HW Help: US-China Trade Relations

[luckystar112]

Yeah, I can''t believe I''m about to do this, and you gotta believe that I must be desperate in order to do so, but I need some help with a homework assignment for my Polysci class.

It''s online, which means that I pretty much have to teach myself...but I''m having trouble. And I know that many of the ATW regulars are a lot more worldly than me. I feel like I''m being asked to spin string into gold here. And I know this is a reaaaaaalllllllllllll long shot since hardly anyone visits this section anymore.

The assignment is based upon the article "Free Trade Britain and Fortress France" by John V.C. Nye. If you aren''t familiar with it, I can copy and paste. It''s basically about how Britain has been long looked at as the first nation to fully embrace free trade, but France (who was made out to look like the bad guy) was actually closer to the ideal because Britain kept tariffs on items that they did not have a comparitive advantage on.

The three articles he gave us to read about U.S./China relations are:

http://www.newsweek.com/id/212143

http://hbswk.hbs.edu/item/6094.html

http://www.the-american-interest.com/article.cfm?piece=533

And the instructions are:
Please consider the possibility that some of the terms, concepts and ideas from the article in this unit - Free Trade Britain and Fortress France - can be applied to the current relationship between the US and China. (1 page essay).

Now, I went into this class with very limited knowledge about trade (i.e. none) and very barely any knowledge about economics (as in, one microeconomics class) and especially NOTHING on how trade affects economics... So I''m really just not seeing what I''m supposed to be seeing! I''m not asking you to write the paper FOR me, but does anyone have any ideas on how these two scenarios are comparable?

You''ll be saving my life.

 

[ksinger]

Date: 2/4/2010 4:21:18 PM
Author:luckystar112

Yeah, I can''t believe I''m about to do this, and you gotta believe that I must be desperate in order to do so, but I need some help with a homework assignment for my Polysci class.

It''s online, which means that I pretty much have to teach myself...but I''m having trouble. And I know that many of the ATW regulars are a lot more worldly than me. I feel like I''m being asked to spin string into gold here. And I know this is a reaaaaaalllllllllllll long shot since hardly anyone visits this section anymore.

The assignment is based upon the article ''Free Trade Britain and Fortress France'' by John V.C. Nye. If you aren''t familiar with it, I can copy and paste. It''s basically about how Britain has been long looked at as the first nation to fully embrace free trade, but France (who was made out to look like the bad guy) was actually closer to the ideal because Britain kept tariffs on items that they did not have a comparitive advantage on.

The three articles he gave us to read about U.S./China relations are:

http://www.newsweek.com/id/212143

http://hbswk.hbs.edu/item/6094.html

http://www.the-american-interest.com/article.cfm?piece=533

And the instructions are:
Please consider the possibility that some of the terms, concepts and ideas from the article in this unit - Free Trade Britain and Fortress France - can be applied to the current relationship between the US and China. (1 page essay).

Now, I went into this class with very limited knowledge about trade (i.e. none) and very barely any knowledge about economics (as in, one microeconomics class) and especially NOTHING on how trade affects economics... So I''m really just not seeing what I''m supposed to be seeing! I''m not asking you to write the paper FOR me, but does anyone have any ideas on how these two scenarios are comparable?

You''ll be saving my life.

No promises, but I''ll try to get the hubs to read this stuff for you and see if he can offer any insights. You may recall he''s a history teacher. I think he focused on international relations, economics (which he adores) and China. Of course, he''s probably got a handle on it just because he loves all things history.

Swimmer might chime in if she can, as the PS resident history geek.

 

[ksinger]

Can you give me some guidence on a time period? "Fortress France and Free Trade Britain" SOUNDS as if it would be Thatcher/Reagan period (later than the periods I normally teach). It''s difficult to support a "free trade" label for Britain ,or for the US, up to Reagan. The only analogy that comes to mind is that China is restricting entry into their markets, just as France was during the Victorian/Edwardian periods in England.

