The morality of trade with China
Before heading off to recess, the House of Representatives overwhelmingly passed a bill authorizing imposing tariffs on Chinese goods unless China stops manipulating its currency. The House's action has sent off a storm of warnings in The Post and others about the dangers of taking action against China at this juncture. In his latest Post column, Matt Miller even went so far as to question who is more progressive: labor groups seeking to protect American workers or American corporations who creating jobs for millions of Chinese workers.
It is a provocative assertion, but one that is wrong both on the particulars and on the larger "moral" lesson we should draw from the past decade.
Miller suggests that the main beneficiaries of expanded trade have been workers in China, India, and other developing countries, millions of whom have been lifted out of poverty. In fact, the main beneficiaries have been American-based multinationals and Chinese state corporations. Because productivity has increased so much faster than wages in both the United States and China, corporate profits have soared, as has inequality. In America from 2001 to 2006, profits as a share of output exploded from 6.9 percent to 13.6 percent. Comparing profits directly with wages produces even more worrying results, with profits hitting an all-time peak of 26.8 percent in 2006, as Tony Jackson of the Financial Times points out. The figure today is 25.8 percent, just below its all-time high. Meanwhile real median wages in the United States increased only modestly during this period, and real median family income actually fell.
Miller is also wrong to suggest that American workers were the only or even the primary losers from China's rising trade surpluses.
Like other critics of the House bill he likes to point to the number of Chinese workers who were lifted out of poverty. But this ignores that millions more in China and other developing economies could have benefited from an expanding world economy if China had allowed incomes and consumption to rise with production. From 2001 to 2007, consumption as a percentage of GDP in China fell from 44 to 36 percent; by comparison consumption in Brazil makes up 60 percent of GDP. Because China suppressed consumption and incomes to such an extreme degree while subsidizing its exports with an undervalued currency, it stole demand and jobs from the rest of the world, including from our neighbor to the south, Mexico.
In the end, because this pattern of trade contributed to a huge shortfall in global demand -- and to the housing and credit bubble in the United States and Europe -- we all ended up in paying a steep price.
And this is where Miller fails to understand the larger moral lesson, which is the lesson we should have learned from the Great Depression: A capitalist world economy can't function for long if there are huge imbalances between profits and wages, and between production and consumption. That is why in the aftermath of the Great Depression we passed laws empowering labor to bargain more effectively, that is why we put constraints on the freedom of capital, that is why we adopted a steeply progressive income tax and expanded our social protections, and that is why we chose a system of managed trade and investment with the rest of the world.
That is why today we need a new policy toward China and other neo-mercantilist economies that brings an end of the unholy alliance between Chinese authoritarianism and American multinationals. That policy must begin with actions that will prevent China from systematically undervaluing its currency at the expense of demand and jobs everywhere. A much stronger Chinese yuan would increase the wages and incomes of Chinese workers, allowing them to consume more, while reducing corporate profits to something more consistent with a healthy balanced economy. It is not clear why Matt Miller finds that so morally troubling.
Katrina vanden Heuvel
| October 14, 2010; 12:52 PM ET
Categories: vanden Heuvel | Tags: Katrina vanden Heuvel
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