Wise Words from Peter Thiel

He says (via Marginal Revolution):

...there is no good scenario for the world in which China fails.

Ugh

The new Farm Bill is even worse than its predecessors.

Quote for the Day

From Daniel Drezner:

I've said it before and I will say it again: Democrats cannot simultaneously talk about improving America's standing abroad while acting like a belligerent unilateralist when it comes to trade policy.

This in a post discussing how NAFTA-bashing from the Clinton and Obama campaigns irks the governments of Canada and Mexico.

What Is This 'Decoupling' of Which You Speak?

Dani Rodrik notices that businessmen in emerging economies are relatively nonplussed about the possibility of a U.S. recession:

But if you talk to businessmen (alas they were all men) from India, Russia, China, Turkey or the Gulf States, you would hardly know that we have just experienced a credit market freeze-out in the West. They are all ho-hum about it. Yeah, we could shave a point or two off our growth estimates, they say, if the U.S. goes into a deep recession, but it's no big deal--and can you pass the wine please. Indians are saying we don't rely that much on exports anyhow; the Chinese are relying on their growing middle class; and others have their own stories.

Is this the famous "decoupling" at work? Will this be the beginning of a new era of the world economy, with several key developing countries, the BRICs and the N-11 (using the faddish terms that attach to them), gaining real ascendancy over their Western counterparts?

Probably not. But something interesting is going on.

Meanwhile, the world's financial markets -- from the relatively deep and rich (EuroZone) to the relatively shallow and unsure (Asia) -- have not reacted very well to trouble in the U.S. markets and the possibility of recession:

Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a severe slowdown there, even a fully fledged recession. Faith in the concept has generated strong outperformance for stocks outside the United States - until now.

As opinion began to solidify after the start of the year that a recession, or something close to it, was likely in the United States, stock prices accelerated their declines, with the selling intensifying early last week. Contrary to what the decouplers would have expected, the losses were greater outside the United States, with the worst experienced in emerging markets and developed economies like Germany and Japan. ...

Decoupling was all the rage early last year when international financial markets all but ignored the increasing turmoil in the U.S. economy and stock market. Investment advisers point out, however, that the segments of the U.S. economy that were showing wear and tear then were those to which the rest of the world would never be heavily exposed. That is no longer true, they say, and markets are responding accordingly.

"Decoupling is yesterday's story," Stuart Schweitzer, a global strategist at JP Morgan Private Bank, said. "Last year, when the U.S. slowdown was driven almost entirely by housing, it made sense that the rest of the world kept right on going. Housing is a domestic story, plain and simple.

"The nature of the slowdown has changed in two key respects. The credit crunch that began in midsummer is not just a U.S. phenomenon; the rise in risk aversion is global and will have an impact on credit terms and availability everywhere. And we're finally seeing evidence that the U.S. job market is losing steam and consumer spending is slowing."

The fact of the matter is that many markets, particularly financial markets, are most integrated than they have ever been. This is good for spreading risk around, and it helps produce more efficient investment outcomes. And, if some developing country gets into trouble, it is both easier for them to get back on their feet and for investors in that country to not go bankrupt in the fall-out.

But this whole system still revolves around the U.S. It may be true that the world somewhat less dependent on the U.S. than they were in the 1990s (although this is arguable), but it is not true that the world isn't still dependent on the U.S. At this point, "decoupling" is something of a myth. In the future, it will probably become reality, but not in the sense that most people mean it. It won't mean that individual economies will be less susceptible to major movements in major companies; rather, it will likely that the relative importance of the U.S. over all others declines somewhat. The absolute importance of the U.S. will remain for a long, long time.

Reevaluating Huntington's 'Clash'

An interesting article looking back at Samuel Huntington's famous thesis that the post-Cold War world would not finally be dominated by moderating, liberal globalizing forces, but by a "clash of civilizations". The conclusion:

More ominously perhaps, there ran through Huntington’s pages an anxiety about the will and the coherence of the West — openly stated at times, made by allusions throughout. The ramparts of the West are not carefully monitored and defended, Huntington feared. Islam will remain Islam, he worried, but it is “dubious” whether the West will remain true to itself and its mission. Clearly, commerce has not delivered us out of history’s passions, the World Wide Web has not cast aside blood and kin and faith. It is no fault of Samuel Huntington’s that we have not heeded his darker, and possibly truer, vision.

