Technology and trade
a twin American response of tariffs and subsidies that violate international trade agreements, leading to the destruction of the very system it claims to be fighting to protect. While the CHIPS Act 3 and Inflation Reduction Act (IRA) are disguised as the ‘ biggest step forward on climate ever ’ , 4 they are ultimately highly protectionist economic weapons to beat China at its own game and nullify its previous competitive advantage. Now that this covenant has been shattered, any country that does not respond in kind with their own equally generous subsidies will be left behind, kickstarting a subsidy race that threatens to mark the end of the w est’s role as a bastion for free trade. To maintain legitimacy as democratic nations, western governments must respond to mounting public disillusionment with globalization. The increased economic efficiency that the Heckscher-Ohlin model of free trade 5 promises is largely enjoyed by the highly skilled service workers and consumerist middle classes, at the expense of the blue-collar workers, exacerbating income inequality. The reduction in trade barriers following China’s accession to the WTO in 2001 , 6 and a flood of Chinese labour, 7 with average annual wages 40 times less than their American counterparts, has culled 5 million manufacturing jobs in America. 8 The lower quartile of income earners in America suffered pay cuts twice as large as the average earner for each $1000 increase in Chinese imports per worker. 9 Increased international competition may act as a Schumpeterian force that shifts factors of production into more innovative and efficient sectors, and pressures American manufacturers to innovate towards cost-saving automation to compete, but potential nationwide productivity gains 10 do little to help the occupationally immobile manufacturing workers whose skills are no longer demanded. Additionally, the benefits of higher quality, wider variety and lower prices of goods that Chinese imports offer, amounting to an increase in average annual US 3 Institut de Recherches Economiques et Fiscales 4/4/23: Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act at https://en.irefeurope.org/publications/online-articles/article/the-chips-act-joe-bidens- new-protectionist- policy/#:~:text=The%20CHIPS%20Act%20aims%20to,the%20name%20of%20national%20security. 4 Atlas Renewable Energy, 5/4/23: https://www.atlasrenewableenergy.com/en/how-the-inflation-reduction-act- could-turbocharge-the-renewable-energy- sector/#:~:text=At%20the%20heart%20of%20the,to%20meeting%20its%202030%20goal. 5 The Business Professor, 7/4/23: https://thebusinessprofessor.com/en_US/economic-analysis-monetary- policy/heckscher-ohlin-model-definition. 6 China’s accession to the WTO reduced the average tariffs on its manufactured goods from 14.8% to the current 7.4%. WTO, 6/4/23: https://www.wto.org/english/news_e/news21_e/acc_10dec21_e.htm#:~:text=With%20its%20accession%20to%20 the,lower%20than%20the%20accession%20commitments. 7 Patterson (see note 1). F ollowing China’s accession to the WTO, demand for Chinese manufactured products surged, kickstarting a cascade of urbanization of 205 million Chinese workers as job opportunities opened up. 8 Economic Policy Institute, 8/4/23: https://www.epi.org/publication/trading-manufacturing-advantage-china- trade. 9 Stanford, 20/4/23: https://siepr.stanford.edu/publications/policy-brief/low-wage-earners-hit-hardest-trade- china#:~:text=While%20the%20average%20worker%20saw,that%20was%20twice%20as%20large. 10 Statement by the IMF that ‘as much as 12 percent of the increase in productivity over the 12 years from 1995 through 2007 can be attributed to China’s integration into world trade’. IMF, 10/4/23: https://www.imf.org/en/Blogs/Articles/2017/05/24/how-trade-with-china-boosts-productivity.
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