government would buy excess sugar and sell it at a loss to ethanol producers. They ferment corn starch to ethanol, but adding a little sugar can speed the reaction…

Mr. Keenum suggested that the Agriculture Department would end up buying sugar for 22 cents a pound and selling it to ethanol producers for 4 to 7 cents a pound. “You can easily do the math and look at the loss potential,” he said.

Continue Reading »

7 responses so far

Oct 17 2007

IB - Graphing and understanding the economic impacts of protectionism

Here’s an online special for my IB students. We’ve recently started our unit on International economics, and one of the first topics is free trade, protectionism, barriers to trade, and the arguments in support of and against such protection. Below are the graphs we discussed in our Smartboard lesson during today’s class.

If you click on each image it will take you to a full size version.

unit-4-international-economics_9.png

What to notice about the impact of a tariff: Domestic producers benefit at the expense of domestic consumers and foreign producers. The green triangles represent efficiency or welfare loss because that is consumer surplus that is forgone after the tariff. The yellow rectangle is not DWL because it is tariff revenue for the government.

Be sure to understand the indirect effects of such policies also. For example, any of the three forms of protection shown here will lead to a decrease in net exports for America’s trading partners, which means a decrease in Aggregate Demand and the possibility of higher unemployment, recession, lower income, thus less demand for American products abroad. So, not only does the tariff hurt American consumers through higher prices and lower quantity, but it could harm other American businesses whose products are no longer in demand from foreigners whose incomes have declined thanks to the American tariffs.

Note also the regressive nature of tariffs. Much like a VAT or an excise tax, tariffs place a greater burden on low income earners than high income earners, as a particular tax on imports represents a larger percentage of a poor person’s income. Continue Reading »

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Sep 19 2007

In the meantime, retaliatory regulations contribute to China’s inflation!

FT.com / Asia-Pacific / China - Beijing rejects North American pork

Here’s a follow up to the previous post about China’s attempt to keep inflation low by clamping down on rising prices through price controls. The main cause of the record inflation figures is the shortage of pork in the country. This headline’s irony was obvious, only a few articles below the one linked in the last post!

Here’s the thing; pig shortages have driven up the price of pork by around 60-70% in China. What’s one obvious solution to this problem? Import more pork from overseas to meet the excess demand. So, what’s the government doing about it? Playing politics with the US and blocking imports of American pork! Ha! Looks like their concern for the common Chinese may take a backseat to the retaliatory message sent to the US, which has recently threatened new tariffs on Chinese goods in the wake of concerns over product safety and frustration over the persistent trade imbalance between the two countries.

Beijing has rejected consignments of pork from the US and Canada because they contain a banned additive – in spite of a domestic shortage of China’s staple meat, which pushed inflation to a
10-year high in August.

Again, China’s meddling in the market economy seems to only make things worse for the Chinese people.

Chinese officials have said they expect the pork shortage to remain a problem into next year, but prices have already started to come down from their August high, Xinhua, the official news agency, reported at the weekend. Prices decreased by 11.3 per cent in early September from the levels in August because of an increase in supplies of pigs, Xinhua said.

The number of pigs ready for sale was up 9.9 per cent early this month compared with a year ago, said Sun Zhengcai, the agriculture minister.

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Aug 20 2007

Red Storm Rising!! China bashing picks up steam…

Made in China: News & Videos about Made in China - CNN.com


Thanks to James Hannam from my IB Econ class for providing the link to the site above. CNN jumps on the China bashing bandwagon and does its part to trump up fears of the danger posed by the “Wild West” of China’s manufacturing sector. This site has a wealth of anti-Chinese features including videos, quizzes, investigative reports and so on. Here’s the headlines warning us to be afraid of Chinese imports:

Given the tendency of media to dramatize and blow out of proportion certain issues for the sake of entertainment and to feed the American appetite for scandal, the full blown anti-Chinese campaign is no real surprise. Americans’ own insecurity about the strength (or should I say weakness) of their manufacturing sector surely fuels the Sino-bashing trend that seems to be dominating the media. All this will provide political fodder for lots of nationalistic, pro-America “protect American jobs” rhetoric in the upcoming presidential race too, I’m sure.

What I would challenge you, my students and readers, to ask is: who’s really at fault here? Are Chinese factory owners, whose sole purpose is to make a profit, really to be trusted to uphold standards of product quality and safety that America’s highly industrial economy took over a century to put in place? China only started industrializing in a modern way less than 30 years ago, and much of the development has been spearheaded and overseen by, yes, American firms. The sourcing of manufacturing to third party factories in recent years is a sign of the growing entrepreneurial spirit of China’s new generations of capitalists. Weak regulation by Chinese authorities is a sign not of corruption or malice on the behalf of Chinese producers, but of American consumer’s expectation that goods from China will get cheaper and cheaper.

American consumers seem to have forgotten an old adage, “you get what you pay for”. Just today, in my principles course, we talked about how you don’t always get what you pay for (i.e. diamonds). But in the case of cheap Chinese products, it would appear today that perhaps this adage holds true. Americans take for granted that products like seafood maybe aren’t supposed to be cheap! The freezers of Costco and Wal-Mart are filled with giant bags of shrimp, frozen fish, and other cheap seafoods that we have grown to expect to be there. If Americans want guarantees of their products’ safety, they should look for quality rather than quantity. Try eating locally if you fear the safety of imported food products.

Ultimately, the harm caused by Chinese products will be minimized not only by more and more government regulation, but also by consumers who change their buying patterns to reflect an appreciation for quality and safety over quantity and cheapness. Consumers who demand quality should vote with their pocket books, not rely on government to protect them from the dangers of the “Red Storm” Lou Dobbs warns us of. Markets contain the perfect mechanism for improving the quality and safety of products coming from China, and that’s the power of consumer sovereignty and strength to influence producer behavior through their buying behaviors.

Students, debate and discuss!

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Aug 19 2007

IB: US protectionism threatens trade liberalization - and a little irony to stir things up

Published by Jason Welker under