Scott Lincicome on the China shock

Scott Lincicome has just published a paper at Cato on the effect of liberalizing trade with China. He clearly demonstrates that much of what you’ve read on this topic is wrong or misleading. It’s the best economics paper that I’ve read in quite some time—comparable in quality to the trade research of Doug Irwin.

Also note that I have a new column at The Hill. It discusses the recent proposal to add a racial equality mandate to the Fed’s responsibilities.

I have no comment on Kamala Harris. Her views don’t matter, just as Mike Pence’s views don’t matter, and just as Joe Biden’s views don’t matter. There’s only one issue in the campaign.



26 Responses to “Scott Lincicome on the China shock”

  1. Gravatar of Randomizen Randomizen
    12. August 2020 at 13:19

    I for one am looking forward to a day when the president hires competent agency heads who actually want to do a good job.

  2. Gravatar of Paul Bogle Paul Bogle
    12. August 2020 at 13:40

    What does matter is Harris in an ineffectual office like VP, not Attorney General.

    (Pray for Joe)

  3. Gravatar of Benjamin Cole Benjamin Cole
    12. August 2020 at 15:54

    “Phil Levy, a member of the George W. Bush administration’s Council of Economic Advisers, adds that the fungibility of Chinese and other developing country imports undermines the argument that Chinese imports—as opposed to imports more generally—were to blame for some of the manufacturing job losses that occurred during the China Shock period.”–Scott Lincicome.

    Indeed, I think there is a great deal of fungibility to where any manufacturing is sourced, depending on the governments involved. The argument that somehow the US is cemented into supply lines to any particular nation is patently false.

    Little discussed, Samsung operates the world’s largest mobile-phone manufacturing plant in India. India-based Reliance Industries and Google have announced a $10 billion dollar plan to manufacture a new type of smartphone at a much lower cost than any existing model on the market, using US and Indian IP.

    Lincicome does not mention three million Uyghurs in concentration camps or that Beijing throws newspaper publishers into jail and disappears people who operate bookstores in Hong Kong—and that Beijing appears to become more oppressive with each passing year. As it stands, trade with China appears to enable increasing repression.

    In the end, Lincicom offers a do-nothing policy. But look at an Apple, an NBA, a Disney, an HSBC— all cravenly kowtowing to Beijing, and pressuring US foreign-trade policy with all their lobbying might and their ability to warp media and academia (does Lincicome disclose his finacial arrangements? Jeffrey Sachs served Huawei paymasters).

    Fine and dandy?

    Free trade theory is interesting, but when it is sacralized it becomes a free-trade theology.

  4. Gravatar of ssumner ssumner
    12. August 2020 at 21:22

    Ben, You said:

    “Lincicome does not mention three million Uyghurs in concentration camps”

    He also doesn’t mention who won the Super Bowl last year. Perhaps because it’s not relevant to his paper.

    Is that so hard to understand?

  5. Gravatar of Postkey Postkey
    13. August 2020 at 00:10

    “I have no comment on Kamala Harris. Her views don’t matter, just as Mike Pence’s views don’t matter, and just as Joe Biden’s views don’t matter.”
    You have that right.

    “Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism. “

  6. Gravatar of Benjamin Cole Benjamin Cole
    13. August 2020 at 04:32

    Scott Sumner:

    No, Lincicome did not mention how trade with China, instead of the liberalized China we all hoped for, appears to enable and finance accelerating political repression, while warping leading US institutions.

    Guess why Lincicome did not mention political repression in China. Not relevant?

    Explain all those papers in years past that sacralized “free trade” with China on putative economic terms and then inevitably added, “Oh yes, the free trade is liberalizing China!” That was considered relevant, and may have been, as a freer nation would lead to more benefits for everybody.

    So, the effect “free trade” on oppression in China is still a germane topic. If multinationals in China and trade with China, only enable accelerating oppression, then the future is much darker, and the benefits of trade with China radically reduced.

