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Home Publications Blogs Beat the Press Demand for Imports From China Isn't Affected by Their Price: It's Silly Season at the NYT

Demand for Imports From China Isn't Affected by Their Price: It's Silly Season at the NYT

Tuesday, 24 August 2010 04:35

The NYT must be having a tough time getting material in the late days of summer. How else to explain an oped from Joseph Massey and Lee Sands that claims that imports from China, and apparently also imports from Japan, do not depend on their price. That's right -- all of you people who wasted time in economics classes where we taught that higher prices meant less demand, you can just forget everything you learned.

It turns out that if the good is imported from China or Japan, price just doesn't matter. We would all gladly pay twice as much for the clothes, steel, computers etc. from China or Japan, rather than buy a domestically produced item, even if it is now cheaper. In fact, we would buy the item from China or Japan even if imports from other countries are now cheaper -- price doesn't matter!!!!!

The authors of this piece apparently do not believe in inflation either. They told readers that the trade deficit with Japan  "hit an all-time high of $90 billion" in 2006, in spite of the fact that the yen had tripled relative to the dollar since the 70s. Those of us old-fashioned economics types would point out that the 2006 deficit was equal to about 0.6 percent of GDP. By contrast, in 1986, when the value of the yen was much lower relative to the dollar, the trade deficit with Japan was more than 1.2 percent of GDP.

For those who are concerned that the United States should be producing more here and creating jobs, Massey and Sands have the answer: we should follow the Obama administration's National Export Initiative and focus "on the 99 percent of American companies that do business exclusively within the domestic market."

That's a great idea. I can't wait until my corner gas station and neighborhood barbershop start exporting to China. Of course, these sorts of businesses are the vast majority of that 99 percent that focus exclusively on the domestic market. It will be interesting to see how the Obama administration gets them to shift their focus to exports.

Pieces like this can really make you hope for the end of summer.

Comments (6)Add Comment
Maybe its a supply side issue
written by Ron Alley, August 24, 2010 6:57

The best comment from the piece is:

"The problem is that the United States [now] lacks the domestic industry to make many of the things we currently buy from China."

One might argue that over time the United States might experience growth in manufacturing, but many of us won't live that long. The writers of the NYT piece did not elaborate on their best point. China's dominance in electronics manufacturing is especially troubling just as Japan's dominance in automated machine tool manufacturing has been since about 1982. Their proposed solution, to encourage Chinese investment in US plants as the Japanese did is to suggest repeating a failed policy. Just look at the auto industry. Toyota, Honda and Nissan assembly plants -- with their reliance on imported parts -- only served to accelerate the hollowing out of General Motors and weakening of the UAW. The result has been a steady decline of the middle class.

As you correctly stated yesterday:

"Instead, the trade agenda of the United States had been about reducing barriers to trade in manufactured goods with the purpose of putting non-college educated workers in direct competition with much lower paid workers in other countries. The predicted and actual result of this policy is to reduce the pay of non-college educated workers, thereby increasing inequality in the United States. This is a policy of one-sided protectionism. It has nothing to do with "free trade."

The underlying issue is trade policy and not financial exchange policy.
Manufacturing employment
written by Ron Alley, August 24, 2010 7:12
I just stumbled onto this interesting chart:

Manufacturing employment as a percent of total employment.


written by izzatzo, August 24, 2010 7:34
From the NYT article, this quote:

Chinese companies should be persuaded to do the same today. American purchases of Chinese goods have helped create vast pools of Chinese capital, and we should do all we can to bring that money back home.

How convenient to ignore how much of that capital was diverted to multinational corporations, some based in the US. How many years have trade experts like Massey and Sands been lecturing that companies like WalMart is good for US consumers because it increases their living standard with lower prices.

Now that the US has been hollowed out of its productive capacity with this policy, including bringing down wages and benefits with those WalMart prices, what do they say now?

Just reverse the trade flow. The US should do with China what Japan did with the US, buckle down with lower production costs and do everything possible to spur export markets, including relocation of Chinese companies within the US along with federal subsidies.

Because fooling around with exchange rates and tariffs to rebalance trade with a reduced US deficit is the wrong idea. It interferes with free trade. Can't have that can we. It requires too much focus on prices, supply and demand. Just beef up the export market from the supply side and everything will be fine.

Especially for the multinationals, which are poised once again to reap a massive extractionary cut of the economic gains, no matter which way the trade flows.
Housing Mkt Tanked
written by James, August 24, 2010 11:24
As previously predicted, housing mkt tanked once all the tax credits expired. Today, news came out the west sank more than 25% with northeast 29% and midwest being the worst.
written by zinc, August 24, 2010 7:20
"For those who are concerned that the United States should be producing more here, creating jobs,"

The laissez-faire economists who have dominated the US response to mercantilism, especially mercantilist societies that maintain price hegemony by imposing a form of government that is anethma to the US way of life, are fools. The US is now reaping the fruits of their labors. Of course the mercantists are doing everything they can to undercut prices and take jobs from the US.

The real mystery is why we continue to tolerate it ? There is no "free" market. As the economist corp sniggers at the "subsidies" the mercantilists are paying to undercut American jobs, the mercantilists are laughing about the free lunch the US is giving them.

Some day, when our way of life is truly in the ash heap, we may reflect on how good we had it and what fools we were to give it away so cheaply. Like trinkets for Manhattan. Economists are incapable of assessing value or cost, only transaction price.
written by air max, August 24, 2010 9:40
air max 95.

they offer 24 hours online service, and very very good customer service.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.