Damn Those Stubborn American Consumers!

by Don Boudreaux on October 14, 2011

in Balance of Payments, Trade

Here I shamelessly, again, steal a brilliant tactic from Carpe Diem‘s Mark Perry: I edit what is roughly the first half of a news report (HT Andy Roth) in ways that do not alter its factual accuracy but, hopefully, that reveal the dangers lurking in familiar yet flawed modes of thinking.  This report is on Americans’ trade with the Chinese:

The Obama administration, under fire for not taking a harder line on China over its currency on American consumers who stubbornly take advantage of good deals offered by Chinese sellers and, allegedly, made even more attractive by Beijing’s monetary policy appears set to move against the Asia export powerhouse on other fronts these politically unorganized Americans as next year’s U.S. elections approach.

The United States is likely to launch fresh challenges against China American consumers at the World Trade Organization, probably stoking tensions between the world’s two biggest economies.

“I expect the United States will be bringing more cases against China in the coming year,” said James Bacchus, who as a former WTO appellate judge used to sit in judgment of international trade disputes.

Already firmly in campaign mode, President Barack Obama recently boasted of taking a tougher line on trade economic change, including consumers’ decisions to change how they spend their own money than his predecessors.  In particular, American consumers’ voluntary choices to buy more goods and services from China, its currency and other trade issues have already become a big issue in the election campaigning.

Republican presidential hopeful Mitt Romney has ratcheted up his criticism of China American consumers’ choices despite his party’s traditionally pro-free trade stance.

“If you are not willing to stand up to China, you will get run over by China, and that’s what’s happened for 20 years,” the former Massachusetts governor said on Tuesday – apparently suffering the bizarre delusion that lower-priced inputs and consumer goods and services harm the U.S. economy.

He was speaking shortly after the U.S. Senate passed legislation to crack down on Chinese currency American-consumers’ practices that U.S. lawmakers legislation-makers blame for millions of lost jobs.

Sensitive to how the criticism of China plays with U.S. voters, Obama has not yet explicitly said he would veto the bill. In any case, the legislation is unlikely to pass the House of Representatives where Republican leaders have voiced concern that it might breach WTO rules and could spark a trade war which would damage U.S. corporations.  Even non-Romneyite GOP politicians remain oblivious to the fact that trade is ultimately to be judged by how well it promotes consumption opportunities and not by how well it does, or does not, enhance the bottom line of corporations.

But Obama is likely to want to show voters his mettle on trade issues consumer sovereignty and trade experts say he has plenty of options to pursue which, unlike the Senate currency bill, are likely to conform with WTO rules.

New government data on Thursday that showed the U.S. trade deficit capital-account surplus with China hit a record $29 billion in August and is also likely to set a record for the year could add to the pressure on Obama to act to stop the Chinese and other foreigners from investing so much in America.

Last week, U.S. trade officials notified the WTO of some 200 Chinese government subsidy programs and scolded Beijing for not halting its self-destructive actions of taxing its own people to make non-Chinese people, including Americans, richer. taking the action itself as required under WTO rules.

U.S. officials at the WTO’s headquarters in Geneva also recently took China to task over agricultural policies much like the policies that Uncle Sam himself has hypocritically and harmfully employed for decades that they said unfairly discriminated against foreign suppliers.

…..

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{ 144 comments }

anomdebus October 14, 2011 at 8:54 am

In your opinion, does the WTO serve any useful purpose in the world we live in as opposed to the world you/we would like to live in?

Don Boudreaux October 14, 2011 at 9:11 am

Yes. I believe that, given the nature of politics, the WTO (and its predecessors, the GATT agreements) is indeed a force for net good in the world. It’s not perfect, but, on net, it’s done much good.

Nikolai Luzhin, Eastern Promises October 14, 2011 at 9:43 am

the irony of this essay appearing above a disingenuous discussion of morality is absolutely hilarious

Here is a simple series of questions showing that we show impose the Chinese tax on our consumers because it is the moral thing to do, to prevent exploitation of poor Chinese workers:

Yesterday it was conceded that China is devaluing its currency hurt its poor because it causes inflation, etc.

We encourage this behavior by China by buying China’s goods and we profit from the hurt to China’s poor

So our profiting comes at the expense of China’s poor.

The argument is that we should keep this up because we are, what, “we desire it?”

I hope we can keep this a secret because I would not like the poor people in China to find out that they are poorer than they need to be so that American’s can be richer than they deserve to be.

I do not think this is a good policy for the long term, With “friends” like us, who needs enemies

Methinks1776 October 14, 2011 at 9:59 am

You’re right. I’m once again convinced.

Let’s punish China’s poor even more by punishing the poor here.

You leftards are make really airtight arguments. So airtight, they cut off the oxygen to your heads.

Nikolai Luzhin, Eastern Promises October 14, 2011 at 10:45 am

give up methinks1776

your argument is that of a slave owner. If I wasn’t feeding you, you would be living in a jungle.

you cannot advocate immorality and claim to be moral—it makes you what you are

if trade doesn’t hurt us, there would be no need for the Chinese to devalue its currency.

let’s do the moral thing, ask China to raise the value of its currency and give its people a better life (maybe they could then afford to buy a few of our exports)

in sum, if price controls are bad under any circumstances (regardless of the mechanism) they are bad under all circumstances.

The we get things cheaper argument is an amoral argument, of which I want no part.

What is interesting, as an aside, is that the “we get it cheaper” crowd refuses to let us ask, “who gets richer.” In sum, this argument is a counter play. It is an example of corporate cronyism at its worse. The American public is asked to engage in amoral conduct because they might get a tee shirt a little cheaper, while the rich get a lot richer, all at the expense of the Chinese poor.

But, its ok, the slaves now get two meals a day instead of one

Methinks1776 October 14, 2011 at 11:07 am

The we get things cheaper argument is an amoral argument, of which I want no part.

Who cares? Don’t buy anything made in China and your problem is solved. Nobody is asking you to be part of anything.

But, that’s not enough for an ordinary street thug like you who can’t even wrap his mind around the definition of “slave”. You want to force everyone else to fall in line with your sick, twisted vision or you’ll commit violence against them.

Sam Grove October 14, 2011 at 12:43 pm

You want to force everyone else to fall in line with your sick, twisted vision or you’ll commit violence against them.

In other words, to enslave fellow humans.

Fred October 14, 2011 at 1:14 pm

Voluntarily working for teh corporations is slavery.

Falling into line under threat of government violence is freedom.

Methinks1776 October 14, 2011 at 1:16 pm

Oh, haven’t you heard, Sam? “Slavery” is now redefined as working for wages lower than Czar Nikolai Luzha, the patriarch of all peasants, deems appropriate.

Forced into a chain gang at gunpoint to do the bidding of Bawney Fwank and John Boner is the new freedom. You know, brown is the new black and slavery is the new liberty.

JoshINHB October 15, 2011 at 8:50 pm

You want to force everyone else to fall in line with your sick, twisted vision or you’ll commit violence against them.

No,

He is pointing out that the current situation is not the result of a lack of government intervention because a the US’s inflationary policy is intervention at a fundamental level.

Further, the beneficiaries of the current set up are dishonest, maybe primarily to themselves, in defending the system as morally superior.

Dano October 14, 2011 at 2:14 pm

“The we get things cheaper argument is an amoral argument, of which I want no part.”

Yes it is an amoral argument and that is a good thing. Though I find it strange that you consider that getting something a a lower price wrong. Most leftist would say that if an American business is acting immorally if it charged a higher price than they (the leftist) felt justified.

kyle8 October 14, 2011 at 5:24 pm

The problem with you is that besides just in general being an idiot, you see economic arguments as arguments of good vs evil.

The only real good here is does increased trade make nations better off? The answer is yes. The only bad I see is this question, does restraint of trade help the few and harm the many? Again, yes.

ArrowSmith October 15, 2011 at 4:29 am

You just answered your own question. Free trade is a moral argument because it increases most people’s standard of living.

Andrew_M_Garland October 14, 2011 at 7:16 pm

To Nikolai Luzhin,

You write “If trade doesn’t hurt us, there would be no need for the Chinese to devalue its currency.”

Yes, it is difficult to understand why China would adopt a policy that helps the US by delivering inexpensive goods to us.