    Unsettling thought: If five years ago I said, “You know, China will put 3 million of its own, non-criminal citizens into concentration camps, and throw publishers of newspapers in Hong Kong into jail,” I would have been dismissed as an eccentric.

    So what will happen five years from now under Beijing/CCP?

    Especially what will happen if the US response to Beijing/CCP is determined by enablers such Apple, BlackRock, Walmart, Disney and the No Balls Association (NBA)?

  7. Gravatar of art andreassen art andreassen
    13. August 2020 at 05:14

    Scott: The theoretical basis for free trade is Ricardo’s comparative advantage. His theory premises that a country should specialize in producing those goods in which it has an absolute advantage and let its trading partners specialize in the remaining products.

    That will work if all the partners are about the same size and wealth. China is 5 times that of the US and has hundreds millions of its citizens in poverty. The only jobs China will leave on the table are those which pay a salary so low its poorest citizen will refuse.

  8. Gravatar of Gene Frenkle Gene Frenkle
    13. August 2020 at 07:39

    The “China Shock” was in large part a product of our energy crisis…our energy intensive consumer spending economy simply couldn’t process the high energy prices from 2001-2008. So the shock ended once fracking was proven economical in 2009…what a coincidence! The paper is interesting but it quotes a Bush Trade official while not quoting the Bush Energy official that stated we were in an energy crisis from 2001-2008. I can also provide a quote from Lee Raymond in 2007 saying we were about to start importing LNG. Once again, all of this is obvious to me but keep searching in the haystack for what undermined our economy from 2001-2008 when one could just look at two graphs that explain everything—global oil price and supply and American natural gas price and supply.

  9. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 08:19

    I have said the same thing forever about the election and what matters. So it is all about Trump. But a good candidate knows how to play off the weaknesses of his opponents (Harris compares Ebola and Covid and no one laughs out loud). Objectively speaking this should be easy for him.

    But I believe he is currently on a losing path. He looks bored and tired. He cannot prioritize what his strengths are relative to “performance” of his administration. He cannot prioritize the weaknesses of his opponents. He has no one around him, with the exception of Barr and Pompeo who are any good—but Barr is not really “pro Trump” as much as he is anti-democrat corruption—and he will never campaign. Pompeo is not a campaigner.His press secreatry looks like an A+ student at Harvard–but still at Harvard—a one trick pony.

    It is interesting that a candidate like Harris who was down in low single digits is now hailed as the de Facto next president—or perceived as such—with great excitement thy he usual suspects.

    I really do think Trump is better for the country—but that makes me an idiot to you. A few of his proposals yesterday were “extreme” (eliminate payroll tax after January).

    While we know that is really just lowering taxes and really has nothing to do with SS—because of our “Trust Fund” accounting illusion—it is still is a massive tax cut proposal. In fact, I watched it five times and I still cannot believe he proposed it—it was not mentioned by you or mainstream news. The economy has well outperformed expectations as have markets. I know cats don’t get credit—but they do get blamed when the opposite happens.

    Unfortunately, we are likely to find out what 2020’s version of “not Trump” means. I feel confident it does not make you happy, perhaps just less miserable about our Banana Republic–bu still miserable.

  10. Gravatar of Gene Frenkle Gene Frenkle
    13. August 2020 at 08:30

    Rulle, payroll tax cuts would be good when the economy has stabilized and it looks like it is about to expand. So what we saw in 2009-2013 was people staying out of the job market because welfare benefits were good enough. So once you want to make the job market more attractive a payroll tax cut will help with that. Trump is flailing because he knows he is on a path to losing so he is just throwing things out there in an attempt to change the narrative. At this point it is best to simply ignore him because his is clearly a clown.

  11. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 08:37

    @art andreassen

    You said “The theoretical basis for free trade is Ricardo’s comparative advantage. His theory premises that a country should specialize in producing those goods in which it has an absolute advantage and let its trading partners specialize in the remaining product”

    Please correct me if I am wrong.

