Economics
A pundit in search of a problem
Oct 18th 2010, 15:09 by R.A. | LONDON
I HONESTLY don't understand why Paul Krugman is so determined to promote a policy of confrontation between America and China. I can't imagine why he thinks good will come of an attempt by one proud superpower to coerce another proud superpower into doing what the former wants. But determined he is, so much so that he's willing to make mountains out of rather modest piles of earth. Rare earth, in the latest case.
China currently controls most of the world's production of rare earth minerals, which are useful in the making of many technology products. It has limited export of these materials, sending prices for the minerals soaring. And in some cases, as recently over a dust-up with Japan, China has been willing to restrict their export entirely. Mr Krugman sees a great threat in this:
Major economic powers, realizing that they have an important stake in the international system, are normally very hesitant about resorting to economic warfare, even in the face of severe provocation "” witness the way U.S. policy makers have agonized and temporized over what to do about China's grossly protectionist exchange-rate policy. China, however, showed no hesitation at all about using its trade muscle to get its way in a political dispute, in clear "” if denied "” violation of international trade law.
Couple the rare earth story with China's behavior on other fronts "” the state subsidies that help firms gain key contracts, the pressure on foreign companies to move production to China and, above all, that exchange-rate policy "” and what you have is a portrait of a rogue economic superpower, unwilling to play by the rules. And the question is what the rest of us are going to do about it.
Several points. First, America does wage economic warfare on a routine basis; its agriculture policies do violence to economies in many of the world's poorer regions. Second, the use of monopoly power over scarce resources is hardly uncommon; oil producers have been acting in this fashion for decades, and doing much more damage to the world economy in the process. If major economic powers are going to get tough on someone in defence of the international system, they might begin with OPEC. And third, China controls barely a third of the world's rare earth deposits.
So here's a question: how can a monopolist continue to enjoy monopoly rents in an industry over which it doesn't have a true monopoly? The answer? It can't:
In the next four years new production is starting in Australia and in California (where it ceased in 2002). Capacity is being increased at mines in India and Vietnam. The newcomers will shrink China's market share by 15%, says Dudley Kingsnorth of IMCOA. The only existing producer outside Asia not dependent on Chinese ores is Silmet, a rare-metal firm in Estonia, which says it is now besieged by eager customers. It hopes other producers come online soon.
China is stimulating production in California! Mr Krugman should thank them.
I don't want to excuse China's behaviour here. Its conduct with respect to its rare earth holdings is both inappropriate and short-sighted. But it's hardly the sort of thing to start a heated confrontation over. I can see how it would be handy pretence, however, if you're generally interested in having such a row.
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Latest Treasury Internationa Capital (TIC) data released today (Aug 2010). http://www.ustreas.gov/tic/
Which country owns what amount of US Treasuries
China $868.4 Billion UP 2.6% from July DOWN 7.3% from last August ---- Just a quick note to say.....
Thank you Britian!
We Love You!
As of Aug 30th: The British own $448.4 Billion of US Treasuries.
UP 19.8% from last month UP 329.9% from last August.
source: http://www.ustreas.gov/tic/mfh.txt
Rising in the charts - with a bullet! About 1/2 way to the amount China owns.
(Keep it up and we'll have to complain about the weak pound.)
Regards
This is Paul Krugman's Jihad.
I think Dr. Krugman's main point on the CCP is how reliably they can play US policy makers as dopes. Furthermore, I can't understand your view of China's exchange rate as it not only makes American exports artificially more expensive, but also makes the vast majority of Chinese poorer.
Krugman said: "unwilling to play by the rules". What rules?
"And the question is what the rest of us are going to do about it." Nothing I hope. The US should quit whining and solve its own problems.
I also don't agree with Krugman on this topic but mostly because I have only once seen him discuss why China is interested in its own well being. (That being the country is still really, really poor.) All countries act in their self-interest. We tend to over-estimate the power we have to influence what other countries do. I don't see the US as having any meaningful leverage on China.
That said, the prior Administration - meaning the GOP - did pursue policies that had negative national security implications even while they were fetishizing national security. I think that's mostly because they are unable to reconcile their view of "business" with the reality of business, meaning they have an ideological mental block about implementing policies that don't reward companies for moving production offshore. In that sense the GOP is kind of like the punter in the casino who doesn't know the odds, being both naive and ripe for the plucking.
In the NY Times opinion pages by Sen. Sherrod Brown (Ohio)
http://www.nytimes.com/2010/10/18/opinion/18brown.html?_r=1&nl=opinion&e...
"... to the torrent of artificially cheap Chinese imports. Economists, including free-traders, estimate that price manipulation keeps Chinese products 40 percent cheaper than comparable American-made goods."
So we should have paid more for American-made goods and everyone would have been happier?
I don't think I would be happier to pay more for the stuff I buy. I think it's a narrow focus to say China's currency manipulation has cost American manufacturing jobs without figuring out if it has created jobs in other sectors because of a) jobs in importing b) people have more money to spend in other sectors because it wasn't spent on more expensive domestic products.
Krugman really perseverates as I keep telling you all.
@BnFrkln:
"... but also makes the vast majority of Chinese poorer."
So you're saying if China lets its currency rise so that its exports are more expensive, so that it exports less, so that it loses jobs then the Chinese are richer???
Maybe the growing mountain of US Treasuries China is holding means that they are SAVING. What an evil concept...
... maybe the US should try SAVING instead of buying all those cheap Chinese products.
@jomiku:
"that don't reward companies for moving production offshore".
So the "American" companies (whatever an "American" company is) should have stuck with more expensive domestic production so they couldn't compete with those "Foreign" companies producing in China. Doesn't seem like a good business model.
We may not like what China does, but there is precious little to be sensibly done about it. The US needs to shut up and focus on solving the problems it can.
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