This comes from the totalitarian control of the Chinese leadership. They are arranging profits for themselves at the expense of their population in general. This is similar to the US government arranging profits for politicians and crony capitalists at the expense of the US population in general.

The Chinese leadership can arrange a steady flow of exports by making them somewhat cheaper than they would otherwise be. They can skim value from this flow more easily than they can raise internal taxes. This skimming is hidden; taxes are obvious.

So, should US consumers hurt themselves and the Chinese by boycotting or banning Chinese goods? The practical argument is that this is very hard to do. These imports benefit us, after all.

The moral argument is not clear. The Chinese people are getting an unfavorable deal, but a much better one than if there were no exports. Their work is becoming more valuable to their leaders and to themselves, and this gives them more power in Chinese society.

JoshINHB October 15, 2011 at 8:53 pm

The moral argument is not clear. The Chinese people are getting an unfavorable deal, but a much better one than if there were no exports.

How so?

Either trade surpluses are beneficial to the country’s that run them or they are detrimental.

You are trying to have it both ways.

Andrew_M_Garland October 15, 2011 at 10:24 pm

To JoshINHB,

About the moral argument, I proposed that “Their work is becoming more valuable to their leaders and to themselves, and this gives them more power in Chinese society.”

If they can’t export their work, they would have to produce something of lesser value, and they would be less valuable to themselves and their masters. If they had something of greater value to produce, then they would already be producing it.

About trade surpluses. A trade deficit (or surplus) is neither good nor bad in itself. A US deficit vs China represents the net investment that China has made in US bonds and capital goods.

I think the Chinese leadership wants to export because it can skim dollars from the transactions. I think the US leadership wants to tax imports and subsidize exports because it can skim campaign contributions from the companies which benefit, although the general public suffers.

JoshINHB October 15, 2011 at 10:40 pm

To Andrew

Your view is rather myopic.

China has experienced great development since that country opened itself to international trade. That has certainly benefited both individuals in China and the Chinese state.

My question to you is: how has China imported capital investment at the same time that it has engaged mercantilist trade policies that have resulted in a huge, perpetual, trade surplus. The classical liberal free market theory that capital investment inflows balance a physical goods outflow resulting from international and vice versa is falsified by the recent history of Chinese development.

Why has China experienced rapid development and not any other third world nation in the last twenty years?

Andrew_M_Garland October 16, 2011 at 1:14 pm

To JoshINHB,

Leading with an insult (myopic) doesn’t improve your argument. Try to challenge the ideas, not the person.

You ask: “How has China imported capital investment at the same time that it runs a trade surplus.”

The Chinese trade surplus with the US represents net positive dollar demominated investments by China. That only describes its trade with the US. It may be running a trade deficit (increased foreign investment) or trade surplus (decreased foreign investment) with other countries.

China’s total capital depends also on its internal savings. International trade figures only indicate changes in foreign trade and investment, not all investments in China.

You state that China is mercantilist and has experienced rapid development. That doesn’t mean that one caused the other.

I stated above that the Chinese elite is probably skimming value from their export flows through state owned export companies. The elite would favor a mercantilist policy to do that. Still, the population is probably better off than before China’s expansion of trade. They are producing much more, and not all of that increase is being stolen by the elites. It is merely a worse deal than they could get in a society with greater freedom.

Mercantilism is the policy of lowering prices to sell more goods, even below the price that maximizes profits. By definition, it loses money in exchange for greater sales. That doesn’t make sense, unless one favored group is collecting profits at the even greater expense of another disfavored group.

You say “The classical liberal … of Chinese development”. I understand that as “Recent Chinese development falsifies the theory that [net] capital inflows equal [net] imports of goods.

The relationship between trade and investment is an accounting identity, not a theory to be verified.

China (its people) trades with the US (its people). China sells goods and investments for dollars.
China uses those dollars to import US goods and to buy US investments that do not cross borders. They might save some of the dollars by not imediately spending them, which counts as an investment in the supply and value of dollars.

So, China-goods + China-investments sold = US-goods + US-investments bought.
  China-goods – US-goods  =  US-investments – China-investments
  China trade surplus = US investment surplus
  US trade deficit = US investment surplus

You ask, “Why has China experienced rapid development and not any other third world nation in the last twenty years?”
This must be rhetorical. Do you have a link to a review that supports that? Maybe it is because China has embraced freer trade and some relaxed internal rules.

Also, I am skeptical that China is growing as rapidly as they report. For example, Solyndra was a great investment according to the US government, until it wasn’t

Governments exaggerate, and totalitarian governments exaggerate absolutely.

JoshINHB October 16, 2011 at 10:44 pm

You ask, “Why has China experienced rapid development and not any other third world nation in the last twenty years?”
This must be rhetorical. Do you have a link to a review that supports that? Maybe it is because China has embraced freer trade and some relaxed internal rules.

Also, I am skeptical that China is growing as rapidly as they report. For example, Solyndra was a great investment according to the US government, until it wasn’t

Governments exaggerate, and totalitarian governments exaggerate absolutely.

LOL

Right,
China has not grown more or faster in the last twenty years than Peru, Thailand, Uganda, Turkey or 150+ other countries.

And even if it did it was only because their communist government provided greater freedom and opportunity than the governments of freer countries.

Do you see how completely absurd and reality free this assertion is?

I realize that you have a cultic devotion to your ideology but is there no level of absurdity that it will not force you to embrace?

Andrew_M_Garland October 17, 2011 at 3:05 pm

To JoshINHB,

() Regarding your statement (sarcasm removed) “China has grown more and faster ..”
I’m not invalidating your data. I don’t have your data. You haven’t provided a link.

() You wrote above “China has experienced great development since that country opened itself to international trade. That has certainly benefited both individuals in China and the Chinese state.”

Then, about growth rates, I suggested that it might be because of greater trade, relaxed internal restrictions, and exaggeration by the Chinese government. That mostly agrees with you, yet you call me absurd.

() You claim that China has grown faster than almost all other poor countries. Source?

If true that China has grown faster than almost every poor country, your explanation is that mercantilism has been the overwhelming reason. I say that mercantilism itself can’t be helping, because it reduces overall profit at the expense of an elite skimming value. But, freer trade can still be benefiting China overall, as long as the elites don’t skim all of the benefits from trade.

You want the US to force China to raise its prices, although that would harm the US and benefit China (overall) to the extent that it reduces China’s mercantilist policy. Would you like the US to be more mercantilist than it is now? I want freer US trade with less government mercantilism, less tariffs on imports and less subsidies to US business.

In a mercantilist economic competition, each country lowers its prices in an attempt to win more exports than imports. I don’t see how that benefits either country, unless one of them could be driven out of business.

Compare this to a price war between companies. Each company suffers increasing losses hoping the other one will fail first. Third parties benefit while the companies fight it out. Unfortunately, a mercantilist trade war will not kill China, but it will harm both the US and China in the process.

() What about the accounting identity?: Trade deficit = Investment surplus from trade. Did I convince you?

() Your posture is that you (the one making accusations) are the voice of reason, and I am the ideological idiot.

vikingvista October 15, 2011 at 12:54 am

Who devalues their currency more, China or the US?

Freelancelot October 16, 2011 at 8:26 am

Methinks–actually, no, you don’t. Don’t tell others to give up. You, instead, need to grow up. The moral obligation is to allow consumers to freely choose what they buy and where they buy it from, for their own reasons. It is the responsibility of the individual consumer to do the moral thing and make responsible choices, not the responsibility of “we” (meaning, the government) to do it for other individuals. For instance, if you want to purchase Goods A because you believe that they are “greener” than Goods B, you should be allowed to make that choice voluntarily. But if “we” decide that you MUST buy Goods B, that is NOT moral. That is immoral and evil. You do-gooders are all alike: you don’t do any.

Krishnan October 14, 2011 at 1:00 pm

Re: methinks1776 – you have a lot more patience to respond to gibberish than I can muster (!) … there is simply no convincing some no matter what

Captain Profit October 14, 2011 at 10:12 am

I might worry about the poor people in China finding out that they’re poorer than they need to be so that American’s can be richer if I was Hu Jintao.

The argument is that it would do the poor Chinese no good to make ourselves more like them.

