Twofish's Blog

December 18, 2006

Note on protectionism

Filed under: china, economics — twofish @ 5:57 pm

Note on Brad Setser’s blog:

[q]But the changes associated with China’s integration into the world economy have come about very rapidly — and are a bit at odds with the notion that China needs more time. Project ouy 30%y/y export and 15-20 y/y import growth for China now and you will quickly see what I mean. somethings do have to change — in real time, not historical time :)[/q]

I’m talking in terms of three to five years, not decades. What China really needs to do is to boost domestic consumption, and that requires a set of interlocking policies that will take three to five years to implement.

[q]I also strongly think you are underestimating the potential for protectionism — look at some of the polling data uber-free trader drezner has gathered, or the greenberg polling data on the 06 election. those swing voters who considered voting for the ds but stayed loyal to w often cited w’s approach to trade as a reason why they considered leaving the r camp. And it wasn’t b/c of W caved to pressure on steel in 03. [/q]

I live in the center of high-tech Texas. There are huge constituencies here against protection (i.e. pretty much everyone employed in the high-tech software or semiconductor industry). One problem with protectionism is that it isn’t a Republican versus Democrat issue. For there to be a real protectionist movement there has to be a third force (Perot or Buchanan) and right now I don’t see this happening.

Also the protectionists really don’t care about the RMB, because shifting the value of the RMB will just move things away from China to other areas. What the protectionists really want is to pull out of WTO, and I don’t see that as being very likely.

[q]It also isn’t just textiles. It is furniture and auto parts and indeed a growing range of industrial parts/ machines.[/q]

With respect to China it *is* just about textiles. In furniture or auto parts, China just doesn’t have a competitive advantage over places like Mexico. With textiles, China has loads of cheap labor, and a textile industry that stretchs back hundreds of years.

[q]But right now, ground zero is auto parts. Electronic production/ assembly hasn’t been done in the US for some time — not so for a lot of mechnanical engineering type products. And china’s capacities there are growing.[/q]

And with respect to auto parts, the question is China or Mexico. The electronic production/assembly example is why I don’t think that protectionism is that much of a worry. Once the entire industry goes offshore, then no one complains any more. Enough of the manufacturing base of the United States has moved offshore that I don’t think that there will be that much call to save jobs, because the jobs are already lost.



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