China and International Norms

The contrast between how this article in the Sunday New York Times discussed international political economy and how we discussed it in grad school really struck me. The article discusses the distinct advantages Chinese firms enjoy due to the country’s immense liquidity, the state’s willingness to bolster them with subsidies, and the ailing condition of Western economies. The just of the article is that we are in the midst of an immense economic power grab from China and that this grab has political consequences as Western countries mute their criticism of China’s record on human rights and fair trade.

The theoretical meat of my grad program was good old Ricardian canon of yesteryear with comparative advantage and gains from trade and all that. Needless to say, anyone who impedes trade pays the consequences themselves. Mercantilism was reduced to rubble. (And yes there were area study classes, but let’s be honest, they don’t have the “moral” heft that pure economic theory carries.)

No doubt a smug student of above average intellect raised in this school would tell you the West has nothing to worry about. Chinese subsidies are no doubt inefficient as they are state run, and at any rate, even if they are efficient, we all benefit from gains from trade. China only hurts itself by keeping Western firms out of many of its markets.

And our smug student is likely partly right. And I also would agree that there is something fragile about the Chinese regime’s lack of human rights and state run capitalism with its endemic corruption. But the Chinese are buying economic and political power in the short run, and with those, the ability to alter international norms and set the rules of the game. And they may change the norms and rules before they have to deal with their own fragility. The West, partly because many young minds are trained to fight against the mercantilists of yesteryear, instead of coping with rapidly ascendant state capitalism may acquiesce to playing on a field that is not of its liking.

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