Thursday, December 22, 2011

Ask A Future Economist

A lot of people love to talk about politics and economics.  When people find out that I'm an economics student, they like to ask me questions about the state of the economy, where it's going, or some episode in the past.  Here's one that I was asked recently (paraphrased from memory):

"Can America ever be less dependent on China for its products?  Obviously, a lot of imports come from China.  Can we trade less and begin businesses on our soil to be less dependent of others to create the products in the stores?"

My answer was:

"We are not dependent on China for its products.  We trade with China because China is a good source of cheap labor.  We also trade with many nations around the world for similar reasons.  As skills, productivity, and incomes rise in China, they will progress along what many refer to as the Kuznets curve, where the vast inequality of their population will begin to even out more.  The equilibrium pay for their median worker will rise and they will be less competitive.  This feature will only add to the competitiveness of domestic manufacturers, or more likely, other international manufacturers.  So the real answer to the question is that we are not dependent on China, but rather we want products from them and we are happy to take them as cheaply as we are getting them now."

Send any questions you have for the Future Economist here.

The KLF - "Chill Out"

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