Opposition to globalization has expanded and energized in the U.S. by both the Bernie Sanders and Donald Trump campaigns. “Globalization” sounds unappealing, like throwing goods and traditions from around the world in a blender and chopping them up. Consumers appreciate lower prices but worry about factories closing and “jobs being shipped overseas” to lower-paid workers in Mexico, China, Vietnam, or India.

Globalization, multilateral trade agreements,  and “the international order” are regularly attacked by populists and nationalists in the US and Europe. And also in China.

China leadership has shifted nationalist in recent years, as discussed in “China Protection Writ Large,” (Wall Street Journal, January 31, 2017, online title “With Pen Plan, China Etches Nationalist Economic Policy“):

Studies rank China’s economy, the world’s second largest, among the most closed. From cars to wind turbines, Beijing limits foreign participation in domestic production. Citing “food safety,” Beijing insists that almost all grains consumed in China are domestically grown, and sets artificially high prices to support bumper harvests. State media touts locally made consumer products including bidets and rice cookers.

The WSJ story begins with a discussion of Chinese state initiatives to fund Chinese steel firms to produce higher-grade steel, such as needed for the tip or point in ballpoint pens. (The WSJ article offers a nice video overview telling the story.) China’s Ministry of Science and Technology funded this “meaningful breakthrough”:

The ministry provided $8.7 million for the research, which Beifa undertook with state-owned Taiyuan Iron & Steel Group Co., China’s largest stainless-steel mill. By September, the mill produced its first fully-domestic ballpoint pen.

Fortune also runs a story “China Couldn’t Make Its Own Ballpoint Pens—Until Now” (Jan. 10, 2017), noting Chinese firms produce 38 billion ballpoint pens each year but import ballpoint pen tips from Japan, at a cost of $17.3 million a year.

Premier Li Keqiang first drew the nation’s attention to the pen tip dilemma in January last year, lamenting that China still relied heavily on imported high-grade steel despite producing more than half of world’s crude iron and steel. State media reported that Li’s inability to make the tips reflected badly on Chinese manufacturing in general.

The article says Chinese firms spent “half a decade of research” to produce the pen tips. So here is a problem with politically-directed nationalist policies. Divide the $17.3 million a year pen tip “savings” over 38 billion pens. Chinese firms making tips themselves may reduce costs by some part of $0.000455 (about 1/20th of a penny per pen).

Screen Shot 2017-02-01 at 8.39.44 AMThe Pen Addict reviews the top five ballpoint and other pens. The top rated ballpoint pens sell for $2.50 to $20 with $62 for the most expensive.

Probably there are better ways for Chinese ballpoint pen engineers to focus their attention than on that learning to make their own tips. A key challenge for ChineseScreen Shot 2017-02-01 at 8.42.01 AM firms is developing brands people worldwide will recognize and pay more for. But brand recognition usually follows innovation and marketing, not politically-directed manufacturing advances.

Why You Haven’t Heard of Any Chinese Brands” (The Atlantic, April 8, 2013) looks at the challenge China has faced developing brands:

Here’s a little thought exercise: Think of a Chinese brand. Any Chinese brand. Go on, I’ll wait. Give up? Don’t feel too bad: According to a recent poll conducted by HD Trade Services, 94 percent of Americans cannot think of a single brand from the world’s second-largest economy.

Strange, isn’t it? Japan and South Korea, countries China zoomed past in the GDP-rankings, boast globally-respected brands across a variety of industries. Even Sweden and Finland — mere minnows in comparison to China — offer IKEA and Nokia, respectively. Given China’s incredible transformation into an economic powerhouse over the past three decades, why doesn’t the country have more recognizable brands?

A key problem with nationalist policies follows from politicians supporting domestic “champions”– state-funded or subsidized firms state officials hope will succeed in the global economy. But governments have a poor track record choosing the best firms to support. Japan’s MITI tried for years to stop Honda from expanding from manufacturing motorcycles to cars, in part due to influence by successful and established Toyota and Nissan.

See also, China’s National Champions: The Evolution of a National Industrial Policy — Or a New Era of Economic Protectionism? (2013, pdf), which begins:

An increasing concern of foreign governments is the emerging pattern of industrial policies established by the government of the People’s Republic of China (PRC)…favoring Chinese state-owned enterprises (SOEs) at the expense of their foreign counterparts.1 According to the US Chamber of Commerce, concerns that the Chinese government is retreating on opening its economy to foreign direct investment (FDI) are at a 10-year high among US companies directly investing in China (Reuters, 2010).2

Apart for the money governments spend directing research and development to area they deem strategic (ballpoint pens?), such subsidies and policies stoke nationalist responses in Japan, the U.S. and Europe:

While President Xi defends globalization abroad, his nationalist policies favor state-run companies back home. Many foreign companies and governments say China unfairly restricts access to its markets while flooding markets with low-price exports such as steel, helping to stoke a populist backlash abroad against globalization.