Fred October 14, 2011 at 10:15 am

How are the Chinese poor hurt by having the opportunity to leave subsistence farms for factory work?
If the farms were preferable to the factories I would think they’d stay in the country rather than move to the city.
Unless you know something that I (and they) don’t know.

Nikolai Luzhin, Eastern Promises October 14, 2011 at 10:47 am

Fred

If we paid these worker what they are worth, that would have even more

Your argument is that slavery is ok, I feed the poor man better than when he was in the jungle

Fred October 14, 2011 at 10:55 am

Something is only worth what someone else is willing to pay.
You may think your home is worth X dollars, or your work is worth Y dollars, but in fact those things are only worth what someone else is willing to pay.

On the subject of slavery, I always thought slavery was involuntary.
As far as I know these Chinese “slaves” are free to leave at any time.

ArrowSmith October 15, 2011 at 4:31 am

Freedom of starvation you mean? The Chinese worker should join in with the “occupy wall street” bunch to demand a living wage.

Dennis October 14, 2011 at 12:10 pm

You must have forgotten that the Chinese government artificially keeps the exchange rate of the Dollar and the Yuan in favour of Chinese export. Which leads to lower prices of Chinese goods!
Therefore, you should be accusing the Chinese themselves for keeping ‘the Chinese workers poor’.

Jon October 14, 2011 at 12:23 pm

This is starting to sound like the White Man’s Burden.

txslr October 14, 2011 at 5:39 pm

Burden? I thought it was the White Man’s Bourbon!

Shidoshi October 14, 2011 at 12:39 pm

As the Chinese worker becomes more skilled and integral to the economy (i.e. not individually being a subsistence farmer), they gather more bargaining power, which in turn will lead to better property/human rights. This is already happening with wage increases.

Nobody doubts that they are in a shitty situation. It’s a means of progression. Would you rather force the Chinese poor to live in a “jungle” for the rest of earth’s existence, or instead, let their societal livelihood progress?

Your points are meaningful. But think long term, Nikolai.

kyle8 October 14, 2011 at 5:26 pm

Yes, yes he would rather they live a subsistence existence. Yes he would.

Darren October 14, 2011 at 1:29 pm

If we paid these worker what they are worth, that would have even more

While I understand the desire for people to be paid “what they are worth” (a highly subjective metric), the fact is there are situations we can do nothing about. I would suggest you be humble and constantly examine your own thinking on this. Not that the posters replying to you are completely correct, but learn to ignore the snark as there are some good points. Personally, I think it’s much more complex that either you are many others (on any side of any discusstion here) appear to believe. Of course, it could just be me. Just my two cents.

LowcountryJoe October 14, 2011 at 6:35 pm

If we paid these worker what they are worth, that would have even more

When you cut the check(s), would you throw in my ‘thank you’ cards that read: Dear Mr. or Ms. Chinese exported-good assembly person: Please don’t take this the wrong way but I think that you’re being cheated out of a decent wage or are too ignorant to see that you are being taken advantage of. I would like to send you some additional money to make up the difference. I would prefer that you use this money to sustain your standard of living while you join or organize a protest movement to demand the wages you should be earning. I’ve done some back-of-the-envelope math and your wage should be XXXXX.XX — trust me I know what’s best for you and what you should be making. In the event that your employer dismisses you and finds someone else willing to do the job at the lousy, unfair rate, I sincerely hope that your next best alternative [like working the field or subjecting yourself to prostitution] isn’t too much a step down from where you were. Respectfully, Nikolai [who provided the money] & Joe [who provided this card]

Your argument is that slavery is ok.

Who here argues that slavery is okay? Perhaps you have some warped ideas about what slavery is. Is this some sort of Janice Joplin/Bobby McGee idea?

Economiser October 14, 2011 at 9:06 pm

> If we paid these worker what they are worth, that would have even more

Who is “we?” I don’t employ any people in China. I don’t pay any people in China (not directly, at least). If YOU, Nikolai Luzhin, thinks that workers in China are getting paid less than they are “worth” (whatever that means), I invite you to go to China and hire them. If they are so clearly producing more than they are getting paid, you should easily be able to hire them, pay them more, and still turn a profit. You will simultaneously improve the lot of many Chinese workers and make yourself a rich man.

You’re welcome.

- Economiser.

JoshINHB October 15, 2011 at 9:03 pm

How are the Chinese poor hurt by having the opportunity to leave subsistence farms for factory work?
If the farms were preferable to the factories I would think they’d stay in the country rather than move to the city.
Unless you know something that I (and they) don’t know.

But that is not the question.

The question is would those workers be better off if they had more purchasing power as a result of an increase in the value of the currency that they are paid in.

The answer is unequivocally yes.

Ken October 14, 2011 at 12:56 pm

Nick,

The best way to get others to be moral is to set an example and be moral yourself. The US government doesn’t set a moral example for China to follow when it forcibly keeps Americans from buying things they want just because those things happened to be manufactured in China (Smoot-Hawley much?). As has been said a thousand times, your argument is saying that since the Chinese enslave its population, the US should enslave its own population.

The greatest way for Americans to keep tyranny in check to trade with the citizens of the country being tyrannized. Your mistake is conflating the government with the citizens. The biggest mistake the US made when it came to Cuban policy was the embargo. There is no doubt that Castro would have lost substantial power and popularity had Americans not been forcibly restrained from trading with Cubans. Soft power is the most powerful weapon the US has for extending liberty and freedom around the world, yet people like you want to squash and simply let tyrannical governments tyrannize their populace.

You have no idea what you are talking about when it comes to morality if you think the government’s proper role is to prevent peaceable citizens engaging in voluntary trade.

Regards,
Ken

txslr October 14, 2011 at 5:56 pm

Maybe, but isn’t this an empirical question? And do we really have enough data to answer it? Castro(s) carries on, but how do we know things would have changed if we had opened up trade? There are a lot of folks who would tell you that the aparteid regime in South Africa fell because of economic sanctions. I’m not sure, myself, but maybe. Would Iran give up its nuclear program if we were willing to lower the cost of continuing by selling them the tools they want?

Perhaps part of the problem is that trade can’t ultimately distinguish between citizen and government when governments (of China, Cuba, Iran, etc.) can and do help themselves to the proceeds.

I am not arguing a position so much as raising a question. If a nation’s leaders have aquisitive (i.e. invade their neighbor) intentions, one way to build the capacity might be to drive the terms of trade in a way that amounts to large, unseen tax on its citizens. This generates large surpluses which it can use to acquire the machinery of war. In this case would it be acceptable for our government to restrict trade?

Just askin’.

Ken October 14, 2011 at 7:22 pm

txslr,

Those are good questions. As for Castro he was able to stay so powerful due to the US embargo. If Americans started trading with Cubans, Cubans would have daily contacts with American traders trading goods that would change most Cubans’ minds about Castro. Additionally, since Cubans remain so poor (due to Castro of course), Castro is able to blame it on the US embargo, i.e., blame America, deflecting all blame from himself. Many Cubans and non-Cubans alike buy this line of reasoning. Additionally, with American traders in Cuba, Americans would get a better picture (quantitatively more and qualitatively better intelligence) of what Cuba actually is, instead of the steady stream of propaganda that comes out of Havana and Hollywood.

As for weather or not the Iranian gov would have a nuclear program if Americans is irrelevant. The point is how dangerous would they be if the Iranian economy were so dependent on the US. How likely would Iranians be willing to fight a war the Iranian government wanted if it meant a worse life? Trading represents no physical threat to a nation or its people. Trade does, though, threaten the culture. Trade makes culture far more dynamic and more pacific and tolerant. Closed nations can have their culture dictated to them by government. The culturally coercive nature of government weakens with trade, which is what we see in China and many other nations that were closed off, but now are open, or at least more open.

People are self-interested, including Cubans and Iranians and Chinese. People would continue to hate the US, but belligerence would decrease simply because peace is more prosperous; war only destroys. With embargoes, the citizens are isolated and left at the mercy of whatever government happens to be in power. This goes to the question of governments using the power of taxation to “acquire the machinery of war.” The point is even if they did, what’s the likelihood they would use it? If using it means losing power, would the government employ these weapons?

I don’t expect to convince you, particularly since I didn’t really marshal any empirical evidence, but you can make up your own mind.

