Tag Archives: China

On Freedom in China

They seemed genuinely baffled by my insistence that the ultimate freedom is the freedom to throw out the people in power if you don’t like them.

“You do that in your country all the time,” one of them pointed out to me, “and it doesn’t seem, to make much difference. What we want is stability – and that’s what we’ve got.”

You can find more of that and the change in China over the course of 30 years, here.

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Will EV Batteries achieve economies of scale?

So says the Department of Energy. (PDF Warning) This graph shows it all:

After reading the report, it seems the trajectory of this forecast was demand driven.  I have no doubt that economies of scale and innovation manufacturing processes can help bring the cost down but I am skeptical of the cost of lithium inputs.  It is not that abundant as oil, as there is only two regions I can think of (China and Bolivia) that have substantial sums of it.  But this does bode well for Intercon’s idea for reusing batteries for alternative power sources, as this will push prices downward for aftermarket batteries.  See, I said that economies of scale was possible! (or at least the DoE confirms it…)

HT: Engadget

The age of accommodating authoritarianism

I just read an article by Evgeny Morozov from The National via The Browser entitled Techno-Utopian fail.  Since the recent turmoil in Iran has started to promote social networking as foreign policy, — thereby letting democratic social networks, through the use of technology, help topple authoritarian regimes — Evgeny makes a chilling argument: that social networks will have the opposite effect by keeping the masses content. To categorize this experience under authoritarian regimes, Evgeny coins this as “accommodating authoritarianism.”

The reason why the Chinese can download Weeds or Mad Men from peer-to-peer networks is not because the Chinese government can no longer police the web. It’s because watching Weeds and Mad Men is what young people living under contemporary authoritarians are supposed to do. These societies no longer operate in the world of cultural scarcity; it’s hard to nudge them towards dissent with the promise of blue jeans or prohibited vinyl records. For every Chinese blogger that the techno-utopians expect to fight their government via Twitter, there are a hundred others who feel content with the status quo.

In one respect, then, authoritarian states and modern democracies are very much alike: both have embraced hedonism as their main and only political ideology. The recent outburst of techno-utopianism in the West may thus be just another futile attempt to imagine a world where the purest ideal of Athenian democracy, uncorrupted by special interests and popular culture, is not only possible but could actually be facilitated by its more corrupt, frivolous, and somewhat culpable western sibling. This, of course, is an illusion. Citizens of modern authoritarian states face a choice between hedonism with stable prosperity (their status quo) and hedonism with unstable prosperity – the hedonism that may follow a tumultuous transition to democracy. Stability wins, with or without Twitter.

Something important to note, however, is that Milton Friedman believed (as I paraphrase from “Capitalism and Freedom”) that capitalism most always is a precondition for political freedom. Yet, China obviously challenges that assumption in that “accommodating authoritarianism” undermines the link between capitalism and freedom. So it is interesting that although democracy seems to be most effective of political ideologies insofar as its alternatives, China as a prime example has been just as effective in bettering its people through the power of capitalism, but showing no need for political freedom. (although arguable) My point is that,  “both have embraced hedonism as their main and only political ideology” and that may be more indicative of human behavior rather than a system of institutions.  Therefore, capitalism continues to stand as the only proven system to generate wealth, innovation and human betterment, while politics remain as the ongoing experiment.

Tire tariff costs U.S. $1.35 billion in lost savings

Tire prices are rising and some analysts are pointing fingers at the Obama administrations 35% tire tariff on Chinese imports.  I had previously vocalized why this was a bad idea: that although the current impact would be small, it could lead to a trade war with China.  Of course with any tariff, there will be a dead weight loss, resulting in a decline of consumer surplus.  So, how have consumers been affected by this? Explicit costs include: (From the AP article)

Under the government’s new tariff, which went into effect in September, a set of Chinese tires that would have cost $280 now cost nearly $100 more.

As well as implicit costs:

Jennifer Stockburger, a tire test engineer for Consumer Reports, says six of the top ten all-season tires recently tested by the magazine were made in China by major manufacturers.

More importantly, the price increases for domestic tires is expected to end up offsetting the tariffs.  Some of the price increases have been caused by an upcoming rise in demand due to an economic recovery and maintenance needs as well as increasing material costs for production.

