Economic Nationalism in China Essay

The political economy of a nation is the interplay between its politics and its economy. Economic nationalism, a part of the political economy, wherever it applies, refers to the use of policies that are guided by the idea of protecting domestic consumption, labor, and capital formation, even when these policies require the imposition of tariffs in addition to other restrictions on the movement of labor, goods, and capital. In many cases, economic nationalism is opposed to globalization or unrestricted free trade. Economic nationalism could include doctrines such as protectionism and import substitution (Economic Nationalism 2007). What is more, Japan is a master in the use of policies that define economic nationalism (Hall). China follows Japan’s footsteps closely when it delivers its political economy into the hands of economic nationalism (Gamble 2006). Although the economies of Japan and China differ considerably – that is, the Japanese economy is certainly more developed than the emerging economy of China – there are lessons for China in the Japanese experience of economic nationalism. Lessons from Japan To other nations around the world, Japanese economic nationalism appears as self-seeking behavior. Besides, the self-serving attitude of Japan could drive other nations to also feel particularly touchy about their own national interests with respect to Japan. Thus, Buchanan (1995) writes on behalf of the American people: With the collapse of U. S. – Japan trade talks, the hour of the economic nationalist may be at hand. In British Columbia, U. S. demands that Japan open her markets to more American autos nd parts were rudely rebuffed. Japan’s top negotiator virtually dared us to impose sanctions. We will haul you up before the World Trade Organization. Tokyo warns; and there we will have you branded a violator of the free trade principles you so noisily preach – before an international tribunal you yourselves set up. Angry Clintonites intend to impose 100 percent tariffs on $6 billion of Japan’s exports. This doesn’t even qualify as a spanking. Americans are in a mood for action; and the GOP should demand more serious sanctions. Enough is enough. In 1953, we had 60 percent of Japan’s auto market; by 1960, our share had been slashed to 1 percent. That is all we have now. Since 1970, Japan has purchased 400,000 U. S. cars, while selling us 40 million. Seeing that international trade is a matter of exchanging value for value, the trading partners of nations that indulge in economic nationalism are expected to reduce their trade interests in such nations over time. Nevertheless, nationalism is emotion arousing for the nations that believe in it. Roberts (1998) writes about the subconscious roots of economic nationalism in the Japanese mind. According to the author, these roots lie in an eighteenth century concept of political economy referred to as â€Å"kokueki† or â€Å"national prosperity (Roberts). † The concept of kokueki was articulated in Tosa, only one of more than 230 Japanese domains that made up Japan during the Tokugawa period. The domains were autonomous with regards to internal administration. Even so, they were often expected to sacrifice their own economic interests to meet their obligations to the shogun and his government. During a period of economic crises in the first half of the eighteenth century, Tosa was compelled to adopt mercantilist policies in order to protect its own wellbeing. The concept of kokueki was at the heart of these policies. In this way, Tosa looked upon itself as a nation instead of holding itself responsible for the economic wellbeing of all Japanese domains under the shogun (Roberts). By pursuing the interests of the domain instead of those of the entire government and the shogun, Tosa acted as a model for the rest of the Japanese domains who too began to look upon self-interest as a lucrative attitude. Tosa had thus prepared the ground for the overthrow of the shogun’s government. Eventually, the domain along with few others like itself engineered the fall of the Tokugawa shogunate in the year 1868. Furthermore, Tosa and partners extended the concept of kokueki from their domains to the entire country. This provided the new Meiji government with a model for the establishment of a nationally organized political economy (Roberts). Economic nationalism has worked for Japan for many years, and there is no law on earth against it (Hall). Even so, Buchanan (2006) complains about it once again: â€Å"China and Japan manipulate their currencies and tax polices to promote exports, cut imports and run trade surpluses at America’s expense. † In other words, these countries would like to make profits only for themselves, even if it means that these profits are made at the expense of other nations that have trade interests with them. Besides putting financial pressure on Japan, in the name of tariffs, America seems to have a less burdensome and more reasonable way to convince Japan to move toward liberalization. Tariffs are, of course, burdensome also for American consumers who love Japanese cars. The United States can convince Japan to move toward liberalization more easily by the use of reason, that is, by expressing the fact that economic nationalism failed the nation during the Asian crisis of the 1990s. Prior to Japan’s prolonged doldrums at the time, its economic nationalism was looked upon as its formula for success. But this changed when Japan saw that all of the nations that followed its formula were in crises during the 1990s (Hall). International support was the need of the hour. And so, Japan should have realized that nationalist economic policies have no place in an age of economic globalization (Hall). The fact that Japan did not see economical nationalism as the real problem, however, is the cause of Buchanan’s complaint. All the same, the author may discover that in order to see the changes that he wants to see through in the Japanese economic policies – it is best to appeal to Japanese reason before another crisis occurs. The Case of China Gamble, writing for the International Assessment and Strategy Center, reports that China’s trading partners are â€Å"cautiously expressing dissatisfaction at the country’s growing economic nationalism and failure in fact to liberalize. † Although China had been aggressively courting foreign investment since the mid-1990s and growing its economy dramatically thereby, since the latter part of 2006 the Chinese government has been heard saying that it needs to protect homegrown organizations from unfair international competition. What is more, the Chinese government has put on a multitude of new regulations for foreign firms wanting to do business in the country (Parker 2007). According to Parker, it is evident that China’s political