Even if all this is true, there are still some problems with Huntington's narrative: even if Muslim countries have unified under the banner of Islam (and this is certainly disputable, given the fractures within the Muslim world), that is but one of Huntington's eight civilizations. In most of the rest of the world, especially East Asia, Eastern Europe, and Africa, the trend is still towards integration and moderation. The spirit of globalization may have tempered some since 9/11, but it is still strong. Some of its principles may have been reformed, but the underlying realities haven't changed much. The view that the rules have significantly changed is indicative of a Western-centric (or Islam-centric) worldview, and ignores the situation in much of the rest of the world.

Cowen, Rodrik, and Harford on Trade and Ethics

More reaction to Landsberg's article on why we shouldn't compensate "losers" from trade.

First, Harford:

...people lose their jobs all the time for reasons that have nothing to do with foreign trade. I'd argue that they deserve some help. Why are jobs lost to foreign competition so privileged?

Bingo. I would further this by saying that we already have many protections in place for all displaced workers -- such as unemployment benefits, subsidized education, etc. -- that extends to those workers displaced by trade. Why should those who lose their jobs to trade, as opposed to any other source, get more than that? The most likely answer seems to be: political nationalism. But that seems to be an inappropriate response to the question.

Then Rodrik:

The question of how we should respond to a trade-induced change in income distribution is not one on which economists can offer any expertise. This is a question about ethics, values, and norms, none of which is part of an economist's training. Landsburg's take on this is as good as mine--which is as good as that of any person on the street.

Cowen reacts fairly strongly in the negative to this view:

Every now and then I feel a deep responsibility to rebut an argument. In my view anyone doing policy economics has an obligation to learn more about ethics -- much more -- than the guy in the street would know. Would someone doing experimental economics feel free of the obligation to learn some empirical psychology? Would someone doing trade feel free of the obligation to learn some trade law, some history, and some political science? No. What's the difference? Economists like to separate the "positive" and "normative" aspects of what they do, but this distinction has not much impressed the moral philosophers who have looked at it nor has it impressed Amartya Sen. The very decision to use economic tools emphasizes some considerations and excludes others. The final policy analysis is not just pure prediction but rather it is also an implicit presentation and weighting of both different kinds of information and different values. So if you are doing policy economics, it is imperative that you think about ethics at a very deep level, and read widely in ethics. You are doing ethics whether you like it or not! Furthermore I don't doubt that Dani already has a deeper understanding of ethics than the (often very crude) man in the street.

That said, I don't agree with the ethics Dani does discuss, noting that he must have felt he had some good reason to put forward the concerns he did and not others. (As a rule of thumb I'll note that those who profess the impassability of ethical terrain have just in fact traversed it.) I don't worry much about the procedural fairness if a poor country trades at better prices by paying its labor less or by polluting. Low wages are precisely the wages we want to see bid up, and if there is a concern for the losers I would not call the issue a procedural one but rather one of outcomes. And pollution can be a moral crime but attacking trade is not usually a good way to go after it. Tax the pollution, not the trade.

Right. I have had many arguments with professors on this topic. Many economists like to believe that their studies are value-free; that they are scientists, and not philosophers. To an extent that is true, but the assumptions underlying all economic study requires an ethical underpinning. Economists often talk about "best" and "second-best" policies, or "perfect-world" scenarios; but what are these if not ethical judgments? The entire study of economics, as we are taught on day one of Econ 101, is the study of how people and nations make choices given the inherent scarcity of resources. In other words, how we choose between different options. For policy-makers, especially on the macro level, this is truly an ethical concern.

The hottest economic topics these days -- bailouts for defaulting homeowners, tax cuts/redistribution, income inequality, international trade -- are all ethical topics first and foremost. Economists would rather not face this fact, because to do would require more work on their part. Justifying their models and assumptions in an ethical framework is no simple matter, so economists just assume those ethical concerns away. This is not right, it is not proper, and it is detrimental to the causes that economists seek to further, since those who share different ethical beliefs may simply reject the conclusions of economists on ethical grounds (esp. on trade, where environmental, cultural, and labor standards are given so much weight). Since economists generally refuse to argue on those terms, the argument is lost to them before it even begins.

This shouldn't happen. Economists should have much to say on the topic; it's just a shame that they generally refuse to join the argument.

Should winners from trade compensate the losers?

