China versus world

Michael Pettis recently summed up the world’s trade situation in terms of how individual countries are responding to the PRC’s economic policy and the lack of any meaningful change in that policy.

It appears that the PRC is and will continue to be unresponsive to the concerns of essentially the rest of the world in terms of trade policy. This is understandable from the perspective of the PRC’s leadership, as their primary objective is to remain in power and continuation of current policy seems the best way to achieve that objective.

What can the rest of the world do to offset the result of the above? The indoctrination of policymakers and the public regarding the virtues of “free trade” over roughly the past 30 years in Western countries means that setting up tariffs and trade restrictions against Chinese products would be an admission that “free trade” has been a failure. The logical conclusion from this would be that policymakers and politicians who created and advocated for “free trade” need to be replaced. Therefore such a policy reversal is unlikely to come from current leaders. In addition the status quo has been highly profitable for elites both in the West and in the PRC, which means that these groups will be strongly opposed to policy reversal, decreasing the chance that this will happen.

Replacement of US political leaders with individuals who will respond to the PRC’s mercantilist trade policy probably won’t happen without a much greater drop in the standard of living for American workers, and a recognition that our economic interaction with the PRC is nothing like “free trade”.

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1 Comment »

  1. Rien Huizer said

    And probably not even then!

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