[Update: new Foreign Policy article, “Surprise Findings: China’s Youth Are Getting Less Nationalistic, Not More” (February 7, 2017):

For the United States’ part, its policymakers’ concern about a new crop of stridently anti-American Chinese youth may be overblown. If anything, future Chinese leaders may emerge from a generation noticeably less nationalistic than those that produced Xi and his predecessors.

When the President and Congress consider trade legislation, a wide range of interest groups gather to advance their agendas. These agendas are not always obvious, and sometimes corporate and union interests misdirect the public about their motivations.

• Unions want to protect union jobs in the U.S., and extract revenues for retraining workers displaced by imports. Here is the AFLCIO’s page on why it opposes the TPP (Trans-Pacific Partnership for Free Trade), a trade agreement Congress long considered, before it was blocked by the new Administration).

• Corporations and industry associations lobby the Commerce Department for new dumping charges and for countervailing duties (AD and CVD, discussed in past post and evidence brief: Affirmative Case: Repeal Section 421 Tariffs on Chinese Imports). Recent story: “US Targets Chinese Aluminum Industry at the WTO With a New President in Town,” (MetalMiner, January 26, 2017)

• Environmental organizations work to add their environmental goals to trade agreements. Here is the Sierra Club’s page opposing the TPP (and other “dangerous trade agreements”). This page includes a Sierra Club video with claims against the TPP, including the claim that allowing exports of coal and natural gas from the U.S. would be dangerous.

• Human rights and women’s rights groups advocate trade restrictions to pressure China and other countries to reform. Here is a 2013 article focused on China: “China: The West Needs to Promote Both Trade and Human Rights.” The article notes the danger of mixing rights advocacy with trade policy:

Some, both in Europe and the U.S., are demanding a much tougher approach towards China, including the imposition of punitive sanctions and high import tariffs. But this is undeniably motivated more by a desire to protect vested domestic economic interests, rather than as a way to put political pressure on the Chinese government. Crucially, such an approach risks fueling the perception that the voicing of human rights concerns is only used as a means of criticism in order to justify protectionist measures against China.

• Christian groups consider trade policy a way to pressure China’s government to increase religious freedom. Robert Sirico, in a 1998 Cato Trade Briefing Paper notes:

The freedom of Americans to trade and invest abroad is being challenged in the name of promoting human rights. Conservative Christian activists and others seek to impose trade sanctions against nations that do not protect human rights. Proposed sanctions include the Freedom from Religious Persecution Act and the revoking of China’s Most Favored Nation status.

“Free Trade and Human Rights: The Moral Case for Engagement”  begins with an overview:

Three fundamental misunderstandings cloud the current debate over free trade and human rights. First, cutting government aid to target countries is not the same as raising barriers to trade and investment. Ending foreign aid and corporate subsidies actually promotes development by removing market distortions. Blocking trade, in contrast, hurts U.S. consumers and exporters as well as the most economically vulnerable people in the targeted nations.

Second, some advocates of free trade in the U.S. business community have weakened their case by failing to acknowledge that human rights abuses exist. U.S. multinational firms further undermine their credibility by supporting government intervention through such agencies as the Export-Import Bank and the Overseas Private Investment Corporation.

Third, Christian conservatives who support sanctions betray a lack of understanding of how trade promotes freedom and development. Economic reforms in China have transformed daily life for hundreds of millions of people who now enjoy greater opportunity, freedom of movement, material abundance, and access to Western ideas. Trade with China benefits Americans through lower prices, wider consumer choice, and greater returns on investment.

Imposing sanctions against China will disrupt this mutually beneficial relationship while doing nothing to improve human rights. Like the failed embargo against Cuba, trade sanctions isolate the victims while strengthening their persecutors. Sanctions imposed in the name of human rights also serve the interest of domestic protectionists by limiting competition. The best policy for promoting freedom and human rights remains economic and moral engagement. 

So… industry, unions, environmental, human rights, and Christian organizations lobby to restrict trade agreements. The story of the Bootleggers and the Baptists can be helpful in sorting out opposition to international trade and to trade agreements.