Trade empowers individuals, not governments. Worrying that a government may become too powerful because a country is becoming more prosperous isn’t really anything that people need to worry about. The worst and most dangerous governments in the world preside over very closed off countries, like Iran, Cuba, and North Korea.

Regards,
Ken

JoshINHB October 15, 2011 at 10:47 pm

People are self-interested, including Cubans and Iranians and Chinese.

Yes, but.
You are assuming that their interest is the same as yours or mine, which evidences hubris.

Ken October 16, 2011 at 1:57 am

JoshINHB,

I’m assuming no such thing. The self interest lies in not getting killed and leading a prosperous life. There are cross roads all over the world where people who hate each other, but meet peacefully for trade. The idea that the people of a country should be isolated due to having a tyrannical government is absurd. The idea that that isolation will be good for the US is even more absurd.

Regards,
Ken

JoshINHB October 16, 2011 at 10:47 pm

The idea that the people of a country should be isolated due to having a tyrannical government is absurd.

Would you trade freely with NAZIs, Communists, or Slavers then?

Even if that trade strengthened the evil regimes and led to further repression of the citizens of those countries?

Ken October 16, 2011 at 11:29 pm

Josh,

Would you trade freely with NAZIs, Communists, or Slavers then?

Again you (purposely?) misunderstand and ask the wrong question. I would trade with Germans who lived under NAZI rule. I would trade with Russians, Chinese, and Cubans who live under communist rule. And you equating the average Iranian, Chinese, Russian, German, and Cuban with slave traders is simply disgusting slander, something for which I’m sure you will feel no shame.

Here it is, for the thousandth time, since you can’t seem to get it through your thick skull: government is not the society.

Regards,
Ken

muirgeo October 14, 2011 at 10:08 am

Don,

In the old days we were protectionist for Ameican companies that produced in America.

Now our position and Don’s is to be protective for American companies because they now produce in China and so Chinese tariffs and currency manipulation are protectionist of American goods made in China and that’s why these big corporations are actually against American protectionist.

Don is an unwitting protectionist for American production in China.

Rick Hull October 14, 2011 at 10:51 am

Muirgeo,

Protectionism is the prevention of otherwise voluntary trade by 3rd parties. It is the opposite of free trade. That you interpret Don’s position to be of protectionism rather than free trade shows who the unwitting, useful idiot here.

Darren October 14, 2011 at 1:35 pm

In the old days we were protectionist for Ameican companies that produced in America.

I can’t be sure how much it matters, but a typical market for a product was relatively small in the old days, too. Obstacles to transportaiton and trade were higher than now. The point being, I’m not sure protectionism had anywhere near as much much affect at that time as it would now. By “the old days”, I’m thinking mid-19th century and earlier.

ArrowSmith October 15, 2011 at 4:32 am

In the “good old days” we had Jim Crow. Wanna go back there?

muirgeo October 15, 2011 at 8:16 am

Uhmmmm…. noooo…..but that’s a completely different subject. We are talikng about trade policy not discrimination.

Would you like to get rid of income taxes like back in 1910? But oh wait the Jim Crow laws????? WTH?

LowcountryJoe October 15, 2011 at 11:39 am

I’ll agree with you here, muirgeo, that comment did deserve to get called out for the strawman that it was. Perhaps you’ll remember this going forward.

brotio October 17, 2011 at 2:28 am

Optimist

Bastiat Smith October 14, 2011 at 10:45 am

“…If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren…” – Adam Smith

I don’t care about the Chinese poor. And I’m okay with that. Many us would do well to ask ourselves if we really do care. I suspect many of us don’t care and are so intimidated by the reality of our sensibility that we compensate verbosely.

Brad K. October 14, 2011 at 10:47 am

Your report is great, but overlooks something.

I bought a pair of CeeTee pliers, may by Cooper Group. Supposedly the same model as my worn-out eight year old previous pliers, it felt different. I checked the box — Made in China. Just like Stanley tools. And other “American” brands. My last Ford pickup was built in Canada.

I, as a consumer, have very little opportunity to decide I want a Chinese-made Babco vise (industrial quality, a traditional brand from well before the current cycle of outsourcing to China, my Babco has compete on it’s own merits for decades). Or a Made in China hair brush.

China can make stuff, and make it available here. American manufacturers and distributors are the ones that go looking for lower cost, less cumbersome places to make or procure stuff. And their two biggest drivers are the marketplace and the government. The market hasn’t changed all that much. Most folk buy the most fitting stuff for their application, usually conscious about the price.

It is the government that pushes taxes, regulations, and supports union bigotry that created the situation we face today. Just like we know that all the “toxic” mortgages that put “too big to fail” banks in jeopardy are mandated by the CRA, we still have the Community Reinvestment Act creating bad loans to folk that couldn’t pay them when the loan was created. Washington, D.C. isn’t doing anything about the taxes, the unions, or the regulations that pushed Americans to look to China and the rest of the world as a cost effective way to do business.

Talk about shooting the messenger…

Nikolai Luzhin, Eastern Promises October 14, 2011 at 10:52 am

Brad K

You don’t get it. All the US manufacturers are gone because China’s prices are kept low with a devalued currency.

Methinks1776 October 14, 2011 at 11:10 am

And the reason there are no buggy manufacturers around is because we now drive cars. The reason there are no corset manufacturers around is because women like to breath. Woe is us.

muirgeo October 14, 2011 at 3:18 pm

methinks confusing technological advancement with labor arbitrage. Yeah… that was helpful

Ken October 14, 2011 at 3:47 pm

What’s the difference? Both replace high prices labor with lower priced labor or did you not know that technological improvements are about replacing high prices labor with low priced machines?

Regards,
Ken

Methinks1776 October 14, 2011 at 4:09 pm

Don’t interrupt, Ken. Muirdiot is sprinkling us with his wizdumb again. He just learned the word “arbitrage”. Let him publicly misunderstand it in peace.

Ken October 14, 2011 at 4:15 pm

My bad, Methinks.

Methinks1776 October 14, 2011 at 4:25 pm

Grab a drink, Ken. It seems the Friday Night Fun has just started with Muirdiot fresh from his hike with his New Patriot Occupy This n’ That pals.

g-dub October 14, 2011 at 11:15 am

All the US manufacturers are gone…

It’s weird how things are made out of thin air.

http://mjperry.blogspot.com/2010/07/increased-worker-productivity-has.html

Honey Badger October 14, 2011 at 11:17 am

“All the US manufacturers are gone because China’s prices are kept low with a devalued currency.”

This is false, US manufacturing output is near all time highs. Its dipped from the mid 2000′s due to recession.

Riddle me this, what is an American product? A car made in Ohio or one made in Canada?

HaywoodU October 14, 2011 at 12:59 pm

All I know is that the Honey Badger don’t give a shit!

Michael October 14, 2011 at 1:31 pm

+1

LowcountryJoe October 15, 2011 at 11:42 am

Aww, that’s just nasty! “Watch out!”, says that bird.

Fred October 14, 2011 at 1:34 pm

Many confuse output and employment.

If an assembly line increases its output ten fold as a result of replacing half the employees with robots, these people would complain that manufacturing has declined.

Anotherphil October 14, 2011 at 4:26 pm

Sounds like Obama’s take on ATMS.

LowcountryJoe October 15, 2011 at 11:44 am

Riddle me this, what is an American product? A car made in Ohio or one made in Canada?

I like this subtle point. I wish I could hear it more when the xenophobes decry that some jobs that immigrants are currently doing should go, instead, to Americans.

Babinich October 14, 2011 at 12:11 pm

What products should be manufactured, by US corporations, in the US?

JoshINHB October 15, 2011 at 11:18 pm

Oil.

And any number of other products that are not manufactured here only because of government limitations.

Darren October 14, 2011 at 1:54 pm

You don’t get it. All the US manufacturers are gone because China’s prices are kept low with a devalued currency.

I’ll admit up front that I’m still fuzzy on this. One of my concerns is the ability and willingness of a nation (China in this case) to manipulate the economy of another nation through trade policy. Trading products at lower prices than manufactured here causes jobs lost here and moving to China. So far so good. We adapt by those unemployed eventually getting jobs in other areas. The issue is when China if forces prices to be increased (export tax maybe). The prices would be back at the same level as before. The only difference is that now those jobs making those products are in China instead of here. Why is this a good thing?

