More trade with Central America, less with China?
from Follow the Money

More trade with Central America, less with China?

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Is that the deal that brought wavering Republicans from textile states on board?  We will see.

But the House speaker, J. Dennis Hastert, told him they needed his vote anyway. If he switched from "nay" to "aye," Mr. Hayes recounted, Mr. Hastert promised to push for whatever steps he felt were necessary to restrict imports of Chinese clothing, which has been flooding into the United States in recent months.

... The restrictions Mr. Hastert promised could come soon. Within the next 10 days, the Bush administration is expected to rule on whether to impose import quotas on Chinese sweaters, wool trousers, bras and other goods.  Mr. Hastert "said to me, 'If you vote with me, we'll do everything we need to do in your district to help with jobs,' " Mr. Hayes recalled.

On its oped page, the New York Times makes the classic political economy point that consumers are underrepresented in trade policy debates, and policy debates more generally.

That certainly would be the case if the price US consumers "paid" for more trade with say El Salvador was less trade with China.  The last minute haggling over the Central American Free Trade Agreement did not help US consumers.   And that probably is true with the deals done to help gain Congressional approval of other (small) regional trade deals.

But if you look at observed outcomes more broadly, I am not sure the "consumers are systematically under-represented" thesis holds true.

[note: edited for clarity]

After all, the US imports far more than its exports - which is hardly what you would expect if US-based producers dominated trade policy, or economic policy making more generally.  Alan Greenspan is no enemy of the American consumer.  

And that is true in an even more extreme form if you look at US trade with China.  2004 exports (goods) were about $35b while imports were around $195b.   Exports may rise a bit this year, but not by much.  Imports are on track to reach $250 b or so.    The obvious winner in this trade?  The American consumer.

I increasingly think the "classic" models of the political economy of trade taught in standard economics textbooks (and in political science courses) need to be modified to account for a world where US firms no longer necessarily produce goods in the US, and US retailers often market goods produced outside the US.

Consumers may be a diffuse interest that is hard to mobilize, but Walmart is not. 

And US firms certainly produce more in the Chinese market for sale in the US than they produce in the US for sale to China - and no doubt make more money using China as base for serving the US customer than selling US goods to China.  

And those firms are an organized, important lobby.

There is enough political support in the US for "consumer" interests from the firms making money selling foreign goods to US consumers to make this a viable equilibrium, at least for now.   I though would argue that like the Bretton Woods two system itself, the current political economic equilibrium that makes the large US bilateral trade deficit with China politically viable looks increasingly unsustainable.  

There is a reason why restrictions on Chinese exports were needed to "free" trade with Central America.   Ronald McKinnon may not like it, but more exchange rate adjustment almost certainly necessary to sustain - politically - open markets for Chinese goods.

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