November 27, 2009

China’s Harmful Economic Policies

Begins: It’s time to start getting tough on Beijing.

No, this is not a rant about China’s alleged lack of human rights. When China has something as evil as Abu Ghraib and Bagram we might have a right to complain. Nor am I complaining about China’s lack of something called democracy. Would China’s one child policy have survived in a democracy?

No, where China is at fault is in a very different area. It complains bitterly about Western, US mainly, tariff/subsidy protectionism. But China itself indulges in much the worst kind of protectionism – exchange rate protectionism. If China’s currency is undervalued by around twenty percent, as many estimate, that is equal to a twenty percent tariff on all goods entering China, and a twenty percent subsidy for all exports. Tariff/subsidy protectionism in the West never gets as wild as this.

True, China not entirely to blame. It has simply been taking advantage of an extraordinary lacuna in orthodox Western economic thinking – the idea that tariff protectionism is evil but exchange rate protectionism can be ignored. We saw a good example at the recent APEC summit conference in Singapore. APEC repeated its ritual calls for free trade. It had almost nothing to say about the 800 pound elephant at the conference table – the controls that Beijing uses to keep its currency consistently undervalued.

Orthodox Western economists are like the man who cannot walk and chew gum at the same time (a cruel and unfounded criticism of the allegedly bumbling former US President Gerald Ford). They are obsessed about the way tariff protectionism raises costs to consumers. But handled well, tariffs are simply a tax on consumers to assist producers whose new or continued existence is crucial to the growth of the economy. There can easily be a net gain for the entire nation, including consumers. There can also be a net gain for the world economy if the strategic use of tariffs helps create vibrant economies able eventually to help expand world trade. Japan was but one example.

Exchange rate protectionism, by contrast, protects all import-competing industries, across the board, whether they deserve protection or not. True, it too can have net beneficial effects; Quite a few Asian economies also owe their growth to keeping their currencies undervalued for long periods. But the suffering of consumers is greater. And those economies gain at the expense of others; the distortion to world trade is far greater than that caused by tariff/subsidy protectionism.

History is part of the reason for this strange weakness in economic thinking. The 1930’s Great Depression saw harmful beggar-thy-neighbor tariff policies as nations competed to protect domestic industries and employment. So the text-books on which current generation of economists were raised concentrated almost entirely on the evils of tariff protectionism. Meanwhile the Cold War and other ideological factors made them favor anything tagged with the word ‘free’ – free trade, free markets, free enterprise, and allegedly freely fluctuating exchange rates despite the ease with which those rates can be manipulated or controlled.

True, if small economy like Hongkong manipulates its exchange rate the harm to the rest of the world is mild. But when it is an economy like China’s already enjoying the advantages of cheap, hard-working labor and the economies of scale provided by a large domestic market the damage to others can be enormous, as this column tied to point out several years back. The US lost much of its industrial base back in the eighties by allowing Japan to use its under-valued yen to wipe out competing US firms. Now it faces the same risk from China.

A favorite argument of the free traders is that if China wants to provide us with cheap manufactures, then let it. We will concentrate on advanced manufactures. But by exporting those cheap manufactures China improves its industrial base so that soon it can compete in advanced manufactures. Meanwhile the rest of us weaken our industrial base as cheap manufacturing dies out. Soon we cannot produce anything.

Some in the US argue that the collapsing US dollar will help domestic manufacturers survive. But the collapses follow and are the result of its massive trade imbalances. If past inroads of cheap imports mean it has already lost its manufacturing base, there will not be many manufacturers to help.

Australia is a good example. At APEC and elsewhere it boasts how it is a leader in cutting tariff/subsidy protection. It makes no mention of the fact that thanks to past mistakes in economic policy its currency has collapsed from 400 yen to the dollar to below 100, and that even allowing for differential inflation rates this amounts to an across the board exchange rate protectionism of over 100 percent. Even so it could not protect much of its manufacturing since the falls in the exchange rate came after, and as a result of, declines in manufacturing caused by cheap imports, mainly from Japan and China. Today it has to rely largely on resource exports to survive, mainly to Japan and China.

