Trump Plans New Curbs on Chinese Investment, Tech Exports to China
wsj.com
wsj.com
Why shouldn't it? Neither the stock market, nor capitalism cares who buys shares of a company. If China isn't interested in investments from the US, wouldn't that just make their own markets less efficient?
If your goal is efficient markets, then it shouldn't matter where your investment dollars are coming from.
I don't understand where this ridiculous notion of 'fairness' in capital markets is coming from. Money is money, if you want to ascribe morality to it, then this is not the economic system to do so in.
Consider this question: Should, say Nigeria allow US-based companies or persons to buy Nigerian companies/mineral rights/agricultural land?
If so, why? Under a reciprocal agreement, it's not like Nigerian companies are able to buy US companies/mineral rights/agricultural land. Even if they were allowed to in theory, they wouldn't have the money.
Does this mean that Nigeria should close itself to outside investment? Would Nigeria be better off if it did so? Is it only hurting itself by being closed to American investment?
They're asking why, if China doesn't allow US ownership of Chinese companies, should the US allow Chinese ownership of American companies, not some abstract question of fairness. Currently there are severe controls on US activity in the Chinese market, ownership restrictions among them.
This economic mantra has been pushed by the United States for the past 70 years, mostly to get developing markets to open up to US companies. Maybe we should apply it domestically, and see what happens?
Whenever the US considers that communism is to its advantage, it will turn communist.
Unfortunately, it has the military might to impose its will.
But if tarrifs are implemented to correct unfair trade agreements, then that isn’t economically unsound policy. How else do you rectify decades of wrong doing. IP theft, china can invest in whatever here, but we have artificial caps there. Significant tarrifs and regulatory issues there, far fewer here. Americans can’t buy property there, China purchases $150B a year in residential property here, pricing out many in the most sought after real estate markets. Forcing technology transfer to a totalitarian borderline authoritarian government and not doing anything would be pathetic.
What other tools do we have that are more palatable than tarrifs? War? Sanctions? Stop trading altogether? How else are you supposed to fix something, if the other side never wants to fix it?
Would you even want to want to buy property in what you describe as an authoritarian, borderline totalitarian country?
The Chinese don't want their property to be subject to whims of party officials, so they invest elsewhere. This is a net positive for Americans (increasing real estate prices mean increasing total wealth), and also a creeping long-term negative for China which they can't easily fix without relinquishing control. Rather than trying to force the issue, USA should continue to take the high road and let the Communist Party slowly boil. It may take a long time, but the Chinese will eventually want their political freedom because they don't have real economic freedom without it.
Uh, not so much. Being priced out of home ownership means a smaller and smaller portion of Americans would (do) benefit from this increased "total wealth".
It’s a net positive if it was a 2 way street. Currently, I’m competing with the entire world to purchase a house in the Valley. Chinese investment is in SV, LA, NYC, Vancouver, Toronto, NZ, Sydney and Melbourne. All areas where locals are priced out, income inequality is rampant, and only those who sell are realizing actual wealth. Salaries in those areas are higher solely for housing prices. That means our companies losing out on billions due to foreign unfair investment.
Chinese aren’t moving to these areas in many cases. They are just investing and parking their money, some of it through illicit means. In Canada, the majority of Chinese RE investment is through the drug trade. They are legitimizing this.
In NZ xenophobia has increased significantly so much that they are planning to block all foreign investments period. That doesn’t seem to be a net positive to me. Australia has jacked up foreign investment taxes twice and Canada 3 times in just 2 years. The latter are also turning more xenophobic and honestly I don’t blame them.
And this won't fix anything. The rest of the world will happily keep doing business with China. The US is just salty. Instead of adapting to new circumstances they cling to US hegemony. Orange man yelling at clouds.
China has completely swallowed the WTO. Letting it in was one of the biggest mistakes in history, it has completely gamed the system. The goodwill and ethics have been swamped. China makes frivolous litigation to slow down the entire process and has spent years and billions learning how to completely game it. Even when the WTO rules against China, it is many years after the fact and the competition is already dead and China has taken over the market share.
The fact that we have an unfair trade agreement with China now, in no way means that a trade war will necessarily be to our benefit. I imagine it’s going to damage our economy quite a bit, and do the same for China.
You mention that inaction would be “pathetic” which may be the case. And if we want to do something about it, we can, but it doesn’t mean the US or the world will better off for doing so.
Just look at Iraq. For sure, there was a horrible dictator there who committed genocide and other terrible things. So the US acted. Was it a success? Was it the best possible use of those trillions of dollars? Who knows, but I suspect not.
