China Trade

Washington Post business columnist Steven Pearlstein was online Wednesday, April 25 at 10:30 a.m. ET to discuss trade, globalization and China.

Read today's column: From Old World To Real World (Post, April 25 ).

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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Annapolis, Md.: Hello- It strikes me that the U.S. is deeply in debt to China. And this is a weak position for us. According to the U.S. Treasury, in February 2006, China held 318 billion dollars in U.S. Treasury securities.

In February 2007, China now holds 416 billion in U.S. Treasury securities. Only Japan owns more in U.S. Treasury securities. Here's the Treasury website with the figures: http://www.treas.gov/tic/mfh.txt

How much leverage does this situation give China? Many experts have scoffed at the notion of China selling off, let alone dumping, their U.S. Treasury securities. They argue that such an action by China would send the U.S. economy down the tubes, thus hurting the largest consumer of China's goods.

But isn't China rapidly developing markets outside the U.S., markets that could step in and buy their products if the U.S. economy tanks? Or do you believe our indebtedness to China is a very good thing and we should double down?

Steven Pearlstein: In the cold war days, we referred to this as "mutually assured destruction." The fact is there is a symbiotic relationship here -- they need our trade deficit/profligacy as much as we think we do. So I don't think there is a huge threat here. Yes, if China announces it is dumping all its dollars, it would cause a global financial panic. But it wouldn't be good for business, both because it would trigger a global recession and it would unpeg the yuan from the dollar. There are lesser things they could do, like announce in the future they are going to diversify their reserve holdings, but they've already sort of done that. And, anyway, if they diversify too much, they won't be able to hold the peg, since holding the dollars they earn in trade surplus is the way they maintain the peg.

What would happen if we took reasonable steps to protect the US economy, like imposing modest counterveiling duties, is that the government would retailiate by order companies to buy fewer Boeing planes or Caterpillar tractors. That would hurt, no doubt about it. But not as much as doing nothing.

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Laurel: Your column was about the trade part of our relationship with China, but I'd also like to know about the human rights part. When normalizing our trade relations was being debated, the proponents claimed that engagement through trade would give the United States leverage to work for human rights there. Are there actual examples of cases where we used our alleged influence there?

Steven Pearlstein: Engagement through trade does give us leverage in China. And in many respects, human rights is getting better in China than before. But its slow -- two steps forward, one back.

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Arlington, Va.: Historically, IP protection has risen with national wealth. The United States was a major copyright pirate in the 19th Century. As Chinese publishers and moviemakers grow wealthier and more influential, they will have incentives to agitate to stop the bootlegging.

Steven Pearlstein: Yes, and as they grow wealthier, they will buy more of our goods, too. But it doesn't mean that we should ignore their mercantilist policies now.

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Ankara, Turkey: As mostly stated, there are two main driving forces of the global economic growth, which can be simply put them like this: 1-the Chinese export based on the US consumption demand. 2- raw material and primary commodity exports of the developing world based on Chinese production demand. However, this chain might be cut by growing complaints in the US on free trade. Are those protectionist tendencies, accelerated especially after the 2006 Congressional elections, serious enough to influence global economy and, in this context, how protectionist tendencies could be overcome? Ali

Steven Pearlstein: You use the term protectionist tendencies. There are those here who, fundamentally, are protectionists. But there are many, like myself, who have come to conclude that a rebalancing of the economic relationship now is required, one that keeps trade flowing but tinkers with the rules a bit to make it a more even and balanced relationship. I wouldn't call that protectionist.

You raise the question of whether a reduction in the deficit-fueled US trade with China will have implication for growth rates in the global economy -- that is, slower growth in china, lower commodity prices, lower incomes in developing countries, etc. Obviously there will be those effects. But the status quo, while it might feel good, is unsustainable -- the world's largest and richest economy can't keep running a trade deficit equal to 6 percent of GDP year after year. So it needs to end sometime, and now seems to me like a pretty good time, when the global economy is in relatively good shape.