Climate negotiations offer an illustration of the problem, explained in this PERC page and paper. Though from 1998, the lessons apply to current trade policy issues with China:

As nations argue over global warming policies, PERC economist Bruce Yandle brings fresh insights to the discussion. In “Bootleggers, Baptists, and Global Warming,” a new paper from PERC, Yandle sheds light on puzzling features of the international negotiations over climate change.

Yandle looks at the post-Kyoto negotiations in the light of a theory that he has coined as the “bootleggers and Baptists” theory of regulation. Yandle points out that in the South, Sunday closing laws make it illegal to sell alcohol on Sunday. These laws are maintained by an inadvertent coalition of bootleggers and Baptists. The Baptists (and other religious denominations) provide the public outcry against liquor on Sunday, while the bootleggers (who actually sell liquor on Sunday) quietly persuade legislatures and town councils to maintain the closing laws.

Here is a similar Bootleggers and Baptists story from November, 2014:

In June of this year, EPA administrator Gina McCarthy announced the Obama administration’s far-reaching, anti-coal-burning Clean Power Plan. It drew wide support from the environmental community for its promise to reduce carbon emissions and mitigate climate change. Speaking for environmentalists worldwide, McCarthy said: “This plan will clean the air we breathe while helping slow climate change so we can leave a safe and healthy future for our kids.” Put another way: Those who love their children and the environment would surely leap on President Obama’s anti-coal bandwagon.

Wikipedia entry on Bootleggers and Baptists.

Screen Shot 2017-01-28 at 8.16.49 AMHere similar story “Bootleggers, Baptists and e-cigarettes” (R Street, Jan. 14, 2016)

Environmentalists were happy, but so were producers of other fossil fuels that compete with coal (natural gas producers, for example). Interestingly, dirty coal producers were pleased with the new legislation too. They are the bootleggers of the story.

Before the imposition of the new requirements, producers of clean coal, which comes mainly from Wyoming and Montana, were in the catbird seat because their clean coal met high air-quality standards without the use of expensive technology. But now, with the new technology required, coal-burning plants can burn cheaper, dirty coal. Sellers of dirty coal see their business growing faster while the pace for clean-coal shippers is weakening.

All this gets more interesting when it turns out that dirty-coal producers in Obama’s home state of Illinois are chief among the bootleggers laughing all the way to the bank as they ship trainloads of coal to generators far and wide. The Obama administration’s Clean Power Plan has made lots of people happy — environmentalists, producers of clean-power technologies, and producers of dirty coal. We think the plan should receive a medal for bringing together such a disparate set of bootlegger–Baptist interests, provided it can clean the dirt off, of course. [Link to National Review article.]

Students researching the China topic should note that coal from Wyoming and Montana burns cleaner than coal mined in China and burned for energy production there. Also, shipping costs from Montana and Wyoming to South China coal plants is actually less expensive than shipping by rail to coast then shipping along China’s coast. “Cleaner” coal with lower shipping costs (though coal burning is still more polluting than natural gas, wind, solar, and hydro power).

Environmental groups strongly oppose permits and trade policies enabling Wyoming and Montana coal to be shipped by rail and river to the Washington coast, and exported to China. Dirty coal producers in China and around the world also oppose exports of clean coal from the U.S., but not for the best of reasons.

Wyoming coal: tougher sell with U.S.-China climate deal” (Casper Star-Tribune, Nov 16, 2014) notes the then recent trade agreement hurt Wyoming coal exports:

CASPER, Wyo. — Wyoming coal exports will likely suffer as a result of an agreement by the United States and China to cut carbon dioxide emissions, analysts said Wednesday.

The surprise announcement Tuesday by President Barack Obama and his Chinese counterpart, Xi Jinping, commits the world’s two largest carbon emitters to greening their respective power sectors.

And this Bloomberg News story has more, “China’s Clean-Fuel Focus Tests U.S. Coal-Export Lifeline.”  And with exports from US ports blocked, coal is headed out through Canada, “Coal company shifts to Canadian port to reach Asia markets,” (US News, October 13, 2016)

In all the above stories of special interests and trade policy, we shouldn’t impute bad motives to most of the people and organizations involved. People see the world through their own interests and often persuade themselves that policies they benefit from also benefit the world.

There are people and organization who know policies they benefit from personally and as interest groups will raise costs and limit freedoms for others. Debaters should be alert to see the bootleggers behind various proposed restrictions on trade with China.