As for why trade is beneficial; two theories, a; comparative advantage theory states that if country A is more efficient at producing computers than lawnmowers it should outsource it''s lawnmower production so Country A can concentrate on producing computers (even if they can produce lawnmowers cheaper). b; the inflation model would be that by buying lawnmowers in Country A dollars from Country B, the overall money supply is increased. Lawnmowers Inc. in Country B can''t spend A dollars so it''s gives them to the B bank which prints more B dollars for Lawnmower Inc while storing the A dollars. So there''s more B dollars in Country B and "free" lawnmowers in Country A.

Overly simplistic, but decent beginning model.

 

[luckystar112]

Ksinger (and Ksinger hubby) you are the best! I''m telling you, I wish I wouldn''t have taken this class online.

The time period the article refers to is the 1600-1800s and the push toward free trade. If it helps, we''ve gone over comparitive and absolute advantages a little bit and we''ve discussed the industrial revolution. Here is the Nye article in its entirety:

The Myth of Free-Trade Britain and Fortress France

John V.C. Nye, 2003

In the two and a half centuries since Adam Smith first articulated the basic case for free trade, no event has been more significant than the British conversion to open markets in the nineteenth century. In the fable that is now conventional wisdom, nineteenth century Britain turned its back on protection and chose to open its markets to the world. A reform-minded British leadership, preaching the new gospel of free trade pushed their European confreres to open up their own markets, eventually ushering in an age of expansive commerce the likes of which the world had never seen—a precursor of late twentieth century globalization that was in many ways more open than anything before or since.

Yet this story has one big flaw: it''s inconsistent with the facts.

As the story is usually told, British free trade came in the 1840s after a bitter political struggle to repeal the Corn Laws—a name given to a series of agricultural tariffs and quotas designed to keep farm prices high. This was quickly followed by rapid and dramatic reductions in duties on hundreds of imports. By the 1850s, all but a handful of commodities were admitted to Britain free of all duties. Sounds good, until you look closely at what products remained subject to high duties: those handful of items were the most contentious and some of the most highly taxed items that historically had been at the core of the mercantile debate in British history. In previous centuries they formed a large and significant fraction of British trade.

Free trade should mean just that: free trade, with all goods admitted without duties, quotas, or restrictions. That was not British policy. They removed most tariffs but mostly on items in which they had a comparative advantage. In other words, they mostly removed tariffs on items for which Britain had little to fear in terms of competition or which were of trivial importance in overall trade.

Britain in the early 1800s had just passed through the Industrial Revolution and was the world''s leading producer of cotton textiles and other industrial products. It took little courage to lower tariffs on British manufactures. It would be like Japan promoting free trade in the 1980s by arguing for lower tariffs on compact cars imported from America. Since Japan already made some of the world''s best and most economical small cars, such a policy would have had very limited economic impact. Japan''s lowering trade barriers in agriculture would have been substantially more important and would have run up against enormous political resistance.

Nineteenth-century Britain had no comparative advantage in agricultural and foodstuffs. That is why the Corn Laws were initially so controversial. Consumers had a lot to gain from the state''s permitting the import of grain, because the British were not the cheapest producers of grain, while British farmers had much to lose. Unfortunately, the British did little to modify the tariffs on other contentious items, goods which had made for the commercial equivalent of war. Of these goods, the most important and the most troublesome was wine.

But how important is wine? To answer that we need to go back to the 1600s. Britain in the mid-seventeenth century was a prodigious importer of wine, mostly French. So much so, in fact, that her trade balance was in the red, mostly because of trade with France and mostly because of French wine, spirits and a number of luxury goods. Attempts to limit these imports by restricting trade had mostly failed. Tariffs were levied but never so high as to reduce the imports drastically. But then came the wars.

