On Global Trade & Investment
Published Three Times a Week By:
The Global Business Dialogue, Inc.
Washington, DC   Tel: 202-463-5074
No. 10 of 2017

Click here for yesterday's China quote from Terence Stewart.

"Back in 2000 and 2001, China was expected to do well in the production of apparel and low end consumer goods. But it was also expected to be a big market for a wide range of sophisticated U.S. and European capital goods. Broadly speaking, that hasn't been the case, setting aircraft aside."

Brad Setser
January 18, 2017
Brad Setser is a senior fellow at the Council on Foreign Relations. Today's featured quote is from his blog post of about a month ago, which carried the headline "China's WTO Entry, 15 Years On." We won't draw too close a parallel between the argument that Setser put forward on January 18 and the one Terrence Stewart advanced at the GBD session on January 27. They did have this much in common, however: both sought to demonstrate that, at least for the United States, there have been some dramatic differences between the expectations associated with China's entry into the WTO and realities after 16 years of China's membership. 
We'll keep this short and take note only of a two points made in Mr. Setser's January 18 blog post. One relates to manufactured goods generally. He wrote:
"There is no 'WTO' effect on China's imports of manufactures, properly measured (i.e. leaving out imports for re-export). China's imports of manufactures are now under 5 percent of China's GDP-a low number compared to China's peers."

As for trade in capital goods-long the shining star of American exports-Mr. Setser wrote: 

"The U.S. ... runs a significant trade deficit in capital goods with China (even after taking out computers). That wasn't the expectation back in 2001." 
If you click on the link below and visit his blog for January 18, you will find he has illustrated his point about U.S.-China trade in capital goods with a quite stunning graph.
This business of trade policy - its study, formulation, implementation, and assessment-is valuable and important, but it is not science, at least not one of those sciences that is both propelled and disciplined by the scientific method. For a refresher on the scientific method, this excerpt from a 1964 lecture by Richard Feynman should do the trick: 

"Now I'm going to discuss how we would look for a new law. In general, we look for a new law by the following process. First then, we guess it. - We'll don't laugh, that's really true. - Then we compute the consequences of the guess, to see what, if this is right, if this law that we guessed is right, we see what it would imply. And then we compare those computation results to nature, or, we say, to compare to experiment or experience, compare it directly with observations to see if it works. 

"If it disagrees with experiment, it's wrong. In that simple statement is the key to science. It doesn't make a difference how beautiful your guess is. It doesn't make a difference how smart you are, who made the guess or what his name is. If it disagrees with experiment, it's wrong. That's all there is to it."

To be sure, Professor Feynman talked about other elements of the scientific method, including, for example, the importance of formulating the law or hypothesis in such a way that one set of facts or another could disprove it.
That's more than we need here, however, where the point is simply that policy formulation isn't science. And indeed the fact that the real life consequences of a policy may be quite different from those expected or promised by policy makers, though important, is still secondary. The real difference is that laws of physics don't change the underlying realities. Policies do. China's WTO membership may not have led to the growth in U.S. and European exports that policy makers anticipated. And the resulting explosion of Western investment in China may not have been unanticipated.  And yett it is now those realities that beg the question, what next for China policy?

New policies will, of course, be formulated.  As always, one hopes that work will be done bearing in mind the adage "The best laid plans of mice and men often go awry."
Not Quite as Planned takes you to Brad Setser's blog entry for January 18, 2017, which was the source for today's featured quote.

On the Scientific Method is a link to the YouTube Clip with the 1964 Richard Feynman lecture quoted above.

Of Mice and Men is a link to the Robert Burns poem that is as far back as we have traced this saying. Wikipedia has the modern version of the key stanza read this way:

But little Mouse, you are not alone,
In proving foresight may be vain:
The best laid schemes of mice and men
Go often askew,
And leave us nothing but grief and pain,
For promised joy!


Or Other GBD Notices, click below.
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Tel: (202) 463-5074
R. K. Morris, Editor