The idea of free trade/globalization is everyone benefiting from the efficiency of each place doing the work it can do most efficiently. Iowa corn and Swiss fine machinery and Arab oil and all sorts of things where one place can do something better and cheaper because of the nature of the place. Poverty (cheap labor) and treaties (cheap postage) shouldn't be the drivers of this efficiency because they aren't caused by fundamental differences, just political ones.
But the issue here is not the differential in efficiencies.
It's China receiving subsidies from the US because it was considered a developing country in 1969. It's not anymore, it's a global superpower now, it can pay its own postage.
Huh. Very interesting. I have a notion that all decisions should auto expire and be explicitly renewed. Because it's so hard to cull outdated or revisit / repair suboptimal rules. Inspired by stuff like IP/TCP leases and cache TTL.
But your example of the powers that be waving thru a bad rule refresh suggests my notion won't be sufficient.
Well, the process did exactly what it was required to do, to classify countries by income levels. China is not that rich, not even passing as a newly industrialised country.
Were it to pass as such, say, Kenya and many other African countries would've too.
This. I've got nothing against US aid to less privileged nations, I'm all for it. I can't stand a US adversary who is running re-education concentration camps for Uighurs and implanting remote access devices into US corporate infrastructure getting an unjust benefit form one cent of American tax money that operates the post office.
Not so fast. You're right that the general operations of the USPS are no longer directly appropriated by Congress. However, the US government and its citizens do give the USPS significant economic benefits, including a 100% tax exemption from state and local taxes, and the ability to "pay" federal taxes back to itself[1]. USPS need not comply with local zoning, parking, toll road, etc. laws.
According to a 2015 report[2] cited by Fortune, that included $2.1B in waived taxes, the benefit of a federal monopoly on deliveries worth $14.9B, and as much as $490M/yr in subsidized lower interest rates due to not having to have a credit rating and borrow on the open market, but instead getting preferential treatment from the Treasury. Not included in the report is the fact that USPS OIG and USPIS are federally funded through appropriations[3]--whereas UPS or FedEx would have to hire their own off duty police offers at significant expense to receive the same level of protection.
That's interesting, thanks for the detailed reply.My point was that their operating expenses are covered by fees for postage and not directly paid through taxes. But now I realize that this is more of a grey area than I had though.
While it's unlikely that money saved would be directed to more useful endeavors internally, as a US citizen I'd prefer that money not subsidize Chinese commerce (or rather, subsidize US consumers purchasing directly from China).
No it has no bearing on China. It is the same policy with Switzerland. You get the international package to America we pay for the final delivery. Pay for a package to Switzerland and Switzerland pays for the final delivery. It was suppose to be a wash for both parties. China just got a much better deal. Cost me more to mail a package the next state away then for me to get a package delivered from China.
Now you have to pay for Switzerland delivery and then the domestic cost.
Why would this change the be end of direct shipping from China? Currently (rounded off numbers) the cost of shipping a 2 lb (1 kg) package within the US is about $7, and the cost of shipping such a package from China to a US address is about $2. The obvious solution would be that the Chinese shipment ends up costing $9 (current Chinese rate of $2 to the US border, plus $7 standard US shipping). The Chinese shipping would thus end up $2 more than the US. Presumably there would be lots of cases where the $2 greater shipping is offset by lower price of the item?
I can order 8 recycling batteries for $2.99 and have them shipped to my house. That is a loss of $4. They are looking at an increase of $7 at least. BTW when I ship a small box 2 pound of cookies to my son from his mom it cost me around $10.
Sure, certain things will no longer be feasible. My doubt was that these less-than-the-cost-of-shipping items were the bulk of the current direct-from-China Ebay orders, and even if they were, I was doubting that there was not a market for slightly more expensive items.
For the US cost, a "Priority Mail Small Flat Rate Box" is $7.20 between any two US addresses, and a "Priority Mail Flat Rate Envelope" is $6.70. If you don't use one of these, the postage will likely will be slightly more.
