Agriculture Reference
In-Depth Information
and assocated real exchange rate changes caused by the tarff ncreases.
Domestic resources are reallocated to the agricultural sector, raising
costs n manufacturng and reducng the nternatonal compettveness of
Chna's manufacturng ndustres. The resultng msallocaton of labour s
particularly striking (Table A8.9). The higher tariffs cause employment in
agricultural and food processing activities to be substantially greater, at
the expense prmarly of lght manufacturng.
The mplcatons of the tarffs for domestc ncome dstrbuton are
ndcated by the effects on real unt factor rewards summarsed n Table
A8.10. Higher agricultural tariffs raise land rents by a considerable margin
but reduce real wages and capital returns. In China, rural and urban wages
are linked by an, albeit imperfect, labour market (Chang and Tyers 2003).
The most labour-ntensve sector (lght manufacturng) s hurt by the tarffs.
In the high tariff scenario, therefore, light manufacturing grows less, so
that by 2010, fewer workers are employed in it. Real wages grow less in
both agrculture and the modern sector. Ths s true for both producton
and skilled workers, and it is also true for the owners of physical capital.
Again, the capital losses occur because the industries that are hurt by the
tariffs are more capital intensive than agriculture. Indeed, the decline
in unit capital rewards is serious for China, since this redirects domestic
savngs abroad and retards future nvestment and overall growth. In the
end, land holders are the only winners from the tariffs.
We might well ask, then, what is gained by the self-sufficiency. Would
food be more readly avalable n Chna? No. Chna's 2010 prces of mported
foods would be hgher wth the ncreased tarffs by up to 60 per cent and
even home-produced food products would be more expensve by at least 10
per cent. The key consequence of political significance would be a reduction
in interdependence with the global economy — reduced reliance on global
markets. But ths cuts two ways. Reduced relance on food mports means
curtalng the prncpal source of Chna's overall economc growth snce the
1980s — access to foreign markets for its labour-intensive goods. Curtailed
exports reduce its capital returns, thereby cutting incentives for investment
and, ultimately, the growth rate of its overall economy.