economy is today moving in the direction of economic nationalism or protectionism. As a matter of fact, Americans believe that they may now sell little to China as compared to what the Chinese would sell to them. Furthermore, China has manipulated currency exchange rates to assure this. Hence, Parker writes: â€Å"Now they aren’t even going to let US companies benefit from Chinese economic growth. † American companies are, in fact, pulling back on their China plans now because legal changes are blocking their entry and/or growth in the Chinese market. eBay, for example, has already declared that it would close its website in China because it is difficult to do business in the face of new Chinese regulations that limit the types of financial transactions that foreign companies may conduct. Warner Bros. International Cinemas had also been planning a massive expansion in the Chinese market. However, the company abruptly announced that it would close its operations in China, citing a recent policy change that no longer permits foreign companies to control domestic theatres in the few large cities there are (Parker). Unlike Japan, China had suspended its attitudes of economic nationalism since the 1970s, in order to attract foreign investment and promote export-led economic growth. All the same, the Chinese attitude toward economic nationalism has not changed (Gamble). According to Gamble, the only interesting point concerning Chinese economic nationalism is that the Chinese leaders were able to keep economic nationalism at bay for a long time. The Chinese attitude toward economic nationalism is also deep-rooted like the Japanese attitude toward this aspect of the political economy. In the case of China, an anecdote recalls that in the year 1793, the Qing Emperor, Qianlong, informed his Britannic Majesty’s first Ambassador, Lord George Macartney: â€Å"As your Ambassador can see for himself, we possess all things. I set no value on objects strange or ingenious, and have no use for your country’s manufactures (Gamble). † To put it another way, China has believed in the self-sufficiency of its economic system for a pretty long time (Gamble). At the time that China had suspended its attitudes of economic nationalism, the country was moving toward liberalization only because of its economic desperation after thirty years of Mao style communism. China needed foreign money, management, markets and technology at the time in order to modernize its economy and buy time before reasserting its deep-rooted faith in economic nationalism. Once its economy had been revived through the suspension of economic nationalism, however, the country was to renew its self-seeking policy of economic nationalism through direct obstruction of foreign direct investment. And so, the country introduced a variety of trade barriers to stymie direct investment. As an example, Wal-Mart Stores Inc. , despite its vocal opposition to unions, was forced to accept a union in the country. This union was none other than the All-China Federation of Trade Unions, an arm of the Chinese government (Gamble). Now that its chief interest has been served, that is, the Chinese economy has become a hit in the world economy, the country is also indirectly attacking foreign goods through Chinese regulation. Proctor & Gamble was recently a victim of such an attack when the Shanghai General Administration of Quality Supervision, Inspection and Quarantine declared that it had found traces of chromium and neodymium in three of the products in one of P&G’s lines of cosmetic products. P&G denied the allegation. Moreover, no contamination was ever proved. Still, P&G’s brand was damaged due to negative publicity and the company was forced to provide refunds. Other international companies that have faced similar attacks include Dell, General Mills, Heinz, KFC, Lipton teas, Colgate-Palmolive, and Sony (Gamble). The National Development and Reform Commission (NDRC) is the top economic planning agency of China, which has stated that it would now like China to shift to a â€Å"quality, not quantity† policy in terms of FDI (Gamble). Seeing that the Chinese government is now making life very difficult for international companies, even those foreign companies with an emphasis on quality will be thinking twice about investing in China (Gamble). Gamble writes that the Chinese government is now expected to do all that it possibly can to squeeze the highest premium from foreign investors, especially when a foreign company is competing with a local state owned company. Conclusion Like many countries of the European Union that are presently concerned about globalization’s impact on their respective cultures, China would like to protect its age-old customs from foreign infiltration by means of economic nationalism. As a matter of fact, Chinese leadership is returning to the economic policy of the Qing dynasty, disappointing plenty of international corporations that continue to consider China as a fertile ground for investment. The Japanese, on the other hand, had been following the policy of economic nationalism or kokueki even when China had given up on economic nationalism. Both of these nations had, moreover, developed their subconscious roots of economic nationalism around the same time. The economy of Japan is better developed than the economy of China. Hence, Gamble has written that it will not be easy for China to move from its current dependence on exports and foreign investment to internally generated growth. After all, moving from liberalization to economic nationalism is a transition very much like the move that the country had made earlier on from liberalization to economic nationalism. China has been through rather difficult changes in the recent past. Needless to say, the new move is expected to require tremendous effort to boot. It may be that China would consider part liberalization and part economic nationalism for its new economic policies, for it is certain that the country is interested in globalization in addition to economic nationalism at the same time. Japan – the master of economic nationalism – continues to serve as a model for China, prodding it on toward greater economic growth with economic nationalism. The fact that Japan suffered because of economic nationalism during the Asian financial crisis of the 1990s should serve as a lesson for China. However, the fact that the Japanese economy began to recover soon after the crisis is expected to boost China’s confidence in economic nationalism. What is more, the two nations do not seem to be concerned about America’s or the rest of the world’s reaction to their policies of economic nationalism as yet. Only political and economic history in the making would tell how far both countries will go by adhering to their deep-rooted belief in economic nationalism.