America has been justifiably frustrated by China’s one-way trade policies and complete disregard for intellectual property rights for many years. From Tyler Durden at zerohedge.com:
If there’s a trade war between the U.S. and China, don’t blame Donald Trump, says The Wall Street Journal’s Greg Ip: China started it long before he became president.
While definitely not toeing the line of the mainstream media’s ubiquitous ‘Trump is an idiot’ narrative, Ip explains below that, if they’re honest with themselves, even free traders and internationalists agree China’s predatory trade practices – which include forcing U.S. business to transfer valuable technology to Chinese firms and restricting access to Chinese markets – are undermining both its partners and the trading system.
Mr. Trump’s China crackdown is risky, but it’s on firmer legal, political and economic ground than many of his other trade complaints, for several reasons.
1. These products are different: The classic case for free trade predicts that each country specializes where it has a comparative advantage, lowering costs and raising incomes for everyone. If China subsidizes exports of steel to the U.S., in theory the U.S. still benefits because consumers and steel-using industries will have lower costs, and while some steel jobs will disappear, more productive jobs elsewhere will take their place.
But starting in the 1980s, economists recognized that comparative advantage couldn’t explain success in many industries such as commercial jetliners, microprocessors and software. These industries are difficult for competitors to enter because of steep costs for research and development, previously established technical standards, increasing returns to scale (costs drop the more you sell), and network effects (the more customers use the product, the more valuable it becomes).
In such industries, a handful of firms may reap the lion’s share of the wages and profits (what economists call rents), at the expense of others. China’s efforts are aimed at achieving such dominance in many of these industries by 2025.
“China is undermining or taking away some of our rents, so we are relatively worse off and they are better off,” says Douglas Irwin, author of “Clashing over Commerce: A History of U.S. Trade Policy.” Unlike Mr. Trump’s tariffs on steel and aluminum, “a lot of economists would hold their fire in terms of attacking Trump for his China actions. I don’t think anyone can really defend the way China has moved in the past few years, violating intellectual property and forced technology transfer.”
To continue reading: Wall Street Journal Admits “China Started The Trade War, Not Trump”
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