For industries with high startup costs, it’s less likely those jobs can be regained. This is just an example. It seems to me attempts to control trade by *any* government hurts everyone and when one party is autocratic there is a greater potential to do just this for their own benefit. The larger the economy over which that government has control, the greater the potential impact. (Note, this is to the benefit of the government, not necessarily the nation as a whole.) Admittedly, this is really a political issue rather than economic.

Invisible Backhand October 14, 2011 at 3:08 pm

It’s easy if you remember trade creates winners and losers, and the losers aren’t the same people as the winners. The winners in the ChiCom party don’t care what happens to the chinese losers or the American losers any more than Marie Antoinette cared what happened to the peasants.

The American winners don’t care either but the put up a facade of claiming job retraining will fix everything.

zoro October 14, 2011 at 3:56 pm

Trade is not a zero sum game, nobody loses all parties involved win.

Sam Grove October 14, 2011 at 6:28 pm

It’s easy if you remember trade creates winners and losers

Why would anybody engage in trade if they stood to lose?

Do businesses own their market share? (Whose side are you on anyway?)

Should consumers be free to choose who they buy from?

David October 14, 2011 at 8:16 pm

IB – Do you lose when you trade at the grocery store?

Economiser October 14, 2011 at 9:11 pm

David,

Of course he does. His trade deficit with the grocery store is huge!

Invisible Backhand October 14, 2011 at 11:00 pm

“Trade creates losers. If trade transports the benefits of competition to the far corners of the earth, then the wreckage of creative destruction cannot be far behind. Try explaining the benefits of globalization to shoe workers in Maine who have lost their job because their plant moved to Vietnam. (Remember, I was the speechwriter to the Governor of Maine; I have tried to explain that.)

Naked Economics Charles Wheelan

JoshINHB October 15, 2011 at 11:21 pm

zoro

Trade is not a zero sum game, nobody loses all parties involved win

How did the Native Americans that were involved in trade with the Spanish Empire ca 1550 benefit?

Ken October 17, 2011 at 3:24 pm

Josh,

How did the Native Americans that were involved in trade with the Spanish Empire ca 1550 benefit?

Those involved in trade did just fine and probably were much better off than before.

I’m sure, though, you were attempting snark and equating trade with military action and theft. Trade is neither of those things. Try again.

Regards,
Ken

kyle8 October 14, 2011 at 5:30 pm

And you do not understand comparative advantage.

Also, Brad K is quite correct in placing the blame for some loss of manufacturing on excessive taxes and regulation.

But in certain Items, no matter what policies followed by either nation we would be at a comparative disadvantage.

Things like textiles and cheap consumer goods. We shouldn’t actually want to produce things like that because if your nations is making those things it means you are a poor country.

Darren October 14, 2011 at 7:20 pm

And you do not understand comparative advantage.

I should probably have used a slightly more concrete example. Say widgets cost $10. China (again the usual example) does something (devaluing currency or such) that causes widgets to cost $6 in the U.S. because prodution costs are now cheaper. After the jobs creating widgets have all migrated to China, it again does something (an export tariff for example) that causes those widgets to be $10 again. The price has not changed. Only the location of people who create widgets. If startup costs for a widget manufacturer were too high, no business would find it useful to begin manufacturing widgets again in the U.S. At the very least, resources would have been used in setting up businesses in China only to have more resources expended setting them up again in the U.S. just to get back where we started. Where does comparative advantage enter in, except during the interim between price decline and restoration? Naturally those who previously produced widgets now produce something else, but what law requires them to be more productive in this new line of work? It’s entirely possible they could have been *more* productive production widgets if not for the initial action by China which caused production costs to decline. Also, those workers unnecessarily suffered dislocation just as the widget manufacturers did for no net gain to the economy. Perhaps China would actually be hurting itself by preventing those workers from producing something else, in which case it is hurting its trading partners, too, by discouraging more efficient overall production between trading partners. As I said, this is probably more a political issue, but you can’t really separate the economy from politics in real life.

Ken October 14, 2011 at 7:39 pm

Darren,

Your example of the widgets is an example of absolute advantage, ignoring comparative advantage. Just because the cost of creating a widget is $10 in the US, while only $6 in China, does not imply production will ship to China. This is why Kyle8 asked you if you understood comparative advantage. Judging by the example given, you do not understand comparative advantage.

The US and China will produce at least two different things widget A and widget B. Otherwise trade would not occur. Since you focus exclusively on widget A and completely ignore widget B, you fail to come close to understanding what comparative advantage is, thus fail to see the actual consequences, if any, due to different production costs in different locations.

Regards,
Ken

Invisible Backhand October 15, 2011 at 11:18 am

You do know imaginary situations are just that, imaginary?

JoshINHB October 15, 2011 at 11:27 pm

The US and China will produce at least two different things widget A and widget B. Otherwise trade would not occur.

And when widget B is only a fiat currency, power shifts from that country’s productive sector to its government.

Ken October 16, 2011 at 2:00 am

Josh,

And when widget B is only a fiat currency

Please tell me what country has only a fiat currency and no other product to trade.

Regards,
Ken

JoshINHB October 15, 2011 at 11:23 pm

And you do not understand comparative advantage.

And what of the case where the comparative advantage is driven by idiotic government policies?

Ken October 16, 2011 at 1:58 am

Josh,

Markets react to stupid government policies too. When stupid government policies shift the comparative advantages, producers take note and shift production.

Regards,
Ken

JoshINHB October 16, 2011 at 10:30 am

Ken,

When stupid government policies shift the comparative advantages, producers take note and shift production.

Often, those stupid policies put some producers out of business, thereby advantaging their larger more politically connected competitors.

It is an abomination to claim that is the result of market forces, or represents a triumph of free anything.

Ken October 16, 2011 at 1:14 pm

Josh,

It is an abomination to claim that is the result of market forces, or represents a triumph of free anything.

Putting words in my mouth that I claimed political distortions or markets are the “result of market forces” is pretty pathetic.

Regards,
Ken

JoshINHB October 16, 2011 at 10:59 pm

Putting words in my mouth that I claimed political distortions or markets are the “result of market forces” is pretty pathetic.

Can you cite where, exactly, I did that?

Or is it a guilty conscience that made you jump to that conclusion?

Look,
My point regarding Don’s defense of the internation trade status quo is that it is not, in any way, the result of market forces or something that has arise without US government intervention. To claim a moral high ground for that status quo is intellectually dishonest, and self serving since the primary beneficiaries include the university-financial complex which employs almost all professional economists.

If you choose to self select as a member of that group, so be it. Or put colloquially, “If the shoe fits, wear it”.

Ken October 16, 2011 at 11:36 pm

Josh,

Can you cite where, exactly, I did that?

I included the quote in my comment. Or did you not know that the italicized statement in my comment was a quote from you?

Don’s defense of the internation trade status quo

Either your an intellectually dishonest hack or you really don’t understand any of what Don has been writing. No where does he defend the status quo of protectionism and political exploitation. In fact he tirelessly rails against it, constantly preaching freedom and for politicians to get off the back of citizens. In other words, he tirelessly preaches for free markets.

In the post, Don points out how politicians and their enablers distort reality and play on people’s fear. He changes the wording, but not the meaning of the post to expose what the status quo is and how damaging it is.

Regards,
Ken

Economic Freedom October 14, 2011 at 11:07 pm

All the Lilliput manufacturers are gone because Brobdingnag’s prices are kept low by means of efficient machinery and advanced technology; therefore, Lilliput must implement protectionism to cultivate its own domestic industry. It’s unfair that Lilliput’s former workers in manufacturing should suffer just because some other kingdom has better technology; as justification, that’s no more valid than currency devaluation.

Nikolai Luzhin, Eastern Promises October 14, 2011 at 10:55 am

Best available research on what a properly valued Chinese currency would do for the us

The root cause of the unemployment woes is quite obvious. In the United
States alone, in the last two decades, nearly six million jobs in anufacturing
have been lost overseas. This equates to nearly four percentage points of the current 9.7% US unemployment rate. As importantly, the migration of these jobs contributed to the most unsustainable economic imbalance in the world today—China’s persistent bilateral trade surplus with the United States. During the last decade, China accumulated almost $1.4 trillion of US debt and at least $2.3 trillion in global assets. These figures could grow to $3.8 trillion and $7 trillion, respectively, over the next decade if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating. One entity owning this much debt of one debtor, let alone a foreign government, creates too much risk concentration, and has possibly repressed volatility for debtor and creditor alike. The risk may seem manageable now, but who knows what the nature and temperament of the Chinese and American leaders will be in ten years? Isn’t it possible that either side could weaponize financial imbalances to the detriment of domestic and global stability?

