Comments on: Should we expect a protectionist China? http://www.creditwritedowns.com/2009/06/should-we-expect-a-protectionist-china.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: kynikos http://www.creditwritedowns.com/2009/06/should-we-expect-a-protectionist-china.html#comment-56632 kynikos Sun, 21 Jun 2009 01:05:00 +0000 http://www.creditwritedowns.com/2009/06/should-we-expect-a-protectionist-china.html#comment-56632 "Protectionism was a major contributor to the downward spiral that created depression. " It probably contributed a little bit. http://www.exponentialimprovement.com/cms/smoot.shtml Here is the GDP data for the Smoot tariff. The loss in exports GDP was about 2.5% the amount of the total drop in GDP in the great depression. China cares for its interests primarily. If protectionism and mercantilism is in its interests, it will adopt those policies even if it harms other nations. I suppose a key macroeconomic theme (as described here) is the hallowing out of the Western middle class in countries that have an Anglo-Saxon labor market. This is caused by stagnant wages from competing against immigrants and third world labor. Increasing consumption is not provided by increased earning power, but by the accumulation of debt. One can make money from globalization by importing goods made in countries with cheap labor to countries where firms still retain significant pricing power. Globalization in the long run seems to undermine the earning power of the Western middle class and it profits from its intertemporal preferences that prefers short term consumption over long term saving. So could multinationals rely on China? Of course, there are a lot of workers in China and that would serve to depress domestic wages (and consumption) despite their enormous savings. Chinese protectionism would destroy the thesis that Chinese consumption would help lead the global economy to recovery. I do not think China could replace the Western middle class. “Protectionism was a major contributor to the downward spiral that created depression. ”

It probably contributed a little bit.

http://www.exponentialimprovement.com/cms/smoot.shtml

Here is the GDP data for the Smoot tariff. The loss in exports GDP was about 2.5% the amount of the total drop in GDP in the great depression.

China cares for its interests primarily. If protectionism and mercantilism is in its interests, it will adopt those policies even if it harms other nations. I suppose a key macroeconomic theme (as described here) is the hallowing out of the Western middle class in countries that have an Anglo-Saxon labor market. This is caused by stagnant wages from competing against immigrants and third world labor. Increasing consumption is not provided by increased earning power, but by the accumulation of debt. One can make money from globalization by importing goods made in countries with cheap labor to countries where firms still retain significant pricing power. Globalization in the long run seems to undermine the earning power of the Western middle class and it profits from its intertemporal preferences that prefers short term consumption over long term saving.

So could multinationals rely on China? Of course, there are a lot of workers in China and that would serve to depress domestic wages (and consumption) despite their enormous savings. Chinese protectionism would destroy the thesis that Chinese consumption would help lead the global economy to recovery. I do not think China could replace the Western middle class.

]]> By: aitrader http://www.creditwritedowns.com/2009/06/should-we-expect-a-protectionist-china.html#comment-56631 aitrader Sat, 20 Jun 2009 06:46:00 +0000 http://www.creditwritedowns.com/2009/06/should-we-expect-a-protectionist-china.html#comment-56631 I find it a bit counter-intuitive that China would go the way of protectionism based on the fact that its economy has been driven by exports since Deng Xioaping changed their economic model. That aside they have a long cultural history of isolationism reaching back from Mao to ancient dynasties. Since trade has collapsed globally their only option seems to be to develop their internal markets. Protectionism would allow this without competition from outside companies that could "muscle out" nascent Chinese firms. The recent exclusion of wind power titans Vestas, GE, and Gamesa is a case-in-point ( http://www.forbes.com/2009/06/18/china-trade-conflicts-markets-economy-wto.html ). If one follows this protectionist trend to its logical conclusion it begs the question: will the Chinese continue to purchase US Treasuries in volume as they move away from export driven growth? I find it a bit counter-intuitive that China would go the way of protectionism based on the fact that its economy has been driven by exports since Deng Xioaping changed their economic model. That aside they have a long cultural history of isolationism reaching back from Mao to ancient dynasties. Since trade has collapsed globally their only option seems to be to develop their internal markets. Protectionism would allow this without competition from outside companies that could “muscle out” nascent Chinese firms. The recent exclusion of wind power titans Vestas, GE, and Gamesa is a case-in-point ( http://www.forbes.com/2009/06/18/china-trade-conflicts-markets-economy-wto.html ).

If one follows this protectionist trend to its logical conclusion it begs the question: will the Chinese continue to purchase US Treasuries in volume as they move away from export driven growth?

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