China is rightly proud of its aid to struggling economies around the globe, Africa especially. But can it be proud if its flood of cheap exports to those economies makes it near impossible for them to develop manufacturing? Fortunately the concept of harmful exchange rate protectionism is gaining ground in the West, even in the pages of anti-protectionist media such as the UK Financial Times. But it may be too late. And is anyone in Beijing listening?


 そうではない。中国がまちがっているのは、全く別の分野である。中国は欧米、なかでもアメリカの関税・輸出奨励金による保護主義を厳しく非難している。だが中国自身がそれよりはるかにひどい保護主義に陥っている つまり、為替レート保護主義である。仮に中国の通貨が、多くに人が見積もるように、20%過小評価されていると考えれば、それは中国に入ってくる全ての輸入品に20%の関税をかけるのと同じであり、全ての輸出品に20%の奨励金を出すのと同じになる。西側の関税・奨励金保護主義はこれほどべらぼうなものではない。

 たしかに、中国が全面的に悪いというわけではない。中国は単に、欧米の正統的な経済思想にある異常な盲点、 関税による保護主義は悪いが、為替レート保護主義は無視できる を突いているだけ。そのよい例が、最近シンガポールで開かれたAPEC首脳会議だ。APECは自由貿易というお決まりの儀礼的なお題目をくり返した。だが、その会議のテーブルに座っている800ポンドの’― 北京が自分の通貨を絶えず過小評価したままでおくという管理手法 については、ほとんど何もいわなかった。正統的な西側のエコノミストは、歩くこととガムをかむことが同時にできない人のようなもの。彼らは関税保護主義が消費者にコストのしわ寄せをするということに強くこだわっている。だがうまく扱えば、関税は、経済成長に不可欠な新しいまた継続する生産者を助けるためのコストを消費者に負担してもらう税にすぎない。消費者を含め、国民全体にとっての利益が生まれるのは容易だろう。その上、もし関税を戦略的に適用することによって各国経済の活性化を促すことができれば、やがて世界貿易を拡大する助けとなり、世界経済にとっても全体として収益をもたらすことができる。以前の日本も、そのほんの一例だ。

 それと対照的に、為替レート保護主義は、輸入と戦う全ての産業を、それが保護されるべきか否かを問わず、一律に保護する。たしかにこの場合も、国全体としての利益効果となり得る; アジアの国々の経済成長のかなりの部分が、自国の通貨を長期的に過小評価のまま据え置くことができたおかげである。だがこの場合、消費者へのしわ寄せはより大きい。それに、これら経済の伸びは、他国の経済の犠牲の上に乗っかってのことだ。したがってこれが国際経済を歪める影響は、関税・奨励金保護主義の場合より、はるかに大きい。

 経済思想のこの奇妙な弱点の原因は、ひとつは歴史にある。1930年代の大恐慌で、各国が国内産業と雇用を保護しようと競い合う中で、隣人を貧乏にしろ式の有害な関税政策が生まれた。そこで現代のエコノミストたちの世代を育てた教科書はほとんど全部が、関税による保護主義の害悪に集中していた。一方彼らは、冷戦及びその他のイデオロギー的要因によって、自由という接頭語のついたものには全て好感をもつように育てられた 自由貿易、自由市場、自由企業、そしていわゆる自由に変動する為替レート(このレートをコントロールするのは簡単なのだが)。 

 たしかに、香港のような小さな経済が為替相場を操作したとしても、世界の他地域に及ぼす害は限られたものだ。だが、それが中国のような大きな経済なら すでに安い勤勉な労働力と、国内の大市場が提供する規模の経済学のアドバンテージを享受している、 世界の他地域に及ぼすダメージは巨大なものになるだろう。1980年代日本が過小評価されている円の力でアメリカのライバル企業を一掃したとき、アメリカはその産業基盤のかなりの部分を失った。そして今、アメリカは中国から同じリスクにさらされている。