Protectionism rising in China?
Free-market advocates fear protectionism. They say it cripples the free market and will limit the benefits of global trade.
Protectionism results when a country passes laws and regulations that give some sort of advantage to their local businesses, who are competing with foreign companies. Overt protectionism would be if a country imposes a tax known as a tariff on imports. That means that foreign goods will cost more to buy, because the company making the goods has to pay a tax called a tariff in order to export the goods into the country that has imposed the tariff.
Much of what I've read says that one of the major threats to the current global economic recovery would be a growth of protectionism.
Recently, the United States imposed a special tax, or tariff, on rubber tires imported from China. The free-market folks howled. A recent article in the Wall Street Journal notes that there are growing protectionist sentiments now in China.
Remember that China opened its markets to multi-national companies like Coca-cola. These companies set up shop in China and sell to the Chinese. Some of them export to China, but much of the multi-national business is done with local Chinese partners. Now there seem to be some in China who want to stop this arrangement. They want local Chinese companies to make goods for the Chinese. They don't want to import; they don't want multi-nationals to make the goods, even if they partnered with Chinese.
I have mixed feelings about the idea of completely open free markets for two reasons.
First, for many years the United States allowed foreign imports without imposing tariffs, while those same countries who exported to us restricted the United States from exporting goods to them.
Second, in the 19th century, the principal method government used to collect taxes to run itself was via tariffs imposed on imports. The 19th century was a time of great growth for manufacturing industries in the United States. The country grew more prosperous even with the imposition of tariffs.
The free marketers say that we would no longer enjoy a prosperous life if we imposed tariffs now, since tariffs would increase the cost of imports. So there is a reasonable argument there against tariffs.
Then again, sometimes I wonder exactly what I'd miss that's imported from, for example, China. A lot of stuff that's imported is relatively low quality. Speaking for myself, I wouldn't mind paying up for higher quality goods. But maybe you feel differently.
Nonetheless, if a nationalist sentiment does sweep China and more protectionist measures are imposed up to and including tariffs, don't be shocked. Nationalist sentiment is on the rise there. Remember the Olympics in Beijing a couple of years ago and how proud the Chinese were of holding the Olympics there?
If that sentiment grows, it may very well take hold at a very deep level and lead the politicians to respond to calls for more protectionism. Be on the lookout for this. It will profoundly change the way the world economy functions, perhaps even leading to greater and greater protectionism around the world for all countries.
That would lead to higher prices for all the things we buy. Worse, increasing nationalism and protectionism in the past has led to war. More on that in my next post...
Protectionism results when a country passes laws and regulations that give some sort of advantage to their local businesses, who are competing with foreign companies. Overt protectionism would be if a country imposes a tax known as a tariff on imports. That means that foreign goods will cost more to buy, because the company making the goods has to pay a tax called a tariff in order to export the goods into the country that has imposed the tariff.
Much of what I've read says that one of the major threats to the current global economic recovery would be a growth of protectionism.
Recently, the United States imposed a special tax, or tariff, on rubber tires imported from China. The free-market folks howled. A recent article in the Wall Street Journal notes that there are growing protectionist sentiments now in China.
Remember that China opened its markets to multi-national companies like Coca-cola. These companies set up shop in China and sell to the Chinese. Some of them export to China, but much of the multi-national business is done with local Chinese partners. Now there seem to be some in China who want to stop this arrangement. They want local Chinese companies to make goods for the Chinese. They don't want to import; they don't want multi-nationals to make the goods, even if they partnered with Chinese.
I have mixed feelings about the idea of completely open free markets for two reasons.
First, for many years the United States allowed foreign imports without imposing tariffs, while those same countries who exported to us restricted the United States from exporting goods to them.
Second, in the 19th century, the principal method government used to collect taxes to run itself was via tariffs imposed on imports. The 19th century was a time of great growth for manufacturing industries in the United States. The country grew more prosperous even with the imposition of tariffs.
The free marketers say that we would no longer enjoy a prosperous life if we imposed tariffs now, since tariffs would increase the cost of imports. So there is a reasonable argument there against tariffs.
Then again, sometimes I wonder exactly what I'd miss that's imported from, for example, China. A lot of stuff that's imported is relatively low quality. Speaking for myself, I wouldn't mind paying up for higher quality goods. But maybe you feel differently.
Nonetheless, if a nationalist sentiment does sweep China and more protectionist measures are imposed up to and including tariffs, don't be shocked. Nationalist sentiment is on the rise there. Remember the Olympics in Beijing a couple of years ago and how proud the Chinese were of holding the Olympics there?
If that sentiment grows, it may very well take hold at a very deep level and lead the politicians to respond to calls for more protectionism. Be on the lookout for this. It will profoundly change the way the world economy functions, perhaps even leading to greater and greater protectionism around the world for all countries.
That would lead to higher prices for all the things we buy. Worse, increasing nationalism and protectionism in the past has led to war. More on that in my next post...
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