How did we get here? On January 1, 1994, China devalued its currency by
50% in a single day, and since then has experienced a manufacturing boom. After 15 years of impressive productivity gains relative to its trading partners, though, it now resists the smallest appreciation. (The IMF implies the RMB
could be as much as 30% undervalued taking 2000 as a base, but absolute
purchasing power parity would argue that undervaluation is even greater—
possibly as much as 60%.) Clearly, there is a direct correlation between the six million manufacturing jobs lost in the US and the close to twelve million manufacturing jobs gained in China over the last two decades. Robert E. Scott, a Senior International Economist and Director of International Programs at the Economic Policy Institute, estimates that the growing trade deficit with China, a partial consequence of the undervalued RMB, cost the US 2.4 million jobs between 2001 and 2008 alone, the equivalent of 1.6% of the current unemployment rate

http://www.hanoverinvest.com/pdf/TudorJonesA_Tale_of_Two_Policies_2010_Q3_BVI_Ltd_Letter_Market_Commentary.pdf

Bruce October 14, 2011 at 11:22 am

We have lost low skill manufacturing jobs to low wage countries. Of course, we’ve also lost 400k operators jobs to high tech switches. We’ve lost cashiers jobs to self serve checkout. We’ve lost gas station attendendant jobs to self serve pumps. We’ve lost letter carrier jobs to e-mail. I assume that you don’t object to the loss of specific jobs to more efficient technology, why object to the loss of specific jobs to more efficient (on a cost/benefit basis) labor, even if that efficiency is due to a subsidy for which someone else is picking up the tab?

Dan H October 14, 2011 at 11:25 am

U stop usin dem big wurds like “eficiency”. All I knows is dat dem peeple in Chiner took r jubs!

Darren October 14, 2011 at 2:00 pm

We have lost low skill manufacturing jobs to low wage countries.

Merely losing jobs to low wage countries is not the same as losing jobs because of a deliberate action by a foreign government (currency devaluation). The first is natural and expected. The second distorts the market, though it could be the distortion was before the devaluation rather than after.

Matthew October 14, 2011 at 2:54 pm

What is an undistorted currency? We have gone through QE1, QE2, the twist, we’ll be doing the jive and jitterbug by the end of the year. We have held interest rates at a very low fixed rate for a long time, not by market actions. Not to mention this distortion allows our government to sell debt very cheaply, the currency is distorted by buying our assets, which we have been very interested in selling as of late.

Bruce October 14, 2011 at 2:56 pm

So, QEII and Ben “Chubby Checker” Bernanke’s “Let’s do the Twist” doesn’t distort the market? Should other countries demand that we not monetize our debt? If so, are we obligated to comply? The way I look at it, the Chinese people have graciously (and voluntarily) decided to do without so that I might enjoy a more opulent lifestyle. I am far too polite to refuse.

Greg G October 14, 2011 at 11:23 am

We probably lost half of all the jobs in this country much earlier because we permitted more efficient methods of agriculture. Was that a mistake? The point is: Yes, losing jobs is bad but many other effects are good, which include but are not limited to, the creation of other jobs in different fields, and making things more affordable for low income workers not in manufacturing.

mcwop October 14, 2011 at 11:55 am

Ok, so let’s say china lets their currency float. One outcome could be that people simply move their assembly outsourcing to another country like Brazil, or Taiwan. Second, if there is a major economic problem in China then their currency could actually go down relative to the dollar. Third, to let their currency float, China stops buying treasuries driving up our interest rates.

IMO opinion we should make policy based on what we can easily control. Make the U.S. a haven for other businesses to locate. We have lots of policies that make the U.S. an unattractive place to set up shop, from corporate tax policy to a labyrinth of regulations that hold up projects.

BostonFlyer October 14, 2011 at 12:54 pm

Versus having to pay off the officials in other countries? I keep hearing about all these regulations but the bottom line is cost of labor not regulation. Germany and Canada have lots of regulation too but it does not seem to prevent them for being successful.

Methinks1776 October 14, 2011 at 12:57 pm

Please define “successful”.

BostonFlyer October 14, 2011 at 1:00 pm

Producing goods that can be exported, having high per capita income, having a better quality of life, I would say these two countries are very successful in providing these to the average citizens of their country.

Methinks1776 October 14, 2011 at 1:10 pm

Higher than what? Better than what?

That’s the important question.

John Dewey October 14, 2011 at 5:55 pm

Boston Flyer: “Producing goods that can be exported, having high per capita income, having a better quality of life”

What does being a net exporter of goods indicate about economic success?

I agree that per capita income is a good measure of economic success. Here’s the 2010 per capita GDP (Purchasing Power Parity) of the nation’s you’re discussing:

U.S. …………… $46,860
Canada ……… $39,171
Germany ……. $36,081
China …………. $ 7,544

That seems to indicate that the U.S. is more economically successful than the other three nations. Don’t you agree?

How can we possibly measure relative quality of life? An individual’s perception of quality of life really depends on his personal values, doesn’t it? You may value leisure more than me. I may value the status of a very large home. Given the same set of circumstances, we would likely have very different perceptions about our quality of life.

mcwop October 14, 2011 at 2:52 pm

Cost of labor is a regulation when you have minimum wages, NLRB etc…….

Shidoshi October 14, 2011 at 12:49 pm

Nikolai,

This rant is hilarious. You don’t have a clue, dude. Do more reading and research before you start stating this garbage you call “facts.”

How the hell does Robert E. Scott estimate that? Some model he created that mimics the millions of complexities of our world economy? You really think a model can do that?

vikingvista October 15, 2011 at 3:12 am

” if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating”

Are you saying that all the new fiat money that the Fed has been pumping out is suppressing the RMB/USD exchange rate? Or are you saying currency manipulation is only legitimate when the US does it?

BostonFlyer October 14, 2011 at 11:26 am

Forgive me for my ignorance but isn’t trade about two people trading goods, the US-China trade seems to about only person trading goods, and shouldn’t this cause the RMB to increase value quickly to offset the lack of goods being traded by one of the partners? If so shouldn’t a free market based website be upset about this distortion of economics?

mcwop October 14, 2011 at 11:37 am

No, because China keeps selling their currency to buy ours through bond purchases, and we issue a lot of those these days.

BostonFlyer October 14, 2011 at 12:50 pm

But again isn’t trade about goods and not currency? Isn’t this what Adam Smith talked about?

mcwop October 14, 2011 at 2:54 pm

It is not just about trade of goods, what keeps their currency down relative to ours is their purchases of U.S Treasuries. That is the mechanism they use – so no it is not just goods it is capital flows too. So we benefit from cheaper interest rates, and the capital they send us – no?

JoshINHB October 15, 2011 at 11:33 pm

Logic and history say no.

Is it really now the libertarian position that an artificially low interest rate leads to an efficient allocation of capital?

Methinks1776 October 14, 2011 at 11:52 am

BF,

Every country tries to manipulate its currency. Switzerland recently publicly announced its intent to debase its currency by pegging it to the dying Euro. Does this cause distortions? Of course.

What can we do about it? Shoot ourselves in head. Doesn’t seem like a good option to me. You?

BostonFlyer October 14, 2011 at 12:48 pm

So you are against punishing bad Beauvoir?

Methinks1776 October 14, 2011 at 12:54 pm

If I hurt myself, does that punish you?

How do you propose to punish China without hurting yourself and, even more, the poorest in the this country.

kyle8 October 14, 2011 at 5:33 pm

Yes I want to punish congress and the Federal Reserve for the massive devaluation that was QE1 and QE2. And for their most recent little fiasco that caused the markets to drop.

Methinks1776 October 14, 2011 at 5:42 pm

European countries going bankrupt?