    I believe Ricardo’s comparative advantage theory is an optimization concept. It is relative advantage not absolute advantage that matters. So if Country X is better at Guns and butter than Country Y, but is is better by a greater difference in Guns than Butter, the optimal answer will almost always be X will make more Guns than Y, but Y will also make butter—in fact it is possible it will make more butter than X.

  12. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 08:53

    Frenkle, you can include my first name, I wont be insulted. My point is it does not matter whether payroll taxes are cut or income taxes are cut—its really the same thing. I was not commenting on whether is good or bad to cut taxes—-so I disagree that it matters whether it is a payroll tax cut—–either way, it is a marginal tax cut for “the middle class” which was his condition. Above some level of income it has a different impact than a normal marginal tax cut rate–“clearly a clown” was in fact making a subtle distinction, which he wanted to make sure people heard.

    Yes, he is flailing–and should not be—on that we agree.

    Also, I was making the point there is no “trust fund” other than in accounting terms. The IOUs are not like government bonds because money was never raised from the public. But I assume you know that.

  13. Gravatar of Gene Frenkle Gene Frenkle
    13. August 2020 at 09:07

    Michael Rulle, payroll taxes are regressive while income taxes are progressive so because they are a little different cutting them doesn’t produce the same fiscal outcome. I would say right now we should find a way to get people working in jobs in which they are paid little and have to interact with people more money…so a payroll tax cut tailored to those people would be great…but I don’t want my millionaire friends working from home getting a payroll tax cut.

  14. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 09:10

    On Pompeo–UAE, which has not recognized the existance of Israel for my lifetime, has normalized relations with Israel. They join Jordan and Egypt as the most important countries to recognize Israel right to exist.I guess I will truly believe it when their airlines put Israel on their maps. He mentioned that yesterday, and if you blinked you missed it.

    Pay roll tax cut/elimination and UAE/Israel peace agrement. Just another yawn for the clown—because Obama fixed Ebola. It really does drive me a bit crazy—-but Trump better start going JFK and start figuring out how to stay awake.

  15. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 09:22

    @Gene Frenkle Yes, agree on millionaires—as does Trump. I will believe you on this, but here is my question— let’s say “middle class” is up to 100k income–which was Trumps condtion (i.e.middle class–not sure how he defines it–on the “holiday” version for 2020 it was under 100k—but did not say what it would be on the “elimination” version after 2020).

    How does a marginal income tax differ from a payroll tax cut of similar size? Yes, one would have to play around with marginal tax rates a little bit up to 100k, to make the outcome exactly the same–but its virtually identical in results—-the “progressive/regressive” issue seems

  16. Gravatar of Gene Frenkle Gene Frenkle
    13. August 2020 at 09:31

    Anyone making $100k right now is doing great. The people that need more money are the fast food workers who are risking getting sick while keeping everyone fed. Furthermore you don’t want fast food workers taking a little less in unemployment instead of working…so you don’t want to disincentivize working especially when fast food work is already bad enough without a pandemic. Bottom line—some middle class people are doing great and risking nothing while some are risking getting infected doing work that means dealing with hot grease and people in a hurry and want a burger without pickles.

  17. Gravatar of Michael Rulle Michael Rulle
    13. August 2020 at 09:46

    @Gene Frenkle

    to finish sentence above “seems di minimus”

  18. Gravatar of ssumner ssumner
    13. August 2020 at 13:15

    Art, That’s flat out false. Completely false. Both the description of Ricardo’s theory, and the claim that it doesn’t apply to trade with really large countries.

    Michael, You said:

    “The economy has well outperformed expectations”

    No it hasn’t. A year ago I expected growth this year. How is 10% unemployment a plus for Trump? Where is the MAGA he promised us?

  19. Gravatar of Michael Rulle Michael Rulle
    14. August 2020 at 11:36

    That’s not fair Scott. It outperfromed pre-Covid—and then once Covid gave a shotgun to the gut—it outperformed that expectation.

