The Rise of China and the Fall of the ‘Free Trade’ Myth
nytimes.com
nytimes.com
The last comment, about re-joining the TPP: It is unstated but I feel true (none the less) that if the US rejoins the TPP it will be a vastly different outcome to a US led TPP. Australia was screwed over by the last trade round, and significant economic disadvantage lay in the major US ally in the region (Australia is one of "five eyes" in the secrets sharing intelligence circuit) agreeing to roll over on trade for sectional US interests. The current TPP may suck, but it sucks a lot less regarding US demands on IPR, and other US favouring trade positions.
If the US rejoins, these will not be core issues for the current participants. If they negotiate a China facing TPP you can be sure its both favouring China, and very probably more equitable to the other participants than a US cast one, for clear reasons: It helps China in the long term, to the be the centre of the trading nexus.
"Regardless of the mystical properties claimed for it, the invisible hand of self-interest depends on the visible and often heavy hand of government. To take only one instance, British gunboats helped impose free trade on 19th-century China — a lesson not lost on the Chinese."
I.e. the gunboats removed the Chinese heavy hand on trade. The "invisible hand" cannot operate when the government restricts it.
The role of government in free trade is to prevent forcible interference with it.
"It was Hamilton’s formula, rather than free trade, that made the United States the world’s fastest-growing economy in the 19th century and into the 1920s."
That's quite a reach. The US's biggest market at the time was itself, and the Constitution ensured free trade between the states. It was the world's biggest free trade zone.
"World War II proved only a brief interruption in Japan’s policy of protection."
Japan was not an economic powerhouse before WW2. It was massively unable to compete with the US economically. It could not replace the combat losses of equipment. Etc.
The North atlantic trade treaty outcomes the UK will face in brexit will go there too. No british person wants to eat ammonia soaked chicken. The Americans want to sell the british Chicken and other meat loaded with antibiotics which is excluded from the EU. The british want a trade deal more than anything else, and will cave on food standards regarding excess antibiotics and washed chicken meat (the US production methods are so disgusting they can't exclude systematic salmonella risks) for cheap meat, to make brexit "work" and as a result, will lose food security and safety. For what? for the chimera of "free trade"
Its not a choice between a mythically fully free market and protectionism: its a choice between a US centric distorted market model, and another economies centric but distorted market model.
One could also say that no ruler is exactly 12 inches long, but that doesn't prevent them from being useful.
Japan's real problem in the war was its lack of natural resources. It was highly dependent on imports -- in particular it was highly dependent on American oil, an obvious problem if you're planning to go to war with America. That's why the Dutch East Indies were important and they moved to capture them early (to some extent the paucity of natural resources in Japan is what motivated the project of becoming a colonist in the first place). It's really hard to see how more trade liberalization would have helped.
Besides that, the productive capacity of the United States, and its insulation from attack, was exceptional among all of the powers in World War II, even the UK. I think we can still acknowledge Japan had significant industry, even if it couldn't keep up with the world's best.
It did poorly compared with the US free trade economy. Even at the outset of WW2, their military equipment was inferior to the US, except in a few places (the Zero, the Yamato). Japan was economically defeated long before the bombing of Japan got in gear. Early battles inflicted disproportionate losses on the Japanese military due to inadequate equipment and supply.
Japan knew their only hope was a quick, devastating surprise attack followed by a peace agreement.
Recall I mentioned that the US in the 1800s, for example, was the biggest free market and free trade zone in the world. It's hard to argue with the incredible results of that.
Pick a measurement.
> significant other differences
Sure. But the common thread among more successful economies vs less successful ones is free markets and free trade.
How about tariffs? Besides geographical isolation, the United States erected pretty strong barriers to any foreign competition and didn't really go in a strong "free trade" direction until after the second World War, after it had already become a hegemonic power.
> Sure. But the common thread among more successful economies vs less successful ones is free markets and free trade.
This article provides what I find to be persuasive arguments that the opposite is true and that successful countries do not begin to significantly liberalize trade until they are already strongly developed.
