Here’s a letter to the Wall Street Journal.
Editor:
Ram Charan wisely advises Pres. Trump to stop alienating U.S. allies with tariffs (“China Seeks Power, Not Only Trade,” January 2). But the bulk of Mr. Charan’s piece on China is deeply flawed.
His core argument is that Beijing is arranging to build “90% excess production capacity” in “key” industries, which it then uses to “flood markets with subsidized exports.” Sounds scary – until relevant questions are asked.
How do political operatives in Beijing know which industries are “key”? (Are Pres. Xi and his henchmen smarter than markets?) Which Chinese industries shrink as a result of Beijing’s redirection of resources, and might the shrinkage of these industries open new and useful opportunities to economies outside of China? By exporting “key” goods at bargain prices, how can anyone be sure that we Americans and other non-Chinese people are harmed by this bounty from Beijing, especially as it allows us to expand other of our industries? Because excess capacity costs more to build and maintain than it reaps in revenue, how, exactly, does a policy of creating excess capacity make China more powerful given that this policy necessarily makes China poorer? (If we want to weaken China’s economy relative to our own, shouldn’t we encourage Beijing to continue to use resources in this wasteful manner?)
Mr. Charan’s praise for Beijing’s rejection of market forces combines with his recommendation (heaven help us) that Congress create a “Department of Manufacturing” to reveal that Mr. Charan believes that the better economic system is socialism, not capitalism. It’s dismaying that someone can be so clueless about post-war economic history as to suppose that politicians and bureaucrats with the power to commandeer resources will outperform entrepreneurs and free markets at making economies wealthier and innovatively creating the true ‘industries of the future.’
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
