Open Letter to Mitt Romney

by Don Boudreaux on August 17, 2011

in Myths and Fallacies, Seen and Unseen, Trade

Dear Mr. Romney:

A blog-post by the Cato Institute’s Sallie James links to a transcript of your appearance recently on the Greta van Susteren show on which you complained that Beijing pursues policies that make Chinese products less expensive than American products.

I overlook the fact that, because only 2.7 percent of Americans’ personal consumption expenditures are on goods and services produced in China, 97.3 percent of the goods and services bought by American consumers obviously are less expensive to Americans than are Chinese-made equivalents.

Instead, let me here go to the heart of your argument and accept your presumption that party A harms party B if A offers to sell goods or services to B at prices lower than what it would cost B to produce those goods or services himself.

Accepting this presumption, I’m obliged to advise you that you can make yourself and your family better off by styling your own hair.  Your current stylist obviously does a fine job – strong evidence in support of my suspicion that that stylist has pursued policies that make it less costly for you to use his or her styling services than it would be for you to design and maintain your coiffure yourself.

Clearly, you’re being harmfully exploited.

By accepting my counsel that you style your own hair you will no doubt improve your well-being and, more importantly, demonstrate to voters that you’re a man of your convictions – one who acts in the same ways that he proposes that other people act.

Sincerely,
Donald J. Boudreaux

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{ 36 comments }

wobbles August 17, 2011 at 4:46 pm

Oh look, an article written by two Fed economists as your source. Totally trustworthy.

Don Boudreaux August 17, 2011 at 5:08 pm

And what source or sources do you have for any conclusion on this matter that you wish to offer?

Dan Grayson August 17, 2011 at 5:12 pm

The letter is brilliant, I like it!

tms August 17, 2011 at 5:34 pm

Awesome, but you forgot to refer to his stylist as his opponent.

Troll Finder August 18, 2011 at 12:20 am

+1

CRC August 17, 2011 at 5:53 pm

Or make his own clothing…or grow his own food…or build his own gadgets and devices.

Will this ignorance over trade ever end?

Krishnan August 17, 2011 at 6:58 pm

Stupid is as stupid does. And to think he made his fortune by being a “capitalist”.

Then again we know that once some people make their money, they make it a mission in their lives to make sure that OTHERS do not have the same opportunity as they did … Warren Buffett for example – calling for Tax Hikes on “rich” – and we know why … (Buffett has HIS money – so why not?)

http://online.wsj.com/article/SB10001424053111903918104576504650932556900.html?mod=WSJ_Opinion_LEADTop
http://online.wsj.com/article/SB10001424053111903480904576512501087811480.html?mod=WSJ_Opinion_AboveLEFTTop

Sean Frederick August 17, 2011 at 7:11 pm

Given the fact that the emails you sent to all these various politicians and fellow economists are above average in quality, do you frequently get responses?

Just curious.

Chandran August 17, 2011 at 7:22 pm

Given the international division of labour, it’s a little misleading in many, many cases to label one’s product as “made” anywhere. Perhaps we should require manufacturers who want to so label their products to identify ALL the countries in which parts of their product are made, or else not use national labels. (As a small concession to national pride we could allow manufacturers to label their goods “partly made in the USA” if they so wish. Of course, many foreign manufacturers would have the right to so label their goods if they use American components.)

Krishnan August 17, 2011 at 7:40 pm

I recall the Toyota Camry (?) a “Japanese” car made in “Kentucky, USA” has more “USA” parts than a “Chevy” – an “All American Car”

And while the President demands that we buy “US Made products” and there was some language like that in the stimulus bill, he rides around in an “Canadian” made Bus.

Nothing is what it seems.

trump this logic August 17, 2011 at 9:08 pm

My business imports goods from China and one of my customers told us that he no longer wanted them. I wrote back and told him that some of the components that the Chinese used were made in the US and that if I sourced his products in the US, some of the components would likely come from China too.

I went further and asked him if it was just China that he wanted to discriminate against, and that if he provided me with a list of countries, creeds, and races that he didn’t like, I could do a search to try to source his requirements accordingly.

He didn’t appreciate my humor.

Stone Glasgow August 17, 2011 at 7:32 pm

If his stylist accompanies him overseas, should he pay an import tax on foreign goods upon return to the U.S?

LAD August 17, 2011 at 7:47 pm

I’m continually amazed that politicians are able to do both the following at the same time: (1) argue that consumer prices should be higher, and (2) make consumers believe the politician is promoting their interests by making the argument.

Say what you want about politicians, but they are very good at what they do.

trump this logic August 17, 2011 at 8:58 pm

Donald Trump says that OPEC is ripping us off by charging high prices and China is ripping us off by charging low prices. Regarding China, does his logic mean that if China, through subsidy and currency manipulation, decided to sell us all of our manufactured goods for free, that we would be getting ripped off to the max? Should we set tarriffs to keep the goods out, and to make sure we made all those products with our own labor?

