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Trade incidents between China and the US Trade incidents between China and the US
by Jay Gutman
2019-06-09 07:37:12
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I wouldn't put all the blame on China for the trade deficit between China and the US. China is relatively crime free, food is cheap, booze and cigarettes are cheap, you can smoke in pubs, transportation systems are excellent in China, housing is decent, China is relatively crime-free, night life is excellent in many Chinese cities, health clubs are plentiful, Chinese labor is cheap and tends to be efficient, transportation and logistics systems tend to be reliable, and the legal codes for doing business are simple.

china001_400_01That and many, many other reasons. In the US crime rates tend to be high, transportation tends to be slow, labor is expensive, you get fined for smoking a cigarette outside in the freezing cold because you were blocking the street, pubs close around midnight, labor is not always reliable, transportation and logistics are complicated and yes, you need several lawyers to figure out whether what you are doing is legal.

So if you ask people to choose between a brand new sports car and a 1970 used Volkswagen Beetle, most people will choose the sports car. Many companies choose China for production.

Icing on the cake, China undervalues its currency. So too much renminbi chasing too few dollars, which makes most non-Chinese products expensive. But currency manipulation is just one factor that leads China to have trade surpluses with the rest of the world.

But China is indeed committing three trade crimes: a vague legal framework, too much currency on the market, and excessive spying and copyright infringement.

If you're doing business in China, you might enjoy all the perks, but one thing businessmen in China keep scratching their heads with is the vague legal framework. What's the tax code? What are the laws on importing or exporting? What is labor law? What are the rules if I want to expand my business? How much currency can I send back home? Ask 10 Chinese lawyers and you'll get 10 different answers.

Vague legal frameworks are deliberate as China can pretty much improvise laws that make or break business. And if a new law breaks your business, you don't want to mess with the Communist party.

Furthermore politics is off-limits for foreign businessmen, while Chinese businessmen get to play golf with local politicians. Not good for foreign businessmen. So foreign businessmen should be allowed some form of consultation and have some say in local politics, especially when their business interests are concerned.

Too much currency in the market. China is one of those rare countries where you're better off spending your paycheck on 5-star hotel meals, because you're not sure what your renminbi's going to be worth next week. By depriving itself of savings and investment, because if you're Chinese there's no point in saving or investing a currency that is undervalued, China can face serious problems in the long run.

But this currency undervaluation is as much an international trick as it is a domestic trick. Weak currency means Chinese men cannot save enough money to buy housing, and because there's a shortage of women, Chinese men state the official reason they are not getting married or in a relationship is because they can't afford housing, when the real reason is that there's a shortage of women.

Finally, copyright infringement. I, along with several economists, do believe that some of the patents in the US are plain ridiculous. The “like” button on Facebook is patented. The one right click on Amazon.com to make a purchase is patented. There are so many patents on most products that in the end when you innovate, you're really fighting patents.

China cuts corners and doesn't mind the patents. But, original products are highly valued in China. It's just that most people can't afford original products. And copied products tend to be terrible copies. No one came up with an iPad like the iPad, no one came up with an iPhone like the iPhone, no one came up with medication like the generic medication. And here in Algiers where I live, if you drive a Chinese car, people laugh at you.

The danger is when China will be able to produce counterfeits that match the real product. But to conclude, China is still a relatively poor nation, or a rich nation with a large poor class. Chinese products are valued because they're cheap, but not the best quality. Now there were attempts from China to hack the codes and steal them to produce exact replicas, accusations that Beijing is denying.

Shaming China for its trade practices tends to be counter-productive. China values its reputation and is very sensitive to criticism. As to those trade deficits, don't worry about them, they won't be there for too long. Why?

Let me finish with the story of crony capitalism. In Japan, China, Korea, and even the Philippines, you once had a generation of genius businessmen who invaded the world with their products. Their children were spoiled kids, and the parents didn't teach their kids anything about business.  The kids took over, never having received a business lesson from their fathers. Then the business the father struggled so much to put together struggled to stay afloat with the child in charge.

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