My understanding is that there's a nominal fee for last-mile delivery the USPS charges mail from other countries, which is all (or the vast majority) that's being charged for Chinese shipments, as the Chinese side is subsidized completely (or almost so) for outgoing mail. I think the $2 you are quoting might be the treaty fee for delivering mail from other countries, which is not the true cost of delivery, but mostly works out as long as there's a fairly even flow of mail between two countries. What we have here is that China is subsidizing their side of the outgoing mail, so all that's being paid is the treaty set delivery fee for external mail (which again, isn't the true cost of last-mile delivery).
the treaty fee [...] is not the true cost of
delivery, but mostly works out as long as there's
a fairly even flow of mail between two countries.
Isn't the core problem here that there _isn't_ an even flow of mail between China and the US? Because there's far more ebay/aliexpress traffic coming out of China than going in.
I think it's not just that, which would be problematic on it's own, it's that China is also subsidizing local delivery, so the only (or almost only) delivery fee for Chinese shippers is the portion they pay to USPS for local delivery, which is artificially very low. So not only are they taking advantage of the difference in trade flows, they are also encouraging it even more.
I think this was covered in an Planet money podcast from NPR.[1] It's also possible I'm not remembering portions of it correctly, but I think they did an interesting treatment of the subject.
The US rates are for small flat rate packages and envelopes on USPS.com. I didn't find an exact source for the China-to-US rate, so the $2 was the low end of a small number of articles about shipping rather than an exact quote. I may have misinterpreted, or converted using outdated exchange rates, or missed details about minimum quantities. As you say, there is subsidization involved, but I think this is about right for the amount charged to the shipper.
> I didn't find an exact source for the China-to-US rate, so the $2 was the low end of a small number of articles about shipping rather than an exact quote.
Oh, I'm not questioning your accuracy, I was just wondering the source, since I wasn't finding anything easily. :)
I don't think this is the end of direct shipping from China, but it is a large blow to that random super cheap Chinese knock-offs market. The Planet Money episode I linked in a sibling comment covers the story of an American (unspillable) mug maker that noticed knock-offs selling super cheap from China. He was able to order one with free shipping for $5.59, free shipping from China. He asked his shipping department how much it would cost to mail the mug across the street, and was told $6.30, just for shipping. I think that illustrates the distortion this has on the market very clearly, where something can be manufactured in China and shipped to a US home cheaper than a US manufacturer can just ship the item.
I'm sure there are plenty of items with a higher base cost where Chinese manufacturers will be able to make up that shipping extra in a lower item cost, but given how large the market of very cheap directly shipped items is, I think this will have a very large effect, especially since I think there's a lot more consumer confidence ordering very cheap things from China than somewhat expensive things. I don't care too much if my $10 item from China is crap, or unsuitable for it's intended use, or just fake, but I might really care if it's a $50 item, so I might choose a North American company to order from.
Actually Swiss Post has the same problem as the USPS: buying something from a Swiss online shop is usually expensive because of high Swiss wages, but you can buy stuff for "dirt cheap" from China, and the delivery isn't paid for by the customer but by Swiss Post. Things like S-ATA cables cost maybe at least 7 Francs in Switzerland, but 0.40 CHF from China, with free shipping!
And yet, if the profits can be prevented from all floating to the top, globalisation would appear on the surface to be an excellent way of redressing global inequality. Massive international wage gaps will be perceived by the market as an exploitable inefficiency, which over time will be ironed out.
Or, to put it another way, if two people wish to trade, it must be in both of their interests. If I, as a westerner, go to a third world country and buy a bunch of stuff that from my perspective is cheap but from their perspective is expensive, we both end up happy. What's so terrible about that?
(Of course where it falls down is where labor is cheaper because of poor worker protections and exploitative practices, in which case it constitutes an end-run around the labor laws of the richer party. But they are the ones that should be upset, not the poorer party, whose labor laws would be terrible regardless of exploitation)
'Labor laws' is a bad argument, particularly in poor developing nations.
If you enforce labor laws in developing countries, the cost of production will be high enough that industry doesn't develop. At that point, the people there have no industry and are much worse off (e.g. a sweatshop is better than subsistence farming).
A better argument is 'labor choice'. Individuals need to have the ability to choose their circumstance. If they can choose, and choose freely, over time the whole society can ratchet up their standard of living by making these choices at the margin.
I don't think you successfully debunked it. You asserted without merit that working in sweatshops is better than subsistence farming, this is both false and a false dichotomy.