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Falls Church, Va.: Steve, just by changing the country name, your column could have been written anytime in the last 40 years. After all of our experience with Eurosclerosis, Japanese stagnation, Malaysian meltdown, etc., can anyone still say with a straight face that strategic planning by foreign economic mandarins is really something to be feared? For years, we heard how ominous it was that the Japanese were buying up American assets -- until we discovered that they generally overpaid in a big way and lost their shirts.

Along these lines, there are serious arguments to be made that the trade deficit is being driven in large part by the capital account surplus: foreign investors want to invest their money in the United States because it looks to have the highest returns, so they sell us cheap goods in order to get dollars. As long as our GDP growth is sufficient, the trade deficit is a non-issue.

If the Chinese want to throw a lot of money at an American company, why should we discourage them from that folly? As you yourself say, it's not that labor-intensive, so there aren't that many jobs involved.

Steven Pearlstein: I am quite aware of the argument that the investment flows into the country are driving the trade deficit, not the other way around. I wrote that myself a decade ago. And obviously both are going on. But to the degree that the Chinese, Japanese or other Asian nations, through their central banks, are "investing" in the U.S. as part of a strategy of keeping their currency artificially low, that's not the positive case you posit.

You are right, of course, that the same arguments were made against Japan, and look what happened to them. They overpaid for Rockefeller Center and put their own economy in a decade long slump. But you want to be careful about arguing that this was to our benefit. Today's news that Toyota has surpassed General Motors as the world's biggest and most successful car company is not benign news for the U.S. economy. Nor is the fact that Intel and other chip makers are moving production to Asia, in part because that is where all the computer and technology products that use chips are now made.

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Washington, D.C.: The article makes a number of points. There is good reason to distinguish free trade from subsidized trade and to be particularly wary of deals that are likely to result in the theft of intellectual property. However, the observation that globalization has occurred at the same time that income distribution has become more skewed does not mean that trade is mostly or even substantially responsible. Manufacturing employment has been declining as a share of total employment at least since the mid 1960s. Also the "unfair" gain that China has received from its pegging of the dollar is mostly at the cost of other Asian countries, Mexico and Central America. Futhermore the other side of the the trade deficit is foreign purchase of US securities. Liberalized trade has delivered many benefits to many US citizens including debtors, farmers, and export manufactures. Given tax incentives to high value added jobs is not necessary since high value added jobs will generate profits sufficient to induce their creation.

Steven Pearlstein: Lots of interesting points there. Let me respond to a few.

Trade is not mostly responsible for widening inequality in the U.S., but it is a big factor, particularly its indirect effect in weaking institutions that used to work in favor of equality, like labor unions and defined benefit pension plans. It also spurred adoption of labor-saving technology and production techniques of firms that remained in the U.S. that would have otherwise come more slowly. So "technical change," the culprit most economists like to cite, isn't unrelated to trade, either.

As for the tax code, you could devise a corporate income tax that assigns higher rates to companies that earn their profits by creating value offshore, and taxing them on offshore profits when they are made, not when they are repatriated. That will change after-tax calculations of expected returns on investment. And, at the margin, it should divert some investment from abroad. Not all investment, just some, at the margin.

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Muskegon, Mich.: I remember just some years back the corporations of America went to great lengths in telling us that improving product quality was going to bring great economic rewards for everyone. Workers went to quality training seminars and quality tracking and controls were implemented in every aspect of production.

What happened? Why the big increase in imports of junk from the East. Everything from food to metal castings are junk. The other day I had to purchase some finish nails from the corner hardware that were made in China. 9 out of 10 of the nails were bent in the box. Now we are importing food that is not even checked. Why do we not demand quality anymore? Do you think Americans are getting tired of only being able to purchase Chinese junk?

Steven Pearlstein: Not really. The benefits of trade in terms of getting more of what we want at a lower price are real. But I observe that there is a pretty brisk market in luxury goods these days, if you're willing to pay for it. We probably have more choices in terms of our goods today than ever.