They're not a measure of prosperity. They weren't particularly high in the US, either.
> persuasive arguments that the opposite is true
That's because it cherry-picked the data, and never looked at the magnitude of the tariffs. If protectionism produced prosperity, Cuba would be richer than Japan. And we wouldn't place sanctions and embargoes to punish countries, and they wouldn't beg for relief from them.
Recall that the US itself is the largest free trade zone in the world. Do you think the US would be more prosperous if California protected itself from imports from the rest of the country?
At that time there wasn't any nation in the world that could compete with the US in war production mode. (Well, maybe the Soviet, and that's it.) You might as well say that Germany and Britain weren't economic powerhouses.
That's right. Aren't free markets and free trade amazing? :-)
The Soviet Union in WW2 was heavily supplied by the US.
The US was able to sustain a crushing advantage against multiple enemies across two oceans, plus sustain all of its allies with desperately needed arms, fuel, food, and support. The US soldiers were the best equipped, best fed, and best supported.
Yup, and that's credited with deepening and lengthening the Great Depression, not making America's economy better.
> much more, not less, government intervention in the economy
All Roosevelt's New Deal interventions failed to get the country out of the GD. What did was a massive influx of money from foreign governments buying arms.
All price controls did was produce a black market.
If planned economies worked, the USSR economy would have been a powerhouse, not a basket case propped up by shipments of grain from Kansas to keep starvation away.
Want a modern example of an unplanned, unregulated free market industry? The software business. It's characterized by incredible innovation, prices dropping to $0, the biggest companies in the world, and a constant stream of billionaires being minted.
They couldn't and didn't pay for most of those weapons.
They bought Chinese goods with opium, not because they were fighting for liberty and free trade, but because they didn’t want to buy silk and other goods with silver. The hard currency was needed to hire the mercenaries (who are all about cash and carry) that kept Indian peasants growing poppies.
The result of this forced trade and loss of control was devastating inflation and collapse of governance within China and the circumstances that led to to horrors of the 20th century.
Nobody was forced to buy opium. The force was in removal of the force preventing people from buying opium.
I'm not pretending it as selfless. Free trade benefits both parties. Nor am I claiming other things the British did are free market. I'm only talking about removal of the barriers to the opium trade.
The Chinese people wanted to buy opium. They obviously thought it was to their benefit.
BTW, the US war on drugs has not been of benefit to this country.
This period was characterized by imperialism, mercantilist trade policy, and gross violations of Chinese sovereignty. "Removal of force" from trade wasn't a factor at all -- the other Western powers (France, Germany, US, and later Japan) weren't allowed to trade in the British extraterritorial zones. Britain didn't want "free trade", to the contrary, they wanted exclusivity.
Once again, nobody made anybody buy opium.
In other words, there was no free choice or democracy about it, and what the people want (which can very well be protectionism, or at least, not to allow opium sales in their country) didn't matter.
> But to grasp China’s economic achievement, and its ramifications, it is imperative to ask: Why has a market economy directed by a Communist state become the world’s second-largest?
Was China ever really a communist state? They've said so, of course, and talked the talk. But maybe it's more accurate to say the China remains a Confucian state. With an overlay that looks a lot more like fascism / national socialism than communism.
The Chinese model is unique, and why shouldn’t it be? They are the first country in history of their size to industrialize and become a world power.
Let’s stop making cute generalizations that only serve to make ourselves feel better and think of what we actually don’t like about their system of government so we can fix it in our own. “The Chinese are Nazis!!” doesn’t help anyone.
Are you implying that a very large country becoming a world power is somehow an impressive achievement?
0) http://www.independent.org/pdf/tir/tir_19_04_06_znamenski.pd....
What's communist and isn't needs to be defined by what happens in reality, instead of being defined by comparing it to the kindest interpretation of a utopian ideology. One might also tiresomely argue that Nazi Germany wasn't really fascist, given how radically it departed from Mussolini fantasies of a fascist state, or even Hitlers own fantasies of a thousand year Reich. But we don't, because at this stage it's tiresome. Communism is no different.