Child labor is much the same - a society can only ban it when it can afford to do so. An agrarian society has inevirably plenty of child labor, as part of the family. That said, you can probably ban companies from ever employing children, especially with the productivity level of current mass-production tech.
Investment in people is a red herring. You can give people choice and invest in them. Though guess what: developing countries (which is who we're talking about) don't have money to do the latter.
I’m not sure if Swiss fine machinery is the best example here. What is it about the nature of Switzerland that makes it a more natural place to create fine machinery then anywhere else?
Similarly, using American corn as an example of how free trade should work is pretty underhanded. There’s a ridiculous amount of subsidies there, and the US doesn’t have any qualms with dumping the resulting product on international markets.
The climate and soils in Iowa make it a great place to grow corn - even without subsidies farmers would grow corn in Iowa. Despite a much lower cost of labor in other countries Iowa can still compete well in the world markets because corn grows so much better.
There is probably no advantage to making machines in Switzerland that you couldn't duplicate in Iowa, but because Iowa has the natural advantage in corn it is better for everybody if Iowa concentrates on growing the best corn (hopefully this includes improving their soils to grow even better corn), while the people of Switzerland concentrate on making better machines. Then they trade machines for corn and everybody is better off. If instead everybody was a jack of all trades there would be less corn because the people of Iowa aren't as focused, and the machines the Swiss produce wouldn't be as good because they don't get as much practice making them.
Of course the above is simplistic. Iowa has machinists that make fine machines, and there are Swiss farmers who grow some fine corn.
In reality though, Iowa has more than enough corn farmers for the population, and plenty of low-wage manufacturing workers to create said farm machinery there. Especially when the Swiss Franc/USD are 1:1, the Swiss would just open a plant there and finance it
At least in the theoretical example it depends on whether its more economical to build the machines closer to the farms in exchange for sacrificing farmland to do so.
Even if the world isn't so cut and dry to turn all of Iowa into one giant corn farm if Iowa is the best place to grow corn than corn production should naturally trend there, pushing internal business out that can operate elsewhere while subsuming corn production elsewhere where its less profitable.
That kind of effect is very minute on the actual day to day operating economy and decision making process of business entities involved which is why we don't just see all of Iowa turned into a corn farm, but those kind of effects have positive efficiency influence over long time frames.
Economies without large amounts of bulk natural resources are good targets for specializing in value-add industry.
It is both positive- and negative- feedback. There are lots of things Switzerland doesn't have which makes it specialize in the things it does – that concentration of specialization is it's own efficiency generator.
I had to look up that term [1], thanks for introducing me to it.
I'm still not sure how Switzerland the geographic place intrinsically leads to more efficient watch-making, as Shenzen and other Chinese factory cities make copious use of établissage in many different industries. Also, Apple's offshored Chinese manufacturing demonstrates that extremely high quality hardware manufacturing is not ethno-culturally-bound, and can be successfully transmitted through a corporate culture.
Ricardo's comparative economic advantage in Net age-birthed industries seems increasingly more hand-wavium the further away I get from intrinsically geographically-tied economic inputs like mineral resources, fresh water, salt water fish migration paths, or latitude-dependent agriculture, etc., and the further one transits away from historical network effects like Swiss watch-making, Silicon Valley software-writing, or Belgian diamond-polishing, etc.
The mathematical and empirical analyses of comparative advantage [2] [3], as well as great explanations about it [4], don't seem to address extremely complex goods with very high cognitive input factors, like semiconductors, industrial machinery, bio-pharma products, avionics, spacecraft, high-end electronics manufacturing, fracking, cloud services, search engines, e-commerce, etc., and I suspect comparative advantage breaks down as we evolve those and similar economic areas because ceteris paribus, there is no natural, lasting advantage one nation comparatively holds over another on human cognitive power (which I celebrate). In all those areas, there are leaders, but not so much and to such a comparative degree that they decisively elbow out other nations from economically attempting to enter those industries now or in the future.
The Sudan might be a cognitive desert right now compared to Palo Alto or Shenzen, but there is nothing structurally preventing them from turning into a powerhouse in the future (on a multi-generational timescale) to contend with, as say there is with them turning into the next corn-production hub like Iowa, or oil-producer like Saudi Arabia or the fracking Permian Basin.
in this specific case, it's not about the location of Suisse per se, but more about the people living there - focus on absolute quality, not cost-cutting, not price/value ratio but quality first. Of course this is very simplified, and may be less true for some cases these days.
