About those Chinese tires

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I keep putting this off, so before it finally disappears into the mists of time, here is a bullet-point summary of what I would have said at greater length when the Chinese tire tariff first arose.

1) There is not now, and there never was, a serious possibility that this would escalate into some sweeping, self-intensifying, global-recovery-threatening "trade war."  The many publications and commentators who raised their hands in "Oh no! It's Smoot Hawley again!" horror need to calm down -- and to have their tendency toward over-reaction noted for the record. Yes, I'm talking about you, Economist magazine cover-designers (last week's cover image, below), but you had tons of company.
EconomistTyre.jpg 

There is too much going on, on too many other fronts, involving affairs of incomparably greater consequence between China and America, for this to have been more than a contained, specific dispute -- contained in both duration and sweep. This was clear at the time and should have buffered the shock-horror tone of the stories. Why this matters: because of the  boy-who-cried-wolf principle. There are issues between China and the outside world in which a small disagreement could spiral into a very dangerous confrontation. Many of these involve Taiwan, for reasons to be spelled out another time. But tire tariffs, agree with them or not, were never going to set off a global economic confrontation.

2) Larger point about the nature of this reaction, by analogy to Al Sharpton. Not to pick on him, but why did Sharpton's reputation as a careful, precise commentator on national affairs suffer during the 1980s? Especially after the unfortunate Brawley case? I would say it was the magical combination of predictability, exaggeration, and tendentiousness. His reaction to any news event was predictable (it was always about racism); it was exaggerated (it was always really terrible racism); and it was tendentious, in being uninterested in the details of the specific case. On the other hand, he was witty! I often think of the bad, non-witty side of the Sharpton of that era when I see the mainstream reaction to any trade dispute. It's predictable (oh no! Trade war!); exaggerated (oh no! Smoot Hawley!); and tendentious, in not being interested in any contextual point other than the evils of unions and protectionism.

3) What's the context that does matter? Usefully, two people with whom I often disagree on trade questions -- the former editor of the Economist, Bill Emmott, and Robert Samuelson of the Washington Post -- have both pointed out that there is a more important issue here than whether one agrees on the merits of the tire decision. They both criticize the decision  -- but as the headline on Samuelson's column puts it, "Bad Policy, Right Message." (My own view would be: Maybe bad policy, certainly right message.)

The right message concerns the historic transformation of the Chinese economy that began a year ago, when demand from its biggest overseas customer, the United States, dried up all at once.  This story, which I wrote from China six months ago, discussed the magnitude of the adjustments China was trying to make -- and also emphasized the parallel that Michael Pettis, an economist at Peking University, drew between China's situation in 2009 and America's 80 years earlier. The details are laid out in that article, but the main point was this: Like America in the 1920s, China in the 2000s had been the dominant "global surplus" country, manufacturing and selling to everyone else and piling up big surpluses. When customers suddenly stopped buying -- America's because of the Great Depression, China's because of this recent freezeup -- the surplus countries lost disproportionately many jobs, because they'd had more than "their share" to begin with. That happened to America in the 1930s, and it is happening to China now.

This kind of loss is painful for any country under any regime. In terms of human suffering, it's all the worse for China, since so many of the displaced workers are so hard-pressed to begin with. In the long run, everyone agrees that both the Chinese and the U.S. economies need serious adjustment: the US toward more savings and investment, China toward more domestic consumption and less reliance on export markets, so that its own, still-poor population can enjoy more of the fruits of their own labor. But in the short run, the adjustment is difficult -- for each country. And the drama that Pettis foresaw six months ago, and which provides the proper background to the tire dispute, is the Chinese government's (natural) attempt to resist the inevitable and keep its trade surplus up as long as it can.

That's the significance of stories like this, which I've mentioned  (eg here and here) over the months.
IMG_7448.jpg

This is not at all a matter of "blaming" China. Moralizing has no place in these sorts of economic adjustments -- whether we're talking about the Chinese government's currency-management to keep the RMB's value artificially low (details here), or the US imposition of tire tariffs. The real question is how the economies can manage the complementary adjustments each of them has to make, with minimal damage to their own populations and to world business as a whole. These are big, woolly, complicated, world-historical processes underway. There are a lot of useful things to say about them -- not including "Oh no! Trade war!"

Now I see why I put this off so long.



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James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

Fallows welcomes and frequently quotes from reader mail sent via the "Email" button below. Unless you specify otherwise, we consider any incoming mail available for possible quotation -- but not with the sender's real name unless you explicitly state that it may be used. If you are wondering why Fallows does not use a "Comments" field below his posts, please see previous explanations here and here.
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