China

The global economy is in the early stages of a second China shock as the Chinese economy moves up the manufacturing value chain to produce advanced technology for export. China’s advantage lies in government subsidies and an artificially suppressed exchange rate. If advanced economies in the West are to avoid the repetition of job loss and continued trade deficits witnessed over the last two decades, or the pyrrhic policies like tariffs implemented to address these harms, they must pursue institutional change, writes Joshua Banerjee.

China’s new safe harbor rules for vertical dealing, including practices like resale price maintenance hitherto presumed generally anticompetitive, are less accommodating than they may seem, writes Yin Hu.

China has enacted a new competition policy that seeks to boost innovation by stifling cutthroat price competition. Padding companies’ margins will enable collusion and regulatory capture rather than innovation, write Victor Jiawei Zhang and Yahui Song.

In a new NBER working paper, Charles Hodgson and Shilong Sun show that vertical integration is usually good for consumers, except when firms have both the ability and the incentive to foreclose rivals.  They use the heavily integrated Chinese Film Industry to show that targeting enforcement to the markets where harm is predictable makes it possible to effectively regulate harmful cases and protect consumers.

In recent research, Yumin Hu, Luca Macedoni, and Mingzhi Xu explore how high income inequality can raise the costs of living. They compare grocery products around the U.S., finding that large retailers will increase the prices for their goods in places where income inequality is also high.

In new research, Yusheng Feng, Haishi Li, Siwei Wang, and Min Zhu show that higher industrial subsidies raise the likelihood and severity of foreign antidumping and countervailing duties. These retaliatory duties wipe out roughly a quarter of the revenue growth the subsidies would otherwise create for firms. Failing to address the potential consequences of subsidies may lead governments to overstate the net benefits of industrial policy and fuel deeper trade frictions.

Many studies have assumed that United States tariff costs are passed onto consumers. In new research, Vanessa Alviarez, Michele Fioretti, Ken Kikkawa, and Monica Morlacco argue that buyer-seller relationship dynamics allow dominant U.S. importers to instead force higher costs onto exporters.

Audrye Wong writes that China is able to use its market power to pressure foreign companies and business leaders—perhaps most notably Tesla CEO Elon Musk—to lobby on its behalf. The practice raises questions about foreign influence in American and European policymaking and the disproportionate clout of business and oligarchic interests.

The following is an excerpt from Angela Zhang's recent book, High Wire, out at Oxford University Press. Please join the Stigler Center on April 3 at 6:30-7:30 pm CT for a conversation with Zhang, where she'll discuss High Wire with Financial Times' China Technology Correspondent Eleanor Olcott. You can register for the livestream of the event here.

Liyang Hou investigates the recent antitrust enforcement in China’s digital sector and highlights how formalistic dominance assessments and merger reviews have shaped the country’s approach to regulating its platform economy.