Steven Landsburg says no.

I agree with him in principle, but I still think that publicly-funded education and re-education programs are worth it. There are strong reasons for believing that these programs provide a positive social surplus and can lead to strong productivity growth.

But the idea that winners from trade should directly compensate losers has no basis in economic theory. We should encourage education and training for its own sake; not because of some utilitarian ethical concern.

UPDATE: Dani Rodrik kind of disagrees:

Similarly, what is at issue in globalization debates is the procedural fairness of some types of outsourcing. Trade is controversial because it involves exchanges of the type we routinely block at home (e.g., exchanges that involve unfair labor or environmentally harmful practices). This often makes trade look different from other instances of redistribution.

There's some trouble here. First of all, which is more unfair: allowing imports of products from countries with different labor standards than the U.S., or requiring every other nation in the world to adopt the exact same standards as the U.S. as a prerequisite for trading with us?

Second is the double standard, whereby we refuse to allow people to sell us their goods because we disapprove of the lax standards of production, but we gladly sell our goods to the same people regardless of those standards and without a second thought.

By some European standards (say, France), American labor protections are incredibly lax. Yet how would we respond if they started putting tariffs on American exports because our labor standards are "unfair"? We would respond with outrage and incredulity, and we would be right to do so. We should expect nothing less from other countries.

If we choose to trade off economic freedom and efficiency in exchange for tighter labor standards, that is our right. But we cannot pretend that the balance we have found is the perfect one for all countries and regions. States and individuals should be free to decide these matters on their own. Anything less is what would actually be "unfair". After all, it's not as if we don't have the option, as consumers, to not purchase goods made under laxer policies than our own. Forcing foreign nations to abide by standards that we have created and modified over time, and preventing Americans from exercising their own economic freedom as consumers, is not a more "fair" system for anyone.

Now, obviously, Rodrik would not advocate for protectionism outright. And yet, when he and others maintain that we should require labor and environmental standards be negotiated into trade contracts, and that we should subsidize (i.e. "protect") American jobs through government intervention, he is really advocating a type of non-tariff trade protectionism in disguise.

WaPo Does Something Right

A nice, brief article explaining why the notion of "energy independence" is such a canard. These are mostly economic arguments, but there's a healthy dose of pragmatism as well.

I wish that the GOP presidential would pick up on this, and stop citing "energy independence" as a major goal. Even if it were possible, these claims ring hollow because of the nature of the Republican party, its historical ties to oil-exporting nations (e.g. the Bush family's relationship with the Saudi royals), the meddling of the U.S. into affairs of oil-exporting nations in the last three GOP presidents (Reagan in Iran/Lebanon, H.W. Bush in Iraq/Kuwait, W. Bush in Iraq/etc.).

But it won't happen, because "energy independence" has become a useful tool for Republican politicians to instill fear into their constituents. That theme is practically a constant now, as most major GOP politicians fear-monger over immigration, the inability of many voters to differentiate between Muslims (e.g. Sunni/Shiite, Islamists/modernists, democrats/dictators, etc.), gays, etc.

The history of this stuff in the GOP has a long and deep history (especially since the end of WWII) from McCarthyism to AIDS scares to the "bomb all the brown people back into the Stone Age" attitude of many GOP constituents after 9/11.

The fact is that we are deeply and irrevocably tied to the rest of the world, and the sooner we acknowledge that fact and try to make the most of it, the better we'll be. I don't know if the GOP is capable of leading the country in this area anymore.

Well, maybe McCain can. Maybe.

Why We Aren't in a Recession Yet

The graph above, via Krugman, shows the decline in residential housing investment (the blue line) being offset by an increase in the American export sector (red line), both expressed as percentages of GDP.

All the economists who had predicted a recession for this year (including me) could not have predicted the increase in exports which seems to have saved us (so far), because they could not have expected the value of the dollar to drop so heavily this year. Things don't look especially good for the short-term future, but if exports stay strong then any recession which does hit may be shorter and less painful than it otherwise would be.

This also shows us why a return to protectionism would be horrible: it would likely result in the institution of foreign tariffs against our products as retaliation. Since we may end up relying more on exports to sustain the overall economy until the housing market recovers (and employment gets better), this would be disastrous. It would also increase inflation worries, which could keep the Fed's policy tighter, making recovery take longer.

