The fact that China, with over 4 times the population of the US, leads in exports is perhaps not that surprising; however, what does intrigue me is the fact that they have made huge strides from where they were, say 20 years ago, they did so despite a Communist government and expected issues with inefficient government meddling and still a significantly smaller GDP . What is more disturbing to me is that Germany, with just over a quarter of our population, also exports more.
The recent tariff war shows, once again, the ineptness of the Obama Administration when it comes to economic issues. Bowing to special-interest union pressure, the administration slapped a surcharge on Chinese-made tires. There is some basis for concern, given the way that Chinese tire exports to the US have quadrupled over the last 5 years, perhaps resulting in the loss of about 5000 US jobs; the ITC, responding to the US complaint, had a split verdict on the issue, with some members arguing an even higher tariff that Obama proposed. The Chinese are facing domestic pressure on their own end, with demands from citizens to respond by dumping US Treasury bond and its own tariffs on American imports; since then, China has recently announced tariffs against two American export categories, chickens and auto parts.
As a classical economic liberal (i.e., free trader), I dislike trade wars, because they are inherently anti-consumer and economically inefficient. I have not researched the US tire industry, so I can't comment on the specifics of why Chinese tires have grabbed more market share; presumably it is based on price. It would be difficult to analyze without a more specific understanding of the industry and the business model, e.g., it's possible that the Chinese managers are simply executing more efficiently and effectively, or it could be the market share is occurring at the lower end of the market which the major companies are ceding due to low margins, just like Detroit ceded the small car market to Asian producers. One thing is for sure: if the business model isn't viable, all we're doing, with a tariff, is postponing the inevitable--the American consumer isn't better served by paying an artificially high price for a set of tires. That takes away from customer purchases or savings and investment. When the Chinese retaliate against two of the sectors where we do have success in exporting to their market, it doesn't help the American workers in those industries.
Another interesting statistic is per capita income. What's particularly notable is fact that the US and Germany amounts are roughly equivalent (and several times that of China). That means that labor costs alone cannot explain our lagging competitive export performance. Germany is facing the same type of economic challenge from Chinese factories--in fact, by some measures, the US arguably has freer economy than either competitor.
Comments
What is the answer? How do we improve our manufacturing base? To a large extent, that question is beyond the scope of this post. I think in part we need to look at conditions making it possible for companies to succeed in the US--including a more favorable business tax and regulatory environment and a serious attempt to upgrade our infrastructure. Obama's attempts to increase American jobs by closing tax "loopholes" for companies that produce abroad is little more than an additional, counterproductive federal revenue grab. One has to understand the fact that there are a number of cost factors that go into a business decision to invest abroad (local tax policy being a major one). Transportation costs can be expensive; the costs of an American product sold overseas include this cost, which is a competitive disadvantage. Most companies are looking to establish a presence in China as a long-term play for a market of up to 1.3 billion consumers--not, as some labor unions allege, as an arbitrage to exploit wage differences and import their goods back to America (2006 statistics showed only about 10% of sales came back to the US). [There are other factors as well; Chinese can be more receptive, for the same reason as Americans, to purchasing goods and services employing Chinese nationals, and goods and services must often be tailored for local preferences, something even a fast food company like McDonald's recognizes.] Keep in mind that Chinese exporters also face the same cost disadvantage selling in the United States. You might think that an enlightened President might want to encourage nations, particularly those with lopsided trade surpluses, to invest in the United States, including her able, motivated American workers.
An enlightened President needs to insist government fiscal discipline, ensuring that businesses have sufficient access to investment capital and businesses don't have to worry about inflationary pressures. It means free trade agreements to open up more markets to American goods and services. It means reining in the anti-competitive nature of regulatory capture.
Obama does address the issue of corrupt, ineffectual government regulators, in his incessant complaints about "lobbyists". [He basically begs the question of whether there OUGHT to be government regulation, which comes at a hefty price tag, whether (for example) the Fed Reserve and SEC worked effectively given their existing mandate before any increasing the scope of their responsibilities, and he conveniently sidesteps that the issue of lobbyists cuts both ways; why, for instance, were the two GSE's (Fannie Mae and Freddie Mac] contributing so heavily for Obama versus other senators? Why wasn't Obama more proactive about reforming the GSE's prior to last year's collapse?] But what Posner and other conservatives point to is that government regulation tends to be ineffectual regardless of the party in charge; what we should do is limit the scope of government regulation to what it can do effectively. Obama is putting the cart before the horse by expanding government regulation without addressing the fundamental criteria of effectiveness. Things like waiting periods before a government regulator can work for an industry company is only one tactic in addressing conflict of interest. One way we addressed a similar issue (with the justice system) was to consider lifetime tenure.
Another thing I think we need to discuss is immigration policy reform. According to 2009 estimates, the United States ranks 16th in rank of migrants per 1000 population. We need to look at immigration beyond the obsession on low-skill jobs; we need to attract more highly intelligent, motivated professionals, many of them attracted by the freedom in America--including an America that provides the economic liberty they crave to create their own business opportunity without a meddlesome government punishing their economic success.
