As the U.S. Presidential election campaign enters its final stages, both candidates are being criticized in the media for "bashing" China.

This is in response to Obama administration filings of anti-subsidy complaints against China with the World Trade Organization (WTO) and to Governor Romney's strong criticism of Beijing's currency manipulation that undervalues its yuan (or RMB) as a way of subsidizing exports and acting as a tariff on imports.

The best example is the Chicago Tribune. Recently, it flatly said that both candidates are "bashing" China and noted that "attacking China's export-subsidy machine is guaranteed to win applause at campaign stops in Ohio and other Midwest industrial swing states, where resentment of Chinese competition in manufacturing runs deep."

Now, from the tone of this, you'd expect that China is completely innocent of any trade rule violations and that the candidates are unreasonably and cynically beating on it as a scapegoat for the off-shoring, layoffs, and unemployment that have all skyrocketed in the mid-west over the past five years. Indeed, you might even think the candidates are in some measure motivated in their critique by racism. After all, the terms "bash" and "bashing" imply anger, rage, violent emotion, and unreasonable hatred. If someone is a critic, he is legitimate, but a "basher" is emotional and unreasonable. The terms are usually applied to characterize criticism of Japan or China but are rarely if ever used with regard to non-Asian nations. When was the last time you read about "Germany bashing"? So the implied charge in the case of one labeled a "China basher" is that he/she is a racist.

Thus, the continuation of the Tribune's commentary was surprising. It acknowledged that "China's efforts to promote its export sector with cash grants, below-market loans, preferential tax treatment and free use of government-controlled property make a worthy target. " In other words, some of China's policies are indeed problematic. In fact, the Tribune went on to note that the sense of a need to create a "level playing field" with China "has a basis in reality." It added that subsidies and regulations in a number of areas along with the power of state owned enterprises has prevented U.S. and other foreign companies from taking the lead in a wide range of Chinese markets. It further noted that theft of intellectual property in China, and China's policy of keeping the yuan weak are enormously problematic. 

So the Tribune appears largely to agree that China is doing all the things of which the two candidates have complained and against which the administration has filed complaints with the WTO. But if it agrees with them, why is the Tribune effectively pasting the racist label on the candidates?

In justification of its position, the Tribune makes four points that constitute the orthodox free trade case. First, it argues that even though it might help workers, any restriction or sanction on the free flow of Chinese goods into the U.S. market would be harmful to U.S. consumers. Second, it holds that the activities of getting imports from China unloaded, shipped, displayed, advertised, and sold create new U.S. jobs in place of the jobs that might be lost as a result of the displacement of U.S. produced goods by imports from China. Third, it asserts that any kind of trade sanction could lead to a ruinous trade war that could damage everyone, and fourth, it emphasizes that rather than trying to crack down on China's questionable policies and practices, the U.S. government should focus on persuading the Chinese fully to open their markets.

The difficulty with these points, often repeated by orthodox neo-classical economic commentators, is that they are superficial, internally inconsistent, and at odds with the realities of the trading world. Take the matter of possible harm to consumers arising from any increase in the prices of goods resulting from some restriction on imports. This ignores a couple of important facts. One is that most consumers are also workers. Cheap imports are of little consolation if they have lost their jobs and income. Lost jobs put downward pressure on all wages, not just those in the particular industries that suffer from import penetration. Of course, the exception to this is a situation of full employment which is assumed by the usual econometric models and writers like those of the Tribune. But full employment is not the normal circumstance for most economies. Certainly it is not now the circumstance of the U.S. economy and it is most certainly not true of the economy of the city where the Tribune resides -- Chicago. In situations of high unemployment, the loss of jobs and general downward pressure on wages may far exceed the savings to consumers of slightly lower import prices.

