Production In Tennessee Doesn't Hurt Arkansas. Neither Does Chinese Production
The biggest threat to your livelihood is the indolence of others. Or if they’re dead.
About death, economic thinkers including Edward Conard and Yuval Levin have long promoted the fiction that much of the world being on its back (or dead) after World War II occurred to the economic advantage of Americans. No, it deprived Americans of much better.
What you’ve read isn’t a speculation, it’s basic Adam Smith, or Henry Ford, or Steve Jobs. As Smith reported, and Ford and Jobs revealed through factories in the U.S. (Ford) and all over the world (Jobs), the only limit to productivity increases is the number of hands and machines participating in the production.
When work is divided, productivity explodes as a consequence of human specialization enabled by cooperating hands and machines. Translated, globalization has hurt precisely no one. The undeniable absolute about work divided is useful to remember as economists and those who preach, speak and write like economists continue to promote the fiction that Chinese production, seemingly for taking place in China, exists as a threat to the rest of the world.
Think the Wall Street Journal’s Greg Ip. Ip recently wrote in alarmist fashion that “China’s growing trade surplus threatens to hollow out its trading partners’ industrial bases. For years, the rest of the world has pleaded with China to change its economic model to rely more on domestic demand, and less on exports, to no avail.” Naaah…
For one, there’s not such thing as a “trade surplus.” Economies always and everywhere comprised of individuals are defined by individuals bringing goods, services, and labor to the market in return for roughly equal amounts. Trade balances, by its very name. The “surpluses” that keep Ip up at night reflect bullish investment inflows into countries, and the subsequent export of income streams and equities that don’t count in what shouldn’t be measured as is: trade balances. To measure “trade balances” is like measuring 6 feet against 6 feet.
As for China’s alleged reliance on exports over imports, it seems lost on Ip that the “export strategy” of the Chinese people is precisely an “import strategy.” Which means the Chinese are just like us, and every other producing people on earth.
If readers are still skeptical about the desire of the Chinese people to get in return for what they bring to market, including from Americans, they need only ask Google on a weekly basis how many McDonald’s, Starbucks, and Nike Stores are in China. The number changes by the week, in upward fashion.
Ip adds that “China’s undervalued yuan” is the source of the “hollowing out” that he claims is taking place worldwide. Not explained by Ip is how the Chinese can export so copiously if the rest of the world is hollowed out.
Similarly not explained is how an “undervalued yuan” could make China more competitive. Such a view implies that people 6 feet tall can be twelve feet if we just shrink an “overvalued” foot. Money is a measure like anything else. Changes in its value don’t alter reality any more than a shorter foot would make us tall.
If the yuan is shrunken, then the abundant imported inputs Chinese producers rely on to produce for export will increase in price too. So will shipping costs. So will wage demands in China.
No one talk about exports from Tennessee to Arkansas, with good reason. China is assuredly not different. All that matters is that humans are working rather than laying about or dying. And contra Ip, this is true even if the workers are – gasp – Chinese.
Originally published on Real Clear Markets.