Say what you will about fascists, but at least I've never heard them say "Yeah but Nazi Germany wasn't real National Socialism".
I believe that just about all national governments are in fact kleptocracies. The powerful veil themselves in whatever ideology that's required. There are some idealists, of course. Especially at lower levels. But systems reward those who shed their ideals, and play the game.
Is there any evidence of this? I hear it a lot, but it seems like nothing more then left-wing McCarthyism. What's the far-right version of a pinko?
There are few if any states that actually consider themselves to be communist. China considers itself a socialist state that is the middle of a long process of transitioning to communism. The ruling party is named the Communist party because of what its stated end-goal for governance is, not because of their current methods of governance.
After three decades of industrialization, China's environment undergoes tragic damage, and the country gradually loses the ability to feed itself. Today China imports more than 20% of its food supply. As the aging workforce retires, China's future outlook is not very bright. I hope you understand, not all the grass is green in China.
I suspect this is entirely true.
And as added ammunition for this article - the poor prime minister, but excellent finance minister of India - Manmohan Singh, focused on the Korean Model a lot earlier on. It influenced the way the Indian markets opened.
There's only 1 book written about MMS, and in that book theres a telling interaction, where Manmohan (Much before his days as PM) was upset that the author (then a reporter), didn't mention Manmohan's stance on the Korean model in an article.
And to top it all off, China's labor market is currently the highest it'll be for the next century or so. It's all downhill from here. China's economic dominance through cheap labor is under severe threat, and they're losing. That loss is causing economic unreast (tens of millions of job losses) in the China.
China also legendary when it comes to outright lying about their accomplishments. From scientific advancements in Fusion energy to amounts of iron ore in ports, China has been caught lying so often that economists seriously think 80%-90% of government statistics are outright falsified, with often strong arguments about the remaining 10%. Unfortunately, their leadership is equally famous for believing the lies, right up to the point that they marched a fleet of ships under British cannons, with substandard hulls and without ammunition. You see, the general of that fleet had assured them the ammunition was there, several of his officers had written the central government that he was lying. Whichever was the truth, the fleet was devastated, the general survived and wasn't even fired. Thousands of soldiers and something like 40% of the total Chinese navy was lost. Legendary.
There are so many things that could go incredibly wrong here. Economists aren't kidding when they say China might start WW3. They might have to.
Of course it looks like they’re “winning”. They will lose, and ultimately it will be a tragedy for the Chinese people when standards of living collapse and the true ability to repress people with modern technology begins to show.
I mean, how is this different from the US or British Industrial Revolutions?
But, extremely credible sources have indicated that 1 in 4 financial transaction takes place in China.
People who have been there and work there do not doubt it.
Its neighbours rue it, and its massive financial clout are allowing it to make inroads in ways and places once the realm of the US and other first world nations.
That money and munition is coming from somewhere.
Korean model involved the state putting extreme pressure on the big business houses and at the same time going out of their way to help them as well, with the goal being to become world leaders in their respective sectors by making quality products. Some firms collapse under such weight and others thrive.
Instead though Indian companies were encouraged to focus more on exports, they by and large never managed to establish quality and leadership. Also, though they are renowned for mediocrity, they have still managed to capture large parts of the economy, thanks to government compliance.
MMS's life has been a saga of half measures, and though people rightly know him as a calm, intelligent man his failure and weakness as a leader will always define him rather than his virtuous character.
Dominant in the region? Sure, but that's been true since the rise of the Communist party.
They have a strong military manpower wise, but lack the ability to project power in a number of important areas.
Not really conclusive, I guess, but I found the article interesting.
https://www.amazon.com/How-Asia-Works-Joe-Studwell/dp/080212...
As soon as it looses while others are winning (in some areas) they are trying to bend (again) the rules on their favor.
