Browsing the blog archives for September, 2018.

Trade: The View from China

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I just returned from an 11-day visit in Beijing. This time I expected to hear a lot about the ongoing trade dispute between China and the US, as business between the two countries is always a hot topic. I had several interesting discussions, but heard a lot less than I expected. The graduate business students I taught knew surprisingly little about it and were largely unconcerned. It was clear that the ongoing dispute is being downplayed in the Chinese media.

There was some coverage, however. Reports on government-controlled CCTV (in English) featured select US economists chastising the Trump administration for instituting tariffs with no mention of closed markets, currency manipulation, or intellectual property. CNN’s international network was the only other English option in my hotel. Not surprisingly, most of its US coverage was negative or neutral, portraying President Trump as an uninformed, protectionist leader largely opposed by most Americans. The CCTV/CNN narrative is clear: China wants free trade while the US seeks protectionism.

It is possible to learn more about the official US position on trade, but not easy. Various US news sources (including Fox News) are available online, but many such as the Wall Street Journal are blocked in China. Media outlets are controlled by the state and commonly air comments from US politicians and business leaders who agree with the official Chinese position on an issue.

Of course, the contrast in China between our current and most recent presidents is stark. Barack Obama is widely revered in China; “Maobama” t-shirts with a picture of Obama wearing a Chinese star cap were widely seen throughout Beijing during his presidency. I didn’t see any t-shirts featuring President Trump. He is not popular, but most of the Chinese I talked with criticized his “attitude,” not policy. In fact, I raised some issues related to trade fairness with one manager and was not rebuked. The manager said he wasn’t familiar with Chinese exchange rate policy or disparate restrictions on foreign companies.

The ongoing argument is really about leveling the playing field, not the merits of free trade per se. In fact, most US economists across the political spectrum acknowledge the economic importance of global trade. Ironically, the Chinese and US media are portraying President Trump—not the Chinese—as the anti-market villain while few Americans and even fewer Chinese appear to know much about the underpinnings of China-US trade. It’s time to have a real debate on the topic.

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Jack Ma & China-US Trade

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Jack Ma is chairman on Alibaba, China’s version of Amazon. He is one of the wealthiest and most influential business executives in China and across the globe. At the World Artificial Intelligence Conference in Shanghai earlier this week, he argued for a clear demarcation between firms and governments. “I personally think that the government has to do what the government should do, and that companies do what companies should do…Protecting the backward forces who are crying out loud will be the most important factor in destroying innovation” (source: Wall Street Journal).

Ma’s comments are welcome in a world where US and European executives often hesitate to defend free markets, development, and even their own firms. Ma’s case for markets is clear, rational, common sense. There is a regulatory role for government, but it should be limited. Firms—not governments—create new products and services, hire and pay employees, and promote economic development. Protectionism cements the status quo and should be rejected.

Ma’s comments have direct relevance to the ongoing US-China trade squabble. Intellectual property, currency devaluations, and limits to American firms operating in China are legitimate US concerns. Governments should secure and enforce intellectual property rights so firms can invest in discovery without fear of well-capitalized free riders copying and monetizing their innovations. But governments should not manipulate exchange rates and arbitrarily prop up some products at the expense of others when they do so. Dollar and yuan valuations would adjust appropriately on their own if left to global traders.

Of course, excessive government intervention into business activity is not restricted to China. Federal, state and local governments in the US collude with cronies in the business community to create subsidies and restrict innovation as well. Markets are freer in the US than in China, but it is fair for China to insist on a level playing field in both countries as well. In this instance, level should be less government control and influence across the board, not more.

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