Two major conflicts spanning a quarter century kept French wine—indeed, all French imports—out of the British market from 1689 to 1713. The Nine Years'' War and the War of Spanish Succession led to hostilities between Britain and France and a complete breakdown in trade for this quarter century. During this grape-challenged period, three interest groups derived enormous benefit from the embargo on France—the British brewing industry, British distillers (gin, etc.) and British interests in foreign producers of alcohol—most notably the shippers of Portuguese wine. Prior to the late 1600s, the British drank plenty of wine, mostly French, a little Spanish, but virtually nothing from Portugal. The wars of 1689-1713 gave the Portuguese allies the opportunity of ten lifetimes. Beginning in 1703 a treaty was signed granting Portugal access to British markets for their wines—generally of a much lower quality than those of France, and often needing to be fortified with brandy or spirits in order to keep from going bad. The Methuen Treaty (as it was known) promised that Portuguese tariffs would always be at least a third lower than those of other nations, most especially France.

Of course, most of the Portuguese wine trade was dominated by British ships, merchants, and even vintners working in Iberia. The end of hostilities between Britain and France was seen as a grave threat to all these British interests, and vigorous lobbying by brewers, distillers, and the Anglo-Portuguese merchants stopped attempts to return to the period of open trade with the French. A bill to revive trade on prewar conditions between Britain and France was defeated in Parliament.

Even worse, tariffs were raised even higher throughout the eighteenth century. The result was that French exports of wine to Britain in the 1700s fell to less than 5% of the levels (measured by volume) that had prevailed in the 1600s. A twenty-fold decrease! The high taxes kept out all but the finest French products. Indeed, the French were kept out of the British market for most of the period of the Industrial Revolution, when the middle classes emerged and middle class tastes developed. Only the rich had access to the very finest clarets of Bordeaux. Cheap wine was simply not worth importing. And the British brewers, distillers, and merchant shippers never had it better. One historian has remarked that absent war and protection, the Gin Age 1 might never have come into existence.

These assorted tariffs on wine and other consumables—which Adam Smith had condemned for their inefficiency in the eighteenth century—remained at the core of British protection in the nineteenth, when trade was supposedly made free. Though claiming to have moved to open markets, the British hung on to tariffs that were of long standing, and that moreover, prevented much progress from being made in bilateral treaty negotiations. France was not about to sign a bilateral commercial treaty if Britain was unwilling to compromise on wine and spirits.

Britain preached the gospel of free trade and France was cast in the role of the sinner, but there was little truth in this stereotype. France did have more protected products than England did but the average level of French tariffs (measured as total value of duties divided by total value of imports, cf. Figure 1) was actually lower than in Britain for three-quarters of the nineteenth century. 2 In other words, tariffs had a smaller impact on French trade than British duties had on Britain''s trade. The French, while eschewing free trade, and openly rejecting the Anglo doctrine of open markets, actually succeeded in making their trade more liberal and more open than that of the more vocal British. The master of this was Napoleon III—Bonaparte''s nephew—who throughout the 1850s promoted the most radical liberalizing reforms of the French economy, all the while insisting that France was only interested in moderate reform.

Indeed, it was not British unilateral tariff reduction that moved the world to freer trade. Despite the belief that is still common today that British exhortation opened the doors to European free trade in the late 19th century, it was the 1860 Treaty of Commerce, promoted by the Napoleon III and concluded between Britain and France, that really ushered in the age of nineteenth century "globalization". British demands for unilateral tariff reduction usually fell on deaf ears.

Doctrinaire free traders and economic theorists opposed the use of commercial treaties since they felt that unilateral reductions were the most efficient policies for all countries. While correct in the abstract, such claims did little to overcome political resistance to trade liberalization in most countries. On the other hand, unwillingness on the part of the British to lower wine tariffs killed early trade negotiations with both France and Spain. When the British finally decided to moderate their wine tariffs, Britain and France successfully concluded a treaty in 1860 which dramatically changed the landscape of European commerce. Politicians throughout Europe—who had till then resisted all pressure to liberalize trade—suddenly became fearful of being left out of a trade pact that united the two great European powers. The result was that the other major European powers quickly signed bilateral treaties with Britain and France as well.

Since these treaties were all Most Favored Nation treaties—whereby concessions to one party meant extending such concessions to all the others—not just France and Britain, but by 1870 nearly all of Europe including the German states, Spain, Russia, the Netherlands, Denmark, Sweden, and so on were integrated into a highly open trading market. In many ways, Europe was freer than today, partly because the gold standard made capital extremely mobile, and because limitations in border control made immigration and the free movement of labor easy in practice despite differing rules across the continent.

