Feb 28, 2022·edited Feb 28, 2022

“This was really wrong.”

I have a few quibbles.

Actually, a lot of quibbles.

It turns out that almost every sentence in that quote turned out to be correct *in part.*

The role of the state in the economy was vastly reduced between 1999 and 2008, and tepidly so between 2008 and 2015. State-owned enterprises have less of a stranglehold over the productive apparatus than before, and are much more market-oriented, especially those owned by the national government.

In addition, there are a great many more Chinese citizens for whom relative prosperity has brought a more liberal or global outlook, not only among the professional classes. The middle classes are also much more open and outward-looking.

This has lead to the growth of organizations promoting exactly the things outlined in the last sentence, few or none of which existed prior to 1999.

The real problem isn’t that the expected “natural outcomes” of liberalized trade with China didn’t materialize, but that the Party-State proved extraordinary adept at neutralizing those less conducive to its continued rule without actually killing off the overall benefits of (limited) economic liberalization.

Suffice it to say a lot of the outcomes of these trends are still very much up in the air.

Expand full comment

This piece contains too much good common sense to be adopted clearly and widely as official policy by our politicians.

Expand full comment

Matt goes to Mexico:

"...what if...

we already have 1 billion Americans?"

Expand full comment

Broke: the EU should look at the US as a model for state building

Woke: the US should look at the EU as a model for state building

Expand full comment

One thing that both Brexit and YIMBY-ism really brought home to me is how much of a drag the cumulative effect of individually-defensible box ticking exercises like rules-of-origin can be. The entire thing just becomes hella cumbersome in a way that I think a lot of my fellow progressives can miss.

Expand full comment

Odd that many of the comments have to do with China, ignoring MY’s basic argument: cultivate the garden in your own back yard, instead of that of the unpleasant neighbor down the street.

Expand full comment

In New Mexico they tell the joke this way. “Pity poor New Mexico, so far from God, so close to Texas.”

Expand full comment

Those of you who know me, know I am work in Latin America quite regularly.

Full confession. Up until I started working in Latin America 10-years ago, I was pretty much a border controls limit immigration guy.

But during that time I have both seen steady and sometime amazing economic progress.

Colombia is my favorite example. It has this reputation for being a Narco state, but when you go downtown and meet young people. English is more and more common. They have call centers! The downtowns are clean and modern. Bars, restaurants, signs of western civilization.

But even Mexico. I was just in Hermosillo. In parts... you would swear you were in Arizona. The thing that really struck me there was the development of gated American like suburbs. Also the cars... high end, modern cars everywhere.

Expand full comment

I agree with you as a matter of principle. However, the political economy of trade is always molded by the domestic political environment. Politicians will never be lobbied by foreign producers. They will also claim that their role is support for Americans not a bunch of lazy, ignorant foreigners. Subtext: Don't you see they have brown skins?

Expand full comment

Making a shirt with American cotton costs about 6 cents more than making it with Indian cotton. American cotton costs $2.68/kg. Indian cotton costs $2.28/kg (36150 rupees per bale, 74.5 rupees per dollar, 212 kg per bale). The average t-shirt weighs 150 grams.

Accordingly, the effects of the yarn forward rule are pretty small. Mexican goods can get to the US much faster and at lower transport cost than Asian goods. The speed is probably more important than shipping cost, as textiles are cheap to transport but fashions and demand can change quickly.

The somnolence of Latin American textiles has much more to do with those countries being corrupt and unstable than the yarn forward rule.

Furthermore, the allure of immigration to the US is a huge obstacle to Latin American garment producers. Who wants to work in a sweat shop competing against Vietnamese and Bangladeshi sweat shops for third world wages when you can install dry wall or clean houses in the US for first world wages.

Expand full comment

The politics of Matt’s proposed good neighbor policy are dubious. He admits that the economy was disastrously under stimulated for 10 of the last 14 years and was somewhat under stimulated for the 7 years prior to 2008. We’ve had a couple short stints of full employment, but real wages for working stiffs are still lower than in 2000. Telling working stiffs “it’s been a fine pandemic, time to combat inflation with immigration and cheap imports” will not go over well.

Expand full comment

Hi Matt

A comment from a neighbor that is nowhere mentioned in your column: Canada. We have had a free trade agreement with you for automobiles since the 1960s, and a comprehensive agreement since 1988. It has been a rocky relationship.

A perpetual irritant has been exports of softwood lumber from Canada to the U.S. Here, most forests are owned by governments, and so there is no payment to private owners of trees. Instead, lumber companies pay stumpage fees. The U.S. claims these are too low and so imposes countervailing tariffs. The issue has been to arbitration panels several times and, to my knowledge, Canada has always won. Yet the U.S. always manages to find new grounds for applying tariffs yet again.

There are many other such irritants. A big one was included in President Biden's Build Back Better bill. It provided for significant subsidies to electric cars, on condition that they be built in the U.S. This would have devastated the Canadian automobile industry, in violation of the spirit, and most probably the letter of the new USCMA.

This is not how friends behave.

Expand full comment
Feb 28, 2022·edited Mar 1, 2022

While I agree with the logic of the central argument Matt is making here, I do think think one reason jobs got outsourced to China, and not to Honduras or Dominican Republic, is the former's ability to ensure rule of law. US companies could be confident that the investments made in China would be protected, and that the factories etc. will not be impacted by lawlessness, which unfortunately is a hallmark of the countries south of the US border. One might argue that this lawlessness is a consequence of the US (both in terms of providing a huge market for illicit drugs as well as being a source for assault weapons).

Expand full comment

"The U.S. should prioritize prosperity in Mexico, Central America, and the Caribbean"

No, the US should prioritize working class and low income prosperity within its own borders because the US has invited in too much poverty from those places already. Once we get our own house in order, including stopping the flow of millions of poor and uneducated from those places, we can work on providing some assistance to benefit their working class and poor.

Expand full comment

I do not understand the idea that liberalizing trade with China (even if is did not result in more political liberalization there) was bad or in some sense in trade-off with liberalizing trade with C&S America (or anywhere else). The point I made in another post -- that most people in the US would be better off if we had prioritized opening markets for US exports over trademark and copyright protection -- apply very strongly to China.

Expand full comment

I listened to John Mearsheimer recently on Andrew Sullivan's podcast - toward the end Mearsheimer points out the folly of the US creating a peer competitor (by having a policy in the 90s to promote Chinese industrialization). I was frustrated because Sullivan tiptoes up to, but never asks the hard question about the moral choices, since Chinese industrialization took so many people out of poverty.

And I've been thinking about the US's treatment of our neighboring countries, including the war with Mexico, embargoes on Cuba, and interference in South America, particularly in the context of evaluating Russia's current actions in Ukraine and China's possible future actions in Taiwan. Mearsheimer's take on Ukraine is that "big countries tend to do whatever they want WRT their smaller neighbors" and he would find anything less than China trying to annex Taiwan to be really surprising.

So today's article fits into this in an interesting way - our Western hemisphere trading partners are countries where we could promote industrialization without a strategic risk, do humanitarian good, and address domestic problems all at the same time.

Expand full comment