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Tampa, Fla.: Your point on Intel setting up a factory in China which will use technology developed in the US is well-taken. I would add that Intel almost certainly got an R&D tax credit from the US fisc to develop that technology they now ship to China. Studies show that the R&D credit generates $1 of extra R&D for every $7 of tax credit. Spend $7 to make $1. Great business. Then we have the H1B visa program, allowing Intel to hire foreign workers instead of Americans. The foreign workers used to stay here. Now they're going back home and taking their skills with them. More great industrial policy. And keep in mind that unbiased, objective studies--not the ones bought and paid for by those industries benefiting from the visa program--show there is no real shortage of US hi-tech workers, just a shortage of those who will work for below-market wages and not have the ability to change jobs if they feel they are getting a raw deal. So I wonder, how many of the Chinese workers at this plant spent time here on the H1B visa program?

Steven Pearlstein: All interesting points. The H1-B issue, which the technology companies have been harping about, is an intersting one. The good companies that need foreign engineers and want to keep them here ARE facing a shortage. The problem is that there are other companies that are doing what you say -- bringing in workers to learn our market and methods and then sending them back home. We should have a better mechanisms for distinguishing the good requests -- those that help the US economy over the longer run -- from the visa requests that will hurt the US economy.

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Beautiful Silver Spring, Md.: I agree with your column today, but oh man would it ever be tricky to sell your position in the current marketplace of ideas. In the past, I was probably more extreme in favor of trade than was wise, just because I was alarmed by the "no trade" position and thought that there was only one other side to take in the argument. (I.e., I was in college.) Maybe one would need to brand a moderate position as "smart trade" to distinguish it from the "free trade" and "no trade" crowds. Otherwise I'm skeptical about whether ideas for improving trade stand a chance in the no-man's-land between the two bunkers.

Steven Pearlstein: I like that -- smart trade. Mind if I borrow that?

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Dear Lord, we actually agree: Steven, over time you've told me I should have my own column, called me a partisan poodle, etc... depending on differences. But as an MA in Econ, you nailed this one in one. Smith/Ricardo has become dogma now as much as any religious mantra. Its thrown out with no thought whatsoever...an economist uses it against anyone who questions modern trade like a priest uses a crucifix against a vampire. Pro forma.

Its even worse than you said for two reasons. First, no one looks at the underlying subsidies to transportation for the global economy. Liberian flagged shipping, to evade taxes and fees. Govt. subsidized shipping/aircraft industries due to the military value. For example, any country that aspires to top rank has to have a blue water navy, so the entire ship building industry is subsidized to keep that capacity. Massively subsidized oil.

If we recaptured the subsidies in prices, half of what is shipped around the globe would be non-economic to trade.

Second, the "wool/wine" example is a dead giveaway. Ricardo was speaking about trade between relative equals. An English wool farmer had the same standard of living as a French wine grape farmer. Advantage was meant as an inherent advantage of climate, technology, etc...

What we have today is standard of living arbitrage, not comparative advantage. This can actually be trade distorting. I'll go to an extreme to make the point clearly.

Country X is naturally productive in wool. Great climate, etc... Country Y is marginal. Country X has a decent standard of living. Country Y still has slavery. They open trade.

In 10 years, Country X no longer produces wool, as Country Y more than offsets the higher price of its marginal conditions by throwing more slaves at the problem. Country X wool producers can't compete, unless they re-institute slavery. Unemployed wool farmers flood the labor market, driving down the prevailing wage.

Extreme for clarity. Standard of living arbitrage can distort the economy/ies away the most productive uses, and long run lower overall economic welfare.

Steven Pearlstein: Yes, although I wish you hadn't use the slavery gambit. Makes the argument harder to sell.

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Anonymous: Thanks you for today's insightful column on strategic trade. It is something the Industrial Union Council at the AFL-CIO has been trying to get policy makers to understand. Unfortunately this is what gets branded as being a protectionist.

The fact is, China following the Japanese and Korean models, has an industrial strategy aimed at capturing key industries, they call them pillars, and technologies through all the means you identifies. They have an industrial strategy and we do not. Shame on us.

