Chicken feet are back in the news. But the story is about much more.
A delicacy in China, chicken feet are a perfect U.S. export. Except for animal feed, there is little demand for them in the U.S. By contrast, the Chinese want our chicken feet. They are fat and juicy because we grow big chickens. In addition, their “natural scarcity” (only 2 per chicken) bestows some prestige on diners who order them.
As you know, though, our trade relations with China are much more complicated. A year ago, because of a U.S. tariff on Chinese tires, they said they would retaliate by taxing our chicken feet. The result, as reported this week, is a tariff on U.S. chicken feet which could exceed 100%. The World Trade Organization (WTO) has been involved because of complaints about the tariffs from both countries.
Beyond tariffs, the U.S. has expressed concern about China’s undervalued currency and their massive trade surplus with the U.S. However, with so many Chinese savers and a positive balance of trade, China has been a major purchaser of the U.S. debt.
There is a lot to evaluate when determining our Chinese trade policy.
The Economic lesson
David Ricardo’s principle of comparative advantage says that worldwide productivity increases when nations specialize and export the good or service for which they sacrifice the least to make.
But what if the other country does something unfair–like subsidizing a good or keeping a currency undervalued?