The notion that imports create unloading, shipping, and marketing jobs is also misleading. Think about it this way. Toyota makes a car in Japan and ships it in a Japanese vessel to San Francisco where it is unloaded by American longshoremen and driven by American truckers to a showroom in an American city where it is advertised, marketed, sold, and serviced by Americans. So there certainly are a number of American jobs associated with this import from Japan.

But now suppose that Toyota makes a car in Tennessee with parts made in America and with the assembly done by Americans. Then the car is driven by an American trucker to an American showroom where it is marketed, serviced, sold, and advertised by Americans. In this second case, more U.S. jobs are created than in the first case. Why? Because the vast bulk of the selling, overland shipping, marketing, and servicing has to be done in the United States whether the product is made there or imported. So the truth is that imports do not create net new U.S. jobs or jobs in any country unless they are products that cannot be made or made competitively in that country.

As for the dangers of trade wars, they are much exaggerated. The whole point of the WTO is to have a set of rules and adjudication of the rules. It is inevitable that there will be trade disputes. A main mission of the WTO is to deal with them so that they don't become trade wars. So far the record of the WTO is pretty good on this score.

With regard to prying open the Chinese market, the Tribune calls for that as an alternative to the trade actions called for by the two candidates.  This is an old story and it seems to keep selling. I only wish that those who sell it would once in their lives have to serve as trade negotiators. One of the main reasons for complaining about and sanctioning violation of trade rules is to gain leverage precisely for the purposes of opening the market. These negotiations are not pit a pat. Important and powerful interests are involved and they don't give up easily unless faced with consequences as well as opportunities.  Countries don't open their markets just because someone from Washington says that would be a good idea. A successful market opening negotiation requires sticks as well as carrots.

Neither Obama nor Romney is a "China basher". The Tribune owes them both an apology.

Did you happen to read the story in Sunday's Financial Times headlined, in the print edition: Apple Listens to the Factory Floor in China?

The working hours survey said it all. Average working hours per week in the Foxconn/Hon Hai factories in China that make Apple products were put at 56.1 hours. Maximum hours worked in the last three months were 61.1 hours per week. And the longest consecutive work period without a rest day during the last three months was 11.6 days. These figures were released by the Fair Labor Association (FLA) as Apple Chief Tim Cook last week toured the factories where his company's products are made.

This Cook's tour was not for sightseeing purposes or for showing the flag. The FLA report had been commissioned to investigate complaints of inhuman work place treatment that were feeding a brush fire of charges that Apple is making enormous, obscene profits on the backs of poorly paid and badly treated assembly line workers in China. It was to put out this fire that the FLA report release was timed to coincide with Cook's visit.

Now, in case you didn't know, let me explain that China does not have the world's highest labor standards or most powerful labor unions. Indeed, indeed, it has among the lowest and the weakest. Nevertheless, the FLA found at least 50 "serious and pressing non-compliances" with China's cream puff workplace code of conduct and labor law. In addition, labor rights organizations from India, Indonesia, and Poland as well as from the United States wrote an open letter calling upon Apple to provide a living wage so that Chinese workers do not have to work excessive overtime and also calling for an end to use of involuntary labor.

Well, would you believe it? Apple and its factory operating contractor, Foxconn/Hon Hai, accepted each and every one of the FLA's recommendations. So now, working hours will actually be reduced to the legal limits while pay will be protected and conditions will be improved. FLA President Auret van Heerden said this would really improve the lives of more than 1.2 million Foxconn employees and set a new standard for Chinese factories. I mean, can you imagine. These factories will now be working no more than the legal maximum of working hours. That will be a new standard. I guess China's factories must have been working far above the legal limit until now. But now with this new standard they'll finally meet the old standard. If, that is, these commitments are implemented, van Heerden was careful to stipulate. Do you think maybe she's been here before? But how could she harbor any doubts that a class act like Apple wouldn't implement its commitments? Well, maybe the problem is not Apple but Foxconn. But would Foxconn really do things to which Apple objects? Well, you just never know about these kinds of things I guess. Shows you why these global supply chains are so tricky.