Just because there is a wrong in the world doesn’t mean that we definitely have the means to fix it.
I'm curious, why "directly harming others"? The argument here is that you doing as you please (selling critical technology to the Chinese) is indirectly harming others so I'm curious about the distinction you draw between when it's okay to harm others and when it's not.
Inaccurately and purposefully yelling "fire!" in a crowded space is a direct attempt to cause panic. In other words, you would never be prosecuted for yelling "fire!" in a crowded space when there actually was a fire. It is not the act of yelling "fire!" that is illegal, it is purposefully causing a false panic that is illegal.
https://econrsa.org/wkshops/tradepolicy/session2day1-whatsho...
https://nytimes.com/2018/06/20/opinion/trump-trade-tariffs-c...
There is a game theoretical argument for imposing retaliatory tariffs in hopes of instigating the other party to change, eventually reaching an outcome with lower trade barriers than at the start. But there is every indication that Trump fundamentally believes trade is bad (because of a fundamental misunderstanding of trade deficits) and has no intention of negotiating such a deal.
https://www.tcd.ie/Economics/assets/pdf/SER/2017/9trump.pdf
https://twitter.com/realDonaldTrump/status/97134986412578816...
>Removal of trade barriers is always good, even if it's unilateral and asymmetric.
then just make it. A strong statement and a pdf link isn't very convincing.
Here’s an easy one: suppose that an industry generates negative environmental externalities that are not properly priced, and that international trade leads to an expansion of that industry in your country. Then that trade may indeed reduce national welfare
Okay so he admits that externalities can outweigh our more traditional views of gains from trade and then he moves on to state and refute a different argument.
The case for these tariffs is best going to be made through the externality argument though and tariffs/trade restrictions are an example where we believe externalities are outweighing our benefits. Seen through this lens common economic reasoning would tell us that a large improperly priced externality requires a tax to bring the item up to the proper price. In trade this tax is called a tariff and it's common sense to use it if you believe your country is being indirectly harmed by free trade.
Trump (but more probably his advisors) believe there are large external effects to having a strong technology industry at home in the 21st Century. Accordingly they are using tariffs and trade restrictions to maintain that.
My degree happens to be in economics, but okay. The argument is that trade barriers, both unilateral and bilateral, cause economic losses and are therefore bad. The belief that asymmetric trade barriers result in the unrestricted country "losing" is wrong - removal of trade barriers results in a reduction of deadweight losses even without symmetry. This is well-supported economic consensus with acceptance among economists comparable to that of climate change among climatologists.
>Okay so he admits that externalities can outweigh our more traditional views of gains from trade and then he moves on to state and refute a different argument.
No, he really doesn't. His point is that the proper solution to externalities is to price them in domestically, and tariffs in lieu of environmental policy harmonization are "second best" with unconvincing arguments in favor.
However, this discussion is about using tariffs as a tool to combat externalities unrelated to trade and is tangential at best to our discussion.
>The case for these tariffs is best going to be made through the externality argument though and tariffs/trade restrictions are an example where we believe externalities are outweighing our benefits. Seen through this lens common economic reasoning would tell us that a large improperly priced externality requires a tax to bring the item up to the proper price. In trade this tax is called a tariff and it's common sense to use it if you believe your country is being indirectly harmed by free trade.
This is precisely where Trump is wrong. Removal of trade barriers has positive externalities, not negative. It is a Kaldor-Hicks improvement.
>Trump (but more probably his advisors) believe there are large external effects to having a strong technology industry at home in the 21st Century. Accordingly they are using tariffs and trade restrictions to maintain that.
This is not in line with their stated reasoning. They believe tariffs are necessary because trade deficits are losses.
How does that help? Isn’t the country that has lax environmental laws and can sell cheaply going to win over the country that has tough environmental laws? (Genuinely asking, my degree is in engineering not economics.)
And do these models account for changes in dynamic equillibrium? E.g. a foreign country engaging in dumping ends up killing the domestic industry? It seems odd that exercise of monopoly power can lead to deadweight losses in a closed domestic market, but a country engaging in anti-competitive measures overseas is best handled by doing nothing.
Do these theories account for the interactions between economics and government. (E.g. the ability of foreign governments to exercise power over companies in their jurisdiction?)
I’m not trying to argue with you by speculating, I’m trying to figure out the metes and bounds of your assertion.
You're correct it doesn't help. Either you raise the price of the foreign good through a tariff or other sneaky measure or consumers will buy it and amplify the externality.
