The Great Wall Journal?

Did you see that Rubert Murdoch sold the Wall Street Journal to a Chinese group which has remade it into the Great Wall Journal with editorials straight from the Ministry of Commerce in Beijing?

Okay, I’m kidding, but if you read the Journal‘s editorial, "China Trade Benefits," yesterday, you could be excused for wondering if some such deal is in the works. Basing its comments on a new report by the U.S.-China Business Council a group that of necessity acts as an apologist for China), the Journal argues that U.S. exports to China are not only booming but generating extraordinary economic growth in the districts of many of the very congresspersons (Nancy Pelosi, Chuck Schumer, Frank Wolf, etc. ) who have been calling for a tougher U.S. policy on trade with China.

For example, congressmen Frank Wolf of Virginia, John Shimkus of Illinois, and Joseph Pitts of Pennsylvania have all backed legislation calling for action against China’s currency manipulation. Of course, despite the fact that China intervenes in the global currency markets every day and has accumulated a dollar reserve trove of over $3 billion, the Journal speaks of "alleged currency manipulation." But it’s main point is that exports to China from the districts of the congressmen have risen over the past decade by 536 percent, 586 percent, and 640 percent  respectively.

These numbers are cited to suggest that exports to China are a main driver of economic growth in these districts and that in backing the currency legislation the congressmen are somehow acting irrationally and contrary to the interests of their constituents. But this is a case in which there are lies, damn lies, and statistics. Presented just as percentages out of context with either the base on which they are being calculated or the numbers for imports, these export statistics look impressive. But they are not. They are calculated on a very small base. Going from $1 to $5 is a five hundred percent increase, but $5 in a U.S. economy of $15 trillion and a Chinese economy of about $6 trillion is very small potatoes.

Moreover, America has an enormous trade deficit with China of about $250 billion annually and that has grown and become a larger percentage of the trade over the past ten years. So no matter how big the percentage increase in U.S. exports, the increase in imports has indisputably been greater and that means that far from creating net new American jobs, the trade with China is subtracting from net new American jobs. So the Wall Street Journal sounds Orwellian when it claims the very opposite of the truth.

Indeed, the Journal emphasizes that 55 cents of every dollar Americans spend on "made in China" products actually goes to Americans who "design, ship, and market these products." It further argues that imports from China raise American standards of living be checking price increases on consumer goods.

Okay, that sounds good at first, but somehow it doesn’t seem to add up. I mean, if the goods were made in America the 55 cents would still go to the Americans who do the designing, shipping, and marketing, but another 45 cents would also go to Americans to do the producing. So how is it that the imports are actually creating new job and benefits? By holding down consumer prices says the Council and the Journal along with many economists. But what all these people always miss is that the imports also check wage and salary increases. Economists and policy makers are fond of speaking of consumers and the necessity of pleasing them. But the vast majority of consumers are also workers, and while they certainly like low prices, they also like to have jobs and living wages. But U.S. trade with China is costing more in lost jobs and generally lower wages than it is gaining through lower prices.  Until these reports and editorials begin to deal with the costs of trade as well as the benefits, they will always be of limited value.

Finally, the Journal, in a bit of classic double speak, calls on Washington to continue to press China to open its markets, but warns that any hint of protectionist action could be disastrous. Just think for a moment about the totally nonsensical nature of this formulation. In the first place, if the American free trade doctrine is so superior, why would we have to press the Chinese to adopt it? Why wouldn’t they automatically adopt it as a way of further spurring their own growth? The answer is that they would if they thought it was superior. But they don’t and therefore they won’t and therefore American pleading with them to become more like Americans is utterly useless. Unless, of course, one is prepared to be a bit of a tough negotiator, more or less along the lines of the Chinese. They don’t hesitate to insist on use of indigenous technology or to manage their currency and do a lot of other protectionist kinds of things. But the Journal says we must avoid imitating them at all cost lest we face Armageddon.

Well, as a former trade negotiator in the Reagan administration, I can tell you that begging is not negotiating. The bended knee is not a comfortable long term position. The advice of the Wall Street Journal and the U.S.-China Business Council in this regard is completely oxymoronic and impractical for America. But it is quite helpful to China.

Murdoch really ought to check on where his editorials are coming from: Wall Street or the Great Wall?