The other point - most countries subsidy agriculture in some way. If US shouldn't dump their corn on global market, so shouldn't european farmers/milk producers (especially French I think).
Cheap labor/poverty should absolutely drive free trade, at least if you are interested in improving the human condition. People in impoverished nations choose to work in sweatshops because the alternative is so much worse; prostitution, indentured servitude, being completely destitute etc.
Agreed; though that must be actually a choice. There have been cases where governments have made the alternatives worse to push people into "progress".
Its the only choice available because the previous means of survival was at best subsistence farming. And it isn't guaranteed to happen, but impoverished countries will never enter modern society if they are just isolated from it for labor protections sake.
The trickle of money from the pockets of capitalists into the dictators of Indochina in exchange for functionally slave labor is still better than if these countries had nothing to offer the world at all.
You would want the optimistic capitalist means to uplift the third world to be simple investment - you take a country with nothing to offer and no resources, invest money in it to educate its people and develop its infrastructure, and then you would have their substantially improved productivity to profit off.
But that has never happened on just the backs of dollars because there is no way to risk manage that kind of arrangement. It almost always comes second to bombs or prophets as a way to provide that collateral - even if the country fails to recoup the investment, you can pillage the natural resources or convert its people into adherents of your own culture. Because those acting in self interest are approaching a scenario where the other party has nothing to offer (except idle hands) and you have everything.
I once believed this as well, via one of my degrees (economics). It turned out to be contradicted by reality.
Ricardo and Adam Smith argued that the consumer surplus gains of free trade for the higher labor market would be greater than the losses sustained in producer surplus in the same market. I.e. that American consumers reap more $$ from imported foreign cars than American workers/business lose.
However, since then its become obvious that the population that loses jobs cares a LOT more than consumers do about their cars being a few $$ cheaper (e.g. Donald Trump won Michigan and Ohio).
In other words - political differences DO matter. Perhaps economics should return to its previous name - Political Economy - in order to actually describe the real world again.
I want to remind everyone that Chinese economy became what it is today because European, American and Japanese companies invested trillions in China. It was a Republican president who kicked it all off. A policy decision of pure capitalism.
It was also a policy decision driven by necessity. Nixon didn’t go to China for the lulz, China was going down a bad path dangerous to the west and western business was hitting a wall in many ways as well.
> It was also a policy decision driven by necessity. Nixon didn’t go to China for the lulz, China was going down a bad path dangerous to the west and western business was hitting a wall in many ways as well.
My understanding is that Nixon went to China to create a another pressure point on the USSR. The Cultural Revolution was bad, but mostly for the Chinese.
Those areas made far more than they invested, and China needed that huge investment because those three areas had already spent a century exploiting it for profit.
No, China needed that investment because Mao and his communist policies held China back for decades. But feel free to mouth the CCP line of China being a great victim.
> But feel free to mouth the CCP line of China being a great victim
This crosses into nationalistic flamewar, which we ban accounts for, so please don't do it again. More generally, please don't post aggressive snark here, or any snark.
For a start, things before 1950 still happened. Even during the decades you admit happened, those areas refused to acknowledge the existence of China, making trade impossible.
Early Maoist policy hadn't helped matters, but it's pretty hard to argue American, Japanese, and European policy hadn't already left them in an incredibly shitty position.
Are you saying that China was not a victim? They literally had millions of civilian deaths in WWII. I've seen figures from 14 million to 20 million. Never mind the destructive effects of western imperialism up to that point.
As for Mao holding back China, no doubt there were big problems. But the greatest increases in life expectancy at birth came under Mao [1] and his push to greatly expand access to medical care and education in rural areas. That was itself an investment which set the stage for future growth. (It's a lot easier to get things done when your people aren't dying at age 45.)
Depends. Are they so desperate that they want to go to war, or are they rather becoming more of a middle class that wants to play the newest video games?
No it is the demand for better working conditions and wages. That helps the local Chinese and American workers. Oh that's right labor unions are evil????
