Ezra Klein accepts some unfortunate assumptions in his Washington Post column on trade yesterday morning. Let’s start with this one:
It’s not that Chinese companies have never taken an American worker’s job; they have. But the Chinese, by and large, are competing with companies in India, Indonesia, Thailand and Malaysia, because the things those workers make are not, in most cases, the things we make or even the things we want to make.
That’s just not right. For one, we do make lots of stuff that the Chinese make (and subsidize a great deal). To name one that’s a critical national industry and has been in the news recently: that solar-panel maker in Massachusetts that took $43 million from state taxpayers and bailed to China after three years to get more corporate welfare there. To stick with the clean energy business, we make windmills. China takes Western technology and makes cheaper windmills via subsidies.
Then there are the things we don’t make but should want to make, like cell phones. None of them—not a single one—is made in the United States. Why is it a good thing that Cupertino, California-based Apple makes its iPhones and MacBooks in China? Surely Americans would like to have a hand in making a $1500 gadget that sells millions a year and a $600 gadget that sells in the tens of millions.
And we can’t forget about all the things that we used to make, but don’t anymore because of “free trade.”
Klein bases his whole column, incredibly, on the idea that we’re not really in competition with the Chinese, and there’s a subtext running through it that competition is sort of unsavory or something.
In the end, the measure of our nation isn’t in how many competitors see their economies left in the dust, but how many Americans see their incomes raised, their quality of life improved, their children’s future secured. We’re in a race not with China, but with how good we have it now, and how good we can have it tomorrow.
This is pretty banal stuff, so don’t snooze through the straw man there. It’s as if competitiveness was for competition’s sake, rather than to, uh, improve “how many Americans see their incomes raised, their quality of life improved, their children’s future secured.”
Klein selectively uses this stat to make his case that the China trade is swell:
The richer China is, the more of our stuff its people can buy. Between 2000 and 2007, for instance, total U.S. exports to China grew by more than 350 percent.
Right, well, that’s great and all, but I have fun stats, too. Between 2000 and 2007, our trade deficit with China more than tripled, from $84 billion to $256 billion. To put it another way, in 2007 we imported $222 billion more from China than we had in 2000. China imported a whole $39 billion more from us in 2007 than it had seven years earlier. Math is fun!
And then there’s this:
“China competes on price,” says Robert Shapiro, director of Sonecon, an economic consulting firm. “There isn’t any doubt about that. The United States competes on quality and innovation. That’s how our companies outdo other companies.”
This is one of those business-book soundbites that sounds good but is really just nonsense. All (non-monopoly) companies compete on price. Believe it or not, even luxury companies like Tiffany and Four Seasons hotels compete on price in their segments. If you can’t compete on price, you’re going to get your ass kicked. Every business owner, no matter how innovative, knows that.
Plus, Klein says we really compete with Canada, the UK, Germany, et al. That’s right, and we’re on a more level playing field with those countries, who have higher wages, 21st century regulation, and a less mercantilist approach to trade.

great post. he was in his element with specific health care policy. macro and complex bank/monetary policy don't seem to be.
#1 Posted by rglvr, CJR on Tue 25 Jan 2011 at 07:37 PM
Way. To. Go. Ryan! Exquisite data-based fisking of the young Mr. Klein ramblings. I like Ezra but he has a tendency to pull this kind of stuff out of his ...ear and everyone just lets it go.
I hope he has an answer for you soon. I've got the popcorn in the micro. Better'n the SOTU. Much better'n the SOTU.
(applause)
#2 Posted by James, CJR on Tue 25 Jan 2011 at 07:44 PM
"[O]ne of the big reasons we can’t compete on price is because the Chinese manipulate their currency (undervaluing it by 40 percent, some say) and illegally subsidize their companies."
As though the U.S. govt does not manipulate the currency, nor engage in corporatism?
"And we let them do it ..."
I had no idea it was our duty to control Chinese govt policy. Anyway, what should the U.S. govt do now? Escalate the trade war? Greater naval threat? Embargo? Military war? And what would the authority fall under? The interstate commerce clause? Divine Right of Kings?
And about that trade deficit, it might just be useful to consider this:
"[D]ollars being sold to the Chinese for their goods aren't just sitting in a tall pile in the center of Beijing, or stashed under Chinese mattresses. The Chinese aren't purchasing American goods, because American public debt has shown itself to be a much more lucrative buy. Dollars not spent on American goods are being used to purchase Washington's growing debt: $889 billion worth. The dollars 'accumulated' by the Chinese through their trade surplus are being spent by the US government! If there is anything deserving of blame for wasting dollars, it is the American government." (Jonathan M. Finegold Catalan, "A Closer Look at China's Currency Manipulation," mises.org; bold mine)
It is helpful, also, to realize that U.S. govt's hyper-interventionist monetary and economic policies discourage savings and investment, thereby inhibiting business start-up and growth; none of which is good for employment or health care affordability.
#3 Posted by Dan A., CJR on Tue 25 Jan 2011 at 10:51 PM
China’s Innovative Way of Skinning the United States!
Mark Twain is credited with an early use of the cliché "more than one way to skin a cat" in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
#4 Posted by Hugh Campbell, CJR on Wed 26 Jan 2011 at 09:36 PM
China’s Innovative Way of Skinning the United States!
Mark Twain is credited with an early use of the cliché "more than one way to skin a cat" in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
#5 Posted by Hugh Campbell, CJR on Wed 26 Jan 2011 at 09:37 PM
China’s Innovative Way of Skinning the United States!
Mark Twain is credited with an early use of the cliché "more than one way to skin a cat" in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
#6 Posted by Hugh Campbell, CJR on Wed 26 Jan 2011 at 09:45 PM