Should India pass a legislation regarding trade with China ?

[sehwag1830]

China has around 40 billion $ trade surplus with India. And we know this is not going to benefit India in any way.

So should there be a legislation like USA that if any terrorist attack happens in India and if Pakistan is involved, then the company that imports goods from China should be penalised a fine.

We all know the diplomatic and military cover provided by Chinese to Pakistani terrorist.

 

[Iamanidiot]

China has around 40 billion $ trade surplus with India. And we know this is not going to benefit India in any way.

So should there be a legislation like USA that if any terrorist attack happens in India and if Pakistan is involved, then the company that imports goods from China should be penalised a fine.

We all know the diplomatic and military cover provided by Chinese to Pakistani terrorist.

Rather than that make India more competitive .Amend the labour laws,Provide better infra and Keep the Sophisicated Jholawallahs out of economic policy making.Then use tariffs and sanctions

 

[sehwag1830]

Rather than that make India more competitive .Amend the labour laws,Provide better infra and Keep the Sophisicated Jholawallahs out of economic policy making.Then use tariffs and sanctions

That will take atleast 5 years. And what should we do in meanwhile when there is direct support of Pakistani terrorism by China.

 

[Iamanidiot]

That will take atleast 5 years. And what should we do in meanwhile when there is direct support of Pakistani terrorism by China.

First lets rectify our internal weaknesses

 

[sehwag1830]

First lets rectify our internal weaknesses

How is internal weakness any way related to cross-border terrorism.

 

[pmaitra]

Rather than that make India more competitive .Amend the labour laws,Provide better infra and Keep the Sophisicated Jholawallahs out of economic policy making.Then use tariffs and sanctions

Ain't gonna work. You cannot compete with slave labour. We have to keep Chinese goods out and heavily fine any store selling Chinese toys, lamps, etc.. Along with that, stop iron ore exports to PRC, after giving time to the exporters to diversify. If iron ore exporters protest, give them incentives to diversify. We need to churn out finished products, not raw materials or semi-processed materials.

 

[Bangalorean]

Banning and protectionism never helped anyone.

We need to grow, to compete. We need to provide stimulus, make the environment more industry friendly, and so on.

These discussions will be moot once Indian manufacturing comes up to speed.

 

[panduranghari]

China has around 40 billion $ trade surplus with India. And we know this is not going to benefit India in any way.

So should there be a legislation like USA that if any terrorist attack happens in India and if Pakistan is involved, then the company that imports goods from China should be penalised a fine.

We all know the diplomatic and military cover provided by Chinese to Pakistani terrorist.

Who says it does not benefit India?

 

[satish007]

it will not be an issue soon, Chinese have suffered from hungary and poor for thousand years, but now things are chaning, Chinese become richer and they know they need to spend , and on the other hand most of young borned after 90s become lazyer, they don't work as hard as their parent.

 

[trackwhack]

why are you worried about the trade deficit specific to china? we trade in dollars. it does not make one bit of difference that the deficit is with China or some other country. we have to make things ourselves and balance our trade. It cannot be country specific.

 

[Sakal Gharelu Ustad]

Protectionism is a failed ideology, but I am surprised why there are so many takers of this philosophy. All the nationalists in every nation vouch for trade-barriers.

There are certain points that should be considered in understanding trade relations:
1. Cheap goods help the consumers and leads to increase in efficiency on production side(be it local or international)
2. With a floating exchange rate, in the long run no country can continue to be an exporter(you import more--your currency depreciates--your local firms thus become more competitive in the world market--current account and trade deficit improves)
3. In an internationally connected world, trade deficit with one country should not be a reason for alarmbells(for eg. Let there be three countries A,B,C. A has a 100$ deficit with B, B has a 100$ deficit with C and C has a 100$ deficit with A. Effectively, no one has a deficit and the currencies are stable. So, add time dimension to it and more countries and it should not be a problem)
4. The only people who understand economics but still rally behind trade barriers are local industrialists, who do not want to increase efficiency but still try to maintain their stronghold over local market. Getting import restrictions with the help of politicians is an easy task.

The only problem which the world has had with Chinese system is that--many people believe the Chinese central bank interferes and artificially keep their currency devalued in the international market. Although, it is partially true but I do not completely agree with this theory. More research needs to be conducted on this front.

 

[ice berg]

A sane post among the normal conspiracy theories in DFI. :thumb:

 

[panduranghari]

The only problem which the world has had with Chinese system is that--many people believe the Chinese central bank interferes and artificially keep their currency devalued in the international market. Although, it is partially true but I do not completely agree with this theory. More research needs to be conducted on this front.

Have you heard of QTM? Quantity theory of Money?

