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China: Mercantilistically Astute but Socially Impaired – Energy Policy, Pressure and Cooperation in the 21st Century Pressure

October 17, 2010

Originally this discussion was  titled “China: Technology Astute but Socially Impaired ” but after much consideration and research the topic was changed to ” China: Mercantilistically Astute but Socially Impaired .” Through broader in scope, this revision reaches to the foundation of the current global situation, and therefore, enables us to better understand and possible put forth mutually beneficial and constructive solutions. 

Due to the depth and breadth of the subject, this topic will be explored in a series of discussions consisting of the international, political, trade, economic, and technology policies that set the stage for energy independence and reduced dependence on fossil fuels. Subsequent discussions will focus on:
• Mercantilism,
• Comparative Advantages,
• Competitive Advantages and Disadvantages,
• Currency Manipulation
• Economic Growth that Real Exchange Rates,
• Renewable Energy Policies,
• Renewable Energy Technologies,
• Dollars and Sense, and
• Future Outlook.

If relevant, other related discussion can be included. Just advise, your voice will be heard.

To begin with, it must be clearly understood that the cause of the current trade imbalance between China and the U.S., is as much America’s doing as it is China’s.  In many cases, the same dynamics can be said of  other nations of the world. Overall, China leveraged the art of “Comparative Advantage” and currency policies, while America found itself to be at a “Competitive Disadvantage.” China’s economic growth and exchange rates were tolerated with little or no resistance by America. Only now is Congress flexing some muscle towards China. Whether the rhetoric on Capitol Hill results in legislation with a real bite, remains to be seen. Similarly, if Congress had a real backbone and place a substantial excise tax on oil to the extent there would be less of a need for direct renewable energy incentives, there would be more free “book-wise” federal stimulus dollars for tangible progress towards adoption of renewable energy.

Nevertheless, in “Don’t blame China’s leadership, blame America’s,” by Randy Waldman, Wednesday, May 9th, 2007, [http://tinyurl.com/barry-stevens79], Thomas Palley writes, in context to Robert Samuelson claim that China’s trade policies are “predatory” and “mercantilistic,” that “individual countries can strategically game the [international trading] system for their benefit at the expense of others. That is why the system needs rules and a spirit of cooperation… China has been admitted into the system but it is unwilling to play by the rules, in letter or spirit.”

” ….. China’s leadership has engineered the largest, fastest boom in all of human history, which has lifted hundreds of millions of people out of extreme poverty. They have advanced China’s national interest, and their own interest in clinging to power, brilliantly.”

” ….. they have broken some rules. Well, knock me over with a feather. Nations play hardball with one another. China’s rulers opted to look out for number one. Incentives matter. What would an economist expect?”

“China’s leadership deserves admiration more than condemnation for its trade policy. They have not played nice. They have done what nations do, and done it well. They have acted in their own, and their citizens’, self-interest.”

“The United States, on the other hand, has not acted admirably. It has been obvious for several years that China has been acting mercantilistically, that its government has been taxing workers to subsidize exports, undercutting American industry while buying political support in the US with easy credit and low, low prices. This has not been rocket science. Yet America has done nothing but mildly complain.”

“The United States needn’t have stood helplessly by and watched China cheat. It might have acted. No, it is not rampant American consumerism or any other mushy cultural deficiency that is to blame. Consumers in the United States have been quite rational, buying artificially cheap products offered with very generous financing. Demand curves are downward sloping. But when individually rational behavior adds up to collectively poor results, it is the job of governments to change the incentives.”

“The US government has always had it in its power to bring trade into balance. It has the power enact tariffs, grant subsidies, and control the flow of foreign capital. America’s central bank could “sterilize” all the excess credit provided by dollar-pegging exporters by selling US bonds and purchasing diversified portfolios of foreign debt.”.

“China is well on its way to becoming the world’s largest economy, and its growing prosperity has been earned, not stolen. The US need not, and ought not, start a trade war with China. There is no need to single out China at all. The United States should simply take policy action to get its own house in order. It should force its trade into overall balance quickly, and endure whatever pain and dislocation that will entail.”

“In any hopeful future, the United States and China are both large, vibrant economies, and good friends. Culturally and commercially, China and the United States have a great deal to offer one another. China has played rough. So what. The US should congratulate China for its successes thus far, and wish it the best in the future. At the same time, policymakers should make clear that the rules of the game have changed, and that while America eagerly embraces globalization and interdependence, it will not accept asymmetrical relationships of dependence.”

Next discussion “Mercantilism.”

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5 Comments leave one →
  1. October 18, 2010 5:53 AM

    We can not deny the fact that China is most powerful country may be just after US. Sh gathered formidable strength both as economic and military power. The country governed under socialist system with some liberal attitudes. For that reason she Socially Impaired but Mercantilistically Astute.
    The writer rightly pointed out that US should join hands with China for the betterment of the whole world.

  2. October 18, 2010 1:22 PM

    Isn’t this saying one thing and doing another? The US has long stood as the World champion of “free trade” and because another country is threatening its dominating position, it has to “change the rules”? Who’s talking about”asymmetrical relationships of dependence”? It sounds like a good thing when you’re on the other side of the balance. One rule will not change : don’t expect others to play fair when you don’t.

  3. October 19, 2010 3:22 PM

    This comment was posted in LinkedIn on this topic.

    LinkedIn Groups
    • Group: The Texas Institute
    • Discussion: China: Mercantilistically Astute but Socially Impaired – Energy Policy, Pressure and Cooperation in the 21st Century
    While China has been moving toward the explosive benefits of a free market, the US has been moving toward a government managed (socialistic) market. It must be remembered that China will do what it has to do to gain global superiority. To think that our government can somehow deal with this problem is a bit of folly.

    Out intel folks, if they could, would tell you a much different story. At the end of the day, China only understands power. While they are using our consumer dollars to build their economy, they are simultaneously building the most powerful military force in the world (that’s the public side of what they are doing).

    In much the same way that Japan’s 7 Keiretsu expanded to every industry (including raw materials), the Chinese are doing the same thing. Note what they are doing in Africa and South America.

    The solution: Free the American economy. Restore the economic engine that has served us so well. The Chinese now own America (all of our debt), and the only way to work our way out of that hole is to return to the free market principles that created this great country.

    The Chinese themselves have told us that our move toward a government controlled economy will be disastrous. (Ironic, isn’t it?)

    Finally, the Chinese could give a flip about green, or energy conservation. It’s impossible to pressure the 500 lb gorilla if brute force is the only thing they understand.

    Barry, this is a great discussion you have started. Thanks.
    Posted by Dr. Jim Underwood

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