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Gifts from China

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Appearing below, with the author’s kind permission, is the heart of an e-mail sent to me this morning by Cafe Hayek reader Brad Dunnagan.

Suppose China decided to give Americans free money. To accomplish this, suppose China set up Banks in the USA where any citizen could simply walk in an obtain $1,000 per week. Suppose there were no strings attached nor other obligations to receive this wonderful gift. It is open to everyone.

I wonder how many Americans would complain about China’s benevolence? The only folks who would complain would be current employers. They would say that Chinese money is ruining their ability to attract and retain workers, and would push the government to enact a tariff on Chinese money. Of course, Americans would strongly disagree, saying that it’s free money. And who doesn’t like free money?

Isn’t this what happens when the Chinese sell us goods and services at cheap prices? Aren’t the Chinese essentially giving us free money – in the form of discounted prices?

Indeed!

I add here only that what the Chinese in this hypothetical example are giving freely – as gifts – to Americans isn’t ultimately money; rather, it’s the real goods, services, and assets that money can buy. To get the dollars that they then give to Americans the Chinese would have to sell exports or assets to Americans, or use the dollar returns on Chinese-owned assets. In this example, then, the Chinese – rather than get for themselves tit-for-tat in their commercial exchanges with Americans, choose to ‘gift’ to Americans all the real goods and services that they, the Chinese, would otherwise be entitled to purchase with the dollars that they’ve earned.

To the main point of Mr. Dunnagan’s hypothetical example: it is indeed true that if the Chinese are truly selling to us some volume of goods and services below the prices that the Chinese could otherwise fetch for that same volume of goods and services, then they are giving to us gifts. We are thereby made materially richer as the Chinese make themselves materially poorer.

But if the Chinese gift-giving is carried out in the way that Mr. Dunnagan here describes, very few Americans – Mr. Dunnagan plausibly predicts – would complain.

It is yet another piece of evidence that protectionists are mired in economic misunderstanding that they believe that such gift-giving by the Chinese would make Americans materially poorer and the Chinese materially richer.

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