Rapid industrialization spilled pollution across China’s cities, rivers, and skies. Market-reforms in the 1989s opened first agriculture and Special Economic Zones  (SEZs) like Shenzhen to local enterprise and overseas investors. Market reforms and factories then expanded across China, bringing prosScreen Shot 2017-02-06 at 11.53.09 AMperity but also pollution from mining and manufacturing. Through the first decades of reform, pollution seems far less important than jobs when wage rates even in 1990 average income per person (GNI) was just $330 a year. By 2000 average income had nearly tripled, but was still just $940 a year, and by 2015, average income was nearly eight times higher to $7,930.

Hundreds of millions migrated from rural China to new assembly plants and textile mills. An estimated 200 million migrant workers still form the  “floating population” of informal labor.

Screen Shot 2017-02-06 at 12.01.56 PMChina’s astonishing economic progress has been uneven but lifted these hundreds of millions out of extreme poverty. As incomes pass $6,000 a year, empirical research shows countries invest in reducing pollution (the environmental Kuznets curve) even when it slows economic output. See, for example, “Does the Environmental Kuznets Curve for coal consumption in China exist? New evidence from spatial econometric analysis,” (Energy, Volume 114, 1 November 2016, Pages 1214–1223) From Abstract:

The estimation results verify the existence of the spatial correlations in coal consumption across provinces, and there is strong evidence for the “inverted-U” shaped EKC relationship between per capita coal consumption and the GDP per capita. Besides, the GDP per capita corresponding to the peak of coal consumption per capita is estimated to be higher when the spatial effects are fully accounted for.

Rapid industrialization in countries with weak rule-of-law institutions brings costs, including heavy pollution of the air and water. Early on, pollution was seen by most as a good thing, a sign of industrial progress, production, and rising wages and job opportunities.

Screen Shot 2017-01-26 at 7.53.38 PMIn Nevil Shute’s novel, Ruined City, a shipbuilding town on the English coast, whose companies had gone bankrupt in the Great Depression, is described to be: “as clean as a sepulcher,” (a small room or monument, cut in rock or built of stone, in which a dead person is laid or buried).

The factories were closed so no more smoke and noise in the air, but also no more jobs and income. Laid-off shipbuilders and others were out of work, out of income, out of hope, and mortality rates soared (in the novel, a hospitalized financier arranges new orders to bring shipbuilding, and the city, back to life).

The 1995-1996 national high school debate topic was similar to this year’s topic:

Resolved: That the United States government should substantially change its foreign policy toward the People’s Republic of China.

Attending an economics conference in Beijing in 1995, I had time between sessions to walk city streets and shopping areas. One street with vendors in small stalls offered books, movies on VHS tape, shivering dogs, and one stall with just a pile of coal. For maybe fifteen minutes I watched shoppers filling bags with coal to cook and heat their nearby Beijing homes.

Most people of Beijing are far wealthier now and incomes higher. Average income in China is approaching $10,000 a year, but in 1995 average income was just $540. People in the cities are far wealthier, but not far from Beijing, households still burn coal to heat their homes. Increasing incomes and expanding access to inexpensive electricity is key to reducing Beijing pollution.

Beijing’s Plan for Cleaner Heat Leaves Villagers Cold,” (WSJ, Jan. 25, 2017) reports the continued problem of burning coal for home heating in communities near Beijing:

Reducing emissions from heating would be among the most effective ways to limit winter smog besides cleaning up industry… Coal-burning by households is particularly dirty because it often happens without the emissions filtering required in power plants. …

But Ms. Gao, whose husband earns about $500 a month at an auto plant, soon noticed a downside.

“Electric heating has become our family’s biggest expense,” Ms. Gao said. She said she may seek a job to help pay the bill.

Despite electricity subsidies for residential consumers, villagers interviewed about their state-supplied heaters said their overall costs had risen substantially. Several said it costs around $300 to heat their homes for the winter, compared with about $200 with coal.

The income divergence between city and rural families is extreme across China. “Here’s What China’s Middle Classes Really Earn — and Spend,” (Bloomberg News, March 9, 2016) shows in an income chart of China’s 770 million workers, just 19% are middle-income earning $11,733 a year. Another 31% are migrant workers earning an average of just $5,858 a year, and the rest are rural people earning an average of $2,000 (plus a .2% slice of the very rich at $500,000 a year).

China’s migrant workers, the”floating population,” migrated informally (illegally) to cities for factory jobs. They earn more than they could in their rural villages, but Bloomberg reports: “food and clothing make up nearly half their personal spending” which is just $7 a day.

Anything that adds to the cost of electricity pushes poor workers living around Chinese cities to shift to burning coal in their homes for heat.

