Political Borders Cause Many People’s Reasoning Powers to Malfunction

by Don Boudreaux on August 1, 2016

in Myths and Fallacies, Trade

Here’s a letter to a Cafe Hayek patron:

Mr. Leland Gregory

Mr. Gregory;

Thanks for your e-mail in which you write that “free trade doesn’t work for America if other nations undervalue their currencies.”

I disagree.  If and to the extent that the Chinese government keeps the value of the yuan artificially low against the dollar, we Americans get better deals than otherwise from the Chinese.  We get more goods from the Chinese in exchange for every bale of cotton, every ton of soybeans, and every passenger jet that we ship to China.  An undervalued yuan does not make us poorer; it makes us richer.  The people who are harmed by this undervaluation are the Chinese, not Americans.

If you disbelieve me, consider the following scenario.  You shop at a supermarket owned by eccentric multi-billionaire Jones, who has faulty notions on how to run a grocery store profitably.  Jones stubbornly thinks that the greater the quantity of items his store sells – the more Jones’s Supermarket exports to consumers – the better off he and his store necessarily and invariably will be.  So Jones cuts in half, and well below costs, the prices of all the items sold in his store.  The gallon of milk that yesterday was priced at $3.00 is now priced at $1.50; the pint of blueberries that was $3.99 is now $1.99; the package of paper towels that was earlier priced at $9.99 is now priced at $4.99.  And because he has a huge fortune to tap into, Jones can – and does – maintain this money-losing policy for years.

Are you impoverished by Jones’s pricing policy?  Of course not.  You and other consumers are enriched by it.

Now it’s true that owners and workers of competing supermarkets are harmed.  So suppose that these disgruntled, competing supermarket folk hire armed troops to demand punitive payments from you and other customers of Jones’s Supermarket whenever you and others shop at Jones’s.  Do you believe that these forced extractions make you richer?  Do you believe that these tariffs make society richer?  Do you believe that such a use of force is ethical?

There’s no meaningful difference between the hiring of armed troops in this example and Uncle Sam imposing punitive taxes on American consumers who buy allegedly underpriced goods from China.  So unless you believe that you shouldn’t be allowed to shop unpunished for underpriced groceries at Jones’s Supermarket, please recognize that Uncle Sam has no business preventing Americans from shopping unpunished for underpriced goods from China.

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

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