Bad advice on Canadian trade policy
An essay so dumb that there was a rumor the Globe & Mail's website had been hacked
The Canadian journalist Terry Glavin recently pointed to an op-ed in the Globe & Mail (probably paywalled; sorry) that he described as “so dumb, so craven and weird, that there was a widespread rumour on ‘X’ yesterday to the effect that the Globe’s website had been hacked”. Here’s the headline:
Could it have been that bad? Unfortunately, yes.
Let’s freely concede right off a major premise of the piece: given the lunatic instability and downright hostility of US trade policy toward Canada, it makes sense for Canada to try to become less reliant on the US. But the conclusion—let’s become more reliant on China!—is pretty mind-boggling. You have to wonder what cave the authors have been living in for the last few decades to think that more dependency on China is a wise policy. Maybe they should have googled <china economic coercion> before putting finger to keyboard.
But let’s look at a few specifics.
First, this sentence: “As the largest economy in the world on a purchasing power parity basis, China is set to be a core driver of future global economic growth.” I’m no economist, but even I can see that the premise does not support the conclusion in at least three ways.
The premise is about a static quality: the current size of China’s economy. The conclusion, however, is about growth. The current size of China’s economy tells us nothing about its capacity for growth.
Let’s assume, however, that China’s economy does grow. The contribution of China’s economy to global growth can’t be usefully assessed simply by measuring global growth, measuring China’s growth, and then doing the math. Imagine measuring the growth of two children, one five years old and one 14 years old, over the course of a year. The total growth of the two might be five inches. The percentage of that growth accounted for by the teenager will be huge, but he did not in any way contribute to the growth of the 5-year-old. Ficuring out how much of China’s growth contributes to global growth in the second sense is not easy and certainly beyond my capacity; I just want to point out here the fallacy of assuming that all of that growth contributes to the growth of other countries in the second sense.
Let’s assume that the size of China’s economy is indeed related to its growth potential and its ability to genuinely contribute to the growth of other countries in the second sense above. China’s growth will contribute to global growth to the extent that China trades with other countries—especially if it buys from them. This is why purchasing power parity is exactly the wrong measure to use in assessing the size of the economy. It’s used to estimate how well off people actually are when the absence of a high level of trade makes it unrealistic to use GDP converted into dollars. But if the claim is that China is going to contribute to the growth of other countries, then it must be doing a lot of trading, and that makes PPP irrelevant for the purposes of that particular claim.
Second, this sentence: “It also now accounts for a third of the world’s manufacturing output, more than all the G7 countries plus South Korea and Mexico combined.” That’s terrific, but what exactly does that imply for Canada? The stuff being manufactured is stuff that China exports and other countries import. One of the few things the US is not doing is limiting Canadian imports of US exports. So what point is being made here? How does this bear on the problem identified by the authors: “[W]e rely on one increasingly unreliable partner for 75 per cent of our exports”?
And then there is this gem: “Yes, Canada’s pluralistic system differs greatly from China’s single-party system. But Canada trades with other countries with significantly different political systems. Japan’s ruling Liberal Democratic Party has been in power almost continuously since 1955, and yet no one questions our economic relationship with Japan because of ‘different values.’” Good grief. They can’t possibly be seriously suggesting that Japan is just like a single-party Leninist dictatorship that ruthlessly suppresses its opponents with jail and executions. It’s like pointing to Bush Jr. becoming president just like his father and saying, “See? The US is just like North Korea!” It is hard to put this down to anything other than deliberate disingenuousness.
The chef’s kiss is the invocation of Jeffrey Sachs, who has degenerated shamefully over the past several years from respected economist to pathetic Putin fan.
The Globe should be embarrassed.