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Debating China’s Rise

James Fallows asserts that because China’s rise has lifted millions of Chinese out of poverty while providing U.S. consumers with cheap goods, it must be a win-win for both countries (“China Makes, the World Takes,” July/August Atlantic). The more complex reality is that China’s rise is imposing great costs on countries around the world—and within China itself.

China’s competitive advantage in world manufacturing markets is largely due to a web of illegal export subsidies, rampant counterfeiting and piracy, a grossly undervalued currency, and lax environmental and health and safety regulations. While they have benefited the American firms and other multinational companies that are offshoring to China, these mercantilist practices have put tens of millions of people out of work around the world—from the American Rust Belt to Mexican maquiladoras to the markets of Lesotho.

While the tens of millions of Chinese peasants flooding into coastal Chinese factories may indeed be better off than they were on the farm, more than a billion Chinese are left paying a very heavy price. China is now the most polluted and dangerous place to work in the world, and unscrupulous developers in league with Communist Party apparatchiks regularly seize peasant land without just compensation.

China continues to build one new coal plant every week to feed its heavy-manufacturing model, and its toxic Chinese smog, or “chog,” regularly rides the jet stream to visit Americans as they leave their Wal-Marts with cheap Chinese goods. And it is no small irony that Fallows’s Panglossian ode came out at the same time as a raft of news stories about the contaminated, cancerous, and defective Chinese products now flooding the world.

Meanwhile, China’s imperial misadventures in Africa and Latin America—to obtain oil, timber, and other natural resources—have been well documented. So, too, has China’s facilitation of genocide in Darfur and nuclear proliferation in Iran in exchange for access to oil and natural gas. Last, but hardly least, China is using its economic gains to fuel a military buildup and develop an increasingly sophisticated array of “asymmetrical weaponry” aimed at the U.S. satellite system that for the last several decades has allowed U.S. military forces to hold the ultimate strategic high ground: space.

Peter Navarro
Laguna Beach, Calif.

James Fallows’s “China Makes, the World Takes” misleads readers by arguing that the “smiley curve” indicates that a revaluation of China’s yuan [also known as the RMB] would have little effect on the U.S. trade deficit with China. According to that polemical concept, each $2 worth of Chinese labor supports products valued at about $30, with the balance of the value added being contributed by U.S. capital, technology, and skilled labor. Therefore, Fallows argues, revaluing the yuan and removing all Chinese subsidies to manufacturing, and raising the cost of Chinese labor to $4, would raise the price of Chinese exports to the United States a negligible 7 percent.

While such math might apply to a few products, it cannot be typical of all imports from China. In 2006, total U.S. goods imported from China were $288 billion, and applying Fallows’s math would imply that Chinese imports are supporting 14 times that value to the U.S. gross domestic product. That comes to $4 trillion, or 31 percent of the U.S. GDP. In 2006, the GDP generated by all U.S. goods-producing industries (agriculture, forestry, fishing, mining, and manufacturing) came to less than $2 trillion. Either the U.S. GDP is grossly undercounted, or Fallows is wrong.

If the exchange rate did not matter, Chinese authorities would be happy to revalue the yuan. Even if one accepts the argument that China requires a managed exchange rate to promote stability within its rickety financial sector, the Chinese government could peg the yuan at 4 to the dollar instead of 7.6. Exchange rates are prices, and prices do matter. If they didn’t, Beijing wouldn’t cling so tightly to its present policies.

Peter Morici
Robert H. Smith School of Business
University of Maryland
College Park, Md.

After noting the competition faced by some rich-world workers from their developing-world counterparts, James Fallows concludes: “With no trade barriers, there would be no reason why the average person in, say, Holland would be better off than the average one in India.” But there is. An average Dutch person is more productive in the marketplace due to his or her better education, health, institutional environment, and access to capital, and so he or she will always earn a higher wage.

Later in the article, Fallows discusses European subsidies to Airbus, and urges Americans to be aware that “Boeing sells fewer airplanes and employs fewer engineers than it presumably would without competition from Airbus.” True, but that says very little about the overall employment prospects for American engineers. In fact, the demand for them has constantly outstripped supply. Instead of being alarmed, Americans should send a thank-you note to European taxpayers for subsidizing world airplane production, so that America is able to allocate its scarce engineering talent to other uses.

Nimish Adhia
Chicago, Ill.

James Fallows’s take on China is based on the same underlying assumption that clouds much of the debate over whether globalization is good for the developing world’s poor—namely, that if peasants are to achieve a higher quality of life, they themselves will have to purchase it, with the money they earn from “paying jobs.” While a bit of pocket money can bring with it better access to housing, health care, education, and sustenance, philanthropic efforts can achieve the same basic advancements—and without the added costs associated with large-scale, semi-forced migrations to urban ghettos. I’m not qualified to say how much more expensive it would be for the developed world to simply give away a better quality of life for the undeveloped world’s peasants, but given the high costs that come along with the benefits that Fallows describes, finding out would seem worthwhile.

Josh Miner
La Crosse, Wis.

The caption for the photograph on page 68 refers to “chip resistors displayed in martini glasses,” but the photograph doesn’t show any chip resistors. Chip resistors, which have contributed to the miniaturization of all sorts of electronic devices for more than 30 years, look like tiny ceramic tiles; the photograph shows axial-lead resistors, which are tens or even hundreds of times more voluminous than chip resistors. These have been around since vacuum-tube days, when miniaturization didn’t matter so much. (The identification of the containers as martini glasses, however, is consistent with my experience.)

Peter M. Jacobson
Chanhassen, Minn.

James Fallows replies:

Peter Navarro’s letter is a summary of the argument in his recent book, The Coming China Wars. Without giving a book-length answer, let me say: I agree, and said in the article, that environmental devastation is the most ominous part of China’s industrial rise. I agree, and said in the article, that economic interactions are not always “win-win,” and that the relationship with China holds perils for America in the long run. But I presented the evidence for thinking that so far, the China-U.S. interaction has been beneficial overall for both sides. I disagree with most other assertions in Navarro’s letter and his book, including his claim that China’s success is “largely” due to illegal subsidies. That may be a comforting view for Americans, but based on what I have seen, it is a simplistic one. Readers should certainly read Navarro’s book to see his argument in its full version. The notes section of his book begins, “Much of the research conducted for this book was done over the Internet.” All of the research for my article was done on-scene in factories and trading companies in China.

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