I sent this letter to the Washington Post nine days ago; it was not published there.
Editor:
You’re correct that Beijing’s move “to lock as much money, technology and talent as possible inside its own borders” signals the weakening of China’s economy as well as will only accelerate that weakening (“China erects a new Great Wall,” June 21). One other effect is worth noting: Less able to invest in America, the Chinese will spend a larger share of their dollar earnings buying American exports. America’s so-called “trade deficit” with China will decrease.
The Trump administration will naively applaud this outcome because of its blindness to two unfortunate results. The first is that, obstructed from taking advantage of attractive opportunities to invest in the U.S. – and, hence, ‘needing’ fewer investment dollars – the Chinese will export less, reducing supplies of intermediate and consumer goods in the U.S. The prices we Americans pay for these goods will rise, hiking costs for American producers and shrinking American households’ purchasing power.
The second negative result for Americans is that the amount of capital in our economy will decline. Real interest rates will rise, choking off some investment. U.S. economic-productivity growth will slow, dragging down the growth in real wages.
And yet the White House will cheer, foolishly supposing that a reduction in the accounting artifact called “the U.S. trade deficit with China” is for us Americans a ‘win.’ In fact, it will be a loss.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
