Every year, the United States and China have a forum called The United States-China Joint Commission on Commerce and Trade.  In past years this forum has often been more for show then action.   This year, with the possible exception of intellectual property rights, it seems that it is more of the same.   The United States complains about access to their markets, and in past years how they artificially keep the value of their currency low.  The Chinese agree to look into opening up markets and proceed to blame the United States for the problem.   

On the issue of intellectual property rights, the United States has been asking the Chinese government to crackdown on counterfeiters for years.  Other than some high profile “raids” against counterfeiters of product where the legitimate companies set up shop in China, not much was done.   The counterfeit market in China is continuing to grow exponentially and was estimated at almost $8 billion last year.   The Chinese government is not incented to address the problem since most of the counterfeit goods are produced there.  Shutting the counterfeiters down hurts their economy more then it helps.  Since the Chinese government continually has shown that they do not care about international laws do not expect much of a change moving forward.  The potential positive from the talks this year revolve around one person, Mr. Wang.  Mr. Wang is a top economic policy maker who took the unusual step of agreeing to personally oversee the “public campaign” against piracy.  It would be better if the oversight was on a crackdown instead of a “public campaign”, but it is a step in the right direction if he actually does more than talk.  

The talks did have its share of issues that seem do something, but did not really accomplish much.  China agreed to “revise”, whatever that means, a catalog of industrial equipment and heavy machinery used to promote the production of the items by Chinese companies.   They also agreed to work with the United State on “smart grid” technology standards, but there was no commitment to have a unified standard.  On the issue of wireless technology China agreed to “remain neutral”.  I am not sure how the Chinese agreeing to not change anything equates to easing access to those markets.   The last major accomplishment touted is the Chinese government’s willingness to let foreign companies use their experience in wind farm development in other countries to qualify them for projects in China.  This change gets them in the game, but how many of these projects do you think will actually be awarded to foreign companies, and especially those who manufacture outside of China.

In the end, the Chinese again put the blame for the trade imbalance on the United States by implying that there would be no imbalance if we just reduced the export restriction on high-tech items.   Relaxing the export restrictions would only account for a relatively small percentage of the trade imbalance, so it does not solve the problem.  The bigger issues are really that we cannot trust the Chinese in how they would use, and more importantly, how they would protect the high tech technology.

My biggest hope for the talks is in an area that they agreed not to cover, the valuation of the renminbi.  The Chinese have often shown an unwillingness to do things that they are being pressured into doing.  By taking the renminbi out of the talks, the Chinese can appear to the world as making a change on their own and not under pressure from the United States.  Maybe it is just wishful thinking, so as with everything with China we will have to wait and see.

Protectionism? Maybe, but so what.

What is the purpose of the US economic stimulus package? The answer is relatively simple, to stimulate the US economy. So why would anyone question whether there is a provision in the stimulus to buy American? I support free trade and am not a fan of most protectionism, but that is not really the point since this has nothing to do with trade policy or general spending. Without focusing the stimulus on domestic industries, I am afraid that two things will happen; the stimulus will not be sufficient enough to stimulate the domestic economy due to stimulus dollars going elsewhere, and the US will be paying for failed stimulus to other nations.

The stimulus package needs to focus every dollar it can to the domestic economy. As Paul Krugman points out in his The Conscience of a Liberal post; “if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.” This is why President Obama wanted to coordinate stimulus with the G20 nations.

I have always said that I do not mind paying taxes. I was fortunate enough to be born into a middleclass family in one of the greatest countries on earth. Paying taxes is just the cost of having the privilege of living here, as it is in any country. Taxes are not for raising money to stimulate the economies of other countries, that is the job of their governments. I think it is fine when it is for humanitarian purposes or to support national interests, but not as part of a domestic stimulus package and especially when we need to get our economy going first.

In short, our government needs to focus on improving our economy and making sure the stimulus is as effective as possible for the domestic economy. Improving the US economy will provide more long term benefit to the world economy then the lost, to external countries, stimulus would provide.