Course, this is going to cost Apple big time. I mean the manufacturing labor content of an iPhone or iPad is now about 5 percent of the total cost. By accepting every one of those recommendations, Apple might push this to 6 percent, meaning that its 30 percent operating profit margin might drop to 29.5 percent (if Foxconn shares part of the hit with Apple) or even to 29 percent.

Just think of the implications of that. Instead of $100 billion lying around the Apple headquarters in cash waiting to be invested, there might in the future only be $99.5 or $99 billion. But that's only if the deal is actually fully implemented.  So I guess we'll have to wait and see.

All right, let me stop with the sarcasm and just ask straight forwardly, why does Apple have to do it this way? Making iPads is not war. Why does anyone have to work 60 hours a week? Why does anyone have to work eleven and a half days without a break day? Apple would be the world's most profitable company even it its gross profit margins dropped by a few percent.

I mean, here's Apple who's biggest problem is figuring out what to do with all the cash, and its executives take home really rich bundles of cash, stock grants, long term options, and all the rest of it which is taxed at only 14 or 15 percent while they agree to only make their Chinese workers work the legal maximum number of hours. Could you ask for a better more soulful bunch of guys and gals? I mean, really!

This is what's wrong with globalization. The big gains go to the one percent who need them the least. Developed world workers take a big hit, Chinese workers gain, but not nearly as much or as fast as they should, and First World consumers don't get very much of the benefit of the cheap Chinese labor because the bulk of the wage arbitrage between west and east is going into the coffers of the top executives and the middlemen between  producers and consumers. It's not a sustainable way to run the world.

The recent remembrances of 9/11 have reminded me, once again, that it was 9/12, not 9/11, that was the truly fateful day.

Of course, 9/11 was a day of heinous crimes that will live in infamy along with December 7, 1941, and many other days of similar atrocities. But 9/11 in no way determined America's future path. It presented challenges and options, but not decisions or foregone conclusions about how to respond.

In the years, months, and days immediately preceding 9/11, attitudes around the world toward the United States had been undergoing a gradual, subtle shift from the World War II legacy of admiration, gratitude, respect, and goodwill to increasing skepticism, alienation, and even hostility. A variety of factors underlay this shift, but the core element was a sense in much of the rest of the world that America increasingly no longer defined its interests, as it had long done, in terms of building a stable global order based on mutual consultation and a rough rule of law. Rather, it was increasingly seen as a whiner and sometimes even as a bully.

Yet, the immediate aftermath of the attacks of 9/11 revealed, as perhaps nothing else could have, the lingering depth of respect, gratitude, and affection for the United States even in the countries of greatest skepticism. Jacques Chirac, president of France, a country notorious for its anti-Americanism, immediately became the first foreign leader to visit New York and the site of the attack. Le Monde, the left-leaning and somewhat anti-American leading journal of France, proclaimed in banner headlines: "Nous sommes tous Americain" -- We are all Americans. The French flag was flown at half-mast.

For the first time in its history and without a request from the United States, NATO invoked Article 5, the provision under which an attack on one member is considered an attack on all and all undertake to defend the one. U.S. embassies from London to Moscow to Beijing to Tokyo to Singapore to virtually everywhere else in the world were buried in flowers and surrounded by sympathizers mourning America's losses. In one heinous moment, al Qaeda had managed to reverse the tide of alienation from America that had been rising.

The potential for a dramatic, positive reset of America's role and relations in the world was enormous. The atmosphere was pregnant with possibilities. Imagine what might have happened if President George W. Bush had taken the opportunity to do a global satellite television hookup. Using the time zones to his advantage, he could have rotated around the world expressing gratitude -- "Thank you London, thank you Paris, thank you Moscow, thank you Beijing. I'm going to invite your leaders, my good friends Tony, Jacques, Vladimir, Jintao (and others) to Camp … no, to the ranch this weekend. And we're all going to discuss this evil and develop a plan jointly to crush it and stamp it out."

