Wednesday, April 11, 2007

US-China Trade War?

I'm a very strong advocate of free trade between nations and absolutely despise protectionism. Free trade encourages competition and forces companies to produce the best products at the best prices. Protectionism is anti-consumer, causing higher prices for consumers and is a form of corporate welfare and indirect taxation. Protectionism usually destroys more jobs than it creates, because so many domestic jobs depends on imports. With 4.4 percent unemployment, what are we protecting the US from? The typical argument for protectionism is the lost of jobs due to unfair trade practices, this certainly isn't the case now.

Furthermore, the reasons for protectionism never make sense. Historically, our economy is doing best when we have high trade deficits. Why? Because we are able to afford more goods -- including foreign -- when our economy is doing well. The period of our strongest trade surpluses was during the Great Depression, because the US couldn't afford to buy foreign goods. Trade deficits and prosperity or trade surpluses and depression? Tough choice. Instead of being seen as a negative, I actually see trade deficits as an economic positive, because of the other indicators associated with such.

I do, on the other had, have problems with China. China uses slave labor to create its goods (e.g., political prisoners) and it is a consistent violator of intellectual property rights. But it isn't in these areas that the US wants to punish China. Rather, it wants to put tariffs on goods that we know are subsidized by the Chinese governments. Let's see, China wants to help us get stuff cheaper? Isn't that the same as foreign aid? The US, meanwhile, wants to penalize our consumers who will suffer from the higher prices that the tariffs will carry. Furthermore, our struggling airplane builders that need cheap steel in order to compete internationally will probably have to layoff employees when the price of steel goes up after the tariffs go into effect. Trade wars don't happen in a vacuum, they happen in the real world with real consequences.

Furthermore, trade wars typically go both directions, with countries retaliating against each other, further negating any economic benefit to protectionism.

But protectionism also creates conflict. Frederic Bastiat (photo), the great economist, pointed out that "when goods do not cross borders, soldiers will." Many believe that the tariffs of the 1930s fueled the fires that lead to World War II.

Any question on what I feel about free trade? If the US is going to punish China for behaving badly, penalties need to relate to the specific areas of violation and not be some excuse to apply protectionist measures. The best ways to protect the US economy is to keep costs for consumers down, create a tax and regulatory environment in which our businesses can perform, and to make sure US businesses must compete in order to make the best products for the price These objectives are best pursued in an environment of free trade and not protectionism.

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Anonymous Andrew Mayfield said...

It is about time someone wrote the truth about trade deficits. They are a non-issue.

8:50 AM  

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