What politicians do and say are often quite different. That hasn''t changed. Indeed, though there is much talk about globalization and unfettered trade, there is no country in existence today whose policies come anywhere near the ideal of free trade. Goods and services do flow vigorously throughout the globe, but most countries suffer from a mix of import duties and non-tariff barriers such as quotas, unnecessary inspection rules and a bewildering variety of regulations that make it impossible for any of us to benefit fully from the specialization possible in a truly open world economy.

But more importantly, the example of Britain and France in the 1800s challenges us to rethink and reanalyze the relationship between trade policy and growth. The story of Britain and France shows how easy it is to be misled by the fables of conventional wisdom. The fact that Britain was not as free trade as it claimed doesn''t make the case for protectionism. The British did lower their tariffs, and in the last third of the nineteenth century, Britain did fully liberalize trade and benefited from the change. But the interesting and unexamined story is France. Nineteenth-century France doesn''t fit our preconceptions. France was in fact, closer to the free trade ideal than the British for much of the century, and did in fact do well, raising the standard of living of the average worker from the 1850s onward.

 

[luckystar112]

I''m sorry that article is so long...it doesn''t seem that long on my online class. lol

So basically after reading that article I am supposed to be able to relate it to today and what is going on with China. I''m just having trouble understanding where he wants me to go with this though. Is Britain supposed to be China and we are France? Or the other way around? Does this have to do with protectionism and China''s refusal to up the yuan? Or is is about our restrictions on some of China''s products (electric blankets, etc)? And if so, how does that relate to France and Britain? Or is this about US bonds? I just don''t get it!

 

[ksinger]

Sorry Lucky, he fell asleep at about 8pm. They had parent-teacher conferences tonight and he was beat. Maybe I can get him to look at it tomorrow.

 

[luckystar112]

It''s okay Ksinger, a teacher''s job is never done!
The assignment isn''t due until February 8th, so there''s time if he''s still willing to offer his opinion.

I tried reading all four articles to my DH to get his perspective-- but he''s as bewildered as I am. I think the theme I''m supposed to be looking at is "trade", but I''m not sure. I just don''t see the relationship.

 

[fleur-de-lis]

Hi Luckystar,

It's late here and I only skimmed the article and none of the linked, but to get you started the obvious parallel, the US today is similar to the British during the period of their hegemony when it came to international trade. Both countries talked publicly on the wisdom, benefits, and philosophy of opening trade, but when push comes to shove that principle is applied by powerful countries predominantly when it doesn't harm the domestic producers to do so-- both then and today. For example, when a second country (for example, China) is able to produce a product that is similar to the one made in the first/home country (in this case, the US) for *significantly* less than it is able to be made in the first/home country (such is the case for many chinese-made goods), the home country, despite its stated policy espousing free trade, espouses countervailing duties or requires different method of customs calculations so as to require sometimes onerous taxes/tariffs to be placed on cheap imported goods so that domestic customers do not find them too appealing to pass up (and thus destroy the domestic industry). In some instances, the tariffs are so high that the foreign product simply can't compete and thus is effectively barred from the (in this case, US) market. Doing so in the most simplistic terms protects the domestic manufacturers from foreign competition and in turn harms the foreign country. (For extra credit, you can see one of the major roots of the schism between conservative and liberal parties in the US playing out on the protectionism angle of the debate of whether CVDs are a good thing or not.) To draw another parallel between today and the way-back-then of the article, side treaties in international trade law have repercussions with third parties as well. Like the agreements Britain gave to Portugual to give them a more favored status during the war between Britain and France, the United States opened up trade and lifted tariffs during the last few decades (for instance, the NAFTA agreement) with certain countries, mostly in the form of bilateral treaties (like the 1860 onward period in the article). These documents are replete with MFN (most favored nation) provisions, which in turn affect any future agreements which the US may wish to strike with a fourth party; or a fifth party, et cetera. Thus, MFN status becomes important; countries without it must then find more creative and calculating ways to get their goods to market because the protected market is not just the manufacturers in an industry of one country (such as the US) but all the other countries with which the US have enacted bilateral treaties with MFN status (in the broadest of terms Canada, Mexico, some Western European, some South American countries/industries), which brings about the practice of dumping, which in turn gives rise to anti-dumping laws. In turn, those countries with whom the US have bilateral treaties with MFN or other protectionist/preferential provisions form, in essence, blocs against those countries (like China) to the detriment of China.

