Do the Chinese have an unfair advantage?

According to Donald Trump, the United States loses to China, Mexico, Japan, and just about everyone else in the world. The redress he proposes is a 45% tariff on Chinese goods that he would likely expand to others he lumps in as having unfair advantages over us and a border wall. Has any nation ever made itself great (or great again) through isolation from immigrants and trade wars? Before we jump off into the chasm of a 45% tariff on the Chinese (and others) perhaps we should think about the actual impact of an increase on our goods, particularly the low-cost goods that benefit the poor. As Daniel Henninger lays out in a recent Wall Street Journal Editorial, the tariff is one of Trump’s few actual policy proposals. Henninger elaborates powerfully on the perils of Trump’s proposal in what I have copied below:

At the core of the Trump campaign is one policy idea: imposing a 45% tariff on goods imported from China. In his shouted, red-faced victory speech Tuesday, he extended the trade offensive to Japan and Mexico.

Some detail: Combining the value of goods we sell to them and they to us, China, Mexico and Japan are the U.S’s Nos. 1, 3 and 4 trading partners (Canada is No. 2). They are 35% of the U.S.’s trade activity with the world. The total annual value of what U.S. producers—and of course the workers they employ—sell to those three countries is $415 billion.

Wal-Mart has 1.4 million U.S. employees in stores filled with foreign-made consumer goods. With a 45% price increase, many won’t be working for long.

Mr. Trump says the threat alone of a tariff will cause China to cave. Someone should ask: What happens if they don’t cave? Incidentally, unlike Mexico, China has between 200 and 300 nuclear warheads and 2.4 million active-duty forces. Irrelevant?

As with anything Trump does, the tariff proposal is a naked calculation to rile up the easy to excite masses that are befuddled by economics. His supporters may not recognize this, but all of this is really in the same vein of support as those that support Sanders.  People with pitchforks want to believe that all of their wage stagnation must be the result of some faceless enemy in a foreign land or a Mister Burns character at J.P. Morgan. They will inevitably fall into the trap of rallying behind either Sander’s envy and class warfare or Trump’s foreigner warfare. On the latter, these same individuals will grab their pitchforks once again and demand price controls once their prices down at Wal-Mart also increase 45%. They will fail to see the increase as the predictable result of their own actions. It is a vicious cycle to find succor and assistance from government men with no scruples and who possess the knowledge that true arbitrary power is created on the backs of those ignorant souls willing to make deals with dark power for fleeting and ephemeral gains. This information and knowledge asymmetry is how individual liberties are willingly ceded by voters to those who make pandering promises who know what power they can gain.

I want to turn to the canard that the Chinese have an unfair advantage in trade with Americans. I have always been puzzled by a complaint that if the Chinese manipulate their currency to an unnatural low point that we should in turn punish them. If the Chinese do manipulate their currency (and it is highly debatable whether they do), then the logical conclusion is that in doing so what the Chinese government is actually doing is using Chinese taxpayers to subsidize American consumption. In other words, currency manipulation would necessarily mean Chinese citizen oppression by the Chinese government to support our low prices and consumption habits here. One might disdain this from a sense of humanitarianism and fellow feeling for the Chinese, but what it shouldn’t be is a cry of unfair advantage for the Chinese. We should be thankful for the good fortune that Chinese government ineptitude provides us with cheaper goods! Cafe Hayek states this much more effectively than I just did, so I copy the comments from a recent blog post in the form of a letter to a former student:

Dear Mr. Hester:

Thanks for your reply.

You say that I am “naïve to forget about” the “unfairly low prices which the Chinese ruling elite impose on us.”

Please.  Low prices in America – especially if they are made artificially low at the expense of non-Americans – are no imposition on Americans; they are a blessing to Americans.  (Do you think that we earthlings would be made richer if our rulers adopt policies that require us to start paying more for the light and heat that we have until now imported from the sun at the low price of $0?  If not, why do you think that we Americans would be made richer if our rulers adopt policies that require us to start paying more for the goods that we have until now imported from China at low prices?)

Also, Chinese low wages are largely the consequence of the Chinese people being enslaved, tyrannized, and impoverished for decades by an unspeakably cruel Maoist regime.  Do you honestly believe that this terrible history gives the Chinese people today an unfair economic advantage over Americans?  If so, you must regret that we Americans were denied the advantage-rich experience of being forced to live in a collectivized, starvation-ridden society ruled by murderous despots.  My gosh!  If we, too, could today boast the horrifying recent history of China, then we, too, might be as poor as the Chinese and, hence, we, too, would enjoy – as do today’s Chinese – all the splendid “advantages” bestowed by such an impoverishing history!

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

 

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