Friday, July 09, 2010

Made in America

Good news from China?

I'm old enough to remember the fear of Japanese imports in the 1980s and the protectionist clamor it inspired. I suspect that much of the fear was stoked by Democrats looking for something -- anything -- for which to criticize the Republican ascendancy. But in any case, that fear dissipated in the early 1990s, partly because Japan moved some of its manufacturing to the U.S., and partly because the Japanese model didn't work out so great for the Japanese.

Fear of Chinese imports, notwithstanding their devastating impact on American textiles and small manufactures, has never reached that fever-pitch. This reflects a lack of political sponsorship: our political class is now united in its devotion to free trade. This itself reflects the fact that unemployed manufacturing workers were never as politically salient a constituency as, notably, the Big Three.

If the linked article can be believed, then some of that manufacturing may be headed home, not because of any improvement in the legal and business climate here in the U.S., nor because of advances in American productivity, but rather as an artifact of exchange rates and internal Chinese politics. In the medium run, this will be good for U.S. workers; in the short run, it will mean higher prices for darn near everything. This was eventually going to happen one way or another: we Americans have been living beyond our means for some time now, as reflected in our balooning trade and budget deficits.

On the other hand, perhaps the Anglo-American free-trade orthodoxy has once again been vindicated against mercantilist usurpation.


trumwill said...

There's a lot to unpack here. If I weren't on the road I would write a post on it, but a few observations:

1. Some of the short term hurt may not be all that bad. Two areas in particular: textiles and electronics. Textiles are a variable cost. You can spend a little on clothes or you can spend a lot and you're clothed all the same. It's an easy place for families to cut corners if they need to. With electronics, it's probably not so much that prices will go up as it is that they won't go down in a way that we've become accustomed. And progress will probably slow a little.

2. You focus on currency, I would focus on labor costs. A lot of people seem to believe that (a) China and India will develop into first-world countries and economic powerhouses and also (b) they will continue to steal our jobs. Neither country wants to be our errand-boys indefinitely. They want to eventually be producing their own stuff for companies in their own countries. As they do more and more of that (and as more and more first-world countries outsource) their design and manufacturing capacities will stop being so cheaply available to us. I believe this most strongly when it comes to fears that they're going to take all of our software engineering jobs and whatnot (because the number of engineer-types is inherently more finite than people on an assembly line), but on a slower timetable it also applies to manufacturing.

3. Labor in China and India do not have to just be cheaper than labor over here, they have to be a lot cheaper. There are barriers enough that if the prices are comparable, it's easier and more prudent to design and produce over here. On the white-collar side of things, this is particular so. At my last employer (or the one before the Census Bureau) it took 20 Chinese to do a job that it took 5 Americans to do. As of now, that was still cheap enough to be worth it. That won't be the case as China progresses.

4. None of this is meant as a strong argument in favor of free trade. I do generally lean in that direction, but for a bunch of unlisted reasons one can acknowledge the above and still desire trade protection.

5. I'm far less worried about our trade deficit with China than the debt our internal deficit has accrued in debt to China (and others).

Φ said...

Trumwill: dude, you write more on the road than I do sitting at my own desk!

I'm not disagreeing with any this. I have a preference for free trade as well, mainly because I don't trust our political class to "manage" trade for the public good rather than their campaign contributors. Although I'm not nearly as dogmatic about this as I once was.