The strategy we do have is to have unfttered free trade as defined by Wall Street and our own transnational coprorations. Their interests have diverged from the national interest.

The Chinese model has taken it to a new level. With Japan and Korea we had to engage in competition with their own corporations. Today, China accounts for 42.6 percent of our non petroleum goods deficit. Over half those goods come from U.S. firms doing business in China.

Solving this problem means addressing the issues you defined. In other words, stop the bleeding and level the playing field. But, it also means that we need to think more clearly about the future of manufacturing and the investment side strategies for its revitalization.

We have looked at energy independence as one area for investment. Done the right way it can address energy and environment concerns and at the same time capture new technologies for domestic production and export. Do you have any thoughts about critical industries, technologies and opportunities.

Bob Baugh

Executive Director

AFL-CIO Industrial Union Council

Steven Pearlstein: Not sure I have answers to your last question. The AFLCIO is about to launch a campaign on economic justice in which trade plays a big role. But I hope you guys don't go overboard with it with all that talk about rampant use of child and slave labor. The aim here isn't to save every industrial job in America. Trade, by its nature, is disruptive because it often means shifting where work is done from one place to another. The trick is to make sure that we have good, higher-value add things to do with our people and capital when those exchanges occur. And the trick is to make sure that the trade happens for good market reasons, not because of government policies that distort market decisions.

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Arlington, Va.: Steven, Local governments practice "strategic trade" all the time by offering various types of incentives for companies to locate in their jurisdiction. Would it be better, worse or a wash if instead of imposing taxes on trade, the federal government supported local jurisdictions (through grants or something) efforts to woo new factories and companies?

Steven Pearlstein: Well, if we are going to do nothing when China offers half a billion dollars to one company for one plant, then maybe we need to do something here. Not sure I want to get into that kinds of arms race chasing factories. Its really not a good use of public funds. But if we had a 10 percent tariff on all Chinese goods because of widespread use of export subsidies and currency manipulation, it might cause the Intels of the world to decide in favor of US investment.

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Freising, Germany: Strategic trade, or economic pump priming as you refer to as, using tax subsidies and currency manipulations, sounds like a state run methodology for gaining market share as quickly as possible.

Shouldn't this be considered in the same light as product dumping?

Steven Pearlstein: Exactly.

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Washington, D.C.: China is not the cause of the U.S. large trade deficits -- we are. By spending too much and saving too little, we consume more than we produce and imports make up the difference. China is merely accommodating the U.S.'s insatiable appetite for goods, allowing us to run trade deficits and lending us the money to do so. Of course all this borrowing will have to be paid back -- just as our federal budget deficits will have to be paid back -- lowering the U.S. standard of living for decades to come.

Steven Pearlstein: This brings up the age old problem of whether something is descriptive or causual. Let's just say, as a simple matter, that if Chinese goods were priced as the free market would price them, we wouldn't consume so many of them. We also wouldn't consume so much if the Chinese and others weren't lowering our interest rates because of their currency policies, which would lower our consumption of housing and other interest sensitive goods. There are lots of reasons why we consume more than we produce (the fedearl budgegt deficit is one, for example), but its not all about a lack of thrift and discipline on the part of American consumers.

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Washington, D.C.: Mr. Pearlstein,

In your article, From Old World to New World, half of your conclusions add value to debate on trade, namely on tax codes and trade adjustment. But much of your analysis lacks accuracy and a few of your conclusions are misplaced.

1. Intel and most multinationals that benefit from trade are American companies. Let's not forget that profits are repatriated back home and shareholders, many of whom are American, benefit.

2. Subsidies exist and are trade distorting. But most countries, developed and developing have them.

3. Analyses on fixed exchange rates are better left to economists. Let me remind that more than half of the world (in terms of GDP) DOES NOT have free floating exchange rates. Conclusions directly linking fx rates to our trade deficit are dangerously premature. Countries in the world, including previously the U.S., operate fixed exchange rates for reasons of stability. Trade competitiveness is a complementary reason. Major and immediate revaluations of currency are not in the world's interest. History has plenty of examples.

