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Coming to grips with the Chinese Gulliver

Columbia University economics professor Jagdish Bhagwati remains an ardent advocate of freer trade at a time when protectionist sentiment in Washington and some other world capitals is stronger than it has been in years. Even his former student, Nobel laureate Paul Krugman, is endorsing high, across-the-board tariffs on Chinese exports to the United States.

Professor Bhagwati, 76, who was visiting Toronto to give a speech at Grano restaurant as part of its Salon Speakers series, took some time to share his concerns with The Globe and Mail.

Now that the U.S. mid-term elections are over, do you think the uproar over China's monetary and trade policies will quiet down?

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Not vis-à-vis China, no. China-bashing will continue for the simple reason that ... it is very much on the minds of people from both sides of the aisle, Republicans and Democrats.

China is creating waves - tsunamis - for people. I call it a sort of Gulliver in a Lilliputian world economy. It's not the problem of imbalances, because imbalances come and go, historically. But China is so big and it's growing so rapidly ... and is moving so fast on trade, that it creates adjustment problems [in individual industries targeted by its exports]

It's not only the United States that frets about China exerting its financial and trade power.

No. China is becoming very aggressive in its foreign policy, and that is also creating a problem. The ASEAN countries are worried, India is worried. Japan is worried.

Do you see China reacting by cutting off or reducing trade flows, as it did with its brief embargo on exports of rare-earth metals to Japan?

No. The only danger is that, at our end, we can trigger all kinds of actions which are protectionist in some form or other. We can start preventing them from buying up our enterprises, which in turn could lead them to retaliate. It's very hard to say where the thing might start breaking down.

You think a U.S. free-trade deal with Colombia is dead in the water, because of staunch opposition from labour unions. What about South Korea?

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South Korea is easier, because the unions don't have a problem. They don't have anything like the [Colombian]human-rights problem on this. And they're not bad on the environment, either. So labour doesn't have a problem, except the United Auto Workers, because of Detroit. But on the other hand [after bailing out the auto industry] surely President Barack Obama can say: "You have to give me something."

And the security part is extremely important right now. You have North Korea acting up right now … and then you've got China, which has been quite aggressive.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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