And this challenge highlights government spending and subsidies for expanding wind and solar power. Electricity from new natural gas and new cleaner coal power plants emit little air pollution (especially compared to families burning coal or wood at home). But both natural gas and new coal plants emit carbon dioxide as they generate electricity (burning natural gas emits about half as much CO2 as burning coal).

China Aims to Spend at Least $360 Billion on Renewable Energy by 2020,” (New York Times, Jan. 5, 2017) reports on Chinese government plans for expanding wind and solar power, and also notes problems delivering power to consumers:

…Thursday’s announcement was missing any language on curtailment, or the amount of electricity generated by wind and solar that never finds its way to the country’s power grid. In China, wind power curtailment was 19 percent in the first nine months 2016, Mr. Myllyvirta said, many times higher than in the United States, where curtailment levels are often negligible.

The main reason for curtailment, he said, is that China is plagued by overcapacity in electricity generation and operators of China’s grid often favor electricity generated from coal.

A 2016 report, “China Scales Back Solar, Wind Ambitions as Renewables Cool,” (Bloomberg News, Nov. 7, 2016) noted problems connecting new wind and solar, often at distant locations, to China’s existing grid:

…lowered its solar and wind power targets for 2020, a reflection of how record installations of renewables have overwhelmed the ability of the nation’s grid to absorb the new electricity …

The rapid growth in capacity has left China struggling to integrate power supplies from renewable sources even as the government continues to promote clean energy as an alternative to more polluting fuels like coal and natural gas.

China idled 33.9 billion kilowatt-hours of wind power last year, up 69 percent from a year earlier, the NEA said in August. Idled capacity at solar farms has also begun to appear, especially in the nation’s northwest, it said.

[Update, see also “It Can Power a Small Nation. But This Wind Farm in China Is Mostly Idle,” New York Times, Jan 15, 2017)]

See also Bjorn Lomborg’s op-ed “A ‘Green Leap Forward’ in China? What a Load of Biomass,” critical of China’s spending on solar and wind energy, even as coal use expands:

It is peculiar—though unsurprising given the sensibilities of Western environmentalists—that those who celebrate China’s “Green Leap Forward” almost always focus on wind and solar technology. By far the largest source of renewable energy used in China is traditional biomass—that is, people burning charcoal, firewood and dung, as China’s poor do to stay warm. Biomass is the biggest source of killer air pollution in the world.

The Chinese government energy policy goals aim to reduce air pollution around Chinese cities, and also to reduce CO2 emissions to address climate change. These goals overlap, but are not the same. Wind farms and solar installations don’t emit air pollution, but neither does less-expensive natural gas combined-cycle power, which can be located closer to cities and customers. New coal power plants emit less air pollution, especially compared to the dense pollution from antiquated coal-fired power and home coal burning.

China’s push to lead the world in wind and solar power combined a push for promoting domestic companies making and exporting solar panels and windmills, with a strategy to appeal to environmental organizations upset that China had become far and away the largest emitter of CO2.Screen Shot 2017-01-27 at 10.08.32 AM

U.S. CO2 emissions have dropped 12% since 2005, according to the U.S. Energy Information Administration, but China’s CO2 emissions increased significantly over the same time.

Though China’s CO2 emissions are estimated to have fallen 3% in 2015, but China’s Carbon Emissions Report 2015  (Belfer Center, Harvard Kennedy Center pdf) notes:

Total carbon emissions in China already equal the emissions from the U.S. and the E.U. combined, however, the per capita emissions are still significantly lower than that of the U.S., but are approaching the average level of the E.U. countries. (p. 1)

Screen Shot 2017-01-27 at 10.18.31 AMThe Belfer Center report cover and first pages have images of heavily-polluted Chinese cities, but these show air pollution not CO2 emissions. China’s business and government leaders have long feared that influential environmental organization could join with US and EU labor unions, and protectionist manufacturers associations to enact new tariffs on Chinese exports, including carbon taxes (taxes on CO2 emissions), which would hit Chinese manufactured goods hardest.

Now the new Administration and Republican-controlled Congress are dialing back on CO2 emissions concerns and regulations and at the same time threatening new tariffs on Chinese goods. So China’s strategy of major spending on wind and solar power to address CO2 emissions loses traction as a strategy to persuade environmental groups not to join US and EU protectionists.

China may shift focus to expanding less-expensive electric natural gas power sources to deliver lower-cost electricity to the many still-poor households surrounding China’s cities and factories.