4. Commercial theft in China is cultural. Believe it or not it's not an easy fix.

5. Imposing countervailing duties is not protectionist, rather it's a reallocation of resources, from the American public to large American manufacturers, many of whom have plants in China.

6. More Americans believe Lou Dobbs for a reason: he's a news anchor. American's love to be stirred up. Ideas of being cheated, by unfairly competing Communist Chinese, whose military strength continues to build certainly plays on the emotions of your ordinary American. Viewing the world through this lens is disturbing, the default position becomes confrontational. On the other hand, an impartial analysis of trade economics is not easily imparted to the ordinary citizen, and for their part most Bankers and Economists don't do it well.

washingtonpost.com: Today's Column

Steven Pearlstein: Some interesting points there, some not so interesting.

Lets agree that in a globalized world, we don't know where Intels profits go, but surely they don't all go to the U.S. And because of the tax laws, I'd venture to say they are never repatriated except when we give Intel a tax holiday, as we did recently.

China has more trade distorting policies than we do in areas that are likely to be traded.

I don't really care if some small country in Latin America fixes its currency to the dollar. In principle, that's no different than China. In reality, there is a huge difference. That's one of your weaker arguments, I'm afraid.

You may be right about commercial theft. Which would suggest that we ought to have extra tight rules on technology transfer for a country deemed to be a hotbed of serial piracy.

Tariffs do hurt consumers and help producing companies, but companies is an artifice that includes workers, shareholders, suppliers, local communities, etc. That's precisely my point.

Don't overestimate the power of the press to bamboozle people. That's something I know a bit about.

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New York, N.Y.: Excellent column Mr. Pearlstein, illuminating as always. I wonder though whether Ricardo's model has really been rendered untenable by China's currency manipulation. Doesn't currency manipulation just reorient relative efficiencies such that it becomes comparatively advantageous for the Chinese to work and produce goods and the Americans to consume goods and exert their labor to provide services and entertainment? Who doesn't want to sit around and enjoy the fruits of someone else's labor at 0 percent APR while one's asset values are doubling every three-to-five years? It's not an overstatement to say that we Americans rather like being indulgent. China may be offering us cheap electric drills for Home Depot as well as cheap dollars for our lenders, but we, as buyers (both gov't and individuals), aren't exactly exercising our right to refuse. Why that's not something utility-maximizing people are supposed to do. At least when everyone else rushes to get cheap home loans, housing prices go up. What is the prudent home-buyer to do? When other CEOs outsource manufacturing to subsidized locales and generate higher return on their capital and higher share prices, what are the other CEOs to do? When the politicians need a good economy to win elections, who is going to ask voters to tighten their belts? Perhaps at some point, we might actually have to start producing more value to earn our standard of living. As painful as that might sound, think of those poor Chinese who've worked all that time in exchange for a pile of dollar-backed IOUs, that's shed a good bit value because some wise men in Washington decided not to maintain a strong dollar any more. If all else fails, we've still got a pretty darn good military to fall back on in terms of hardware to sell (foreigners may not be interested in our reality TV shows or hedge fund services, but a few stealth fighers can help balance the trade deficit in a hurry) or to use.

Steven Pearlstein: Interesting....But I'm not sure its persuasive. Economists don't talk about individuals refusing to buy a cheap power tool because they know its bad for the U.S. economy. They assume consuemrs are rational welfare-maximizers, and they know that unless there is some way for all consumers to join together to refuse to buy the tool, individual action will fail. Commons problem, it is called. The way economic actors join together to do what is in their collective interests is called government. And it is a bit of government management of these trade issues that I have suggested. So I'm glad we agree.

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Washington, D.C.: I am interested in your source for the statement that subsidies to Intel amount to about $500 million. Can you provide any further information?

Steven Pearlstein: No, I can't, except to put it this way: Israel paid about $465 million to attract another plant of similar size and sophsitication from Intel. You can assume the Chinese didn't pay a whole lot less, or a whole lot more.