China Yields

From the WSJ:

WASHINGTON -- China moved to address a flash point in economic relations with the U.S., agreeing to end trade-distorting subsidies to Chinese manufacturers, a senior Bush administration official said.

"This outcome represents a victory for U.S. manufacturers and their workers," U.S. Trade Representative Susan Schwab said in a statement Thursday. She added that the settlement "also demonstrates that two great trading nations can work together to settle disputes to their mutual benefit."

Quite right. But there has got to be some sort of quid pro quo for this. Perhaps, in exchange, the U.S. will lessen pressure on China to let the RMB appreciate. Or, perhaps the U.S. has agreed to lower agriculture subsidies (I doubt it). Perhaps China is just looking for some positive P.R., but I kind of doubt they'll get it. Perhaps China is looking for some leverage in future negotiations. I'm not sure, but something is coming out of it.

But no matter what it is, it's a good thing. China's manufacturing industry is pretty well established at this point. Continuing to distort the markets through subsidies doesn't make long-term political sense, nor does it make economic sense.

Mixed Economic News

The U.S. economy is really... weird right now. The underlying economic news is pretty great: the economy expanded 4.9% in the last quarter, which is the highest rate in four years. This 4.9% growth rate isn't sustainable -- indeed, it is nearly twice the maximum level of sustained growth as estimated by the Fed -- but it is still encouraging.

And yet. The housing "crisis" is worsening, and will continue to worsen, probably through 2008. Credit markets are still very tight, so the Fed will still feel pressure to loosen monetary policy. But there are still some inflationary concerns in the real economy despite deflationary concerns in the financial markets. It's possible, if unlikely, that we could hit stagflation.

So, things are weird. Unfortunately for the rest of the world, these concerns aren't limited to the U.S. It had been thought that, since growth rates have improved in parts of W. Europe (e.g. Germany), and since Japan is finally showing some signs of life, the rest of the world had decoupled from U.S. But that might not be the case. Megan McArdle sums up thusly:

Germany and Japan may be growing, but they're extremely dependent on exports, which means they won't serve as the markets that fuel growth in the rest of the world. That, for too long, has been America's job. Now that we're ready for retirement, it seems we forgot to train our replacement.

Multilateralism? What Multilateralism?

Dani Rodrik calls the efficacy and legitimacy of the IMF into question, calling it a tool of the U.S.:

Mark Thoma brings up IMF' new policy of surveillance on exchange-rate policies and quotes from a piece by IMF Managing Director Rodrigo de Rato on the subject. He refers to an earlier post of mine and encourages me to return to the topic as I had promised.

I will do that at some point, but for the moment let me just point to the obvious hypocrisy at work here. Rato writes:

This reform represents a victory for multilateralism that demonstrates ownership of how Fund surveillance will be strengthened and members' willingness to live up to their responsibilities in the process.

A victory for multilateralism? He has got to be kidding. The new policy was instituted at the behest of the United States, with the express purpose of bringing pressure on the Chinese.

And when the IMF staff took "multilateralism" seriously and reported its view that the dollar was overvalued, they were told to mind their own business and not to meddle with U.S. policies. So while we shall see plenty of reports coming out of the IMF on the undervalued Remninbi, don't expect anything on the dollar soon.

This in the face of the Obama/Clinton legislation to put tariffs on China unless they allow the value of the RMB to rise. The logical shortcomings of U.S. policy is astounding. After all, imagine the U.S. reaction is the E.U. threatened sanctions unless we allowed the value of the dollar to further depreciate. The difference, of course, is that the dollar is a major international reserve currency, so depreciation could more severely hurt holders of dollars, and those are not limited to citizens of the U.S. (tho they certainly include citizens of the U.S., particularly those who get more value from imports than exports). But it's even worse for us, because the Chinese hold a lot of U.S. debt. If the value of the RMB rises relative to the dollar, then servicing that debt becomes more expensive for us. So Obama and Clinton are essentially begging China to increase our debt burden and increase our costs of living, or else they are threatening to do it for them. Remarkably stupid.

The IMF needs independence to be productive and credible. The U.S. needs a consistent policy to maintain credibility. The Chinese are looking at us and wondering what the hell we're thinking.