Bagoly mondja verébnek, hogy nagyfejű.
(English version: “Pot calling the kettle black.”
Many other cultures here. )

In “United States Challenges Excessive Chinese Support for Rice, Wheat, and Corn” (September, 2016), the Office of US Trade Representative announced new action against China:

Today, the Obama Administration has launched a new trade enforcement action against the People’s Republic of China at the World Trade Organization (WTO) concerning excessive government support provided for Chinese production of rice, wheat, and corn. [Admin. officials joined] by bipartisan members of Congress in announcing the complaint which challenges China’s use of “market price support” for three key crops (rice, wheat, and corn) in excess of China’s commitments under WTO rules.

The U.S. government also subsidizes US farmers growing and exporting rice, wheat, and corn. Comparing farm subsidies across countries is complex. Iowa plays a key role in each Presidential election cycle because of the early caucuses lead other state primaries. And because corn is big business in Iowa, Presidential candidates usually call for maintaining corn and ethanol subsidies in their Iowa campaign stops.Screen Shot 2017-01-23 at 9.55.32 AM

In 2015 Iowa farmers exported $1.4 billion in corn and other agricultural goods to China and Iowa exports have increased 257% since 2006.

According to an “Agricultural Subsidies” (October 7, 2016 ) on Downsizing Government, the U.S. Department of Agriculture (USDA) spends an average of $25 billion a year on eight major farm subsidy programs. The amount varies depending on farm prices.

Reasons to end US farm subsidies are listed and discussed in the article, and number 4 should be of particular interest to students debating US/China policy reform:

1. Subsidies Redistribute Wealth Upwards.
2. Subsidies Damage the Economy.
3. Subsidies Are Prone to Scandal.
4. Subsidies Undermine U.S. Trade Relations.
5. Subsidies Harm the Environment.
6. Agriculture Would Thrive without Subsidies.

Crop prices fell in 2016 and Reuters reports “USDA to pay farmers more than $7 billion due to low crop prices,” (October 4, 2016). Though USDA and farm groups argue the federal insurance subsidies help provide just a “safety net” for farmers when prices fall, they encourage farmers to expand production, since they can expect to make money whether prices at harvest time are high or low (selling at market prices or at government-subsidized insured prices).

Farm exports to China in 2015 were over $20 billion in 2015, according to the USDA Foreign Agricultural Service:

Screen Shot 2017-01-23 at 10.25.28 AMU.S. agricultural exports to China have grown more than 200 percent over the past decade and China was the United States’ second-largest international market in 2015. U.S. farm and food exports to China totaled more than $20.2 billion in 2015, led by soybeans, coarse grains, distillers’ grains, hides and skins, and cotton.

So… what if both the US government and the Chinese government worked together to reduce or eliminate subsidies to farmers.  US subsidies allow farmers to export corn, wheat, and other subsidized crops to other countries at artificially low prices. Subsidies also cost domestic taxpayers billions, and the money mostly goes to wealthy farmers. Chinese government farm subsidies similarly distort world markets and cost Chinese taxpayers billions.

US relations with China may be most influenced by Terry Branstad, the Trump Administration’s USDA nominee. According to the Des Moines Register (December 10, 2016):

Iowa’s long-serving governor earned selection as U.S. ambassador to China by virtue of his long-standing personal ties to Chinese President Xi Jinping, which stretch back three decades. But how far does friendship go in managing relations between the world’s two most powerful countries? Branstad will soon find out in his new role.

Though the Des Moines Register mostly discusses US/China geopolitical issues and the long personal relationship between Terry Branstad and Chinese President Xi Jinping, reducing and reforming farm subsidies would help rationalize commodity farm production in US and China, reduce environmental harms, and reduce financial burdens to taxpayers in both countries.

A 2013 NCPA study “How U.S. Agricultural Subsidies Harm the Environment, Taxpayers and the Poor,” though not discussing China directly, focuses on environmental harms encouraged by US farm subsidies, and concludes:

Screen Shot 2017-01-23 at 10.42.28 AMAgricultural subsidies distort market prices and interfere with trade, causing deleterious distortions that adversely affect poor famers in developing countries and burden U.S. taxpayers. Moreover, in some cases agricultural subsidies can lead to environmental degradation. Reducing agricultural subsidies has the potential to help developing countries, the environment and taxpayers.  

The National Interest offers an “end of the world as we know it” scenario for a potential Trump Administration/China clash: “$5 Trillion Meltdown: What If China Shuts Down the South China Sea?” (July 16, 2016) Rex Tillerson’s Senate confirmation remarks, reported in “Rex Tillerson’s South China Sea Remarks Foreshadow Possible Foreign Policy Crisis” (New York Times, January 12, 2017) called for the US to get tough with China’s bases on South China Sea islands.