>And do these models account for changes in dynamic equillibrium? E.g. a foreign country engaging in dumping ends up killing the domestic industry? It seems odd that exercise of monopoly power can lead to deadweight losses in a closed domestic market, but a country engaging in anti-competitive measures overseas is best handled by doing nothing.
They don't and even Krugman would admit to this now. It's actually funny that we're using Krugman from 1998 because if we take his trade talk from just four years earlier it's clear he thinks distribution could be a problem:
The truth, however, is that fears about the economic impact of Third World competition are almost entirely unjustified. Economic growth in low-wage nations is in principle as likely to raise as to lower per capita income in high-wage countries; the actual effects have been negligible. In theory, there are some reasons for concern about the possible impact of Third World competition on the distribution (as opposed to the level) of income in the West, but there are few signs that such concern is justified in practice, at least so far.
https://hbr.org/1994/07/does-third-world-growth-hurt-first-w...
And then if we zip past 1998 back to the present day he's once again walking back on the pro trade rhetoric here:
But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict.
https://krugman.blogs.nytimes.com/2016/03/09/a-protectionist...
and here:
That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade, the one that the public hears, is largely a scam. That’s true even if you exclude the most egregious nonsense, like Mitt Romney’s claim that protectionism causes recessions. What you hear, all too often, are claims that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone.
Yet what the models of international trade used by real experts say is that, in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle the overall gains mean that the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.
https://www.nytimes.com/2016/03/11/opinion/trade-and-tribula...
The answer to your questions are all basically no and I would blame it on the blurring between economics and folk economics. I also hold an econ degree and I see this almost everywhere - someone holds up a simplified model, claims it proves free trade is good or minimum wages are bad or whatever political issue is hot and then they close the book. There's tons and tons of relevant literature on all these theories and once you dig into it and the models become more sophisticated then many of the standard things we expect the model to say morph and change. But this academic economics is usually crowded out in public debate by the simple models and easy free market talking points.
Also, you say that Trump misunderstands trade deficits. Can you prove that at all? He's a very successful businessman. I would be more likely to think it's you with the misunderstanding.
I'd like to believe this is so, but the evidence doesn't support it. Trump and Peter Navarro have repeatedly criticized trade itself, and particularly trade deficits, rather than asymmetric trade barriers.
https://www.nationalreview.com/2018/06/trump-anti-free-trade...
https://www.axios.com/peter-navarro-globalist-protectionist-...
https://www.washingtonpost.com/business/over-four-decades-tr...
>Also, you say that Trump misunderstands trade deficits. Can you prove that at all? He's a very successful businessman. I would be more likely to think it's you with the misunderstanding.
Business and economics are very distinct fields; the idea that success in business leads to academic understanding of economics is a misconception.
Trump believes, as shown in the linked tweet, that a country "loses money" when a trade deficit exists. In reality, trade deficits and capital inflows are inextricably linked, due to an accounting identity.
>As economist Milton Friedman argued long ago, the real gain from international trade is not what we export but what we import.
That seems like the definition of an "unsuccessful businessman", but I'd be interested in the semantic interpretation where it doesn't.
If you define "successful businessman" strictly by comparative potential personal profit, that would rule out a great many people who have found happiness and decent profit in what they've built, and restrict qualifiers to the idle rich and a few unicorns. That's a break from how the word "success" is used in all other contexts.
The best of course is the accusation that he tried to disguise his voice to convince a forbes reporter that he was richer than he was to get on the top 400 list:
http://fortune.com/2018/04/20/trump-lied-wealth-forbes-400-l...
This is actually my own pet conspiracy theory. He didn't want to release his tax returns because he's doing shady tax dodges, he did it because it proves he's not actually rich.
https://en.wikipedia.org/wiki/Business_career_of_Donald_Trum...
Driving 6 large businesses into the ground is not what I would consider to be 'successful'.
Removing tariffs on manufactured goods between the US and China, for instance, strongly benefits people who can set up factories to take advantage of the cheaper labor and materials. It weakly benefits consumers who get slightly (if at all - corporations might just take the difference as profit depending on the level of competition) cheaper goods, and it disadvantage all of the working class that now has to compete with cheaper Chinese labor.
This can be mitigated by income redistribution, funding for job skills retraining, and so on (although it kinda sucks to find yourself back at the bottom rung of a new field at 40 because you can't find job opportunities anymore) but, historically, these programs haven't received any funding, so it's pretty safe to assume they won't exist until proven otherwise.
https://en.wikipedia.org/wiki/Kaldor–Hicks_efficiency
>(if at all - corporations might just take the difference as profit depending on the level of competition)
This doesn't make sense — if corporations 'absorb' that profit, consumers have no reason to purchase imports over domestic goods. Moreover goods with heavy competition from low-wage countries tend to have highly competitive markets, so the price is the marginal cost of production.