The American era has been a waste: one country trying by all means to impose its agenda, to claim its divine right to progress and dominance, to unfairly try to control the rest of the economic actors. Let's hope the Chinese era is more fair and balanced.
Not only covertly America First, but also incompetent.
What the US did to the USSR, China is doing to the US: outmanouvering.
I find it just, since I consider the US attitude highly hipocrital, and criminal throughout.
If it was in the US hand, Snowden would be rotting in Guantanamo. As said, the US is criminal and incompetent. Luckily there are other global players balancing power.
Ah, really? You mean the modern world, in which violent conflict is at an all-time recorded low? Wars between major powers have been almost entirely absent for 70 years. Global famine and poverty is at an all-time low. Child mortality has plunged radically and is at an all-time low. Truly vast progress has been made across all aspects of science and technology. The real standard of living at the global median is at an all-time high. Global economic growth and trade has been extraordinarily consistent and enduring. Annexation of territory by powerful nations - a commonality throughout all prior history - has been brought nearly to a stand-still.
Sure doesn't sound like a waste to me. The last ~70 years have been the best 70 years in all of humanity's existence.
Not only, it is a disgrace. You have missed the chance to make the world a more just place, and you have probably demonstrated that humanity is hopeless.
Maybe the error was to put so much trust in the US to begin with.
Liberalization is a matter of degree. You can't cherry pick a particular protectionist policy South Korea had and then say, "Oh look see they used import substitution and still had a good outcome." You have to also explain why that import substitution policy didn't ruin the Korean economy the way it did Argentina, or in an extreme example, Maoist China. And what you'll find is that they became much more liberal in other ways.
If you're going to claim that liberalism doesn't matter you need to show your work. You need to show that in aggregate, countries that liberalize their economies do less well than countries with less liberal economies. But when you look at the data, you will find just the opposite: Countries that move in a liberal direction, like China, South Korea, and Chile, tend to improve their outcomes, while those that do not, like Argentina or Zimbabwe, tend to stagnate. And almost every wealthy country in the world is either highly liberalized or sitting on an ocean of crude oil. The fact that even liberal countries have illiberal policies doesn't disprove the benefits of liberalization.
Most likely, Asia succeeded in spite of protectionism, not because of it.
If liberalization is all that matters, why isn't a libertarian dream-country like Georgia rich?
They suffer from relatively high corruption. Transparency.org lists them as comparable to Grenada, Costa Rica, and Rwanda.
Georgia has been subject to being ripped apart by Russia. Its politics are directly, violently influenced by its giant neighbor.
There are no other highly prosperous nations in the region to trade with. All nations in the region are either extremely low on the per capita wealth & per capita income scores, or a few are barely mid-lower tier. Turkey, Romania, Bulgaria, Moldova, Russia, Ukraine, Syria, Turkmenistan, Uzbekistan, Belarus, Armenia, Azerbaijan, Serbia, etc. These are quite poor nations per capita. It's like you expect a Singapore or Hong Kong to pop up out of nowhere amongst the desert, without a Japan + South Korea + China to trade with. Much less being eg Denmark in the midst of economic valhalla, or Canada riding on the world's richest economy.
They get ranked very low on property rights protections, government integrity (ie corruption), and judicial:
https://www.heritage.org/index/country/georgia
You can have low taxes, or flat taxes, as in Russia as well, but if your system is a totalitarian dictatorship and part command & control economy, the results are still going to overwhelmingly tend to be mediocre. Or in the case of Georgia, if you still suffer from weak property rights protections and high corruption, trust is going to be very low when it comes to investing. To say nothing of the risk that Russia will randomly destroy the nation, as it's known today, in any given year. That foreign capital investment is a prerequisite to massive economic development.
Prosperous nations very rarely exist in such circumstances, save for a few extremely resource rich examples, such as Qatar, UAE, Brunei and Saudi. Those few isolated examples are all that have existed in modern history out of the present ~195 nations.
