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Fear of China Is Becoming Hysterical

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Here’s a letter to a very angry Cafe Hayek reader (one who asks that I tell Cafe Hayek readers just how angry and disappointed he is with me for my criticisms of “our President”):

Mr. Mo Stansbury

Mr. Stansbury:

In response to this blog post [2] you insist that I’m “crazy to doubt China’s chance [of] dominating all the industries they want.”

If by “dominating” you mean ‘have a comparative advantage,’ understand this: when a country (or a person, or a collection of persons) gets a comparative advantage [3] in the production of some output, it necessarily gets a comparative disadvantage in the production of some other output or outputs. And it matters not how the comparative advantage that is gotten is gotten.

So Beijing’s successful effort to get for Chinese producers a comparative advantage in the production of, say, microchips, will thereby also be Beijing’s successful effort to get for Chinese producers a comparative disadvantage in the production of some other good or service. And if, as is quite possible, this other good or service is one that Beijing ‘wants’ Chinese producers also to have a comparative advantage at producing, too bad. No matter how powerful or even miraculous are Beijing’s modern mandarins, they cannot possibly arrange for Chinese producers to have comparative advantages in whatever industries these mandarins “want.”

One reason for this conclusion is that resources are scarce. Resources used to produce microchips are resources no longer available to be used to produce steel, petroleum, or any other good or service. Another, related reason is that comparative advantage implies specialization – and specialization declines the greater the number of tasks any economic entity undertakes.

Suppose that you announce to the world that you plan by 2025 to be the world’s greatest cardiologist, dermatologist, novelist, guitarist, architect, and plumber. You would, of course, be laughed at. No one would take you seriously. And if you were nevertheless to make this effort, you’d succeed only at failing at each of these jobs. The task at which that you’d wind up having a comparative advantage would almost certainly be manual, unskilled labor – a task not requiring specialized skills. The same logic holds true for any group of people, including the Chinese: if they were to attempt to specialize in the production of everything they’d succeed at achieving comparative excellence only in the performance of the mundane, low-skilled, and low-value-added tasks.

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

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