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Washington, D.C.: Your column correctly captures what I think is a key problem underlying the trade policy debate in Washington. The debate has been characterized in binary terms (you are either for "free trade" or you are a "protectionist"). This is an oversimplification and it helps no one - except perhaps the multinationals who are relocating to China.

What do you think are the prospects for a more intelligent debate?

And do you think this is an issue that will continue to resonate in the 2008 elections?

Steven Pearlstein: I think it will be a key issue in 2008, although the war will be the biggest.

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Steven Pearlstein: Folks, I've got to go. I'll print some of the submissions I couldn't respond to, with the word Thanks after each. Don't read anything into the thanks. If I don't write something, the system won't let me publish the remark.

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Madison, Wis.: I'm trying to hash out the previous poster's trade-with-slavery model, and I don't see where he gets his conclusions from. Every time I work it out, I get nothing like what he claims to get. (And I've got an MA in econ, too.)

Is wool supposed to be the only good? If it is, then Countries X and Y both produce wool. At equilibrium, both the sheepherders in country X and the slaveholders in country Y produce wool. Whether markets are closed or open, nobody trades because there's only one good--wool--and so there's nothing to trade wool for. Trade means nothing.

Is there another good, say wine? Then everyone in country X makes wool (since it's got the trained sheepherders) and everyone in country Y makes wine (since the slaves are presumably no better at woolmaking than winemaking). They trade. Classical Ricardian model. Only difference is that, under trade, the woolmakers in country X benefit from slavery in country Y due to lower wine prices. The slaves in country Y do just as badly with or without trade.

Steven Pearlstein: Thanks.

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Washington, D.C.: I'd like to comment on the earlier poster's statements about H1B visas. I work for one of the large software companies. There truly is an enormous shortage of qualified workers in the U.S. One thing that most people aren't aware of is that the vast majority of students graduating with computer engineering degrees in the U.S. are foreign born. There simply aren't enough American born candidates to fill the positions. The H1B visas allow us to keep jobs in the U.S. that we would otherwise be forced to send abroad for lack of qualified workers.

Steven Pearlstein: Thanks.

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"Makes the argument harder to sell. ": Well, the point wasn't to sell, it was for clarity. Extremes allow for greater clarity of point.

Real world, this is already happening. We have an ever increasing global "Just in time" production system, where the bulk of manufacturing/assembly is done in locations that have zero relation to inputs, based on standard of living arbitrage (SLA) masked as comparative advantage.

Meanwhile, we have a global transport system which allows this which requires ever increasing subsidy (due to an ever tightening energy market), and is increasingly open to masive disruption (say Al Q manages to bomb Ghawar production).

The SLA has distorted us to the point where in one fell swoop transport can become non-economic. But there's no redundency in the SLA distorted production system. And thanks to SLA the skills needed to set up localized production are gone.

Boom.

If we actually had real free trade, we wouldn't have these problems. But we instead have a form of managed trade, geared to wealthy interests. Example: Archer Daniles Midland and other mega agrobusiness, corn ethanol (almost useless as a source of energy), and barriers to South American sugar ethanol (very useful).

Steven Pearlstein: Thanks.

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Alexandria, Va. What affect do you think that the growing consumer culture in China will have on the U.S. When we visited there last summer there were many malls and shops opening up. It seems like our goods that we sell over there will make our companies tons of money. They have a high savings rate right now but that will change. When I spoke to young people they wanted cars, apartments, diamond rings. The consumer culture is beginning to take hold and their savings rate will decline. While I acknowledge that not floating their currency has some short term negative effects for the U.S. it seems that they do so at their own risk (ie Japan). In fact shouldn't we be more concerned with Japan anyway?

Steven Pearlstein: Thanks.

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Washington, D.C.: What has bothered me most about the news of Toyota selling more vehicles than GM is that the Bush people have devalued the dollar in order to make our products more affordable to overseas consumers. So even when our cars are discounted abroad and Toyota's cars are marked up domestically, GM still can't compete. What's the point of a cheap dollar policy if it doesn't work?

washingtonpost.com: Toyota Topples The King (Post, April 25)

Steven Pearlstein: Thanks.