Krishnan August 18, 2011 at 7:33 am

I am sure that when Donald Trump buys anything for any of his businesses, he is scrupulous about NOT buying anything made in China. He is a patriotic American who always “Buys American”.

(to that I would say “Right” – what he really wants to do is make sure that HE can buy cheap, sell high and make money – that he cannot stand the fact that anyone can do so …)

I have a visceral reaction if I were to hear his tantrums. What a complete and a total crony.

tdp August 18, 2011 at 9:44 pm

You think Trump is worth anything? The real reason he didn’t run is because of the financial disclosure forms he’d have to file. Every property he touches goes under.

Jameson August 17, 2011 at 9:11 pm

This is the problem when free market capitalism butts heads with nationalism. The idea that free trade with other nations is a good thing contradicts our instinctive “winner-take-all” attitude. It’s why we watch the Olympics.

vidyohs August 17, 2011 at 9:40 pm

You still do?

FreddyB August 17, 2011 at 9:18 pm

I’m trying to learn some economics on my own and I’m not up to speed like some of you are. What I’ve learned so far from the politicians is that there are 3 evils in trade:

1) charging too much because it’s gouging
2) charging the same because it’s collusion
3) charging less because it’s dumping

If we get rid of all the businesses that engage in this behavior everything will be fair, right?

tdp August 17, 2011 at 9:31 pm

Please send this in to Mitt Romney. Deflating this myth publicly is one of the most important things that can be done.

tdp August 17, 2011 at 9:32 pm

I also think you should send this in to a major newspaper for publicity.

BCanuck August 17, 2011 at 10:46 pm

Do you think Romney is that dumb?
OR
He’s pandering to a slightly ill-informed, zenophobic crowd
Or
A bit of both

Greg Webb August 17, 2011 at 10:56 pm

BCanuck, Romney is not dumb. He is an “applause”-seeking politician so he is pandering to a greedy special interest group, i.e. unions.

Greg Webb August 17, 2011 at 10:47 pm

Don, this is an excellent letter that should be sent to Mitt Romney and several major newspapers.

Romney is a well-known big government guy despite his frequent bleatings about wanting smaller government. I was at a forum after the last Presidential election where Mitt Romney was one of the guest speakers. When asked why John McCain did not oppose TARP, Romney replied that McCain had no choice because 20 economists told him that the financial system would fail if it wasn’t approved. When asked who the 20 economists were, he dodged answering the question. There is no way I would want this “applause”-seeking politician to win the Presidency . . . except if his only opponent is President Obama.

Nemoknada August 18, 2011 at 1:28 am

“Instead, let me here go to the heart of your argument and accept your presumption that party A harms party B if A offers to sell goods or services to B at prices lower than what it would cost B to produce those goods or services himself.”

Well, if A’s goods are poisoned, the presumption is true. Or if they explode. Or if they cost B his job. It’s easy enough to say that a comparison between cheap poisonous goods and expensive non-poisonous ones is not fair, as we are talking about identical goods. But when it comes to job-destruction, there are no identical goods. Goods made in China may destroy jobs that goods made here do not destroy.

So the argument is not about DB’s silly mis-abstraction of Romney’s claim. It is about (i) whether the Chinese goods are inherently DIFFERENT from ones assembled here, because the former do in fact destroy American jobs (or whether some Bastiat nonsense saves the day) and, (ii) if so, whether that is necessarily a bad thing. These are interesting questions. Pity they are never asked here at the Cafe Gresham, where bad arguments drive out good.

Ken August 18, 2011 at 1:42 am

“Goods made in China may destroy jobs that goods made here do not destroy.”

This doesn’t even make sense.

“whether the Chinese goods are inherently DIFFERENT from ones assembled here”

How? “[B]ecause the former do in fact destroy American jobs”? How is that different from American businesses who produce job destroying technologies, like the computer? How many draftsman jobs did Autocad destroy? How many farming jobs did John Deer tractors destroy?

“Pity they are never asked here”

False. This question is repeatedly addressed at Cafe Hayek. You merely choose not to listen because you don’t like the answers.

Regards,
Ken

Dan J August 18, 2011 at 2:46 am

EVERGREEN SOLAR

On Monday, the Much heralded and revolutionary solar company filed Chptr 11. The CEO claimed that there was not enuf govt money to offset the foreign markets, namely China and their policies.
Note: he is right…… There will never be enuf govt money to keep his operations profitable. NEVER!
After $58 million dollars, the company cannot float. And, yet, liberals will not admit the error of their ways.

rhhardin August 18, 2011 at 8:18 am

He isn’t going to buy the analogy.

