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China syndrome

from David Ruccio

There are two sides to the recent China Shock literature created by David Autor and David Dorn and surveyed by Noah Smith.

On one hand, Autor and Dorn (with a variety of coauthors) have challenged the free-trade nostrums of mainstream economists and economic elites—that everyone benefits from free international trade. Using China as an example, they show that increased trade hurt American workers, increased political polarization, and decreased U.S. corporate innovation.

The case for free international trade now lies in tatters, which of course played an important role in the Brexit vote as well as in the U.S. presidential campaign.

On the other hand, invoking the China Shock has tended to reinforce economic nationalism—treating China as an unitary entity, a country has shaken up world trade patterns, and disregarding the conditions and consequences of increased trade with other countries, including the United States.  

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Why has there been an increasing U.S. trade deficit with China in recent decades? As James Chan explained, in response to an August 2016 article in the Wall Street Journal,

Our so-called China problem isn’t really with the Chinese but rather our own multinational companies.

As I see it, U.S. corporations have made a variety of decisions—to subcontract the production of parts and components with enterprises in China (which are then used in products that are later imported into the United States), to purchase goods produced in China to sell in the United States (which then show up in U.S. stores), to outsource their own production of goods (to sell in China and to export to the United States), and so on. The consequences of those corporate decisions (and not just with respect to China) include disrupting jobs and communities in the United States (through outsourcing and import competition) and decreasing innovation (since existing technologies can be used both to produce goods in China and sell in the expanding Chinese consumer market), thereby increasing political polarization in the United States.

The flip side of the story is the accumulation of capital in China. Until the development of the conditions for the development of capitalism existed in China, none of those corporate decisions were possible—not by U.S. corporations nor by multinational enterprises from other countries, all of whom were eager to take advantage of the growth of capitalism in China. Which of course they then contributed to, thus spurring the widening and deepening of capital accumulation within China.

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It should come as no surprise, then, that there’s been an upsurge of strike activity by workers in the fast-growing centers of manufacturing and construction within China—especially in the provinces of Guandong, Shandong, Henan, Sichuan, and Hebei.

According to Hudson Lockett, China this year

saw a total of 1,456 strikes and protests as of end-June, up 19 per cent from the first half of 2015

The problem with the China Shock literature, which has served to challenge the celebration of free-trade by mainstream economists and economic elites in the West, is that it hides from view both the decisions by U.S. corporations that have increased the U.S. trade deficit with China (with the attendant negative consequences “at home”) and the activity by Chinese workers to contest the conditions under which they have been forced to have the freedom to labor (which we can expect to continue for years to come).

It’s our responsibility to keep those decisions and events in view. Otherwise, we risk the economic and political equivalent of the China Syndrome.

  1. December 22, 2016 at 6:10 pm

    For you interest, the Chinese government is now trying to stem the tide of people leaving the countryside for the big cities for the “good life”. This is threatening local food production in China. The government has tried to create regional centres and gifted apartments to local village people, resulting in a lot of empty apartments.
    Unlike the situation in North America, it is difficult to mechanize farming in China, where small holdings prevail, so we can expect major purchases of land here in North America by Chinese interests.

  2. robert locke
    December 23, 2016 at 2:22 pm

    Germany has a $80 billion surplus with the US and Germany does it without resorting to protectionism. could it be that German companies compete well in a free trade regime and Americans do not. And if this is the case success cannot be attributed to protectionism, nor sought in making the us protectionist.

  3. December 24, 2016 at 8:51 am

    What is the mystery about China’s “disciplining” of the west? China is known as the “Middle Kingdom.” Two reasons. 1) China stands between Earth and Heaven. 2) China wins over invaders by making them Chinese, by committing cultural genocide. And the cycle repeats itself. China is forcing most of the rest of the world, including the US to trade on its terms. And it’s using the cultures of those other nations to dominate them. Historically, China has shown itself effective at using the cultural aspects its opponents’ consider their most successful to defeat them. For example, it uses the pursuit of profit by multinationals to attack the US and other nations. It also uses such linchpins of neoliberal capitalism as mobile capital, markets, and marginal pricing to destroy not just neoliberalism but the nations and corporations that invented it. Robert’s comments on Germany and its relationship to China are quite correct. Germany, at least as far as domestic companies are concerned never accepted the terms for trade set by China. China wants the high tech tools and equipment made by German companies so it could not force Germany to “cut its own throat” to gain trade with China. Don’t know how much longer Germany will have this advantage over China. I think not more than another decade. Then Germany will be forced to re-negotiate its trade with China. Unless of course the Chinese economy collapses before that time.

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