Balance of Payments, trade with China/Asia etc.

SeanW

I don't usually frequent this forum, but I just got to thinking about our (the West's) problems in trade today, it seems that just about everything we buy these days is made somewhere in Asia, particularly China. I know a lot of Western countries have major balance of payments defecits, most of which is accounted for by payments to China.

I know also that the Chinese do a bunch of nasty stuff like hold down the value of the yuan to keep their exports cheap and imports expensive, have pretty shoddy workers rights and sod all environmental standards. I read someplace and saw some TV documentary that Chinese workers work something like 18 hours a day for sometimes less than $20 a week.

How is a Western worker supposed to compete with THAT?

I was wondering what ye economics minded people might have to think about a couple of things.

First of all, how is the present situation sustainable without letting the Chinese end up basically owning us all, and secondly, and should/can we in the West do anything to reverse current trends, like taxing the bejesus out of Chinese imports or similar?

Time Magazine

Firstly: read up on the Law of Comparative Advantage.
Trade is not a zero-sum game: when China gets richer they buy more Western goods.

I'm sure some Chinese workers work 18 hours a day for $20 a week, just like I'm sure there are one or two people in Ireland working 12 hours a day for less than minimum wage. The reality is that the Chinese earn a lot more than that and wages are consistently rising. Good thing, too, because their development could really be far higher from a humanitarian perspective.

Taxing the bejesus out of Chinese imports is a stupid idea. It has been estimated (quite well) that the average American is $4,000 better off because of the positive-sum game of globalisation and that imports from China have kept inflation a whole point lower than what they would have been.

Also, if China want to dominate the world again, they're going to have act an awful lot more like us. Exchange rates will relax and all should be well in economics land. The West may not be the relatively richest geographical region if this happens, but we'll still be a lot richer in real terms. China's 800,000 science and engineering graduates per year will invent things we like, too.

justfortherecor

Japan is also a good example to look at to see how the situation can change over time.

Back in the 1960s the term 'Made in Japan' usually meant the same as 'Made in China' does today i.e. mass produced/sometimes shoddy/cheap labour etc.
The Japanese MOF also kept the Yen undervalued massively to help exports until the Plaza Accord in 1985, similar to the Chinese and the Yuan today.

However, Japanese companies used the revenues from exports to increase specialisation and technological innovation in their products over time, eventually surpassing western competitors. Workers became more skilled and wages increased as Japanese companies became more competitive in the global market. Japanese trade was beneficial for both the domestic and global economies.

This will happen to China as well in good time, although not with the level of rapidity experienced by Japan.
Korea and Taiwan are further examples of the way these Asian economies develop.