>This can be mitigated by income redistribution, funding for job skills retraining, and so on (although it kinda sucks to find yourself back at the bottom rung of a new field at 40 because you can't find job opportunities anymore) but, historically, these programs haven't received any funding, so it's pretty safe to assume they won't exist until proven otherwise.
Actually these programs tend to be well-funded but undersubscribed.
https://www.reuters.com/article/us-trump-effect-coal-retrain...
Singapore, Switzerland, Hong Kong, and Macau all have 0 import tariffs, and rather than mass unemployment they are incredibly rich by international standards.
So a banking haven, with banks so massive they'd require the big US banks to get over 10x larger to match the relative scale to the Swiss economy.
A tiny, highly regulated gambling haven, that can't be replicated to the US scale at all.
And then two tiny islands in Hong Kong and Singapore, with a combined 13 million people.
That's a really terrible comparison sheet for arguing low tariffs are a big benefit to the US economy.
Now show me the same for: Germany, France, UK, Japan, Australia, Canada, China, India, Italy, Brazil, Russia, Spain, South Korea. The world's largest economies, and countries that actually have serious population sizes.
They have 0 imports because they hardly produce anything.
Most of the top 20 wealthiest countries have tariffs.
https://en.wikipedia.org/wiki/List_of_OECD_countries_by_GDP_...
Also, I don't know why we keep deferring to economists as if they know anything since they are wrong about everything ( even the nobel prize winners ) and economics isn't an empirically testable science. Economics is a religion more than a science. It's ridiculous we treat it as a science.
Remember that we are supposed to have been in a world ending global recession for the past two years according to one of the most "eminent" economists.
https://www.nytimes.com/interactive/projects/cp/opinion/elec...
"A friend of mine once said: You know what the problem is with being an economist? Everyone has an opinion about the economy. Nobody goes up to a geologist and says, 'Igneous rocks are fucking bullshit.'"
That's the problem with all pseudosciences - politics, social sciences, etc. Everyone has an opinion and they can't provide any empirical tests to get at the truth.
That's the difference between a science like physics and a pseudoscience like economics.
It's why two economists with contradictory views can win a nobel prize at the same time.
https://www.nytimes.com/2013/10/15/business/3-american-profe...
It's fundamentally nonsense.
> Nobody goes up to a geologist and says, 'Igneous rocks are fucking bullshit.'"
Because a geologist can show you that igneous rocks are not "bullshit". Empirically, physically. They can provide empirical tests to differentiate an igneous rock from bullshit.
https://www.aeaweb.org/research/charts/an-empirical-turn-in-...
What other inputs into the decision should be included? I'm kind of at a loss as to what other approaches would complement an economic one, even acknowledging the severe limitations of the discipline.
Of course, Keynesian geology continuously redefines the speed of time and the mass of the kilogram, such that if you look at a rock that classical geology says is 30g and deposited 10 Mya, the Keynesian might say it is 200g and 30 Megayears old. Then the Chicago geologist, the Marxist geologist, and the Austrian geologist would chime in: "No it isn't!" and have a grand bout of shouting and fisticuffs. Most hard sciences actually like their units of measurement to have constant value, and their data reduction calculations to remain the same.
Like, for instance, defining a US dollar to be the money value of a coin minted from 26.73g of .900 silver, and then never changing it again.
One issue I have with economists and their theories of tariffs is they are unable to consider the effects of institutional tariffs and subsidies. Meaning companies while the could buy foreign products instead buy locally produced ones. And the banking sector shows strong preferences to who they extend capital to. For instance providing capital to build a factory and refusing to loan money to buy back shares.
There's a strong sentiment in certain circles that the best way to deal with emerging powers is by incorporating them into global neoliberal institutions. The theory is that including these countries sets up the correct incentives for liberalization, and that liberal markets beget a middle clas s which eventually demands democratic voice. And democracies are western-friendly.
So the roadmap for China was supposed to be a gradual liberalization, first economically and then politically. This strategy is a long game and "requires patience".
I'm not particularly convinced by this argument (it's too... cold war-y), but I'm doing my best to portray it accurately. And if you accept its basic premise, then there's a strong geopolitical long-game case for "putting up with" asymmetric trade barriers.
That was supposed to be the plan, but the Chinese government didn't blink in 1989, when the demand for democracy happened. And they suffered no consequence for it. In retrospect that is when we should have realized that the script wasn't going to work.
