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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 29, 2010 at 9:55 AM

The China syndrome: More on instability, unsustainable relations and who’s to blame

Sunday’s column on China’s threat to global stability generated a large number of comments and emails, pro and con (and this aside from the usual trolls). I don’t disagree that America, too, is a danger, with our Ponzi-scheme economy, financial swindles, endless borrowing, perfidious executives and military adventures. But no major player in the world economy operates with China’s special set of protectionism, lack of transparency and authoritarianism. Maybe, as a few suggested, this will be the model that triumphs. Maybe it, too, is unsustainable.

The Economic Policy Institute, which is backed by organized labor but consistently puts out solid stuff, has a new report on American jobs lost as a result of China’s peculiar trade policies. It digs deep into unemployment data, down to congressional districts. At least 2.4 million jobs have been lost or displaced, and wages have been driven lower, since China entered the WTO. California and Texas have been hardest hit, but every state has seen negative effects.

As with NAFTA, China’s entry into the World Trade Organization was sold, by President Clinton, pro-trade Democrats and Republicans, as something that would create more net jobs here. The reality is that trade creates winners and losers, and in a world of surplus labor and one big player operating by its own rules, the losers among Americans are growing. This is not “anti-China” or “pro-China.” It merely is. The biggest problem is we don’t want to talk about it.

So what is to be done, as Lenin said (I throw that in for my right-wing commenters)? Or, as Lennon said, say you want a revolution? Well, no. America and China need each other. We want China as a friend. And together, the two nations can have a long and mutually prosperous relationship. No sane person would advocate a trade war. But America will have to start drawing some boundaries on Chinese trade policies that break the rules. Ending currency manipulation won’t solve everything, but it’s a start. Ending protectionism that favors state-owned companies is also essential. China needs to get its own house in order if it intends to have a stable, long-term economic relationship with the U.S. and E.U.

We need to get our house in order, too, especially regarding borrowing, but also improving our schools, investing in infrastructure, maintaining our research edge and rebuilding a productive economy. We should also recognize that China is happy for us to be the world’s policeman, just as America was for the British Empire to hold that exhausting role until 1945. But its not sustainable.

All these involve difficult issues and trade-offs, and no easy answers. But if we don’t recognize the fundamental instability involved, especially the resource competition ahead that will add to the pressure on the U.S.-China relationship, the chances for big trouble are only magnified.

The Back Story: January metro area unemployment rates are out from the Bureau of Labor Statistics. Worst hit are El Centro and Merced, Calif., with rates of 27.3 percent and 21.7 percent respectively. A total of 187 metros recorded rates of 10 percent or higher vs. 87 in the same month last year. Seattle-Tacoma-Bellevue was 9.6 percent vs. 9 percent in January 2009. The data are not seasonally adjusted.

Today’s Econ Haiku:

Boeing leads the Dow

The good news keeps on coming

Hope we can refuel

Comments | More in Sustainability, Trade

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