Playing Chicken With China?
Yesterday’s headlines about the US taking China to the World Trade Organization (WTO) for unfair auto and auto parts subsidies took me to chicken feet and The Economist’s Sinodependency Index. Knowing the major firms that depend on China for revenue might help us further assess our relationship.
Approximately 20 years ago, chicken paws, used primarily for animal feed, were worthless. Now though, with Perdue producing more than a billion chicken feet a year, paw exports annually return $40 million in revenue. The reason is China.
A delicacy in China, chicken feet are a perfect U.S. export. US chickens 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.
Similarly, Intel, Apple, IBM and GE generate considerable revenue from China. Called a Sinodependency Index, The Economist displayed the relative revenue dependence on China of 135 firms in the S&P 500. Their goal was to show the extent to which China has woven its presence within the fabric of world trade.
Although some of their statistics were rough because of each firm’s revenue breakdown, The Economist believed that their Index conveyed the information effectively. In a copy of their chart below (interactive with percents if you visit their site here), you can see their color coding for industry and size coding for how a firm’s revenue compared to the other 134 in the index. The top 10 in their list, in size order, are: Intel, Apple, IBM, GE, Caterpillar, Procter & Gamble, Johnson & Johnson, Yum Brands, Philip Morris, Boeing.
As economists, we could not conclude without mentioning comparative advantage. First explained by 19th century economist David Ricardo, 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 to do when a nation employs unfair trade practices like subsidizing their exports to make them cheaper and adding duties to imports to make them more expensive?
My Sources and Resources: A wonderful podcast and post from Freakonomics was the source of my chicken feet facts while you can look directly at The Economist’s Sinodependency chart, their article and a link to the math behind the Index here. For more on the current trade dispute in the World Trade Organization (WTO), here is one article from Bloomberg. And here, this EconLife post presents more on a past trade dispute with China that involved chicken paws and is the source of 2 sentences in this entry.