At that moment, the president could have had anything he wanted.

That, of course, was the road not taken, and to quote Robert Frost, "that has made all the difference."

In 1979, Harvard professor and East Asia expert Ezra Vogel published Japan as Number One, a book that not only became an influential bestseller in the United States but also raced to the top of the all-time nonfiction bestseller list in Japan.

Appearing at a moment when Japan's economy was surging with a 10 percent annual growth rate and when Japanese auto, steel, textile, electronics, and semiconductor producers were decimating their U.S. competitors and garnering huge shares of the U.S. market, the book was a wake-up call for Americans. It demonstrated how the close cooperation between industry and government known as Japan, Inc. had many advantages over the more laissez-faire, adversarial U.S. economic system. Although the title was meant metaphorically rather than literally, Vogel did suggest that without significant changes in U.S. policies and practices, Japan would become the dominant leader in a wide range of key industries and technologies.

As the Japanese economy waxed in the 1980s and the Nikkei stock average soared while the value of the Imperial Palace in Tokyo was calculated to be more than that of the entire state of California, Vogel appeared to have been the most prescient of prophets. With the collapse of the Japanese asset bubble in the early 1990s, however, Japan entered what is now often described as two lost decades of stagnating economic growth and deflation. And over that time, a river of ink has been spilled in expressing the schadenfreude of triumphalist Western economic analysts who kept asking why anyone was ever concerned about competition from Japan.

Looking at the scene today, however, I have to wonder whether Vogel wasn't right after all. Over the weekend I discussed with some Japanese friends the idea of spending an extended stay in Japan for purposes of research on a new book. I was quite excited until we started talking prices and living expenses. When I lived in Japan in the 1960s and 1970s, the yen-dollar exchange rate varied from ¥360/$ to ¥270/$. At today's rate of ¥75/$, I can't even afford the bus ride from Narita airport to downtown Tokyo, let alone the monthly rent for a modest apartment and the prices of food, transportation, and other amenities. The yen has become, like the Swiss franc and gold, a safe haven for investors rushing to escape the risk of dollar devaluation.

Japan continues to accumulate substantial trade and current account surpluses and its rate of unemployment is about half that of the United States while its gap between rich and poor also remains much less. The dollar is in trouble in part because U.S. national debt is approaching the 100 percent of GDP level which is seen by economists as the point at which economic recovery becomes a painful, long term affair. Yet Japan's national debt is approaching 200 percent of GDP. A big difference, however, is that Japan's debt is almost entirely self-funded. Unlike the United States, Japan does not borrow from China or any other country. Japan has the longest average life expectancy of the major countries and the highest average household wealth. The recent nuclear power disaster has been a severe blow, but Japan has responded with its typical cooperative, can-do spirit. Moreover, it is moving decisively to abandon nuclear power and to focus on developing wind, solar, and other green energy sources. That will be costly in the short run, but Japan has never been a short run country, and in the long run it may well become the global leader in green energy technology.

Amazingly, in view of the weakness of the Japanese prime minister and the ineptness with which Japan's government has handled the recent tsunami and nuclear crises, Tokyo is apparently perceived by the world's investors to be more reliable and effective at governing than Washington.

This is, of course, not to say that Japan is without problems. It has plenty of those. But for the moment, the markets seem to be confirming Vogel's original view of Japan as Number One.

The jobs scene turned really ugly last week as the Labor Department reported that in June the economy had generated only 18,000 new jobs instead of the 250,000 it desperately needed to maintain some semblance of ongoing recovery.

For my money, however, even uglier than the jobs numbers were the reactions and analyses of leading economists. For starters, most of them expressed shock at the paucity of new jobs created. I was shocked that they were shocked. On which planet are they living? Of course economists tend to make a lot of assumptions. So maybe they can assume jobs. But here in Maui where I'm hanging out for the summer (yes, someone does have to do it) there are no jobs.

