What Can We Learn from China's Interest in Idaho?

From the Idaho Statesman in December 2010: 

"A Chinese national company is interested in developing a 10,000- to 30,000-acre technology zone for industry, retail centers and homes south of the Boise Airport. Officials of the China National Machinery Industry Corp. have broached the idea — based on a concept popular in China today — to city and state leaders. They are also interested in helping build and finance a fertilizer plant near American Falls, an idea company officials returned to Idaho this month to pursue.

This ambitious, long-term proposal would start with a manufacturing and warehouse zone tied to the airport, and could signify a shift in the economic relationship between the two superpowers — a relationship once defined by U.S. companies like the J.R. Simplot Co., Hewlett-Packard and Morrison-Knudsen that would head to China to build and develop.

“I think China’s coming over here shows they are willing to collaborate on the reinvigoration of the American industrial base,” said Jeff Don, CEO of Eagle-based C3, which is acting as an Idaho representative for the Chinese company, called Sinomach for short. Sinomach is just one of an increasing number of companies and investors showing interest in Idaho.

Hoku Materials Inc., a subsidiary of a Chinese energy firm, already has 500 people building its $400 million plant to make polysilicon for solar panels in Pocatello. It expects to begin production in 2011, employing 250 people, said Scott Paul, Hoku’s president and CEO." 

MP: This story illustrates several important economic points: 

1. It helps expose the type of trade lunacy/nitwitery advocated by mercantilist protectionists like Ian Fletcher, who claims here that "Our trade deficit helps Guangdong, Seoul, Yokohama, even Munich – but not Gary, Indiana, Fontana, California, and the other badlands of America’s industrial decline."  Try telling that to the citizens and workers in Idaho, who are benefiting from jobs and investment as a direct result of our trade deficit with China.  

2. It helps illustrate a point made by Don Boudreaux, who reminds us that another name for the “U.S. trade deficit” is “U.S. capital-account surplus” – that is, inflows of investment funds to the U.S. that supply financing for the creation or expansion of U.S. companies, and help create or support jobs in America.  The $273 billion "trade deficit" with China in 2010 was exactly offset by a $273 billion capital inflow, and $400 million of that capital financed the construction of a solar panel factory in Pocatello, Idaho, employing 500 workers for the construction and another 250 workers this year when production starts.  

3. Why are China and investors from other countries showing such interest in Idaho as a location for manufacturing production, and not nearby California or neighboring Washington? Maybe it's because business-friendly Idaho ranks among the most free states in the country (#3) according to a new study by the Mercatus Center, while California (#48) and Washington (#40) rank among America's least free states. When companies, either foreign or domestic, shop around the U.S. for business locations or re-locations, the state's business climate will certainly rank as one the most important factors in the decision-making process.  In the future, we can expect much more investment, production and job creation in the freest states like Idaho, and ongoing contractions and out-migrations from the least free states like New York, New Jersey, California and Massachusetts.