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Fear China?

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Here’s a letter to the Wall Street Journal:

The impressive visual sophistication of your slide show “China: Emergence of a Trade Leviathan [2]” is matched by its disappointing economic naiveté.

For example, you write that “China has demolished its rivals to produce much of what Americans consume.” Who, exactly, has been “demolished”? Certainly not the U.S. American industrial capacity is today at an all-time high and 15 percent higher than it was when China joined the WTO in 2001 [3]. Likewise, the inflation-adjusted value of American exports is today 91 percent higher than it was in 2001 [4]. (What about Europe? Manufacturers even in the relatively more restrictive E.U. countries produce 17 percent more output today than they did in 2001 [5].)

Another flaw is your assumption that Beijing’s subsidies will work as advertised. But there’s no reason whatsoever to believe that China’s economy will be made stronger and more productive by autocrats in Beijing who, playing with other people’s money, use tariffs and subsidies to override the decisions of entrepreneurs and consumers who spend their own money. Quite the contrary.

An additional, related flaw is your assumption that Beijing’s subsidies are free. They are not. Every brick, every I-beam, every drop of oil, every jolt of electricity, every wrench, every screw, and every worker diverted by Beijing into politically favored industries is a brick, an I-beam, a drop of oil, a jolt of electricity, a wrench, a screw, and a worker diverted away from the industries into which these resources, tools, and workers would be directed by competitive market forces. To the extent that Beijing replaces competitive prices and market forces with protective tariffs and political diktats, China’s economy is weakened, not strengthened – enervated, not energized – made smaller, not larger – made an object more deserving of pity than of praise.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030