From Wikipedia;

In monetary economics, the quantity theory of money is the theory that money supply has a direct, proportional relationship with the price level.

The current economists who are educated in the neo-classical economics also known as Keynesian economics do not believe in the above theory. Do you know why?

The economists believe they are gods and they can control everything.

China survives on exporting goods. If the American manufacturers who produce goods in China find a cheaper manufacturing destination, they will relocate. This fear paralyses the Chinese leadership from implementing policies which will defend the currencies. As America's biggest creditor, they are intricately linked to the US in both its present and the short term future. If America prints and the currency devalues, we see Occupy WALL street movement. The Chinese to keep the manufacturing cheap prints in equal intensity so that the currency does not rise. It should rise because China is producing goods. You seem French. Look at the balance sheet of Germany and France from 1990 to 1999 before they unified under Euro. Germany which produces more, had a stronger Deutche Mark as compared to the French Franc. The Germans have a higher trade surplus (even now with the Eurozone turmoil) than France, a stronger currency, a more richer population.

Extrapolating this same to China-USA: China should gradually grow richer - Yes its getting richer but the number who are getting rich in China are just like the fat cats from the Wall street banks. Blankfien and his ilk are the nouveau riche ones in USA like Bo Xilai and his ilk in China are. Do you seriously think there will not be a OWS movement in China. It is but natural for it to happen. The repressive power of CCP keeps it under wraps. But how long? Time will tell.

Now just for a minute think about the possible consequences of rising Chinese Yuan-Jioa-Fen? the goods manufactured in China get more expensive, the manufacturers move production overseas, the government could pick up the slack and copy and produce products thus keeping people who lost jobs in work, but for how long? Also chinese copy of ipad does not make it an ipad. Apple owns the patent and trademark. The excess production keeping the country producing trade surplus reduces ultimately to a deficit. The CCP could loose its power if they do this.

There is a need to defend the currency - thats the job of the central bank. Unfortunately in most of the world, the central bank is the tool of the government. Actually very few Central banks are independent- the European Central Bank is a beacon. The only truly independent central bank.

Hope you can see a different point of view now?

 

[ice berg]

You must have been sleeping lately. Yuan has been risen steadily past few years. And the main cause of price increase in manufactured goods is increase in labour costs.


And China survived on exporting goods? That is a common misunderstanding. In fact exports contributed about 12 percent of Chinas GDP in 2007. A slower export will no doubt hurt China , but that China survived on that?

Why the Export Slump Won't Doom China's Economy - BusinessWeek

 

[trackwhack]

Have you heard of QTM? Quantity theory of Money?

From Wikipedia;



The current economists who are educated in the neo-classical economics also known as Keynesian economics do not believe in the above theory. Do you know why?

The economists believe they are gods and they can control everything.

China survives on exporting goods. If the American manufacturers who produce goods in China find a cheaper manufacturing destination, they will relocate. This fear paralyses the Chinese leadership from implementing policies which will defend the currencies. As America's biggest creditor, they are intricately linked to the US in both its present and the short term future. If America prints and the currency devalues, we see Occupy WALL street movement. The Chinese to keep the manufacturing cheap prints in equal intensity so that the currency does not rise. It should rise because China is producing goods. You seem French. Look at the balance sheet of Germany and France from 1990 to 1999 before they unified under Euro. Germany which produces more, had a stronger Deutche Mark as compared to the French Franc. The Germans have a higher trade surplus (even now with the Eurozone turmoil) than France, a stronger currency, a more richer population.

Extrapolating this same to China-USA: China should gradually grow richer - Yes its getting richer but the number who are getting rich in China are just like the fat cats from the Wall street banks. Blankfien and his ilk are the nouveau riche ones in USA like Bo Xilai and his ilk in China are. Do you seriously think there will not be a OWS movement in China. It is but natural for it to happen. The repressive power of CCP keeps it under wraps. But how long? Time will tell.

Now just for a minute think about the possible consequences of rising Chinese Yuan-Jioa-Fen? the goods manufactured in China get more expensive, the manufacturers move production overseas, the government could pick up the slack and copy and produce products thus keeping people who lost jobs in work, but for how long? Also chinese copy of ipad does not make it an ipad. Apple owns the patent and trademark. The excess production keeping the country producing trade surplus reduces ultimately to a deficit. The CCP could loose its power if they do this.

There is a need to defend the currency - thats the job of the central bank. Unfortunately in most of the world, the central bank is the tool of the government. Actually very few Central banks are independent- the European Central Bank is a beacon. The only truly independent central bank.

Hope you can see a different point of view now?

