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Hurting the U.S. in Order to Hurt China

Posted By Derek Scissors, Ph.D. On September 16, 2010 @ 3:00 pm In International | Comments Disabled

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A lot of people [2] are unhappy with China. They’re unhappy for several reasons, but trade and investment might top the list. Some are demanding that the U.S. government take steps to punish the PRC. A few of these steps make only a bit of sense—others make no sense at all. All of them, however, harm the American economy in addition to harming the Chinese economy, which is an odd way to cure a recession.

There is cause to be unhappy with Chinese policy. Among other actions, China heavily subsidizes state-owned enterprises, granting them powerful regulatory protection, loans which are often close to government handouts, free land, and so on. These serve to inhibit American exports to the PRC and push Chinese consumers to buy inferior products.

Chinese subsidies are a tough nut to crack. They’re difficult to measure and, because of that, the World Trade Organization is not well-equipped to handle them. Because the real job is hard, some Members of Congress, labor unions, and industrial groups have found politically easier targets. One is the exchange rate; another is Chinese firms investing in the U.S.

In the latest rounds of attacks on these targets, Congress is holding multiple hearings this week on China’s undervalued exchange rate against the dollar. Below the radar, dozens of Members of Congress have objected to a small Chinese investment in a small steel company in Mississippi.

Right away, there are problems. The argument for focusing on China’s undervalued exchange rate is flawed at every turn [3]. Even the strongest proponents of punishing the PRC for exchange rate policy acknowledge this will have costs. But the argument carries weight because it (falsely) promises jobs. Jobs are so crucial that protectionists advocate any action that sounds like it will create jobs, even when it won’t.

However, when it comes to Chinese investment in the U.S., jobs are unimportant. The PRC’s Anshan Iron and Steel wants to be a fairly small part of new plant construction and other U.S. expansion plans of American company Steel Development. This will create jobs here. If the U.S. were to encourage, rather than loudly discourage, other Chinese investment, it would create many more jobs [4].

In this case, however, China critics don’t talk about jobs. They talk absurdly about “threats” to national security—from a minority stake in one small steel company. They talk about things Anshan might do in the future. Jobs are a luxury.

The two attacks on Chinese policy do have something in common: hurting China. Slapping punitive tariffs on Chinese goods will make those goods more expensive for Americans and divert some business from China to, say, Vietnam. Blocking Chinese investment sacrifices American jobs and harms the Chinese companies involved. If the goal is just to hurt China, we can do it. If the goal is to help the U.S., then Congress and some of its friends have the wrong idea.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/09/16/hurting-the-u-s-in-order-to-hurt-china/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/chinese-yuan1.jpg

[2] people: http://www.nytimes.com/2010/09/13/opinion/13krugman.html?ref=opinion

[3] The argument for focusing on China’s undervalued exchange rate is flawed at every turn: http://www.heritage.org/research/reports/2010/09/targeting-the-yuan-a-feel-good-but-futile-response

[4] If the U.S. were to encourage, rather than loudly discourage, other Chinese investment, it would create many more jobs: http://www.heritage.org/research/reports/2010/07/rebalancing-chinese-investment-in-the-us

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