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ZTE Back in Business Again: Trump's Circular Policy

ZTE Sanctions, no sanctions, sanctions, no sanctions. That's where we are today. How long that lasts is anyone's guess.

We have gone full circle on ZTE twice. Here's the latest: U.S. reaches deal to keep Chinese telecom ZTE in business.

The Trump administration told lawmakers the U.S. government has reached a deal to put Chinese telecommunications company ZTE Corp back in business, a senior congressional aide said on Friday.

ZTE was banned in April from buying U.S. technology components for seven years for breaking an agreement reached after it violated U.S. sanctions against Iran and North Korea. The Commerce Department decision would allow it to resume business with U.S. companies, including chipmaker Qualcomm Inc.

Rubio Blasts Deal

Schumer Joins Rubio

White House Chimes in on Schumer

Lost in the Mass Hysteria

Can we have a rational discussion, please?

I happen to have one to discuss. Here is a letter Donald Boudreaux at Cafe Hayek wrote to the Wall Street Journal regarding ZTE.​

ZTE Furor

The furor over Chinese telecom company ZTE is a maze of confusions. Those who seek U.S. restrictions on Americans’ dealings with this company weaken their case both by loading it with ‘everything-including-the-kitchen-sink’ accusations, and by poor economic analysis. An example is the case against ZTE offered by Congressman Dutch Ruppersberger (D-MD) and CNN’s Mike Rogers (“Trump Shouldn’t Give ZTE a Pass,” May 18).

Among the offenses they accuse ZTE of committing are ones that, if true, are serious and warrant a response. An example is ZTE’s alleged theft of intellectual property. But other alleged offenses are no offenses at all, at least not against Americans. The prime example here is ZTE’s receipt of subsidies from Beijing. By making telecom equipment less expensive for Americans to purchase, these subsidies help, not hurt, Americans as a whole.

Moreover, these subsidies hurt, not help, the Chinese people as a whole. They do so by directing resources in China away from their most-productive uses into less-productive uses. That the likes of Messrs. Ruppersberger and Rogers worry that Beijing’s use of subsidies will artificially strengthen the Chinese economically reveals these authors’ apparent, if wholly wrongheaded, belief that economies perform better when directed by government officials than by market forces.

Messrs. Ruppersberger’s and Rogers’s poor grasp of economics is further exposed when they leap from the observation that subsidies enable Chinese telecom firms to produce “far more equipment at cheaper prices than their foreign competitors” to the conclusion that these subsides will lead to “higher prices for U.S. consumers.” Hunh?? Beijing’s subsidies give Chinese telecom exports an artificial advantage in the U.S. market only by lowering the prices that Americans pay for telecom products. If Beijing’s subsidies artificially raise the prices of telecom products, you can be sure that American rivals of Chinese producers would be cheering rather than complaining.

Sincerely,
Donald J. Boudreaux

Real Gem

Boudreaux is Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center,
George Mason University, in Fairfax, VA.

It is refreshing and rare to see someone in academia who actually understands trade issues.

I advise those seeking correct opinions on how trade should work to tune into Cafe Hayek. Boudreaux writes an interesting letter to someone nearly every day.

By the way, this ZTE circular madness is not entirely Trump's doing. Congressional fearmongering played into this setup.

Mike "Mish" Shedlock

Been reading Boudreaux as long as I have been reading Mish, going on 15 years. He is a staple at the Foundation for Economic Education (FEE). It's where all the cool Austrians hang out.

Prof Boudreaux seems to have the same limited time horizon as many of the true believers in "Free Trade". (Note: real bilateral free trade is great -- unilateral free trade with a mercantilist power is stupid).

Yes, if China subsidizes … No, instead let's go to a real example: When the EU subsidized Airbus, it was good for some US consumers who got cheaper air fares, and it was bad for some US workers who lost jobs and for some US investors who lost value in various companies. After decades of Euro subsidies for Airbus, the US has lost 2 of the former 3 major commercial aircraft builders -- and a whole lot of industrial infrastructure, tax revenues, export earnings, and jobs.

Getting happy about low consumer prices from a mercantilist like China is like getting hooked on free drugs from the neighborhood dealer -- longer term, there will be a big price to pay. Prof Boudreaux should be aware of those longer-term consequences.

(edited)

….And “After decades of Euro subsidies for Airbus,” US and foreign airlines, then by extension flyers, are STILL getting a better deal on Airbus than they are from some defunct, once notionally American company who charged more for shoddier airplanes. And as soon as they are not for any length of time, i.e. as soon as the “big price to pay” starts rearing its head; an American (or Chinese or Russian or Brazilian or Iranian) company will undercut their “big price.”

Left to their own devices, people will buy from the current lowest cost supplier. Not from someone trying to get a “big price” because they happened to have a smaller one 20 years ago. If I offered to pay 90% of the cost for your Lexus 5 years ago no strings attached, and today offered to sell you one for 2x msrp, would you really take my second deal just because you once took my first one? Most people wouldn’t, due to being rational and all…….

While, in the meantime, assuming your subsidies to Airbus ever amounted to more than Boeing lobbying; Airbus have been spending their subsidies overpaying for European engineers. Hence enticing them to spend their lives destroying value designing and building airplanes in a pointlessly inefficient manner. Instead of lounging about European equivalents of Palo Alto and Seattle, writing operating systems, search engines, social network software and building online merchants…..

BTW, do you reckon Europe would take over film making from Hollywood, only to then jack ticket prices through the roof in a “big price to pay” for poor cinema goers manner; by subsidizing its motion picture industry as well? They sure have been trying for awhile. To a much greater extent than they ever have been with Airbus….

"It is refreshing and rare to see someone in academia who actually understands trade issues."

However, for each action, there is an equal and opposite reaction. It is the boom that causes the bust. What will be the ultimate result of Chinese subsidies, which destroy American jobs?
The election of Trump was one of those results.

China's subsidy of ZTE resulting in U.S. consumers to purchase electronic devices at lower cost is a legitimate argument.
However, the benefit of that subsidy may have a longer term cost to the U.S. and the world because it may result in a less competitve stance for U.S. companies that might otherwise compete on a level playing field. With fewer, or perhaps no U.S. companies offering competitive devices Chinese companies such as ZTE might develop very strong or dominant positions in the market which would squeeze out non Chinese companies.

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