Maybe it becomes clearer by asking, "How does allowing China to own US companies harm the US (economically)?"
How does allowing the US to own Canadian companies harm Canada (economically)?
How does allowing the US to own French companies harm France (economically)?
How does allowing the US to own Nigerian companies harm Nigeria (economically)?
Buying a company is about the most legal way I can think of, for acquiring IP.
Again - how does allowing foreign ownership of companies in your country harm your country? You mention IP - but it's not your country's IP - it's a particular company's IP. If its owners want to sell it, why does it matter if they sell it to an American, or a Chinese investor?
Because there are second order benefits to Americans of America being the world power. (E.g., Americans really don’t want to live in a world where you have to learn Chinese to succeed in the business world, as opposed to everyone else having to learn English.)
Now it's obvious, it's economic warfare, and a foreign power that creates an imbalance of this nature could be reasonably classified as an invasion.
Note, the US government doesn't "buy" companies, private citizens do. Yet, I would have no issues with private foreigners buying companies, I do think having a foreign government buying companies is very bad, especially if their leader is a dictator for life.
The threat is China demanding total payment at once (my vague understanding of the actual real world problem due to debt owed). Something that the US has laws protecting land and home owners [1], but no law says another country can't do this to us.
[0] https://en.wikipedia.org/wiki/Government_bond
[1] https://en.wikipedia.org/wiki/National_Housing_Act_of_1934
But espionage, market and currency manipulation, copyright and patent infringement and a miriad of other activities are illegal, yet China does them with impunity.
I can imagine they can demand whatever they want, (they are a sovereign nation) and can use that debt as a bargaining chip to be used in any negotiations.
In theory, I think you are correct, in practice, who know what is possible?
The US management class has grown fearful of foreign owners. Because the foreign owners generally do not place Americans at the top levels because they can't trust them.
China has really perfected the practice of massively unfair trade practices and perform them with the masterful foresight of a chess grand master. They've managed some pretty brazenly one-sided practices all without falling afoul of the WTO.
The problem I have with Trump's agenda is that he's playing this whole thing like a rank amateur going up against Magnus Carlsen, and he's going to get smacked down hard. Trump has managed to piss off all of our closest trade partners, and has seemingly taken bribes from the Chinese to relax the embargo on ZTE. The US economy is on the verge of a major collapse from Trump's rather arrogant and unfocused use of tariffs against every major trade partner. Trump's efforts are going to fail, and in a massively spectacular way that will cause massive damage to the US economy, and will leave China in a very favorable position.
A better strategy would have been a coordinated effort with our closest trade partners and allies to place pressure on China via technology and financial embargoes, as well as getting the WTO to identify and penalize China's massive indirect corporate subsidies. A global coordinated effor of cutting China off from the global markets until they open they massively reform their trading practices and open up their local markets to foreign companies is probably the only viable way to equalize trade with China.
>China doesn’t let US companies buy Chinese companies
Is that really true? I found this stat - https://imgur.com/a/z5eAykw Seems like there is a lot of inbound activity.
>Leaving aside notions of fairness, what is the theoretical basis for arguing that the US should nonetheless allow Chinese ownership of US companies?
The US has sold bonds to China. It doesn't mind taking money from China to finance itself. I'd say the same foreign policy should extend to foreign investment, no? Oh and it has the power to stop legal purchases of US businesses from China (e.g. Micron) when it wants to. The US government can and has exerted a lot of power to keep certain kinds of tech in the US.
And as a point of comparison .. Not sure if there are any Chinese companies here :-
http://fortune.com/fortune500/list/
But there seem to be a lot of US companies here http://www.fortunechina.com/fortune500/c/2017-07/20/content_...
You say that as if it is a bad thing, but in europe foreign investment like this can be a source of inequality and makes houses unaffordable for the middle class
What i'm getting at here is that more value and economic activity in a community flows around and benefits everyone in a lot of ways. It's somewhat ridiculous to say it would be a good thing to watch the price of US assets fall when foreign investment is probably not even in the top 3 reasons for the current housing situation in the US. Even if housing becomes slightly more affordable, you are losing the money you saved out the other end in your stock, 401k, options, and ownership stakes in any private companies.
We're better off allowing foreigners to invest, with certain restrictions of course.
Also, your rent isn’t going up by $25, but $1000. So even if your local gov is raking in more property taxes, you can only benefit from that if you can still afford to live there at all.
>On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.
https://twitter.com/stevenmnuchin1/status/101125820718296678...