Ezra Klein’s Flawed Assumptions on Trade With China

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.

For the record, our trade deficit last year (through November) with the UK was about a billion dollars. With Canada it was $24 billion, and most of that was oil and gas. With France, it was $10 billion. With Germany, it was a too-high $31 billion. Combined, our trade deficits with these four economic powers come to $65 billion or so—about one quarter our deficit with China alone.

Which brings us to a big hole in Klein’s column: That one 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.

And we let them do it, in large part because “even the liberals” like Klein say it’s cool.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , ,