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Monday, April 17, 2006

Do Angry Losers Bias Perception?

China Daily is a state-run newspaper. Here's what the paper is saying today as President Hu Jintao gets ready to embark on his tour of the U.S., a tour designed to ease escalating trade worries in the U.S. among other issues:

Losers shout loudest, China Daily: A key phenomenon accompanying globalization is loud complaints from losers or those who fear becoming losers in the process - farmers of the Republic of Korea (ROK), European shoemakers and US textile workers to name just a few.

The voice of those who benefit from globalization, in comparison, sounds much weaker, either because they are highly scattered - such as consumers and retailers in rich countries benefiting from inexpensive goods produced in developing countries - or because it is difficult for them to disclose what they have gained, such as multinational companies winning fat profit in developing countries. Many US businesses operating in China are perfect examples for those companies.

According to a survey by the American Chamber of Commerce in China, ... three-quarters of them are making profits and more than 40 per cent of the surveyed said their profit margin in China outperforms their global average. But few companies would disclose the exact profit figures. However, back home, advocates for American workers assertively produced exact figures about how many jobs China has "stolen" from the United States and how much China has undervalued its currency.

In the United States, few have the real incentive to check the authenticity of these unqualified figures. In addition, the figures are just auxiliary tools for the well-organized choir of China bashers. What is really important is their sheer volume, which can be translated into the number of votes in elections.

In reality, the loss of US manufacturing jobs was mainly caused by American companies' enhanced productivity. American firms cannot stay in many sectors of manufacturing industries in the age of globalization simply because they cannot compete with competitors from developing countries who operate on much lower costs.

As a result, adjustment in American industries has been going on and it must continue. Each country participating in international trade in today's world has to do the same. It is inevitable.

In China, for example, many soybean and cotton farmers, in the face of surging imports, are struggling. Needless to say, the adjustments can be painful and difficult, either for Chinese farmers, ROK farmers, European shoemakers or American textile workers.

But life is not only about earning money by selling Boeing airplanes, Citibank services and Tide detergent. All parties concerned, especially the governments, should take the responsibility to facilitate the adjustment and to help those who are affected find new jobs, instead of joining the effort of blaming others.

A similar argument is often heard about the effects of inflation. The CPI measures an average market basket and even if wages are, on average, keeping up with inflation there will be winners and losers. Those who are hurt the most due to their particular market basket complain loudly, but you rarely hear people who gain from inflation thanking the monetary authorities (save perhaps your parents telling you how low their house payment is). Thus, there may be an inherent bias in the public's perception of the inflation problem. China Daily is saying globalization suffers from the same bias. There may be some of this, but even so, the problem is not merely one of perception, the global reorganization of production is a real phenomena that affects some workers adversely. For another 'interesting' attempt to sway the politics, here's a recent editorial comparing the trade ratio of jets to T-shirts: Economics of shirts, jets

    Posted by on Monday, April 17, 2006 at 12:00 PM in China, Economics, International Finance, International Trade, Politics | Permalink  TrackBack (0)  Comments (16)

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