Another good, clear and simple (not simplistic) post. But, just shows that however simple (in economic terms) a solution may be that, overall, benefits many, the difficulty is in good old-fashioned human emotion and attitude - anti-China sentiment, deep connection to 'local' production, frenzy about 'subsidising' foreigners etc
As a non-economist, the way I see it is that: If we simply tax the imports, we the buyers pay without the creation of any jobs. If we subsidise the Chinese to manufacture here, we pay but we create more jobs as well. But then the problem is, do we have enough skilled labour to produce here? Even then, production in China will still be cheaper because of their lower labour costs.
I'm not sure offering incentives would work all that well though. The Chinese OEMs receive enormous amounts of direct and indirect support from the Chinese state. So to hold up their end of the bargain, they need to keep as much of their manufacturing base in China (to create jobs, etc.).
China is in the Electric Vehicle business, not the car business. Both are modes of transportation, but they are different entities. Until car manufacturers recognize they are in the horse-and-buggy business, they are toast.
I get that the Chinese have an excellent product. However, I feel uncomfortable with the notion that the Chinese yuan trades at a market price. Seems to me that it is manipulated by the central bank and is too inexpensive. In addition, currency controls limit the extent to which Chinese can buy foreign currency. Is this fair trade?
Yes, the Renminbi is too chea, but not by as much as most people think. Plus, the Chinese government is not playing fair in trade because car makers and other businesses can get subsidised cheap loans. That is China's industrial policy and is the thing that we in Europe and the US should counter. But it is in my view wrong to counter Chinese industrial policies with tariffs. We should level the playing field by offering similar subsidies in the form of cheap loans or other investment incentives to European car makers. Tariffs just make things more expensive for consumers and create an incentive for domestic producers to be less efficient and productive because the tariffs shield them from international competition.
Don't mean to take up much more of your time - but appreciated. Just one question: You have said you favor an industrial policy to counter China's industrial policy. My concern here, though, is that we would almost be having China determine our own industrial policy. Finally, do you generally favor industrial policies of the government. (I am somewhat ambivalent here...) Thanks!
The trick is to prevent the government from picking winners and allowing competition to take place in a favoured sector.
You are right that China forces us to implement industrial policy at home, but we would choose the means and where to do it. If we do not think a sector is strategically important, we can leave it to the Chinese.
Another good, clear and simple (not simplistic) post. But, just shows that however simple (in economic terms) a solution may be that, overall, benefits many, the difficulty is in good old-fashioned human emotion and attitude - anti-China sentiment, deep connection to 'local' production, frenzy about 'subsidising' foreigners etc
As a non-economist, the way I see it is that: If we simply tax the imports, we the buyers pay without the creation of any jobs. If we subsidise the Chinese to manufacture here, we pay but we create more jobs as well. But then the problem is, do we have enough skilled labour to produce here? Even then, production in China will still be cheaper because of their lower labour costs.
I'm not sure offering incentives would work all that well though. The Chinese OEMs receive enormous amounts of direct and indirect support from the Chinese state. So to hold up their end of the bargain, they need to keep as much of their manufacturing base in China (to create jobs, etc.).
China is in the Electric Vehicle business, not the car business. Both are modes of transportation, but they are different entities. Until car manufacturers recognize they are in the horse-and-buggy business, they are toast.
I get that the Chinese have an excellent product. However, I feel uncomfortable with the notion that the Chinese yuan trades at a market price. Seems to me that it is manipulated by the central bank and is too inexpensive. In addition, currency controls limit the extent to which Chinese can buy foreign currency. Is this fair trade?
Yes, the Renminbi is too chea, but not by as much as most people think. Plus, the Chinese government is not playing fair in trade because car makers and other businesses can get subsidised cheap loans. That is China's industrial policy and is the thing that we in Europe and the US should counter. But it is in my view wrong to counter Chinese industrial policies with tariffs. We should level the playing field by offering similar subsidies in the form of cheap loans or other investment incentives to European car makers. Tariffs just make things more expensive for consumers and create an incentive for domestic producers to be less efficient and productive because the tariffs shield them from international competition.
Don't mean to take up much more of your time - but appreciated. Just one question: You have said you favor an industrial policy to counter China's industrial policy. My concern here, though, is that we would almost be having China determine our own industrial policy. Finally, do you generally favor industrial policies of the government. (I am somewhat ambivalent here...) Thanks!
There is increasing literature on how to implement industrial policy without distorting markets. This is what I would prefer. See for example here: https://www.annualreviews.org/content/journals/10.1146/annurev-economics-081023-024638
The trick is to prevent the government from picking winners and allowing competition to take place in a favoured sector.
You are right that China forces us to implement industrial policy at home, but we would choose the means and where to do it. If we do not think a sector is strategically important, we can leave it to the Chinese.
Thanks for the comments and the article! I had no idea that industrial policy was so ubiquitous around the world.