The Senselessness of China-Bashing

by Reihan Salam

Matt Yglesias and I disagree about Jack Conway’s latest television advertisements, but he ends the post with a point I agree with quite strongly:

At any rate, what I find most striking about the Conway-related outrage is the lack of outrage over the torrent of xenophobic China-bashing ads we’ve seen from candidates of both parties throughout this campaign season. Accusing one’s opponent of transferring economic opportunities from the United States to China (sometimes India) is a major feature of a huge number of 2010 campaigns. These attacks tend to be factually misleading, and also promote the widespread by definitely wrong misconception that the US and China are engaged in a zero-sum contest for prosperity. What’s more, even granting the factual and analytic premises of these ads their ethics is clearly mistaken. If it was the case that the US and China face zero-sum competition for economic resources, transferring resources from rich America to poor China would be morally praiseworthy.

I actually think it’s legitimate for the U.S. government to press the Chinese government to increase domestic consumption, etc. But the simplifications advanced by Paul Krugman, who has lent his scholarly authority to many of the attacks that Matt describes, are dangerously misleading, as Phil Levy of AEI has argued.

Levy wrote about the “China ate my jobs” fallacy back in April:

 

Suppose we nevertheless managed to cut the overall U.S. trade deficit through Chinese reform; at least this would create jobs, right? Here Bergsten bases his argument on some particularly dubious economic reasoning, which claims 6,000 to 8,000 jobs for every billion dollars of exports. That comes from reports like this one yesterday from the Commerce Department.

The model they use roughly works like this: Suppose a firm with 12,000 employees sells $2 billion of manufactures every year and exports half ($1 billion). The analysis assumes that half of the employees are supported by exports, hence 6,000 jobs per billion of exports.

But if you get beyond the headline section of the Commerce report, you hit the cautions from the economists: this does not tell you what the next $100 million of exports will get you. Imagine that the firm exports $100 million more, but cuts its domestic sales by the same amount. That means more exports but probably no more jobs. Or imagine it leaves its domestic sales unchanged, but just asks existing workers to work harder. That, in fact, is what we’ve seen in this recession, as firm productivity has increased (more output with fewer workers). At annual rates, U.S. manufacturing output per hour worked in the last three quarters of 2009 increased by 6.6 percent, 14.8 percent, and 6.6 percent, respectively.

The economic analysis that lies behind the latest round of China-bashing is, in my view, totally laughable. China should increase domestic consumption for its own sake. China’s current course is unsustainable and it is harming hundreds of millions of Chinese households. But “getting tough with China” won’t improve life in the United States. Rather, the United States needs to “get tough” with, well, the United States.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.