Excellent post bro. For keyboard economists to understand better look at how the Gini coeff is calculated. The relationship between the line of equality and the Lorenz curve. Both China and the US are already past the .5 or 50% level. Though numbers are not out, it is estimated that in 2010, China actually went past the US in terms of income inequality.

The Gini in the US has already gone past the point of no return. The Wall street protests were a consequence of that. Do you know what happenned the last time it hit .5? This is what happenned.

Thats right, the exact year that the great depression started ... and it ended with WW2. It is natural because a society where the richest 10% holding 50% of the wealth does not have the same spending power as a society where the richest 10% holds say just 20% of the wealth. Why? Because no matter how rich you are, your needs are limited. You can buy a 100 sports cars but you cant drive all at once.

In 2010, both China and the US are exactly at .5 Gini. The decade long countdown to conflict has just begun. It starts with severe economic headaches and depression - which we are already seeing. And it ends with violence - this could be internal strife like civil wars or worse. It could be WW3. The signs are all there.

 

[Sakal Gharelu Ustad]

Have you heard of QTM? Quantity theory of Money?

Yes, I know about QTM and there had been big debates about it but now most economists agree on neutrality of money supply in long-run(i.e. direct effect on prices), while in the short-run monetary policy might be used as a policy tool. You can find the details here: http://www.mpls.frb.org/research/qr/qr1931.pdf

Now, coming to the role of Central Bank. Its usually designed to keep in check the inflation and business cycles(booms and bursts) while currency stabilization is the last(unimportant) task. So, if I understand you correctly you mean to say- currency exchange rate stabilization as defending the currency.

Coming to your observation about Germany. A strong Deutsche Mark was eating up the economy(decreasing German Competitiveness) and so other nations would have caught up in the long run. Merging the economies together gave Germany a bigger market and helped in maintaining their competitiveness(the bigger euro did not appreciate as much as Deutsche Mark would have otherwise). Currently, Germany has the lowest unemployment rate(~3%) historically. Had they continued to run trade surplus, currency appreciation was inevitable, which would have led to reversal of trade balance.

Coming to the Chinese- again you made right observation and analysis. So, the point I made was that Chinese are suppressing(devaluing) their currency intentionally. How?? There is capital account other than the current account in national accountancy. So, dollars earned through selling goods are sent back to US to buy back Chinese Yuan through Capital account. i.e. the Chinese acquire stakes in American firms and are actually the biggest FDI investor in US. So, CCP is driving its power by devaluing its currency. So weak currency is a boon for export-oriented nations and that is what CCP does so well.

Although, relating this whole process to OWS protest does not make sense. The biggest problem with printing money is inflation but there are no such signs in US right now. As far as OWS supporters go, they are barking on the wrong tree. The growing income inequality and the reduction in middle class is definitely a concern but it cannot be related just to the conduct of monetary policy which is neutral in the long run. Given that the Fed has effectively kept inflation under control for all these years, there are other profound reasons for rise of inequality and not what you suggest. The rise of few Chinese elites might be related to concentration of power in few hands, but US is a different country and rising inequality there is something which is seeing some heated discussions in the economics fraternity.

So, effectively I do not see a different point of view. I almost agree with your description of the problem except agreeing to a correlation between OWS and currency devaluation and the role of central bank.

 

[panduranghari]

The Gini in the US has already gone past the point of no return. The Wall street protests were a consequence of that. Do you know what happenned the last time it hit .5? This is what happenned.

In 2010, both China and the US are exactly at .5 Gini.

Thats very interesting. I have not researched GINI enough. Thank you for increasing my knowledge. Now what I need is the understanding.

 

[sehwag1830]

So basically some of our members are saying that while China continues to arm Pakistan and build trade surplus with India simultaneously and we should do nothing to stop them.

 

[panduranghari]

So weak currency is a boon for export-oriented nations and that is what CCP does so well.

. Given that the Fed has effectively kept inflation under control for all these years, .

There are a couple of things I picked out from your post. I wanted to just touch on them.

The weak currency has helped China I have not got any doubts on that. I however have to query you about what you think about the trade surplus which China has recycled into the US treasuries? Yes it gives China incredible buying power. But they can hardly spend even 10% of this surplus.

You also mention Fed has kept inflation under control. I do find this quite unbelievable. It depends on who is doing the measurement. Government always doctors data to suit its agenda.

I find a better source of inflation data; look at John Williams @ Shadow Government Statistics : Home Page

 

[panduranghari]

So basically some of our members are saying that while China continues to arm Pakistan and build trade surplus with India simultaneously and we should do nothing to stop them.

India is doing all it can. It could do more. But India does not have the economy to take on China right now. Let USA do that.