Wal-Mart's PR Makeover

Wal-Mart has a new slogan: "Save Money. Live Better." Who knows if it will resonate with the larger population, but I like it. It really gets at the positive aspects of Wal-mart (specifically) and international trade (generally). Namely, that our standards of living improve as we specialize in our comparative advantages and trade with each other. That's not to say to say that there aren't trade-offs, but in the aggregate, standards of living do improve. The "low prices" mantra means less in an age of low inflation and broad big-box market dominance. But people sometimes need to be reminded of the contributions Wal-mart and the other massive retailers make to society; the fact remains that the net effects of Wal-mart are positive, and probably massively so.

The Absurdity of U.S. Farm Subsidies

Matthew Yglesias clips this image from NRO's Corner. This is a map of Manhattan, with the red dots representing a recipient of federal farm subsidies. The larger dots represent a recipient of more than $250,000/year. As Yglesias drily notes, "Given that this is clearly a map of Manhattan, one can safely assume that that these people are not struggling family farmers. It's a neat illustration of an out-of-whack system."

The Republicans and Democrats are equally complicit in this, which amounts to a transfer -- through taxation -- from the poorer to the richer. Even worse, this policy kills the U.S.'s credibility in trade negotiations with emerging countries, especially those in South America and Africa. The double standard the U.S. insists on maintaining has derailed Doha, costs Americans billions of dollars a year, condemns millions of people in developing countries to extreme poverty, and allows the U.S. agriculture industries to take rents by eliminating competition from foreign countries. It's a horrible policy, and should be eliminated.

Antigua Defeats U.S. in WTO Battle

Antigua was unhappy because the U.S. banned offshore online gambling, which provided a lot of revenue for the island. The U.S. claimed that it was absurd for Antigua to take this dispute to the WTO, since regulating gambling comes under the jurisdiction of the U.S. government, not the WTO. The U.S. case makes intuitive sense, but it seems to violate WTO rules to which the U.S. agreed, so Antigua won the case. Now the U.S. has to either ban ALL online gaming -- including horse-bettering and lottery programs which are currently legal -- or allow Antiguan online casinos access to U.S. customers, or pay billions in restitution. Traditionally, this restitution comes in the form of punitive tariffs. But Antigua is too small to inflict any noticeable damage to the U.S., so Antigua asked for permission from the WTO to violate U.S. intellectual property, presumably through piracy of movies, music, technology, or something else. So far as I know, the WTO hasn't issued a final ruling on that point.

It's an interesting case, because it directly challenges the authority of U.S. lawmakers to pass laws in the age of the internet. It also could effect online casinos based in Malta and other countries which have been harmed by the U.S.'s online gambling ban. It also has ramifications for the expansion of intellectual property protections in the Doha negotiations, for which the U.S. is pushing hard.

Dani Rodrik has some commentary here.

The Inanity of the U.S./China Trade Debate

Philip Levy hits the nail on the head. The upshot:

Congress is demanding the right policy for the wrong reasons and warning that they’ll hurt American consumers unless they get their way. Regular Americans are scared of the Sino-shrimp. And the Chinese are threatening to do what Congress wants, unless Congress relents. This has all the makings of a classic summer farce. If only global macroeconomic stability didn’t depend on it.

arg.

(ht: Greg Mankiw)

Examining NAFTA

Brad DeLong -- one of the architects of NAFTA -- had his belief shaken. He acknowledges the real benefits that had occurred because of NAFTA, but expected much bigger effects. Tyler Cowen points him to a new paper which might re-embolden his faith. The bottom line:

The more globalized parts of Mexico -- most of all the north -- have done extremely well since NAFTA passed. The biggest problems remain in the least globalized parts, most of all the south and big chunks of the interior.

So measuring Mexico in the aggregate will leave a NAFTA-believer disappointed. But properly weighting the measurement shows something very different: NAFTA has been a huge success. And all without a giant sucking sound or even one poisoned strawberry.

Hill vs. Bill

On matters of trade policy, the two Clintons couldn't be much further apart.

Of course, Bill's presidency helped create one of the most successful economic periods in our nation's history. So, perhaps Hill should just smile, wink, and say, "Remember the '90s?" instead of embracing economic nationalism. The U.S. needs to show tomorrow's power players -- Brazil, China, India, Russia -- that we are interested in them today. These are the countries which will become the most significant in the future, replacing the W. European dinosaurs. We need them on our side, or at least willing to talk to us.

Plus, tariff taxes are just bad policy. Unfortunately, they may also be good politics.

