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Reality Is Far More Complex Than Politicians Pretend

Here’s a letter to the Wall Street Journal:


Nikki Haley is correct that the Chinese state is a bad actor against which we must be vigilant (“My Plan to Confront the Chinese Threat,” June 27). But such vigilance would be undermined by overreaction. And Ms. Haley’s promise to “push American businesses to leave China as completely as possible” is overreaction.

American businesses’ ties to the Chinese economy help fuel the innovation that Ms. Haley rightly understands to boost military preparedness. It’s therefore crucial to understand that a near-complete abandonment by American businesses of the Chinese market would obstruct these firms’ access to at least two important spurs to innovation: low-cost inputs and opportunities to capture larger economies of scale.

Stifling all the innovation now driven by Americans’ economic engagement with the Chinese people might be a price worth paying if most, or even much, of this engagement were heavily tilted in favor of the Chinese. But trade being mutual, this isn’t the case. As the Cato Institute’s Clark Packard writes about trade with China, “a lot of two‐​way trade and investment is largely benign – and in no way ‘strategic,’ i.e., at the nexus of technology and national security. Sabine Weyand, the European Union’s Director‐​General for Trade, recently noted in an essay for Internationale Politik Quarterly that 94 percent of EU trade with China is ‘unproblematic’ and that only about six percent is the result of a one‐​sided dependency for EU member nations. A comparable analysis for the United States would almost certainly produce similar results.”

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

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