Responses to Defective Chinese ProductsMike Rappaport

Edward Synder, Dean of the University of Chicago Business School, makes the case for no additional government regulation:

Faced with such [defective products], our options are to (1) rely on the Chinesegovernment, (2) have our government regulate what is brought to theU.S., or (3) let the market figure it out.

The Chinesegovernment has the resources to act. China’s $1.2 trillion in foreignreserves is either enough to wallpaper every dining room in the countrywith greenbacks or, one would think, regulate product quality. Butdespite China’s willingness to execute the occasional official,government agencies at the national, regional and township level aretoo bureaucratic, or corrupt, to warrant our trust.

Those whoadvocate regulation by the West as the solution might be smokingunregulated substances. Aside from the obvious point that we haveplenty of inspections and regulations of our own to worry about, theopportunity for Western manufacturers and anti-globalization intereststo lobby against particular Chinese imports would be irresistible. Theywould use the new bureaucracy to reduce the general flow of Chinesegoods. That would forward their objectives, but the results would bebad overall policy.

Waiting for the market to fix Chineseproduct quality — doing nothing — sounds like an unattractivesolution. But the market is already reacting.

Consumers arethinking twice about buying no-name Chinese products with long lists ofingredients. U.S. distributors are checking their sources. Retailers,especially those who stock a lot of Chinese goods, are becoming a lotmore concerned about their reputations. And Chinese firms and theirpartners are investing in brands.

How does all this happen?Firm by firm, case by case and step by step. You might recall therecent case of the 1.5million Thomas & Friends toy rail cars andaccessories with lead paint. Fair or not, Thomas & Friends has lostquite a chunk of its brand-name capital, and its very survival is inquestion. No doubt Thomas & Friends has some new protocols.

How long will it take for the market to respond? Pretty much the sameamount of time it takes other branded toy manufacturers to check andrecheck for lead paint on their products.

Here’s another KeyFact: Mattel, which produces Barbie dolls and characters from SesameStreet and Nickelodeon, this month stopped about 700,000 toys with leadpaint from reaching U.S. consumers and recalled 300,000 additional toyssold through retailers such as Target, Toys “R” Us and Wal-Mart.

So how long will it take for the market to respond? Less time than it would  take for new regulations to take effect.

Hat tip: Cafe Hayek.