Krugman: The Chinese Challenge

[RamboLiberal]

http://www.nytimes.com/2005/06/27/opinion/27krugman.html?hp=&pagewanted=print

Fifteen years ago, when Japanese companies were busily buying up chunks of corporate America, I was one of those urging Americans not to panic. You might therefore expect me to offer similar soothing words now that the Chinese are doing the same thing. But the Chinese challenge - highlighted by the bids for Maytag and Unocal - looks a lot more serious than the Japanese challenge ever did.

There's nothing shocking per se about the fact that Chinese buyers are now seeking control over some American companies. After all, there's no natural law that says Americans will always be in charge. Power usually ends up in the hands of those who hold the purse strings. America, which imports far more than it exports, has been living for years on borrowed funds, and lately China has been buying many of our I.O.U.'s.

<snip>

The China National Offshore Oil Corporation, a company that is 70 percent owned by the Chinese government, is seeking to acquire control of Unocal, an energy company with global reach. In particular, Unocal has a history - oddly ignored in much reporting on the Chinese offer - of doing business with problematic regimes in difficult places, including the Burmese junta and the Taliban. One indication of Unocal's reach: Zalmay Khalilzad, who was U.S. ambassador to Afghanistan for 18 months and was just confirmed as ambassador to Iraq, was a Unocal consultant.

Unocal sounds, in other words, like exactly the kind of company the Chinese government might want to control if it envisions a sort of "great game" in which major economic powers scramble for access to far-flung oil and natural gas reserves. (Buying a company is a lot cheaper, in lives and money, than invading an oil-producing country.) So the Unocal story gains extra resonance from the latest surge in oil prices.

[idlisambar]

1. Krugman misses the big picture

Krugman didn't understand then and doesn't understand now that the "Japanese challenge" was strong then and is even stronger today. One only has to look at the relative positions of the US and Japanese positions in industries such as autos, electronics, machine tools, steel etc. to understand that the Japanese challenge was and continues to be hugely successful. Even in aerospace, until recently dominated by American industry, Japanese firms have a greater share of the production of the new 787 than any other country, including the US.

Krugman should also examine which nation, Japan or China, has the largest accumulation of foreign exchange reserves -- Japan by a landslide, and he should look at which of the two nations, Japan or China, clocked a record current account surplus last year -- Japan again.

The big picture is that instead of one mercantilist nation crushing American industry now we now have two.

[Oversea Visitor]

2. You have not being paying attention to South Korea

They will be an economic force to be seriously consider.

[idlisambar]

3. no question about it

South Korea already exerts considerable economic power for its size. From an American perspective, I think it is appropriate to view each nation as a part of a larger economic and trading block. Each shares the same economic philosophy including a mercantilist view of trade. Moreover there is a lot of economic integration between the three.

[Raster]

4. Krugman missing the picture...? Not a chance.

[idlisambar]

6. Faith is a little misplaced

I like Krugman's politics, but he is after all an economist trained in the neo-classical mold and as such his judgment is not reliable particularly (though not exclusively) on matters of trade. And because Krugman made his mark on the economics profession as a trade theorist his words carry more weight.

[K-W]

9. Krugman also has a childish understanding of globalization critiques

Its always jarring as he hits home runs on many issues and than makes the stupidest remarks about globalization opponants.

He is amazing in how free he is of the indoctrination most economists demonstrate in spades, but he is hardly free from it.

[HereSince1628]

7. I just visited China, getting back yesterday, China is booming

like nothing I've ever witnessed firsthand.

I am no economist, and a two week visit surely doesn't make me an expert but 30 to 50 story commercial office buildings which are being built literally by the hundreds cost real money.

China's wealth is obvious. I am of the opinion that China's central control makes it relatively easy for their federal government to wield that wealth in strategic ways.

Consequently, I am sympathetic to Krugman's warning. Many on DU feel that the Iraq oil was really part of the "big game" to control access to oil resources. Contemporary China doesn't have a reputation of open and balanced trade with the US. Indeed China acts on its national interest. America must approach Chinese government's control of a strategic American resource with that knowledge or it seems China will be in a position to clean our proverbial clock.

[idlisambar]

8. Krugman's warning should be heeded

Krugman is right to recognize China's long-run potential for all of the reasons you cite. His error is in recognizing the challenge from China role alone when it is the East Asian region as a whole that poses the bigger challenge. In particular he pointedly dismisses the significance of the ongoing challenge of the region's largest economy.

To illustrate this point take a look at this recent article..

For those who claim to understand the global economy, here’s a pertinent question: Which East Asian economic powerhouse recently announced the largest current-account surplus in world history?

The answer is Japan, although very few readers of the American press are likely to have noticed. Given the continuing media obsession with China, little news about East Asia’s other giant economy makes it into print or onto television these days. Yet in most of the ways that matter to current U.S. economic policy, Japan remains far more important than China.

To be sure, China is growing very fast. But misinformed American commentary to the contrary, China remains many years away from displacing Japan as Asia’s largest economy. Still less is China any sort of benchmark against which a high-wage economy like the United States should be measuring itself.

Japan, by contrast, is a useful benchmark. One important fact ignored by the American media is that Japanese industrial wages are now among the world’s highest. Not only are they far higher than in China (between four and 15 times higher, depending on the region of China), they are actually 20 percent to 30 percent higher than in the United States. Yet Japan’s export industries have not only survived but thrived.

http://www.prospect.org/web/page.ww?section=root&name=ViewPrint&articleId=9540

[wallwriter]

5. Buying is a lot cheaper than invading...

[K-W]

10. But not nearly as effective.

China can buy all it wants, if it ever tries to buy enough to threaten our power we will stop it by any means neccessary.

That is why military power is still the foundation of all political order.