Saturday, August 27, 2011

The US sells chopsticks to China

by James Hanson.

We generally think that the United States exports the operating systems that power the iphone, the ipad, the kindle, and Android; in return China exports mens underwear. This is roughly consistent with our notions of comparative advantage: the US has an abundant pool of the top end human capital of the world, while China has an abundant pool of low-skill labour. Each is better off from this trade.

It, then, comes as a surprise when the Economist reports that the US exports chopsticks to China:

Enter Georgia Chopsticks. Jae Lee, a former scrap-metal exporter, saw an opportunity and began turning out chopsticks for the Chinese market late last year. He and his co-owner, David Hughes, make their chopsticks from poplar and sweet-gum trees, which have the requisite flexibility and toughness, and are abundant throughout Georgia.

In May Georgia Chopsticks moved to larger premises in Americus, a location that offered room to grow, inexpensive facilities and a willing workforce. Sumter County, of which Americus is the seat, has an unemployment rate of more than 12%. Georgia Chopsticks now employs 81 people turning out 2m chopsticks a day. By year’s end Mr Lee and Mr Hughes hope to increase their workforce to 150, and dream of building a “manufacturing incubator” to help foreign firms take advantage of Georgia’s workforce and raw materials.

But that is some way off. For now Messrs Lee and Hughes, and their workers, keep busy shearing, steaming, shaving, cutting and drying huge logs into rough chopsticks. They still need to be finished—to eat with a pair of Georgia Chopsticks right off the Americus line you would need tweezers in your other hand and a high pain tolerance. For that they are shipped via the Port of Savannah to China (later this year they will start sending them to Korea and Japan) in boxes with a rare and prestigious stamp: Made in the USA.

This might be considered a paradox or another indicator of US manufacturing weakness, but in fact it probably reflects comparative advantage.

One basic theory of comparative advantage in exports is based on differences in the relative abundance of labor, capital, land, natural resources etc., leaving aside government interference with trade patterns and macroeconomic policy. Although this theory is hard to use to explain trade in a particular product between countries, US exports of chopsticks to China seem consistent with the theory.

US land abundance relative to growing use of land for non-agricultural uses in China probably means it makes economic and price sense for the US to grow lumber to produce chopsticks for China. This trade seems to be just another example of US net exports of agricultural products, which reflects the relative abundance of US land (and the land-intensive and capital-intensive agricultural techniques that are used in the US, as well as US Government policies).

The US exports semi-finished chopsticks, however: the final finishing is left to Chinese labor and capital. This characteristic of the US exports seems consistent with the theory and transport costs. Shipping just the wood would raise transport costs and fully finishing chopsticks is probably a labor intensive activity, especially if it must be done to satisfy the particular demands of Chinese consumers.

More generally, the empirical patterns of international trade are quite complex and defy simple theory. There is a lot of rich-rich trade than the simple theory would predict. Many poor countries are exporting remarkably sophisticated things (e.g. India exporting motorcycles or software). Many rich countries are exporting low-skill things (as above). Explaining the observed patterns in the data, about international trade, is hard. But there is more good sense in the classical theory than meets the eye.

2 comments:

  1. Georgia Chopsticks make their chopsticks out of abundant poplar trees so they do not need to be bleached or chemically treated as normal chopsticks would.

    Balsam poplars are common in North America not so much in China.

    Unbleached chopsticks command a premium and that is why they are able to do this. I doubt, chopsticks for chopsticks, they would be able to compete with Chinese manufacturers, sorry.

    ReplyDelete
  2. If you mean compete on price, NO.
    Qualitywise, China cannot compete.
    There are a variety of reasons why China scores on price, both legal and illegal. Mostly illegal.

    ReplyDelete

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