China Is Not Especially Mercantilist

A letter written by Don Boudreaux at Cafe Hayek. See Irwin vs. Fletcher on China. Here it is:

"Ian Fletcher writes that “What progress against poverty has occurred in the world in recent decades has not been due to free trade, but due to the embrace of mercantilism and industrial policy by some poor nations…. According to the World Bank, the entire net global decline in the number of people living in poverty since 1981 has been in mercantilist China, where free trade is spurned” (“Free Trade Isn’t Helping World Poverty,” March 19)

Overlook the unbelievable claim, allegedly taken from World Bank data (for which Mr. Fletcher offers neither link nor citation), that China alone is responsible for the past 30 years of the globe’s net decline in number of people living in poverty. Focus instead on Mr. Fletcher’s assertion that China’s recent growth is due to that country’s embrace of mercantilism and its “spurning” of free trade. This assertion is simply wrong.

While it’s true that China – like nearly every other nation on earth – has in place a plethora of growth-inhibiting mercantilist policies, the overwhelming economic story in China over the past 33 years is the liberalization of its markets – a liberalization that includes dramatic reductions in trade barriers. Here’s economist Douglas Irwin: “In December 1978 China began to end its policy of economic isolation. Under the leadership of Deng Xiaopeng, the government decollectivized agriculture, allowed private entities to trade, and permitted foreign investment…. In 1992 the weighted average tariff [in China] on manufactured goods was over 45 percent. Since China joined the WTO in 2001, the country’s average tariff will eventually fall to less than 7 percent.”*

Mr. Fletcher’s suggestion that China has been moving toward mercantilism and making trade less free is contradicted by the facts.

Sincerely,
Donald J. Boudreaux

* Douglas A. Irwin, Free Trade Under Fire, 3rd ed. (Princeton University Press, 2009), pp. 181-182."