At church yesterday, one couple reported that he had lost his position on the police force and she had been laid off by her longtime insurance company employer. At least she's getting some unemployment pay, but he's getting none. A single mom told me she's making gluten-free coconut cream cakes in her kitchen and selling them to local grocery stores. To supplement that she also takes pianist gigs and hawks skin-care solutions at Costco. It sounded like she is working really hard but not really making ends meet. I think this is not just a Maui phenomenon, but that it is the experience of the vast majority of the American people who are not economists.

Even the economists who do have a better understanding of reality seem stuck in transition from the pre-crisis to the post-crisis world. Writing in last Friday's Financial Times, former White House economic advisor Laura Tyson urged more stimulus spending to prevent an even sharper falloff in jobs and job creation. Similarly, New York Times columnist Paul Krugman argued in his most recent piece, as he has in several others, that while debt reduction may be necessary in the long term, what is needed in the short term is more stimulus spending. The idea being that more debt in the short term will get the economy ticking over and thereby reduce debt in the long term.

Tyson and Krugman are surely correct to the extent that more demand for the output of American workers is desperately needed. Yet, I think even they are not fully recognizing a fundamental shift that has taken place and that is surely not incorporated in the standard models of most of the forecasters. There are two factors. One is that over the past 30 years, a succession of trade deficits and dot.com and real estate bubbles has reshaped the U.S. economy in ways that have decimated some trades and professions and their skills and that have fostered especially the U.S. construction and financial industries and their skills. In the wake of the crisis, it is now clear that construction and finance must shrink, and indeed they are shrinking.

The idea of stimulus incorporated in the standard economic models is that it will create demand for goods and services produced in America and thereby drive investment in new factories and jobs to produce more of those goods and services. The difficulty is that we do not want to stimulate a lot more construction or finance (those were the bubbles that collapsed after all), and greater stimulus to create demand for things we largely import does not drive new investment or creation of new jobs in America. It only increases our debt. What is needed is not just demand in the American economy, but demand that results in domestic production and that does not increase domestic or international debt.

Think about this in the wake of the recent New York Times article reporting on the new Oakland Bay Bridge being made in and imported from China. Building infrastructure like bridges is a time-honored way of creating demand in the economy that creates jobs. Indeed, just this past weekend President Obama called for creation of an Infrastructure Bank that would enable a dramatic ratcheting up of U.S. investment in critical infrastructure. It's a good idea and one that I, along with others, have long promoted. But if the decision of the state of California to have the main structural elements of the Oakland Bay Bridge made in China is a harbinger of things to come, then an Infrastructure Bank is likely to create more jobs in Asia than in the United States.

No doubt former Governor Arnold Schwarzenegger and his cabinet thought they would save about $400 million on steel by buying the bridge in China because Chinese steel production has been heavily subsidized and China's government manages its yuan to be artificially undervalued versus the dollar. But what they didn't consider was that those subsidies tend to make U.S.-based production uncompetitive and not only put American workers out of jobs but exert downward pressure on wages generally while eroding critical investments in equipment and human skills, reducing state, municipal, and federal tax revenues, and contributing to the shrinkage of the national educational base. No one in California took a look at even the whole state picture, let alone the national picture, to determine whether buying a bridge in China was really going to be a net gain for the state (as it turns out, in the past two years the price of Chinese steel has risen much faster than that of U.S. steel so that even the initially projected savings are unlikely to be realized). Even worse, no one at the federal level of the U.S. government has any responsibility for evaluating the net impact of these kinds of deals or for reducing the leakage of stimulus spending abroad and maximizing the domestic production impact of government spending.

Until our economists and officials begin to wrestle with the need for the United States not only to stimulate its economy but to do so in ways that will lay the basis for America to increase its wealth-producing capacity and pay its way, they are likely to find themselves in a continuous state of shock.