Comments on: Can Smoot-Hawley only happen in the US?

By: jerrypearl

jerrypearl — Wed, 04 Mar 2009 04:17:56 +0000

So let me get this straight, decades ago, when the US was the world’s greatest producer of finished goods, it pushed for tariffs/trade barriers, even though it had a major hold on exports throughout the world. Now, China is that nation that is the world’s greatest producer of finished goods. China is funneling capital into more export production, no doubt, to sell cheaply priced goods to Americans who are already over-extended on credit, and are in debt amounting to somewhere in the trillions of dollars. Not only that, they have lost $8T in household wealth. 600-700,000 jobs losses per month, with a possible rise to 1M per month down the line.

So, why would China think Americans will buy? They will end up with massive inventory surpluses, more industrial slowdowns, and unemployment. Deflation will persist pushing the prices for unsold items way down.

Inventories may take years to be sold off. With debt-deflation, hard economic times are ahead with wealth disappearing for many.
http://eye-on-washington.blogspot.com

By: PB

PB — Tue, 03 Mar 2009 04:50:40 +0000

It is important to assess the impact of each of the stimulus measures announced by the government. It is clear that restructuring and consolidation are required in many sectors of the economy and those related measures will have a significant impact on overcapacity and excessive production. The minor changes in rebates will have relatively small impact, particularly given demand has dropped precipitously. Overall, it certainly looks like the measures designed to reduce overcapacity and increase domestic demand far outweigh the measures designed to increase output and protect exports, which in turn, reflect the priorities of the government. Also important to recognize the political realities of having to address a variety of important constituencies in China. In the next few days we will very likely hear a lot more about measures to increase social spending designed to support people in need and encourage increases in personal consumption

By: Glen M

Glen M — Mon, 02 Mar 2009 21:37:51 +0000

I would argue that China has had their own Smoot-Hawley for years. Have a look it in action in the steel industry.

http://www.eurofer.org/index.php/eng/News-Publications/Press-Releases/Report-shows-Chinese-state-business-relations-provoke-severe-market-distortions-in-the-international-steel-market

By: David

David — Mon, 02 Mar 2009 14:57:48 +0000

Michael,

Sort of an unrelated thought. I saw in the Journal today on p. A6 that the stimulus plan is partly targeted at getting the Chinese consumer to spend their savings. What are your thoughts on this? What indicators would you be looking at to see if this is actually happening?

By: Michael

Michael — Mon, 02 Mar 2009 10:54:33 +0000

Twofish, while I concede that a few countries – mostly city states such as Singapore and Hong Kong – were indeed able to rise to developed-country status with very open trading borders, I am not sure why, when I argue that no large economy has ever done so, this would not hold for China. Small countries reliant on servicing large economies have a very different set of institutions and abilities, and a policy that serves Singapore and Hong Kong while unavailable to the US or Japan is not likely to be of service to China. I’m sorry but I am not sure I understand most of the rest of the comment.

As for your arguing that there has not been a rise in trade friction, I am a little surprised. Not only has there been a significant increase in political noise, as far as I can see, but there has also been an increase in WTO cases and in actual tariffs and barriers imposed within Asia. More importantly, the historical evidence suggests that as unemployment rises, trade friction deepens, so to dismiss the possibility of an increase in trade tension seems pretty disingenuous to me. By the way today’s article in the Financial Times “Asean split on protection,” doesn’t make any sense to me if the risks of trade friction and trade protection were as negligible as you suggest.

Shawn, I share your skepticism.

Glenn, thanks for the picture. It sort of ruined my day.

CCT, you may be right, but I suspect that if the folks on the Hill care, it is because they believe their constituencies care. At any rate the protection talk cited by Glenn need not be overly China-specific for it nonetheless to have a full impact on China.

By: Michael

Michael — Mon, 02 Mar 2009 10:54:22 +0000

Glenn, at a recent lunch your point was made very forcefully, and by a bank analyst who has been extremely positive on Chinese policies. She claimed that most new spending is going into areas that are not labor intensive and so may exacerbate the trade surplus while having a minimum effect on employment. This is the kind of issue on which I have limited expertise, so I can’t agree or disagree beyond nodding my head wisely,

Thank you Xiaochen.

A West, as the Plaza Accords suggest, governments can indeed speed up or slow down adjustments. In fact the argument is easily made that the current imbalances are caused primarily by distortionary government policies.

By: Michael

Michael — Mon, 02 Mar 2009 10:54:10 +0000

Trixy, a more serious problem with the Goldman VAT data may be, according to a bank economist who wrote me, that VAT is imposed not only on final products but also on every intermediate stage. In other words, it is not only affected by retail sales but also industrial sales (e.g. raw materials, equipment, etc.). As industrial sales have been very weak recently because of inventory destocking, VAT revenue growth were bound to be slower than retail sales growth.

Thomas, in China analysis is too often labeled either as an attack on China or support for China. I intend neither. It may or may not make sense for China to cut back on shipbuilding, but as far as I see it the net effect, whatever the policy intention, is to reduce net demand. As such it is likely to exacerbate the global balance. I may be wrong, but not because I lack sympathy for the plight of policymakers but only if the net impact on Chinese consumption is actually positive.

By: CCT

CCT — Sun, 01 Mar 2009 18:52:24 +0000

Glen M,

This is the text of the actual letter sent by the House Trade Working Group:

http://www.mbtmag.com/articleXml/LN932745691.html

One paragraph devoted to China. Similar real estate devoted to “renegotiating NAFTA”, another paragraph for Colombia FTA, Panama FTA, Korea FTA… two paragraphs for essentially dismantling Doha and rolling back WTO.

IMO, not really China-specific, but rather the general protectionist mission statement.

By: bob

bob — Sun, 01 Mar 2009 12:18:49 +0000

Beware of assumptions before test, it is given as certainty that Smoot Hawley tariff act was the catalyst of the depression, but a post mortem analysis is not conclusive.

It may have been a crisis booster but not the crisis factor. As of today the crisis is solvency, credit, past money supply in relation to GDP and prices in relation to income.

By: CCT

CCT — Sun, 01 Mar 2009 06:55:17 +0000

By the way, Hillary’s visit to Beijing culminating in her “please continue to buy US treasury bonds” request was front-page news from coast to coast.