Haze Over Hangzhou

By: Frank Yunker

Date: 2016-06-18

I'm a free trader. I've been a free trader ever since I learned about economics. But after a month of living in Hangzhou, China, I've learned that the concept of free trade is a bit more muddied than I ever realized. I brought along a book, Travels of a tee-shirt in a Global Economy, by Pietra Rivoli. While a book can be read anywhere, you really experience the book when you are reading it in the heart of where the book's story unfolds.

The book travels from West Texas cotton fields where America's comparative advantage in producing cotton is in part American know-how, ingenuity and production-enhancing, capitalist paid-for technology. By production-enhancing, I of course mean “labor saving” which means “eliminating jobs that no one liked.” But the other part of America's comparative advantage is the agricultural subsidies that make no sense to anyone who understands economics, but perfect sense to everyone who understands politics. A hundred senators from 50 states are each going to vote to protect each other's local industry if that vote means the other senators will vote to protect their local industry.

I've been to West Texas, particularly to parts where they don't grow cotton. There are still a lot of one-industry towns that bloom or whither based on the fortunes of one company. Where the gas station sells more beer than gas. Those towns may not be so ready to deal with the short-run pain of free trade, though in the long run – less than a a generation later – the town has often grown past it's company-town roots.

The cotton from West Texas get shipped to Shanghai in order to become tee-shirts that can be shipped back to America. I stood along the Bund in Shanghai and watched shipments flow down the river. One barge certainly looked like bales of cotton, but the others were more easily identifiable: coal. And that's one of the problems.

I didn't notice it at first, but after a month in Hangzhou, I'd seen some weather patterns. Some days were hot and humid and moisture hung in the air. You couldn't see the sun. Other days you couldn't see the sun, but it wasn't moisture blocking out the sun. It was pollution. I developed a nagging cough and one day, just in the 30 minutes it took to walk back to my apartment, I developed a scratchy throat. I spent 4 weeks teaching in Hangzhou and like my students, I was hacking and wheezing most of the time.

China may produce at a cheaper price, but not necessarily a cheaper cost. A fundamental concept of free trade is that we are talking about the same good. We are comparing domestic apples to foreign apples (both figuratively and literally) and we are determining which country has the comparative advantage in producing apples. If China produces a lower quality good at a much lower price, as is often the case, we may be inclined to buy that good. However, we need to see the big picture. If China is destroying its own atmosphere, then the actual cost of that Chinese good is much higher. Remember, China's atmosphere is not going to stay in China. Ruining their atmosphere is ruining the planet's atmosphere.

The developed world can often produce in a greener, cleaner process. Goods cost more because the production is more capital intensive. Developing nations, long on labor and short on capital, may need some protectionist policies to jump start their entry into the industrial world. Those nations need a stable government and infrastructure that may never happen without some help. And that help won't come if China is polluting it's way to the cheapest goods on the planet.

Pollution is a by-product of industrialization. However, this century's pollution footprint can be less than last century's as we increase capital intensity and decrease pollution. China needs to join that green revolution.