Lets do a cost-benefit analysis.  17% of the tire market is made up of Chinese tires.  Tire sales for 2008 was around $27 billion, which means that about $4.6 billion is Chinese tires. With an average price of $280 for Chinese tires pre-tariff, the total quantity of Chinese tires sold would amount to 16.4 million.  With a $100 price increase, assuming that domestic tire price increases offset the tariff increase, U.S. consumers are expected to lose out on a net savings of over $1.6 billion.  And that of course does not take into account the implicit cost of quality loss.

The tariff was expected to stop the loss of employment in the U.S. tire industry.  By assuming there would be a benefit of saving 5,000 jobs in the tire industry, even at the median U.S.  income, that only amounts to a very large estimate of over $250 million of saved income.

Therefore, Obama’s tire tariff cost the U.S. over $1.35 billion dollars.  Lets not to mention the sour trade relations he has made with China, and considering how his current trip there went; he has made it even worse.    I hope his political support from the unions was worth it when he goes for re-election in 2012.  It is quite an expensive campaign contribution.

Fixed rates and protectionism: monetary stability as a guise?

Paul Krugman has an interesting blog post on comparing current protectionist policies in Ecuador put in place that are similar to those put in place in the U.S. during the great depression.   The reason? Krugman points to a new paper that yields evidence to suggest that protectionist policies were a crude means of attempting to gain monetary stability as opposed to the popular argument that it was just simply economic ignorance.   Assuming that this new paper is correct in its findings, ( which makes sense given the tumultuous environment of international exchange rates and the gold standard during the depression era) Krugman may have missed the difference between the Ecuadorian economy and the depression era U.S.

While the Ecuadorian dollar being pegged to the U.S. is an appropriate similarity to the gold standard, the U.S. was flush with gold reserves pre-depression, which marked it as an economic juggernaut for international lending.  This is a starkly different position than what Ecuador is in right now.

While the protectionist policies Ecuador has decided to use may help stabilize their monetary stability, Krugman failed to highlight an important peice of what Ecudor actually put it on: (from the article he quoted, here)

In January 2009 Ecuador announced a series of stiff import restrictions on 630 tariff lines, affecting 8.7 percent of its ‘tariff universe’ and 23 percent of the volume of imports. Duties were raised on 369 tariff lines and quota restrictions imposed on 271 others for a one-year period. They cover products ranging from processed foods and shoes to cars, mobile phones and sunglasses, as well as many other goods that can be manufactured in Ecuador.

Ecuador insisted that the measures it proposed were necessary to balance its widening current account deficit.

As you can see in bold, whether or not this really is a correct justification for stabilizing their monetary system, what Ecuador has done invariably (or intentionally) is take down the forced liberalization that the WTO places on many other developing nations.  In essence, Ecuador has made a move that will protect infant industries, which would hopefully help Ecuador be able to level the playing field concerning international trade.  This level of protectionism, for at least their infant industries, has been proven to work in many of the high growth Asian developing nations including South Korea, China, Malaysia, Taiwan, and Vietnam.   Ecuador has been able to use monetary stability as a guise for doing something more important for their economic development.  The best part? The WTO is unphased, as they will let Ecuador do what their doing for now and hopefully, they will keep it that way.

Krugman, there is a deep moral here and that is to give Ecuador the right to develop their economy, whether it is in the name of monetary stability or just plain old protectionism.

China Strikes Back

Earlier today from the WSJ:

China’s Ministry of Commerce has made a preliminary ruling to impose tariffs of as much as 36% on certain nylon imports from the U.S., saying the imports have damaged the domestic industry.

Tariffs will also be imposed on such imports from the European Union, Russia and Taiwan, but at lower rates.

The tariffs will affect firms including BASF Corp., the U.S. affiliate of German chemical giant BASF SE, and Honeywell International Inc.’s Honeywell Resins & Chemical LLC, it said.

It is a shame that some workers at Honeywell’s and BASF’s U.S. facilities will have to face costs cuts in order to keep in line with profits.  Another example of how Obama’s trade move was a bad one.

HT: Mankiw

Becker-Posner on Union Power in the Obama Administration

Becker and Posner has a thorough write up about why Obama did what he did regarding the “Buy American” stimulus provision as well as the Chinese tire tariffs.  (here)

While we wait for the data to come in, I expect imports from elsewhere to replace the lost Chinese imports, only negatively affecting Chinese manufacturers and not creating any positive gain for the Unions.  For Obama, he has the support now when re-election comes, but if a trade war ensues, he will have more on his plate than he bargained for.