Framing the Dialogue

Your Cheatin Hearth

The Chinese, it seems, are at it again stealing American jobs.  This time their “cheating” come in the form of providing subsidies to their “green” industries as reported in Pittsburgh’s Tribune Review.  The charge was lobbied by the United Steel Workers union and they estimate that the Chinese government has provided more than $216 billion as subsidies to their “green technology” industries:

“China cheats on specific products … and this is the same thing, only on a whole sector of renewable energy products. We’re going to fight like hell. It’s time someone stood up to them,” Leo Gerard, president of the Pittsburgh-based USW, charged in announcing the 5,800-page complaint it filed with the U.S. Trade Representative.  The USW claimed that China violated World Trade Organization rules in major areas of protectionist and predatory practices: It restricts access to critical materials; discriminates against foreign firms and goods by boosting local content requirements; provides huge export subsidies; and has given more than $216 billion to subsidize its green technologies.  “We know that we have employers that have lost orders and employers are publicly complaining about doing technology transfers fairly,” Gerard said. He contended that hundreds of companies — both direct suppliers and indirect suppliers in the clean energy economy — have been hurt by China’s trade manipulations.”

“If China’s illegal subsidies are not stopped soon, America will lose out on the future of green jobs in the renewable energy sector and green technologies — solar, wind, advanced batteries, energy-efficient lighting and hydroelectric power — because China will dominate that business through its trade practices, said Gerard, whose Pittsburgh-based union represents 850,000 members in the United States and Canada.  “If we allow them to do this for the next year or two, they will corner the future of industrial manufacturing globally. We’ve lost thousands of jobs and thousands of job opportunities,” he  [Gerard] said.”

I don’t want to be too critical of the USW, but their complaint came at a time when I was reading about protectionist policies.  The USW used all the tried and true tactics to plead their case; the Chinese are cheating, we’ll lose U.S. jobs, their practices are unfair, we’ll be harmed forever…so we have to do something now.  It is funny (sad) that the call for a solution for unfair trade practices generally centers around more trade restrictions hence the sophistry of tired economic policies.  Perhaps it is sadder still that these proclamations still seem to work.

These sophisms work mainly because, to quote Al Gore, they “play on our fears” and cleverly leave out the next, inevitable step in the process which I’ll go through here:

  • The Chinese government has provided over $216,000,000,000.00 to subsidize their green technology industry.  Another way to look at this is that the Chinese government has taxed its citizens and used that money to provide lower prices to American consumers for green technology products.  The Chinese just gave us $216 billion and I am not sure how that is bad.
  • Mr. Gerard failed to mention what level of subsidy that the United States government provides to our “green” technology sectors.  Why isn’t the fact that the U.S. government subsidizes these industries considered cheating?
  • We should all ask why one of our industries cannot compete freely with another country’s industry when that company must bear the added costs of shipping the product here.  Please don’t forget the time value of money.  Once the product is made it costs money in the form of interest (either paid on capital or lost as a investment) between when it is made and when it is sold.  Why can’t we compete.
  • Let’s remember that Mr. Gerard represents the USW members and the USW members only.  He wants policies enacted that will directly benefit his 850,000 members to the detriment of the rest of us 330,000,000 Americans.  I say to the detriment because to protect their jobs we ALL have to pay higher prices.  We then have less money at least until we cry out for our own subsidies continuing the sad cycle.
  • The argument is often made that since this is an “infant” industry they need subsidies to be levied to protect it during this period.  That may have some merit if the tariffs/subsidies were ever removed which they aren’t.  You also must consider that if the industry cannot compete during the period when it is perhaps the most robust and creative, will it ever be competitive in a free market?  Wouldn’t it be better to use the human captital in another industry and take advantage of the cheaper prices provided by others?
  • A follow up to this is the argument that we will then be subject to the whim of these manufacturers and they will enjoy a monopoly.  There is always a short-term threat of this, but as prices go up so will competition sparking others to enter the market. 
  • Another popular arguement is that everybody does this so we should too and protect our workers.  Remember that when other countries subsidize their industries we benefit from lower prices.  Our workforce needs to be robust enough to change and adapt.  When we react to subsidies by increasing our subsidies or tariffs they respond in kind.  Higher prices for all.
  • The last typical argument, especially with the steel and automotive industries, is national security.  What a great way to tug at our fears, but steel can be stockpiled for our defense (as we already do oil) and it is unlikely that either industry will completely disappear in America.  If current steel or auto or any other industry fails in America our entrepreneurial spirit is likely to fill the void with more a innovative and robust replacement. 

I have tried to boil the arguements down into rather simple terms, but it still takes some effort to get the message across and that is how the protectionists often succeed.  Try to discuss economics with a regular citizen and watch their eyes glaze over and they just don’t want to hear it…to their and all of our detriment.  We need to make sure that they see beyond the first step and recognize that which is unseen.

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