During China's early development time frame (1980s & 1990s) it had the world's largest population base and the world's largest trading partners in the US and Japan (and world's #1 and #2 economies), to leverage for economic expansion. Your example is supportive of my premise: massive foreign investment is a prerequisite. China didn't develop in isolation, they developed solely due to hundreds of billions of dollars that the US invested. Further, China had to abandon its rigid command & control economic policies, and dramatically liberalize away from Mao's former Communist system.
Which neighboring nation is going to randomly choose to invade modern China (post 1970s) and destroy it, as in the case of Russia & Georgia? Pretending investors aren't extremely concerned about that, is silly.
> Poking holes in your examples is just as easy.
Apparently not, you have yet managed to. Saying something is easy, while then not actually doing it (only saying it is), debases the confidence of your entire argument.
Economic development from poverty to prosperity, is nearly impossible without vast foreign investment. The wealthy European powers built up the US economy in its early days, providing immense capital. Without that, the US either would have never properly developed, or it would have taken dramatically longer.
How long has Georgia been separate from the USSR at this point? It was ruled by a backwards, violent, impoverished, broken Soviet system for seven decades. You were what, expecting them to sprout $70k per capita GDP prosperity in just 15-20 years post Soviet slavery, while in the midst of a political and military confrontation with Russia?
It wasn't a requirement for the US -- itself a very protectionist country until well into becoming a superpower.
"Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize."
If it had just been the second sentence, the comment would be fine. Please edit the snarky bits out of what you post here. They trigger this place into lower-quality behavior.
This should be completely obvious.
It also refutes the author’s argument. Why has a market economy directed by a Communist state become the world’s second-largest?! Would Friedman find it hard to explain why China, run by a Communist Party, has emerged as central to the global capitalist economy!? China has 19% of the world population but roughly 10% of the world GDP. It is 79th in GDP per capita at purchasing power parity. We should not evaluate a country’s economic policies by looking at its nominal GDP without also looking at its population—this is nothing Friedman would have difficulty explaining.
…is that also why India "succeeded"?
I mean yeah, their democracies look a bit strange to Westerners, what with Japan being governed by mostly one party and South Korea being a fairly new democracy... But what specifically do you mean?
I really don't want to write a 3000 word comment in response to this article. After all, only a few people will read it and those that do will not read it with the seriousness of a New York Times article.
I'm very disappointed in this piece. Half truths, omitted details, and bad history all rolled into Communist apologia.
For those who do not have time to read paste the headline: one sided "free" trade agreements benefit one side. Who would have thought? All other "conclusions" the author draws from this fact have no bearing on reality.
Maybe it's time we all stopped taking New York Times seriously. They do not have a fantastic track record.
There are more options than A or B. By expressing displeasure with the article I can at the least demonstrate there are other viewpoints.
There is a large wealth of knowledge and information out there. All of it detailing how China owes its economic success to economic liberalization.
This article stands out for its contrarianism. That's why it will get some many clicks and comments as opposed to yet another study proving what we already know. If anything I should be lamenting the "death" of "popular knowledge". If knowledge isn't constantly in flux its "boring" and not worth reading. Thus knowledge must constantly change for papers like the NYTimes to continue to exist.
Imagine if a Creationist wrote an article in "Nature" (the scientific journal). What would you say in response? What would you say if it was well received? Would you rebut the same old lies over and over and over again or would you just be sad that the world never seems to learn?
Again, why doesn't the journal Nature run a piece detailing how "evolution got it wrong"? Because it is incorrect and unnecessarily muddies the water. Because "Nature" has a shred of credibility and wishes to keep it. It is certainly possible to point to blind spots in our knowledge and say "Hah, you can't explain that!" Or to point at past errors and say "Hah, you're always getting it wrong!"
It is up to the paper or journal to screen such plainly and obviously fallacious information. Or at the very least categorize it in such a way that it is plainly evident that these are emerging or not-widely-held viewpoints.
It's particularly important to avoid generic commentary about ideological themes like "Communism" and (worse) "Creationism", which is where you went downthread.