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My Reply to Victor Davis Hanson’s Response

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John Stossel sent my letter of earlier today [2] on to Victor Davis Hanson. Mr. Hanson was not impressed with my letter.

I do not have permission to share Mr. Hanson’s response, but I here share my (slightly edited) reply to his response – a reply that John Stossel forwarded to Mr. Hanson:

John,

Mr. Hanson’s attempted defense of his use of the U.S. trade deficit with China fails. The concept itself is economically insignificant, and it does not gain a whit of significance by being large in magnitude. Nor does the identity of the counterparty country matter. In a world of more than two countries, any bilateral trade deficit or surplus is a mere accounting artifact with absolutely zero economic relevance. The fact that Mr. Hanson attempts to salvage his use of the concept by pointing to its large magnitude is evidence that he here doesn’t understand the economics of this matter. Ditto for his attempt to salvage his use of this meaningless concept by suggesting that such a “deficit” with a different country would be less worrisome than is such a “deficit” with China.

Mr. Hanson gives further evidence of his failure to understand balance-of-payments matters when he refers to his credit card being maxed out. He (admittedly, like many economically uninformed people) presumes that a higher U.S. trade deficit necessarily means higher American indebtedness to foreigners. But, of course, it means no such thing.

Moving on. It would have been helpful if Mr. Hanson had carefully kept national-security concerns separate from economic-policy concerns. For productive discourse, the rules of the game cannot be – but nevertheless often do seem to be –  these: “Whenever one can point to national-security concerns posed by foreign country X, (1) any amount and type of protectionism in the home country is justified, and (2) any economic argument, no matter how fallacious, in defense of this protectionism is rendered acceptable by repeating that foreign country X poses a national-security threat.”

It is impossible to tell in Mr. Hanson’s essay where his economics end and his national-security concerns begin. Many of the problems he points to are problems, not with trade as such, but simply with China’s economic growth. A richer China does indeed mean that the government in Beijing will have more resources to use militarily and diplomatically. And freer trade will make China richer, while – contrary to Mr. Hanson’s apparent belief – mercantilism will make China poorer. If Mr. Hanson really is worried that Beijing will one day pose a mighty military threat to the west, he should not write critically of Beijing’s mercantilism but in praise of it!

I’ve much more to say, but I’ll content myself with one last point. I do not think it “surreal” to argue that greater commercial ties between the Chinese and Americans work to discourage belligerence. Even if Mr. Hanson is correct in all that he says about Beijing’s current hostile attitude toward the United States, greater economic integration increases the costs, to both sides, of a shooting war. If nothing else, in the event of such a war between the U.S. and China, the Chinese investments in the U.S. that so worry Mr. Hanson would either be expropriated by Uncle Sam or lose most of their value. Are the Chinese so single-mindedly hostile to Americans that they are indifferent to the fate of their economic investments?

In conclusion here, I readily concede that Mr. Hanson knows much more about military and diplomatic history than I do. But I cannot help but discount the seriousness of what he writes when those writings are infused with a string of economic fallacies – fallacies the criticisms of which have not, despite Mr. Hanson’s protest, remotely been rebutted.

Don

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