I do share some concerns over the thinning out of our industrial base and a disproportionate reliance on any one external trading partner (e.g., China) or category of exports or imports (e.g., oil and gas). At the same time, we have to understand we may be unable to compete as effectively where low-skilled labor is a commodity and is a significant cost factor in goods or services. We have to become super-aggressive in pushing for creative destruction technologies. I recall visiting a Baby Bell facility as a college professor in the mid-80's, and one thing pointed out was the shrinking number of operators. I'm sure for operators at the time, this was a traumatic experience; some twenty years later, customers were giving up their landline phones to do all their communication on cellphones, not to mention widespread access to Internet services: new businesses, new employment opportunities.
This is not to say government and unions are the only problems. We had a mortgage industry playing a game of musical chairs, writing gimmick loans to people without suitable collateral or even verified employment, gambling that they would pass on their risk to the secondary market before any foreclosure. We have an auto industry which has been uncompetitive in terms of critical path in getting a new model to market, has a "not-invented-here" attitude towards alternative technologies (e.g., fuel hybrids), and failed to address the predictable customer response to predictable high gasoline prices.
Finally, in terms of the trade imbalance and in particular the question of oil and gas imports: we need a President to be realistic in the short and long term. In some cases, the government can serve as a market-maker, by demanding fuel-efficient vehicles or deploying solar paneling on government buildings. But instead of focusing on punitive measures (e.g., implicit taxes via cap-and-trade), Obama could provide quick, decisive leadership on known domestic energy supplies and proven technologies--like oil shale development and offshore energy exploration, and rapid approval of nuclear power plants, hydroelectric dams, or geothermal facilities.
An enlightened President needs to insist government fiscal discipline, ensuring that businesses have sufficient access to investment capital and businesses don't have to worry about inflationary pressures. It means free trade agreements to open up more markets to American goods and services. It means reining in the anti-competitive nature of regulatory capture.
Obama does address the issue of corrupt, ineffectual government regulators, in his incessant complaints about "lobbyists". [He basically begs the question of whether there OUGHT to be government regulation, which comes at a hefty price tag, whether (for example) the Fed Reserve and SEC worked effectively given their existing mandate before any increasing the scope of their responsibilities, and he conveniently sidesteps that the issue of lobbyists cuts both ways; why, for instance, were the two GSE's (Fannie Mae and Freddie Mac] contributing so heavily for Obama versus other senators? Why wasn't Obama more proactive about reforming the GSE's prior to last year's collapse?] But what Posner and other conservatives point to is that government regulation tends to be ineffectual regardless of the party in charge; what we should do is limit the scope of government regulation to what it can do effectively. Obama is putting the cart before the horse by expanding government regulation without addressing the fundamental criteria of effectiveness. Things like waiting periods before a government regulator can work for an industry company is only one tactic in addressing conflict of interest. One way we addressed a similar issue (with the justice system) was to consider lifetime tenure.
Another thing I think we need to discuss is immigration policy reform. According to 2009 estimates, the United States ranks 16th in rank of migrants per 1000 population. We need to look at immigration beyond the obsession on low-skill jobs; we need to attract more highly intelligent, motivated professionals, many of them attracted by the freedom in America--including an America that provides the economic liberty they crave to create their own business opportunity without a meddlesome government punishing their economic success.
I do share some concerns over the thinning out of our industrial base and a disproportionate reliance on any one external trading partner (e.g., China) or category of exports or imports (e.g., oil and gas). At the same time, we have to understand we may be unable to compete as effectively where low-skilled labor is a commodity and is a significant cost factor in goods or services. We have to become super-aggressive in pushing for creative destruction technologies. I recall visiting a Baby Bell facility as a college professor in the mid-80's, and one thing pointed out was the shrinking number of operators. I'm sure for operators at the time, this was a traumatic experience; some twenty years later, customers were giving up their landline phones to do all their communication on cellphones, not to mention widespread access to Internet services: new businesses, new employment opportunities.
This is not to say government and unions are the only problems. We had a mortgage industry playing a game of musical chairs, writing gimmick loans to people without suitable collateral or even verified employment, gambling that they would pass on their risk to the secondary market before any foreclosure. We have an auto industry which has been uncompetitive in terms of critical path in getting a new model to market, has a "not-invented-here" attitude towards alternative technologies (e.g., fuel hybrids), and failed to address the predictable customer response to predictable high gasoline prices.
Finally, in terms of the trade imbalance and in particular the question of oil and gas imports: we need a President to be realistic in the short and long term. In some cases, the government can serve as a market-maker, by demanding fuel-efficient vehicles or deploying solar paneling on government buildings. But instead of focusing on punitive measures (e.g., implicit taxes via cap-and-trade), Obama could provide quick, decisive leadership on known domestic energy supplies and proven technologies--like oil shale development and offshore energy exploration, and rapid approval of nuclear power plants, hydroelectric dams, or geothermal facilities.