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Arlington, Va.: Steven,

Should we be worried as China becomes more engaged outside of Asia in attempts to secure energy for their growing economy ? There was a story yesterday that 9 Chinese were killed (along with 60+ ethiopians) and 7 Chinese taken hostage at the site of a Chinese-run oil operation in Ethiopia

Will China become more engaged and in conflict with us around the world over energy and then how does this affect our relationship?

Steven Pearlstein: Thanks.

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Madison, Wis.: Regarding Intel's investment in China: I really can say that the lower cost of imported computer chips will offset the foregone economics output that Intel's move entails.

I can say it because Intel's move to China is unlikely to reduce economic output in the U.S. by an amount worth worrying about. The American workers who otherwise would have been employed by Intel are still here, and they are being employed profitably by someone other than Intel. In fact, there is no reason to believe that they are being paid less by their eventual employer than they would have been paid by Intel; in either case, they'd be paid whatever it would have cost to get them to voluntarily come to work.

Strategic trade policy, currency manipulation, etc. changes none of this. All these policies may distort free trade so that comparative advantage isn't as acute, but it does not change the employability of American workers.

Steven Pearlstein: Thanks.

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Washington, D.C.: Subsidies are an important issue, and one that can to some extent be addressed within WTO rules.

But savings rates are also a key determinent of overall trade balances, since the gap between savings and investment equals the trade balance. China has one of the highest savings rates in the world (greater that 40 percent); the US savings rate was NEGATIVE in 2006.

This is a big part of the problem, and deserves more attention.

Steven Pearlstein: Thanks.

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Washington, D.C.: It seems that excessive environmental controls in this country countribute to the uneven economic playing field. Where is the balance between a healthy planet and being taken advantage of by countries that don't seem to care at all?

Steven Pearlstein: Thanks.

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Washiington, D.C.: Our policies are not even as effective as the EUs, which just imposed antidumping duties on a man-made fiber from China averaging 23 percent. The US, where Chinese fiber prices are actually lower, imposed duties of three percent on two companies and zero on another. In the 90's the EU imposed dumping duties on bicycles, ans as a result still has a bicycle industry. The U.S. failed to do likewise, and now has no bicycle industry. The Chinese Gov't will do whatever it need to to protect jobs (an act of self preservation). In this country, "protectionism" (even when its not) is a dirty word.

Steven Pearlstein: Thanks.

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Bowie, Md.: China has been a big purchaser of U.S. government debt, presumedly inlcuding mortgage-backed.

Have we been buying clothes and electronics by selling them our houses?

Steven Pearlstein: Thanks.

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Williamsburg, Va.: My spouse asked me to explain the mechanism by which a trade deficit with China giving the Chinese more dollars than the US has Chinese currency was bad for the US. After a few half-hearted attempts I realized that I was unable to do it. Could you do it for me?

Steven Pearlstein: Thanks.

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Worcester, UK: Ted C. Fishman in his book 'China Inc', said that the actions of U.S. institutions such as the Committee on Foreign Investment, and Congress debating tariffs and restrictions on Chinese goods and blocking Chinese firms from entering the US M&As game, would introduce uncertainty into the Chinese economy. Do you agree with this view?

Do you agree that American businesses should thrive inside and against China, and aim to get the benefits of trade with China?

Steven Pearlstein: Thanks.

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Washington, D.C.: China has accumulated $2 trillion, and profits several billion dollars almost every quarter. Do we have a good deal?

Steven Pearlstein: Thanks.

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Wooster, Ohio: Mr. Pearlstein -

Thanks for giving voice to mis-givings I have had for some time regarding trade. As a good Econ major and recovering Republican, I have traditionally voiced support for unfettered free trade. Yet, seeing its impact in my home state over the past few years, something did not seem to fit. Your analysis seems about right.

My question: now what do we do? Are there some good balanced thinkers in the political scene that I can support? Too often, the argument is a simple pro-business v. pro-labor one, and we need to get beyond that.

Steven Pearlstein: Thanks.

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