  20. Gravatar of ssumner ssumner
    14. August 2020 at 11:50

    I certainly didn’t expect RGDP to fall at a 33% rate in Q2, even with Covid-19! The New York Fed predicted a 15% drop. The Hypermind market predicted a drop of much less than 33% (I forget the exact figure.)

  21. Gravatar of Michael Rulle Michael Rulle
    14. August 2020 at 12:24


    what about employment? You use that for Japan all the time—and I agree. It has been better than post Covid expectation. I also do not know what to make of FRED’s GDPNow—(its not a prediction just a guess of what the current annualized GDP growth is now)—-neverthe less it is at +26%—up from 20 a week ago for this quarter.

    Look, it is all unknowable at the moment as you know—-all of this is—-including the most important thing—where COVID goes from here. If Covid’s time//death path going forward matches Europe and the Northeast in the big 5 death states (Ca,Tex,Fla,Georgia, Ariz) we will get lucky as a country—–

    not credit for Trump—but Covid was not his fault either–regardless of nonsense he sometimes says. I am sure he made 100 mistakes—but I saw no one who had a clue in real time—or even knowing what we know now what we should have done.

    You may think Trump is the worst—-I don’t—but the new wannabe wants a national mandate “for at least the next 3 months” (can’t make this crap up) that everyone must wear a mask. That’s the ticket.

    You sure you rather have these guys versus the devil you know? I guess the answer is yes


  22. Gravatar of Gene Frenkle Gene Frenkle
    14. August 2020 at 17:47

    Michael Rulle, Trump politicized mask wearing and it just happens to be the most effective tool to mitigate spread of coronavirus. So when everyone believed the virus was spread primarily by fomites then mask wearing would not necessarily have been effective protection because you would touch the mask which would then spread it. So the reason for not advocating mask wearing initially was reasonable in light of how we believed the virus was spread because hand washing and disinfecting surfaces was seen as the most important way to mitigate spread. (Also wearing something to cover the eyes is important protection from infection.) I personally started wearing a mask and wore big thick glasses with a hat in late March once someone said maybe a mask could stop an asymptotic healthy person from spreading to others because my family situation means I couldn’t really alter my lifestyle during the lockdown. So if I wasn’t worried about getting the coronavirus but if I did get it I didn’t want to spread it…so I started wearing a mask.

  23. Gravatar of Michael Rulle Michael Rulle
    15. August 2020 at 05:07

    Hi Gene. I wear a mask. To paraphrase the great Coco Chanel, if for no other reason than to be polite. My comment on Old Joe’s formulation was off the cuff and I thought even a cheap shot. Why a cheap shot? I guess I found it so ludicrous I could not help myself——why do I frame it that way? Because everyone already wears masks. Should I wear one on a country road in my car? Apparently. If it is “mandated”, what is the punishment? If the Feds can enforce THAT, what else could they enforce. Why 3 months? When Election Day counting is over (it won’t be over the 3rd)

    In other words it was a cheap shot because a presidential candidate proved himself irrelevant in “fixing” Covid. He should have pulled out that Ebola plan KH bragged about instead.

  24. Gravatar of Michael Rulle Michael Rulle
    15. August 2020 at 05:15

    Re: Ms Chanel—-she was accused of being a Nazi Collaborator—-but after the war and after her investigation Churchill and others disagreed. Some guy wrote a book in 2011 saying she was used as an intermediary to bring a peace offering to Churchill from someone in Germany——maybe it was von Staufenberg.

  25. Gravatar of ssumner ssumner
    15. August 2020 at 10:22

    Michael, I love how people give Trump credit for things he has nothing to do with, and then excuse him when things go bad.

    It confirms my view of Trumpistas being a cult.

  26. Gravatar of Michael Rulle Michael Rulle
    16. August 2020 at 06:38

    Yes, we are all guilty of bias. Hard to plow through one’s own framing of situations. But cult? Cult is Manson, or that cool aid guy. Being net in favor of Trump against an array of never ever ever Trump—-is not a cult. It is an opinion.

Leave a Reply