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Trade is Mutual

Here’s a letter to USA Today:

Praising Mitt Romney’s threat to raise taxes on Americans who buy imports from China, Alan Tonelson writes “if China-targeted tariffs lead Americans to buy more expensive U.S.-made goods, they would thereby create more American jobs.  And trade war fears ignore how slowing Chinese and global growth will further heighten Chinese reliance on America’s market” (“It’s time to get tough with China,” Oct. 19).

Mr. Tonelson’s economics (like Mr. Romney’s) is faulty.

First, such tariffs would create more American jobs only in the same way as would, say, a tariff on using computer hardware and software produced after 1975.  We American workers would indeed once again be employed in jobs destroyed by inexpensive substitutes for our labor – jobs such as telephone operators, film developers, and t.v. repairmen.  But as a result our standard of living would fall.

Second, if Americans are taxed into buying fewer imports from China, then China’s reliance on America’s market will not be “heightened”; it will shrink.  With Americans spending fewer dollars on Chinese goods, the Chinese will have fewer dollars to spend on American goods or to invest in America.  So if (as Messrs. Tonelson and Romney wish) America becomes less reliant upon Chinese imports, then even without a trade war China will become less – not more – reliant upon American exports.  It is absurd to expect that America can simultaneously become both less and more economically integrated with China.

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

Of course, in a world with nearly 200 different countries, a longer essay would include qualifications to my final paragraph that are academically appropriate but practically irrelevant.