Tuesday, December 14, 2010

Doesn't China Know it Can't Defy Gravity?

If only China realized that any form of industrial protections was bad for the economy.

Gamesa has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by strict house rules that are often stacked in Beijing’s favor.

Nearly all the components that Gamesa assembles into million-dollar turbines [in China], for example, are made by local suppliers — companies Gamesa trained to meet onerous local content requirements. And these same suppliers undermine Gamesa by selling parts to its Chinese competitors — wind turbine makers that barely existed in 2005, when Gamesa controlled more than a third of the Chinese market.

But in the five years since, the upstarts have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. Gamesa’s market share now is only 3 percent.

With their government-bestowed blessings, Chinese companies have flourished and now control almost half of the $45 billion global market for wind turbines.
The biggest of those players are now taking aim at foreign markets, particularly the United States, where General Electric has long been the leader.

Somehow, despite Chinese protectionist measures, China seems to have come to dominate much of the global wind turbine manufacturing industry. As well as other renewable energy industries. Or just other industries in general.

I say this with a strong overtone of irony, of course.

China has come to dominate many emerging markets BECAUSE OF policies aimed at sheltering and strengthening new industries within their borders.


Well...they're not so smart. TWO can play at that game.

Actually, no.

No they can't. Mostly because while China's economy heats up and claims manufacturing industries that make and export things (see previous diary Hey! Let's Export Stuff!), the United States seems to be stuck with dogmatic economic principle and the emergence of nonsense wisdoms like "you can't pick and choose winners" and "protectionist policies are always bad."

When the Stimulus Bill was being created, there was originally a Buy American clause in it that made Republicans and European nations freak out...and not for completely unfounded reasons. For example, during a recession is clearly not a time to get into a trade war. We've already seen how that turns out with the Smoot-Hawley tarrif of 1930 when the tariff clearly caused MORE damage to the economy.

And yet...and yet, there's clear precedent for success both in other nations like China and here in the US. They helped make America strong.

The tariffs of 1816 helped give certain US industries time to mature and develop without competition from British and French goods...an act that helped the United States develop an industrial base at all.

I the end, the outwardly expressed dogmatic conservative resistance to any Federal economic intervention is flat out wrong. There's plenty of precedent to show that protectionism has its place, just as there's plenty of precedent to show there are also places were protectionism doesn't belong.

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