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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.
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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.