Last month, my news assistant came in with a new Blackberry. Only it wasn’t a Blackberry. It was a cheap Chinese knockoff of a Blackberry. Of course, the Chinese knockoff wasn’t the same as a real Blackberry. It was better. He’d had a real Blackberry for six months — bought it on a trip to the US for $400, then had to pay another hundred or so in Vietnam to get it unlocked for local mobile service — and it was inconvenient and flukey. The new one, he found easier to use. The parts, obviously, were exactly the same — they clearly came from the same factories. But he even found the Chinese software more convenient. They were adding features that hadn’t existed on the “real” Blackberry. The knockoff cost $150.
I thought about this after reading this Derek Thompson Atlantic Business post referencing BusinessWeek’s Michael Mandel’s article arguing that the US may be losing its innovative edge. Mandel points out that the US ran a $30 billion trade surplus in advanced tech in 1998. By 2007 it was a $53 billion deficit. Thompson asks: “Where Mandel’s explanation comes up short is: What are these innovators doing wrong?”
The example of the Chinese knockoff Blackberry suggests that maybe US innovators aren’t doing anything wrong. It’s just that they’re now competing against Chinese innovators, where they weren’t 10 years ago. This may have happened for two reasons. The first is that lack of intellectual property protection, combined with the outsourcing of manufacturing for all those high-tech products to China, gradually destroyed the US’s technological edge. The second is that in 1998, China didn’t have very many top-flight engineers. But they’ve spent the last 10 years doing nothing but graduate engineers, and now, they do. And that changes everything.
Filed under: Trade
On the trucks, chickens, and failing US automakers question, Ryan Avent notes:
You know, I should have closed by saying that it’s probable the Big Three are failing because rather than despite the fact that their major cash cow of the past decade was protected by a 25% tariff.
There are few areas where I agree with the CATO Institute crowd, but this is definitely one of them: long-term tariffs on manufactured goods are really, really stupid. Germany and Japan are still competitive shipbuilders and the US isn’t, and that’s in large measure because of the 1920 Jones Act, which bars foreign ships from US internal waterways and has created a protected market for US shipbuilders that has gradually destroyed their ability to build anything the rest of the world wants. And Germany and Japan are still competitive automakers, while the question of whether the US remains one is very much up in the air, apparently for some of the same reasons.
Matthew Yglesias and Ryan Avent are right that Obama is unlikely to alter US trade policy significantly. Here in Vietnam, it’s true that middle-aged businessmen tend to support McCain over Obama, but that’s largely because McCain has obvious personal ties to Vietnam and was heavily involved in promoting the US-Vietnam Bilateral Trade Agreement in 2000, which pretty much kick-started Vietnam’s burst of growth over the past 8 years. No one is actually expecting that Obama will make concrete protectionist moves. The only area of action on trade with Vietnam right now is ongoing discussions under the so-called Trade and Investment Framework Agreement (TIFA) signed in 2007, which is supposed to provide a framework for further opening trade and investment in various areas. But as a US Vietnam expert with close ties to the Obama campaign told me a few weeks ago, this tends to involve old wine in new shipping containers — normal development of new trade elements like, say, approval for imports of Vietnamese dragonfruit into the US (approved by the Dept. of Agriculture this summer), which can now be trumpeted as a success of the TIFA and as a marker of further warming between the US and Vietnam, which makes diplomats happy.
Anyway, the upshot is that an Obama presidency and more Democrats in Congress are unlikely to make much difference to Vietnamese exports to the US. What will make a huge difference is the recession, which is already hitting Vietnamese apparel and wooden-furniture exports in a big way. If Obama can get the US economy back on track and get US consumers spending again he’ll be a hero in East Asia.
According to the Vietnamese newspaper Dau Tu, the head of the Vietnam Association of Seafood Exporters and Producers (VASEP), Truong Dinh Hoe, is hopping mad over a bunch of stuff on French websites accusing Vietnamese catfish (tra and basa, known in France as “panga”) of being filthy, disgusting, unnatural monsters steeped in pollution and illegal antibiotics. He calls the material “slander” aimed at hurting the reputation of Vietnam’s fish farming industry.
Having looked at the websites in question, I’m with the Vietnamese on this. Continue reading
Required reading: Walter Bogdanich’s NY Times article from yesterday on the backstory of attempts to investigate earlier cases of poisonous Chinese medicine and ingredient exports. Untold numbers of kids in Haiti and Bangladesh have died from this stuff, years before the more recent cases with toothpaste and cough syrup in Panama. If China, and other East Asian countries that export comestibles and pharmaceuticals, don’t completely revamp their attitudes towards assuring transparency and accountability in the food and pharms manufacture and supply chain, they are setting themselves up for a frenzy of Western outrage. There’s a reason why the “blood libel” involves accusations of hidden ingredients in the bread, and grinding up kids: this is a primal horror of life in civilized society, the anxiety that you don’t know who’s putting what in your food. For that matter, the fury will not be confined to Westerners. This is one of a very narrow class of issues on which authoritarian East Asian governments need to be seriously afraid of what their own citizens will do, if their fears that their kids are being poisoned are not allayed.
On Serangoon Road in Singapore yesterday, near the northern edge of Little India, I watched an elderly Chinese man, his right hand wrapped in a clear plastic bag, fishing through public garbage receptacles for aluminum cans, which he deposited in a larger yellowish plastic bag held in his left. He had a rather philosophical and unsurprised expression on his face, as though he found it less incongruous than an observer might have that the life of an unexceptional gentleman, to all appearances no less intelligent than any of the blue-suited magnates who rule his island, should have come to this – that he should be ending his life in the same desperate poverty with which it began, even as the city around him, sprouting skyscrapers and shopping malls, had risen to become the 22nd-richest country on earth.
We are told by defenders of global free trade, and to some extent by Rawlsian political philosophers, that to focus on inequality is to be taken in by a mirage, that any change which benefits the poorest as well as the rich is not to be criticized merely because it exacerbates the gap between the two. And, indeed, that elderly Singaporean might in absolute material terms be better off today than he was in 1960. Then, he might have lived in a bamboo shack and occasionally gone hungry, where today he enjoys, at a minimum, a government-subsidized apartment and a monthly stipend of 290 Singapore dollars (about $220 US).
Would you rather lose 2 to 1, or 15 to 3?
Filed under: Trade
On a similar note, Atul Gawande has a typically excellent op-ed in today NY Times arguing that we need to do something about guaranteeing safety in international supply chains for medical and food products. This is one of those stories that seems unbelievably boring and impossible to attract public attention to — until suddenly a bunch of people are killed by peanut butter from China, at which point it becomes suddenly the hugest story in the world. (Assuring proper credentials at flight-training schools is another story like that.)
And, again, I think there are no real downsides to instituting policies of hard, fast, massive trade retribution for failures to properly monitor the supply chain in food and medical products, and weed out counterfeits. I don’t think it would be going too far to abruptly ban all medical imports from China if a serious counterfeit-drug problem cropped up, much the way South Korea banned US beef after the mad-cow disease scare. There’s something one learns after living in Vietnam for a while: in countries like Vietnam and China, the phrase “this problem is too complex to solve quickly” is translatable as “we don’t care enough about this problem to do anything about it at the moment”. When problems start to cost billions of dollars, they get solved incredibly rapidly. Not that this is limited to Vietnam and China; the US behaves in pretty much the same way.