China's Comparative or Absolute Advantages?

Memorial Day

Okay, let's face it. Labor in China is so cheap that there seems very little rational reason to make much of anything in the United States and China's infrastructure is so much better than Haiti's that there seems little incentive for selecting Haiti (a low wage metaphor for much of the so-called Third World) over China. China has discovered, thanks in part to the serendipity of Nixon's trip to meet with Mao and the long Republican Party dominance of the U.S. executive branch, the value of forging closer economic ties to the United States and other post-industrial capitalist nations. It took the death of Mao in 1976 to open the door for modernist elements in the Chinese leadership to finally capitalize on the Nixon opening, but once they decided to do it, the rest is history. China's leadership realized that they could use the already well established consumerism of these post-industrial societies (especially the U.S.A.) as the basis for Chinese industrialization and modernization --- it can make all the shiny toys the consumers in those nations desire and do so cheaper than just about anyone else and then use the dollars received from the trade to purchase the technologies needed to upgrade China's scientific infrastructure. Free trade (as practiced by the Republican administrations and Clinton, that moderate/liberal Republican in democratic party clothing) has been quite good for China. It is the basis for accumulating mountains of U.S. dollar denominated assets. It is the basis for acquiring the technologies developed (largely with "Third World" talent) by research institutions and corporations in the post-industrial world. Thus, China has managed to do to the U.S. what the U.S. once did to the British, take the free trade argument away from the previous proponent and use it as a club to batter that proponent/opponent into the dirt. Of course, China isn't really for complete and unfettered free trade, any more than the British or the Americans were. Protectionism has always been a dance partner of free trade. Nevertheless, the problem for the U.S. is that if Americans do not embrace protectionism, move sharply away from their previous commitment to forcing free trade agreements on the rest of the planet, then there may be such a serious gutting of what's left of American manufacturing (as well as many post-industrial sectors, such as computer programming/software) that the U.S. economy will be so badly wounded that it may not be possible to sustain American economic hegemony going forward. And this may threaten the already decimated social contract between the American government and the American people (can you say "social security"). As an economist, I find this an interesting period of transformation, with conservative (so-called) republicans playing a pivotal role in the transition from U.S. economic hegemony to Chinese economic superpower status (and, more quietly, the rise of the European Community, which is helping to modernize China and getting plenty of dollars in return). As a citizen of the United States, I find it a bit distressing.