Please, Kyle, I beg you, don’t hop onto this anti-market dropping wagon. Assets are valued in real time and all new information (good and bad) is baked in as it becomes available. As a result, asset prices will fluctuate. The SEC already understands its mandate as “make sure the market doesn’t go down” and writes rules that so horribly distort the market that it now violently lurches up and down like a shooting victim in death throes. The SEC’s mandate, in case anyone (including the SEC) still cares, is to maintain a fair and orderly market (bwahahaha).

The market rises and falls on the probability of politicians printing their way out of intractable problems. I suspect that if we remove government distortions, the market should be way lower.

kyle8 October 14, 2011 at 7:13 pm

well look I agree with you, that was my point, we should not have these currency manipulations from the Fed. But the truth is that we do, and while we have them, we have no right to complain about China’ s manipulations. And just as is the case in China, they hurt the average citizen.

Methinks1776 October 14, 2011 at 7:32 pm

Totally agree, Kyle.

Invisible Backhand October 15, 2011 at 11:20 am

Methinks has the ability to argue with herself and lose.

g-dub October 15, 2011 at 12:39 pm

mt’76> I suspect that if we remove government distortions,…

Well since that is not going to happen, I know how to bet. lol!

Methinks1776 October 15, 2011 at 2:04 pm

Yeah, g-dub! The collapse of paper currency! This year everyone has gotten pummeled. The longs were devastated by the down 5% moves. The shorts were devastated by violent changes in rebates and the up 5% moves. Stat arb was devastated when correlations went to 1 and the market is rising and falling on vapour. There’s no liquidity. I’m just waiting for the next not-so-flash crash so that the SEC can impose more meaningless rules on non-existent market makers or end securities trading altogether.

Jon October 14, 2011 at 12:29 pm

One thing to note, which is rather interesting, is even with the Chinese efforts to keep the RMB low, Chinese wages are rising. Even with a devalued RMB, the cost of doing business in China is growing and many businesses are relocating manufacturing back to the United States (see Ford, CAT, Wham-o, Etc.). This is exactly what International Trade economic theory predicts: wage equalization within the two countries (US wage drops in the imported industry and Chinese wages rise). So, we can say that, through this trade, we are helping raise the standard of living in China. By slapping punitive tarrifs on Chinese goods (thus raising prices and decreasing demand), aren’t we harming the very people we are claiming to help (the Chinese workers and the US workers)?

Shidoshi October 14, 2011 at 12:50 pm

Yeah!

mcwop October 14, 2011 at 2:57 pm

Further they will be forced by the market to let it rise in value at some point because of inflation. The Chinese cannot escape Mr Market forever.

Jon October 14, 2011 at 3:40 pm

That’s right. The Chinese would have to spend more and more to keep the value down. Eventually, they’re going to say it’s no longer worth it, or go bankrupt

kyle8 October 14, 2011 at 5:39 pm

What we are seeing is something that has happened many times in history.
(1)An agricultural nation decides to industrialize
(2) They need capital from abroad so they engage in the sell of cheap consumer goods and textiles.
(3) they keep their money debased so that they will continue to have an advantage.
(4) They can operate with some effectiveness because many people are just happy to get off of the farm and will accept high wages.
(5) Eventually this becomes harder and harder because as more wealth accumulates, the people demand more wages, goods, and services.
(6) In time they will also demand a more stable currency so that they can purchase luxury goods from abroad.

This is how it works, it is no great mystery. It worked for Japan, and to some extent for the USA in the late 19th century.

Economiser October 14, 2011 at 11:16 pm

Well put. Unfortunately at each stage the politicians will run to the front of the parade and pretend they’re leading it.

Gnome DeGuerre October 14, 2011 at 3:46 pm

brilliant and funny.

GiT October 14, 2011 at 6:08 pm

Not really sure I get all this disdain for putting pressure on China to change its currency policies.

Presumably, in the ideal free-market world currencies would trade freely and trade barriers would be non-existent.
But they don’t and they aren’t.
So it’s pretty safe to assume that these sorts of policies, insofar as they exist, distort markets and make them less efficient.
Everyone benefits if any single member decreases its intervention in the market.
So who cares about applying pressure on China to stop distorting its currency?
The question has to be whether purely diplomatic pressure turns into policy choices which further distort the market. But threatening tariffs and what not is not enacting them.

The unwarranted assumption that Chinese distortions of the market are simply good for Americans and bad for the Chinese seems to exemplify precisely the sort of hubris this site typically counsels against.

Further, the whole line which criticizes the sanctioning powers conferred by a WTO ruling seems completely incoherent.

If a criminal court makes a ruling, enacting a punishment certainly costs more money than just letting the ruling sit there as a hortatory appeal. It makes the justice system bear all sorts of costs which could be better spent on other things. But if court and justice systems operated only by hortatory appeals and did not actually expend resources in order to compel compliance and deter non-compliance, what would the point be?

Enforcing rulings is costly. That’s hardly a compelling argument against a juridical mechanism for encouraging free trade.

kyle8 October 14, 2011 at 7:17 pm

If putting pressure meant only words, then I am all for it. Unfortunately that is not what the unions and some big corporations want. they want protectionism, and they want a lot of it.

And there are plenty of blowhards in congress who want to give it to them. History shows that trade wars always end badly.

GiT October 14, 2011 at 8:49 pm

Yes, but one should distinguish two things.

1. Government (Chinese) intervention in the market, which is on the basic free trade account bad.

2. Attempts to deter Chinese intervention in the market.

Number 1 hurts everyone, and to rewrite articles saying that it somehow helps Americans on net is to engage in precisely the sort of ‘planner’ arguments typically decried on this site. Americans are both consumers and producers. I have not see Don offer any proof that Chinese intervention provides a net benefit to American consumers compared to the negative effects it has on American producers.

Both sides of the debate are, to go to the cliche, not seeing part of what’s going on, and using their focus on one element of the Chinese policy to say whether that policy is good or bad for Americans.

But the fact of the matter is that, on the whole, what we do actually know is that, on the free-trade model, intervention is bad for everyone, and if China lowered its barriers Americans would be better off as both producers and consumers.

As far as 2 goes, this is an entirely separate question from the effects of Chinese policy. It concerns the cost/benefit analysis of mechanisms for enforcing free trade. That a specific retaliatory deterrent is costly (and can be used in a crony-istic fashion) is not particularly relevant. What matters is whether or not it is worthwhile to have a system of credible deterrents to encourage free trade policy, or whether it is better to rely upon purely hortatory actions.

A retaliatory tariff no more fixes the alleged wrong than incarceration fixes a murder that’s already happened. But surely that’s no reason to stop incarcerating people for murder, despite the millions upon millions of dollars that costs us per individual.

Now it may be the case that purely moral sanction is the most worthwhile method for encouraging free trade. But I haven’t seen any evidence that this is the case. Not all threats of retaliatory tariffs, or actual retaliatory tariffs, have resulted in trade wars.

Methinks1776 October 14, 2011 at 10:02 pm

Both sides of the debate are, to go to the cliche, not seeing part of what’s going on

As opposed to you who is not seeing anything at all.

on the free-trade model, intervention is bad for everyone, and if China lowered its barriers Americans would be better off as both producers and consumers.

Funny how everyone except you has to provide ironclad proof. You remind me of bible thumpers. Scientist must provide irrefutable and unchanging proof of evolution (because they don’t understand what science is), but their only proof is something scrawled in a bible and that’s plenty because, supposedly, GOD said it.

A retaliatory tariff no more fixes the alleged wrong than incarceration fixes a murder that’s already happened. But surely that’s no reason to stop incarcerating people for murder,…

Riiiiiiight. Except that retaliatory tariffs incarcerate you, not China. If you really want to stick it to those Evil ChiComs, let them keep subsidizing the good life for you. They will either bankrupt themselves or stop eventually – whichever they decide to do first.

Now it may be the case that purely moral sanction is the most worthwhile method for encouraging free trade.

You are free to embark on whatever confused moral sanctions you wish and you are free to try to peacefully convince your fellow…um…whatever to go along with you, but you have no moral right to force hardships on other people in pursuit of your woozy psuedo-moral goals.

GiT October 14, 2011 at 11:04 pm

It’s not clear to me you’ve understood what I’ve written.

“As opposed to you who is not seeing anything at all.”

Do you deny that Chinese government intervention has negative effects on American producers, regardless of any positive effects it has on consumers?