The hairdresser has an absolute advantage by way of his talent; China has a comparative advantage only.

You’d have to argue that the US is doing something that has a comparative advantage in response, which is not going to work when there’s unemployment.

The argument has to go to too many levels to work, that the absence of a replacement comparative advantage for the US has to do with government overhang, and the presence of comparative advantage for China has to do with their population-impoverishing industrial policy.

Grey Ghost August 18, 2011 at 2:39 pm

How many Romney bonds does the stylist own?

Richard Stands August 18, 2011 at 7:59 pm

Okay Prof Boudreaux, now you’re just splitting hairs.

eric a August 19, 2011 at 7:18 am

Okay, wizards of smart, answer this: What will happen to the free market if we do nothing about China building export dominance based on fraud and violence? (e.g. stealing patents, making fraudulent knock-offs, using government violence on workers who try to negotiate, manipulating currency, etc.)
If I buy cheap goods from a man who has a slave chained in his basement making the goods, is that moral? Optimally efficient (economy-wide)? Wise?
Ever read any Hayek? The free market requires the rule of law.

Seth H August 19, 2011 at 3:11 pm

I agree with Eric A and also have a couple of questions:

With an economy that is tightly controlled by a political party, who is to say China’s leaders aren’t positioning themselves for some sort of industrial monopoly vs. the US that they could use to expand their political interests?

Once they have secured a significant competitive advantage or even driven out of enough of our domestic manufacturers and, particularly in enough critical areas couldn’t they use this position (and the US debt they hold as a result of our trade/ budget deficits) as leverage to exert greater political/economic control?

It has been my experience that the Chinese government does not always go for “Win-Win”.

Jon Kessler August 21, 2011 at 2:11 am

Eric A and Seth H:

It’s noble to boycott goods or services from a company or an economy with which you disagree, by definition, putting your money where your morals are. However, if, as a nation, we are going to take this position, we might take it consistently. Stop buying oil from Saudi Arabia, Venezuela, Nigeria? Rare metals used in most cell phones from Zaire? How many peoples see American labor or healthcare laws as “uncivilized” and should they stop buying from US manufacturers? What about cross-border effects? I may buy only “conflict free” diamonds from Canada, but my jeweler (or the Company that made the mining equipment or the mine operator itself) works across borders. My point isn’t to throw up your hands and do nothing, but rather to recognize that the focus on one country or another has less to do with morality than with either politics within this country or plain old marketing.

You make a second argument, essentially that China’s cheap prices today may be a strategy to create monopoly pricing power tomorrow. China is not one firm nor is it the only manufacturing nation in the world. Apple, for example, regularly places individual firms in China and in other countries in competition with each other (based on price and quality) to produce or assemble components for its products. And, what if at some future date Chinese firms did suddenly raise their prices on TV sets and iPhones beyond market? It wouldn’t be too long before firms elsewhere arose to take their place.

It is an economic wonder, not a curse, that producing something as technically advanced as a cell phone no longer requires an advanced degree or decades of technical training. It can be done by people who less than a decade ago were predominantly subsistence farmers. Just as it was in earlier times a wonder that former sharecroppers could quickly learn to make automobiles. If you think working conditions look tough at Foxcomm, try growing turnips in rock outcroppings for food in Xian!

Our politicians – of both parties – would do well to consider what if anything they can do to increase the genuine value to firms of American labor and other factors of production, through promotion of useful vocational education, through policies that reduce non-cash labor costs, a tax system that rewards instead of penalizing work, transparency in corporate governance, and a pro-work ethic (a color-blind and race-blind society, honesty, thriftiness).

Seth H August 23, 2011 at 7:14 pm

Thank you. That explanation makes a lot of sense to me.

My biggest concern is the unsustainability of the status quo. As you alluded to, I feel that our comparative advantages are jeopardized to the extent we fail to respond to changes in the global economy. Being entitled to a certain standard of living regardless of our feeble efforts to compete is crippling our ability to maintain the same influence we once had in the world.

I think that the concepts of freedom and democracy that gave rise to much of what made our nation strong have been diluted. Countries in transition may begin looking to other seemingly more successful models of government.

Greg W August 26, 2011 at 6:15 pm

Romney is actual Pro Free Trade. Read his book and quit nit picking out of context statements.

The Other Tim August 26, 2011 at 6:44 pm

And that’s supposed to make it all better?

He doesn’t understand the first thing about trade if he believes it’s bad for America that our trading partners want to earn less money off us than they could. To argue that you’re all for free trade but don’t like it when China artificially deflates its currency to stimulate its exports proves one blind to the fact that exports are the *cost*, not the benefit of trade.

At Cafe Hayek you’ll meet very few people who approve of politicians who say the right words but don’t know what the heck those words actually mean.

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