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China Schools U.S. on Free Market Economics

8:12 AM, Feb 13, 2009 • By BRIAN FAUGHNAN
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The U.S. is only one of many of the world's advanced economies considering dramatic moves to promote economic growth. Among our leading trading partners, Australia and China are both considering how to accomplish this feat -- and both have considered retaliation against the U.S. for the 'Buy American' provisions that have been watered down, but still appear to violate commitments to our trading partners.

The Australian legislature has rejected a similar 'Buy Australian' provision because they do not wish to start a trade war. And in a move that should embarrass everyone, even China has shown more of a commitment to honoring its trade obligations than the U.S. Congress:

China's local governments from Hangzhou in the northeast to Chengdu in the center of the country, concerned at factory closures and millions of workers losing jobs as export markets collapse, are taking their own steps to boost economies in their areas by issuing shopping vouchers.

Publicizing their efforts, television programs show hundreds of customers holding shopping vouchers as they line up at checkout counters...

Looking at the bigger problem of declining demand for exports, notably in the US, a vital market for Chinese goods, [Commerce Ministry Vice Chair] Jiang stressed at a press conference that China would not attach a "Buy China" requirement to its economic stimulus measures. The US has indicated that a "Buy America" provision could be included in its own economic stimulus package.

Jiang said: "We just need to boost consumption, whether it's through domestically made goods or foreign-made goods. Why should one be protectionist under the current circumstances? I don't think China will implement 'Buy China'. As long as there's demand, we'll treat domestic and foreign products the same way."

In the US, some lawmakers want to include a "Buy American" provision in the US$827 billion stimulus package still to go in front of President Barack Obama for his signature. The Senate last week watered down the provision after Obama warned of the risk it created of a trade war.

U.S.-China bilateral trade totaled more than $300 billion in 2008. While it's fashionable to complain about cheap Chinese products lining the shelves of WalMart, K-Mart, and Target, shoppers will notice if bilateral trade friction suddenly raises those prices. And if the U.S. does wind up losing a case at the World Trade Organization, it will be a highly embarrassing shot at an administration that frequently promised to smooth relations with the rest of the world.

Maybe the Obama administration can take a note on free-markets from China.