“Funny how everyone except you has to provide ironclad proof. You remind me of bible thumpers”

Do you deny that Chinese protectionism negatively effects everyone – both the Chinese and Americans, relative to a state of the world in which the Chinese had no protectionist policies?

“Riiiiiiight. Except that retaliatory tariffs incarcerate you, not China.”

Last I checked incarceration required tax dollars, which, if I understand the normal tenor of the rhetoric here, is pretty much indistinguishable from coercion and incarceration.

A retaliatory tariff hurts Chinese producers, just as incarceration hurts a criminal. But implementing a tariff costs the US, just as incarcerating a criminal costs the US.

The simple point is that punishment incurs costs, and yet it can be worth those costs if the benefits are seen to outweigh the costs. The question, then, is whether having a credible, but costly, system of punitive sanctions results in lower barriers to trade, just as the question for the criminal justice system is whether having a costly system of punitive sanctions results in less crime.

“You are free to embark on whatever confused moral sanctions”

By ‘moral sanction,’ I am being quite precise in my language. A moral sanction is a penalty of conscience. It is a sanction that does not have any material effects. An example of a moral sanction is me saying, “You should be ashamed of yourself for not putting in a basic effort to understand what you’re reading.”

It is not to be confused with an economic or physical sanction which is made on moral grounds.

Placing a tariff on China because of its human rights practices is an economic sanction made for moral grounds. It is not a moral sanction.

A moral sanction would be something more along the lines of a WTO tribunal finding that China was in breach of its treaty obligations coupled with an advisement to lower its trade barriers. The WTO itself has no enforcement powers (though it may authorize punitive policies by the aggrieved party down the line).

Much international law, though more obviously when it comes to things like the ICC, has the power only to offer these purely moral sanctions which advise, but do not enforce, remedies or punishments.

Methinks1776 October 15, 2011 at 9:45 am

Do you deny that Chinese protectionism negatively effects everyone – both the Chinese and Americans, relative to a state of the world in which the Chinese had no protectionist policies?

Do you deny that subsidies for the poor by the rich have negative effects on everyone – both the subsidizer and the recipient of the subsidy – relative to a world where there are no subsidies extracted from one group and paid to the other. If you can’t agree with that, then you can’t agree with your own statements regarding trade with China.

If what you say here is true: “But the fact of the matter is that, on the whole, what we do actually know is that, on the free-trade model, intervention is bad for everyone“, then we must question all government intervention in the economy. All of it. Since we have no control over China (a fact you seem to grasp well), we must clean up our house first. No?

This:

A retaliatory tariff no more fixes the alleged wrong than incarceration fixes a murder that’s already happened. But surely that’s no reason to stop incarcerating people for murder, despite the millions upon millions of dollars that costs us per individual.

Is not a completely meaningless “moral sanction”. BTW, you may enjoy the costly sanctimony of purely “moral sanctions”, but I don’t wish to pay to indulge you.

vikingvista October 15, 2011 at 3:21 am

It is possible that the Chinese government AND US economy are better off even while the world economy on net is worse off. It is also possible that there is real economic growth in China that both exceeds and is in spite of Chinese currency policies. It is possible, and I’d say almost certain, that Chinese policy makers don’t have a clue about why the Chinese economy has grown so much.

All those damned confounders.

GiT October 15, 2011 at 5:56 am

So what lesson should I draw from this?

That because we can’t know the precise effects of any given trade obstruction policy of another country, we should never argue that they should lower trade barriers?

Or maybe that, in fact, obstructionist trade policies can help a national economy and therefore protectionism is sometimes good?

Neither seems to accord particularly well with the reigning dogmas.

Methinks1776 October 15, 2011 at 9:54 am

I think Viking is pointing out to you that your statement

But the fact of the matter isthat, on the whole, what we do actually know is that, on the free-trade model, intervention is bad for everyone, and if China lowered its barriers Americans would be better off as both producers and consumers.

Is false. These things are not known facts. I reiterate that it’s silly for you to bang on about Don’s narrow claim that Chinese subsidies lower the cost of consumer goods and in this way benefit Americans while making sweeping, unsupported statements.

Incidentally, Don Boudreaux has repeatedly stated that he would prefer trade unmolested by any government intervention. So, it doesn’t seem that he disagrees with you (or me) on that issue. What he is trying to correct is the perception that we’re in a world of lose-lose pain because of China’s generous subsidies to the U.S. consumer.

GiT October 15, 2011 at 4:59 pm

It is not a fact that according to widely accepted models of trade, trade barriers produce sub-optimal outcomes?

Note that I referred to the facts about a model, not facts about the world.

I am criticizing Don because he willfully mischaracterizes people’s positions in order to make the same mind numbing point, even when it does not apply in the least.

When the content of someone else’s argument is that trade barriers and subsidies should be lowered across the board, the narrow focus on what is presently good for American consumers is both parochial and irrelevant.

The appropriate level is either about whether or not lowering trade barriers and subsidies is desirable, or whether the proposed mechanisms for encouraging such free-trade policies are effective.

To argue against hortatory lobbying for the reduction of subsidies and trade barriers is to tacitly argue for protectionism.

Foreign subsidies have both good and bad effects for Americans as a whole. Being benefited as consumers does not mean that they are benefited in total as Americans, and yet the focus on what benefits Americans as consumers obscures this fact.

Methinks1776 October 15, 2011 at 5:25 pm

When the content of someone else’s argument is that trade barriers and subsidies should be lowered across the board, the narrow focus on what is presently good for American consumers is both parochial and irrelevant.

You’ve created a strawman that you are now viciously attacking. So, good job on killing that nasty strawman, but I don’t know what you hope to achieve in doing so.

To argue against hortatory lobbying for the reduction of subsidies and trade barriers is to tacitly argue for protectionism.

Not any more than arguing that shooting yourself in the head will punish a murderer will not hurt the murderer. Now, look, I have no idea what you’re on about anymore.

In one post you acknowledge that tariffs simply hurt American consumers and rely on some ineffective political prancing called “moral sanctions”. In the next post you equate a refusal to back raising prices for American consumers to support of protectionism.

If you refuse to advocate going wasting American resources go to war against Zimbabwe, shall we take that as your support of Mugabe? How about if you refuse to advocate for war against Iran? Are you then supporting Ahmadinnerjacket?

Foreign subsidies have both good and bad effects for Americans as a whole.

You keep making that claim as if it is a statement of fact. Where’s the data to back your claim?

Methinks1776 October 15, 2011 at 5:26 pm

“Not any more than arguing that shooting yourself in the head will punish a murderer will not hurt the murderer.”

Should be “not any more than arguing that shooting yourself in the head to punish a murderer will not punish the murderer.

Marty Mazorra October 15, 2011 at 2:12 pm

UNFAIR TRADE ALERT!!!!

Quick somebody call Washington!!  I just heard that Costco has marked down patio sets by 50% this weekend…  This is going to kill patio set sales at every other major outlet in the U.S.  

We need to slap a cease-and-desist on Costco immediately…  We’re talking unfair trade; consumers will no doubt use their savings to buy even more stuff they need from Costco (unless someone else can more affordably offer them that even more stuff they need), and if we allow Costco to keep it up, its going to buy even more property and expand (even more) its stores all over the country… Costco’s trying to take over the nation!!

Ridiculous, right?  Say right…

So…….. China so desperately wants its enterprises to invest in the United States that it subsidizes their exports.  I.e., spends its taxpayers’ money buying down (through subsidies and(allegedly) “devaluing” its currency) the price of goods (making them very affordable to you and me) so its businesses can accumulate massive quantities of dollars with which to buy U.S. stuff, services and assets.  

And BTW – – now think for a minute – – Chinese businesses buying assets from U.S. businesses gives China no power over our military and places no Chinese politician in the U.S. Congress.  I.e., China will garner no more power over the U.S. than Japan had back when a Japanese company bought Pebble Beach from a U.S. Company…

Make no mistake my friends….  We’re being baited and switched into taking our aim off of the real issues facing this country; issues so clearly spelled out in this two minute video…

Filip Jolevski October 16, 2011 at 3:43 am

Yes!!! I love it!!! Amazing Professor Boudreaux!

Why this is so hard for people to understand???

Professor Boudreaux, I am wondering, do you think that the devaluation of the Chinese currency has anything to do with the trade between the US and China, or is it simply the Chinese trying to fix up their economy?

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