(ht: Great Mankiw)

The Cost of Freedom Fries

Andrew Sullivan points us to Free Exchange, the economics blog of The Economist, where we learn of a paper recently published by the Centre for Economic Policy Research in which the costs of anti-gallic sentiment in America following France's decision to not support the U.S. war effort in Iraq.

It seems that market forces have not yet stopped American businessmen indulging the Francophobia that swept the nation in the run-up to the invasion of Iraq. Between February 2002 and March 2003, the percentage of Americans who had a favourable view of France fell from 83% (it’s hard to remember it was ever so high) to just 35%. By 2005, that aversion to all things gallic was costing France about $5 billion-worth of exports, the two authors calculate. It was not just American shoppers boycotting French wine (down by 13% over six months in 2003) and holidays. The bulk of the fall was in inputs (industrial machinery etc.) not consumer goods. France rarely dominates these markets, leaving American businessmen freer to buy elsewhere. In consumer goods, however, France is either the Oscar-winning supplier (champagne) or it’s so anonymous that no one knows they’re buying from France in the first place.

It's easy to scoff, but I don't think it's really that big of a deal for France. After all, we're now spending $10bn./month in Iraq, and $2bn./month in Afghanistan, so $5 billion over the course of two or three years is getting off pretty cheaply; it surely would have been much more expensive for them if they'd given us support on par with, say, the U.K., which started out budgeting ~ £3bn./year for the war in 2003, and is now at £7.5bn. for this year. And France's total exports are ~ $500bn./year, so a loss of $5bn over a few years isn't that big of a deal. A far greater worry is their loss of domination over the wine industry.

More on the HRC/Obama China Tariff...

... which I first blogged about here. Matthew Yglesias reads Brad DeLong and wonders:

Now where I tend to lose the plot is this. If mainstream economists like Brad think it's a bad idea to use threats of tariffs to push China into changing its exchange-rate policies, how come the economics mainstream seems to have so few complaints about the fact that it's completely normal for US trade negotiators to use exactly this sort of leverage to try to get other countries to change the intellectual properties policies or to privatize their water systems or what have you? Why is the threat to shoot ourselves in the foot okay when made on behalf of pharmaceutical companies and movie studios, but not when made on behalf of import-competing manufacturers? Often when I see this argument made, I feel like the point is -- aha! hypocrites! you should support our China bill after all! -- but I really do think Brad's right, this is a bad bill. But by the same token, the people who complain about this sort of thing ought to complain about the other sort of thing as well.

There are a couple answers to this:

1. Most in the "economics mainstream" -- i.e. the orthodox theories and those who espouse them -- do oppose using these tactics in bilateral or multilateral trade negotiations. It's "normal" for US trade negotiators to use these tactics, but not because economists approve of it. It's common for US trade negotiators to use these tactics because their job isn't to enact good economic policies; it is to extract concessions from other countries so that trade agreements will be more politically feasible. But usually, we would never put tariffs on another country unless they are violation of WTO rules.

2. The US trade negotiators have different rule sets when negotiating with, say, Chile than they do when negotiating with China. We can easily do without having Chile as a trading partner, and we have the upper-hand in any negotiations with them because they need access to our markets much more than we need access to theirs. So we can browbeat them into doing just about whatever we want them to do by threatening tariffs or other punitive punishments. With China it's not so easy. We do rely on China much more than other countries. Not only do they provide a lot of our consumption, but they also hold a lot of our debt. Because of that, and past military tensions, we view them as a threat to our hegemony (or, at least, some people do). So, threats of tariffs are made, despite the fact that it would hurt us more than China (but they still will hurt China). And, unlike Chile, China isn't going to do whatever we want whenever we want it, so we've got to act like we've got a big stick. We don't have the same sort of leverage against China that we have with Chile.

Also, we do threaten tariffs and other punitive punishments against China for violating intellectual property laws (e.g. pirated software and movies). And part of the reason why Doha has failed so far is because of the US's insistence on the inclusion of intellectual property reform in the developing world. Most economists disagree with that line of logic, although the patent system and intellectual property laws are a wholly separate beast from import-competing manufacturing. After all, in the former cases, Chinese producers aren't producing a product at lower cost than American producers can; they're just free-riding on American innovation without paying anything at all for it. In some cases, they are stealing our products outright. It's a difficult and complex issue, and not easily comparable to standard international trade logic.