Mr. Tillerson told members of the Senate Foreign Relations Committee on Wednesday that China’s multibillion-dollar island-building campaign in the oil-and-gas rich sea was illegal and “akin to Russia’s taking of Crimea.”

“We’re going to have to send China a clear signal that, first, the island-building stops,” Mr. Tillerson told the senators. “And second, your access to those islands also is not going to be allowed.”

But concern about oil and gas under the South China Sea is misguided. The key South China Sea issues are shipping and fishing. Future oil and gas should be considered a distant third.

Since 2014, billions of dollars have been lost by around the world in deep sea oil and gas projects (“15 [oil] companies lost $21.7 billion in 2014“). Exploration and drilling projects started before mid-2014 expected $75 to $100 a barrel oil and similarly high natural gas prices. Oil was $114 a barrel in June, 2014, but dropped below $50 and has stayed in the $40-$60 range since.

Surging oil from US shale drilling, increased oil from Saudi Arabia, Iraq, and Russia, as well as in returning Iran, all have production costs well below future undersea oil. Even without political risks, oil from under the South China Sea is less and less likely or relevant. Before the shale boom, the Chinese government believed oil shortages a key national defense issue. But that was ten years ago, when no one expected vast new oil and gas production from horizontal drilling through U.S. shale deposits.

Shale has another advantage over undersea drilling: fast and lower start-up costs. A proposed project to discover and drill oil or natural gas from under the South China Sea would cost billions and take perhaps a decade to bring oil to market. Advocates for such a project need the money now but won’t have revenue for ten years. New shale well proposals can raise funds and start drilling in a few months. Plus hundreds of already drilled wells are capped and just waiting for higher oil prices (see: “Hoping for a Price Surge, Oil Companies Keep Wells in Reserve” (New York Times, December 25, 2015).

Maybe some day oil and natural gas from the new “Saudi Arabia” under the South China Sea will be able to compete in world markets, but that day seems far, far in the future.

Shipping and South China Sea fisheries though, are still very important. China needs the sea lanes to stay open for its imports and exports. The National Interest story (above), suggests China could block the sea lanes, forcing expensive diversion  for energy and other shipping headed for Taiwan, South Korea, and Japan:

…two-thirds of South Korea’s energy supplies, nearly 60 percent of Japan’s and Taiwan’s, and 80 percent of China’s crude oil imports flow through the South China Sea.

However, any Chinese action that threatens the South Korean, Taiwanese, or Japanese economy also threatens Chinese workers and companies. See, for example, “A bridge over troubled waters: Taiwan, Japan and South Korea employ huge numbers of mainland Chinese” (The Economist, November 8th 2014):

88,000 firms from Taiwan employ 15.6m Chinese workers. About 11m are employed at 23,000 Japanese firms or their suppliers. Throw in 2m more workers for South Korean enterprises, and companies from around the troubled East China Sea have approaching 30m Chinese on their payrolls.

Tens of millions more in China work for suppliers to firms based in South Korea, Taiwan, and Japan. Plus Chinese firms are investing heavily in South Korea. See, for example: “China shovels investment into South Korea — entertainment, real estate big takers” (Asia Times, April 20, 2016).

Strong economic ties between China, South Korea, Taiwan, Singapore, and Japan serve as a counterbalance to nationalistic urges and a history of conflicts. Chinese action to restrict shipping over the South China Sea would be economically and politically destabilizing, and I think as unlikely as major oil and gas production from under the South China Sea.

But under these shipping lanes are the vast fisheries, which have collapsed due to overfishing. The good news is that South China Seas fisheries can be restored drawing from successful fisheries restoration and management in New Zealand, Australia, and other world fisheries.

Follow the Fish: Considering Options in the South China Sea,” (Marine Awareness Project, November 7, 2016), explains the role of regional fisheries agreements to complement the Exclusive Economic Zones (EEZs) of international law:

The second, and less-noticed, level is the regional one—that is, formulating and implementing regionally agreed-upon standards outside the established EEZ or territorial sea boundaries of littoral states. After all, fish are the only sovereign resources that stubbornly move between and among jurisdictions. To ensure that migrating species are not fished down to zero in regional high seas (so that there will be some fish left to swim into EEZs), UNCLOS encourages signatories to develop management measures in areas beyond an EEZ’s jurisdiction.