It's been a few years since I was immersed professionally and scholastically in this field (nor did I read any of the linked articles, sorry, it's late here), but hopefully these late-night stream-of-consciousness ramblings from a very tired woman are enough to get you started in contextualizing the issues for your paper formulation.

Good luck Luckystar-- I'm very impressed that this is the caliber of coursework you're taking online! Bravo, girl!

 

[ksinger]

First, a book you want to reference is Kevin Phillips Wealth and Democracy in which he studies the shift from protectionism (growth) to financialism (free trade) by looking at the Netherlands, Spain, England and the US.

I would make the arguement (which it sounds like your prof wants to hear) that casting the US in Britain''s role and China in France''s would be most accurate due to the US expousing "free trade" in order to invest in other markets rather than sell to them (if you can remember the 70''s when Europe and Asia''s manufactoring really came on line, the US mantra was "diversification" rather than competition). Casting the US as Britian will be easy, casting China as France will be more difficult as China''s foothold came from cheap mass produced goods just as Britain''s foothold was. France, as I recall, had eschewed mass production for artisan quality (just as China did in the same period). I think your professor wants you to try to prove that the regulated economic model results in a more free economy which China being the example. Difficult. The linchpin in the paper would be to look more closely at France''s economy and it''s similarities to China (nailing that research would make your paper stand out as most people are familiar with Britain/US economic history) and go with the arguement that "free trade" was simply another way to push economic expansion of capital into other markets in the same way as mercantilism, imperialism, gun-boat diplomacy etc.

 

[luckystar112]

Ksinger''s DH, Fleu-de-lis, THANK YOU!
You have no idea. I feel like I "get it" now. I really appreciate you taking the time to look over the articles and help me with this. I am heading to the library in a couple of hours and I will keep a lookout for that book. I''ll let you know what the prof says once I receive his feedback.

Again, thank you!!

 

[swimmer]

Lucky,
sorry, i just heard from someone else about this thread! I ditto Fleur and KSinger, France is China in this scenario as they really are. The US of course preaches capitalism and free trade, but we are very protectionistic (farm subsidies) like Eng in the 1800s. Does your prof want just comparisons with today? Because very interestingly remember that in the 1860s the US forced Japan to have an "Open Door Policy" and Japan decided to open to trade and industrialize very quickly in a "if you can''t beat em'' join ''em" kind of way, while China chose to pretend that the rest of the world still had nothing to offer her and was only opened with the loss of the Opium Wars in the late 1860s to England...who of course was the largest drug dealer in the world at that point, flooding China with opium in order to reduce their trade deficit. China''s failure to recognize that the world was changing and that internationalization was imminent lead directly to the end of the Quing Dynasty.

Today, China''s control of the Yuan is wrapped up in nationalism, much like the French stance on reform back in the day, (and even Brit''s fanatical obsession with the pound). Both countries know/knew that they had something that no one else could produce (try growing wine in England, as easy as making super cheap manufactured goods in the US), France/China were ultimately in the power position trade-wise. The US/UK parallel is that they were coming from a position of strength, but dealing with issues of national debt, internal corruption, and at the end of a huge period of growth that they presumed would continue forever. The sun set on the British Empire sometime between WWI and WWII...when will it set on the US''s reign of most powerful nation trade status? Well, we saw how isolationism and protectionism worked for the Chinese...the Quing dynasty crashed and burned and the peasants turned to Mao, the Chinese had been the largest and most powerful empire until the Industrial Revolution. Not to be gloom and doom, but anytime a country gets into such a huge trade deficit situation...see UK, see China, the future is grim.

