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Trade Arithmetic and China

Tuesday, 18 September 2012 04:24

The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.

By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies. 

Comments (5)Add Comment
written by skeptonomist, September 18, 2012 8:02
Is the $56 billion the total value of the parts or the value added in China? The other day Krugman mentioned in his editorial that only a small part of the value of an iPad is added in China. Unfortunately this part is critical in determining where the factory jobs are - with international "free trade" factories can be located where workers get the least pay. Those who favor this kind of trade maintain that America will become a "service economy". In practice this is not working out well; retail clerks and box-stuffers at Amazon don't make as much as factory workers in this country, and there can only be so many jobs in finance despite its expansion.
International trade is not-so-simple arithmetic.
written by Kat, September 18, 2012 8:07
When these cases are filed do they ever amount to anything?
written by S.D. Jeffries, September 18, 2012 11:24
It's true that service workers in the U.S. do not make as much as factory workers here, but they may make about the same amount as factory workers in China - especially when you figure in the free room and board that Chinese workers are given when they're locked in to their factory dormitories.

That seems to be the long-term economic plan for the U.S. though, i.e., to bring down living standards for the majority of workers in this country to an equivalence with those in the developing world.
WTO rules
written by k, September 19, 2012 2:16
Dean's arithmetic may be right, but the fact of the matter is that under WTO rules the subsidies that the US gov is targeting may be illegal (they may also be determined to be legal, we'll have to wait for the hearing). Currency undervaluation, however, is a different story. It may be having a bigger effect, but from what I've read most analysts agree that the WTO rules don't address this and if the US were to take a case against China (presumably that an undervalued currency amounts to an export subsidy) the US would lose the case.
Trade Arithmetic -> 20 Percent Tariff
written by JayR, September 19, 2012 8:16
Currency manipulation is a export subsidy PLUS a trade tariff. It is bidirectional.

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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.