Comparative Advantage and Chinese Apples
Brad Setser objects to the following from Sebastian Mallaby:
There’s a powerful reason for China’s recalcitrance. The country’s technocrats were convinced years ago that revaluation made economic sense. But revaluation would cut the price of food imports, depressing earnings of Chinese farmers. Faced with simmering discontent among rural Chinese who have been left behind by China’s coastal boom, the dictatorship fears that currency revaluation could unleash furious protest.
Seriously, if every country set its exchange rate at levels that keep its least competitive sector competitive on global markets, its most competitive sectors will end up with an enormous advantage. In China’s case, massive intervention to keep the exchange rate at levels that keep local food prices up (by pushing up the price of imported food) implies keeping the exchange rate at levels that will make China’s export sector (and those on Wall Street betting on China’s continued peg) very, very happy.
So I take it that we still have a comparative advantage in producing agricultural goods such as rice. Given that I have been known to use the example of apple exports to Japan to note American comparative advantage in certain portions of the agricultural sector, this statement from Brad surprised me:
China’s apple industry is doing well and taking export market share from the US. I just heard that China is taking over the Japanese broccoli market, too. Apparently, using the exchange rate to protect rice farmers favors apple and broccoli exports, not just electronics exports.
Brad links to the Apple Update, which does a very nice job of summarizing apple production and consumption around the globe. It turns out that China leads the world in apple consumption but also produces enough apples so as to be an exporter of this commodity. Trade with Mexico is also mentioned:
The United States is slowly losing market share to China. China is very proactive in opening additional markets for Chinese apples. China is actively trying to meet EU fruit standards by improving quality, food safety, apple variety, and packaging. China recently signed a trade agreement with Mexico that will open the Mexican market to Chinese apples. This will give China a competitive advantage as U.S. apples are charged a duty. On September 29, 2005, Mexico’s government announced a new, preliminary anti-dumping duty of 44.57 percent for Red and Golden Delicious varieties on all companies affiliated with Northwest Fruit Exporters
Are you shocked that Mexico is not honoring NAFTA? Well, let’s turn to the sweetener wars for more news.One publication notes the latest from the World Trade Organization as follows:
A WTO appellate body has found that Mexico violated WTO free trade rules by imposing a tax on soft drinks made with high fructose corn syrup that affects imported soft drinks from the United States but doesn’t affect Mexican soft drinks that are sweetened with cane sugar.
Mexico’s defense of its discriminating tax was simply that the U.S. continues to impose tariffs on sugar from Mexico. While Mexico has a point, the WTO still ruled in favor of the U.S. position. Now as I eat my orange, I have to wonder if it is from Florida or Brazil. Regardless, it sure is refreshing! But I bet my strawberries were grown here in California.