OK, just wanted to dash out my incoherent pre-coffee musings in the hopes of catching you before you got to the library. Must get out of my sweaty workout gear and get some b-fast. Hope this helps in any way, and post more questions if you need.

 

[ksinger]

Date: 2/7/2010 11:23:32 AM
Author: swimmer
Lucky,
sorry, i just heard from someone else about this thread! I ditto Fleur and KSinger, France is China in this scenario as they really are. The US of course preaches capitalism and free trade, but we are very protectionistic (farm subsidies) like Eng in the 1800s. Does your prof want just comparisons with today? Because very interestingly remember that in the 1860s the US forced Japan to have an ''Open Door Policy'' and Japan decided to open to trade and industrialize very quickly in a ''if you can''t beat em'' join ''em'' kind of way, while China chose to pretend that the rest of the world still had nothing to offer her and was only opened with the loss of the Opium Wars in the late 1860s to England...who of course was the largest drug dealer in the world at that point, flooding China with opium in order to reduce their trade deficit. China''s failure to recognize that the world was changing and that internationalization was imminent lead directly to the end of the Quing Dynasty.

Today, China''s control of the Yuan is wrapped up in nationalism, much like the French stance on reform back in the day, (and even Brit''s fanatical obsession with the pound). Both countries know/knew that they had something that no one else could produce (try growing wine in England, as easy as making super cheap manufactured goods in the US), France/China were ultimately in the power position trade-wise. The US/UK parallel is that they were coming from a position of strength, but dealing with issues of national debt, internal corruption, and at the end of a huge period of growth that they presumed would continue forever. The sun set on the British Empire sometime between WWI and WWII...when will it set on the US''s reign of most powerful nation trade status? Well, we saw how isolationism and protectionism worked for the Chinese...the Quing dynasty crashed and burned and the peasants turned to Mao, the Chinese had been the largest and most powerful empire until the Industrial Revolution. Not to be gloom and doom, but anytime a country gets into such a huge trade deficit situation...see UK, see China, the future is grim.

OK, just wanted to dash out my incoherent pre-coffee musings in the hopes of catching you before you got to the library. Must get out of my sweaty workout gear and get some b-fast. Hope this helps in any way, and post more questions if you need.

LOL! You must be hanging out in our living room on the sly! Too funny.

Hubs held forth at length verbally on the opium wars and Britain''s status as the world''s biggest drug dealer at the time. And of course the observation that we in America are walking the well-trod path - of being a manufacturing power to being an over-leveraged, debt-ridden creator of nothing but economic froth - to the end of empire. Lots of talk about mature vs emerging markets and how capital flows to those emerging markets. Seems almost inevitable when you view it all through the lens of what''s past, doesn''t it? Grim stuff for sure, but oh so interesting.

 

[luckystar112]

I read PP''s thread the other day about copying and pasting messages...of course I blew it off and now I just lost a huge reply!

To summarize, I just want to let you all know that I got a 90 on my essay! So thank you, I couldn''t have done it without you! Swimmer, I wish I would have caught your reply sooner because I would have loved to incorportat how the Chinese Yuan fits in with the Britain/France scenario. I didn''t touch on that because I just didn''t understand. That could have been why I got a 90 instead of a 100! But I noticed that a lot of my classmates just summarized the Chimerica articles and didn''t even touch upon the relationship with Britain/France. I guess they were having trouble too--I wonder what their grades were. So, I''m definitely glad I was able to make a couple comparisons that set my essay apart.

This class is very fascinating. Right now we are reading "The Road to Serfdom" by Friederich Hayek. Anyone ever read it? Very interesting. But what I love about this class it doesn''t follow any one political philosophy, but gives us both sides to every situation.

Anyway, I just wanted to thank you again! I am so glad that we have so many bright people on Pricescope! You saved my grade.

 

[zhuzhu]

Don''t have anything to contribute, but just want to say thanks for the wealth of information shared here.

 

[ksinger]

Hubs said he was glad to hear that, and happy he could help.