Wall Street Journal overview (July 19, 2016): “5 Things About Fishing in the South China Sea“:

• Fish stocks in the South China Sea have fallen 70% to 95% from 1950s levels,
• Fish caught in the South China Sea account for about 12% of the global annual catch.
• Chinese fishing fleets significantly outnumber those from other claimant countries in the South China Sea
• An average person in Southeast Asia and China consumes about 24.2 kilograms of fish a year… The average annual consumption of seafood in the U.S. was just 6.5 kilograms in 2012
• The ruling from the U.N. Permanent Court of Arbitration effectively demolished China’s claim to the vast majority of the South China Sea.

However, regional fisheries agreements based on top-down planning lack the institutional strength of quota-based systems like catch shares or TURFs.

Catch shares, mentioned above, offer an alternative path to restore and manage endangered fisheries. The Environmental Defense Fund’s Fisheries Solutions Center reports:

As of 2013, nearly 200 rights-based management programs exist worldwide, affecting more than 500 different species in 40 countries.

Debaters of the ocean policy topic should be familiar with EDF and the success of catch shares systems in restoring fisheries.

The Fisheries Solutions Center lists Shiyin Chen as Asia-Pacific Legal Fellow :

Shiyin assesses fisheries laws and policies and their implementations in Asian countries, particularly in China, and analyzes the possibility of using market-based approaches to achieve sustainability. She helps the Oceans Program launch fishing rights programs in China to reverse the decline of fish stocks and restore marine biodiversity. 

Screen Shot 2017-01-15 at 9.45.42 AMFor more on catch shares, see, “Catch Shares Around the World” (PERC), reporting on EDF report:

The Environmental Defense Fund has published a map of all catch share programs around the world. According to the infographic (click to enlarge), as of 2010 there were 275 catch share programs in effect worldwide, affecting 850 different species.

New Zealand and Australia lead the world in rights-based fisheries, with 117 and 111 species under catch share management respectively. Canada, Chile, and the United States are also among the top five in species protected. Perhaps surprisingly, rights-based fisheries exist in countries ranging from Namibia (8 species) to Papua New Guinea (13 species). See the accompanying searchable database of catch share systems around the world.

This Izzit.org video, Sustainable Oceans & Seas reviews the history and economic principles behind New Zealand’s recovery from collapsed fisheries 30 years ago. How to implement similar reforms to the contested South China Sea is a challenge.

Sustainable Oceans & Seas – Full Video from izzit.org on Vimeo.

Affirmative Case:  Repeal Section 421 Tariffs on Chinese Imports

screen-shot-2017-01-11-at-5-14-54-amFact 1: Section 421 Tariffs Discriminate Against Chinese Imports

Fact 2: Section 421 Tariffs Intended to be Temporary

Fact 3: Section 421 Tariffs Remain Authorized by Congress

Impact 1: Lower Evidentiary Standards Decrease Presidential Accountability

Impact 2: Lower Evidentiary Standards Enable Ineffective Tariffs

Plan: Repeal Section 421 Tariff Authorization

— See case pdf with evidence at link:



[NCPA Special Publication: Wednesday, December 28, 2016]

by Doug Bandow

“Resolved: The United States federal government should substantially increase its economic and/or diplomatic engagement with the People’s Republic of China.”

There is no more important bilateral relationship than that between the United States and China. Yet the Congressional Research Service warns that ties have “become increasingly complex and often fraught with tension.” Relations appear likely to become even more fractious with the election of Donald Trump as president. Every four years the People’s Republic of China (PRC) becomes a presidential election issue, but Americans deserve a better explanation of the importance of U.S.-China political and economic relations than candidates’ sound-bytes.

The Complicated Relationship with China. China is an emerging great power and perhaps eventual superpower that is challenging Washington in sescreen-shot-2017-01-01-at-10-48-50-amveral key areas. The economic benefits for the United States of its relationship with China seem obvious, but many Americans wonder if the difficulties outweigh the benefits.

The PRC possesses the world’s second largest economy and has become both commercial partner and competitor with the United States. Trade between the two nations is beneficial because of comparative advantage; that is, each country is relatively better at producing some items than the other. This economic concept is the foundation for trade throughout history.

However, international commerce today is about politics as well as economics. Trade and investment disputes have multiplied between the two governments while China remains the fount of extensive cyber-espionage targeting U.S. business secrets. Continuing the relationship depends on the ability of the two governments to work through these often contentious disputes.

[See full article here.]

– See more at: http://www.ncpathinktank.org/pub/economics-of-the-2016-2017-debate-topic-us-relations-with-china-mixing-cooperation-with-competition#sthash.X9Qp2bar.dpuf

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