Why not let them subsidize us?
Recently the United States government has been participating in a so-called "Trade War" with China that has affected everything from steel, to tires, among other things. The most recent with that of ribbons imported to the U.S. from the China, as well as the retaliatory duties on chicken imported to China from the U.S.. The argument for this aggressive trade policy is two-fold:
- China has been embarking in a particularly mercantilist economic policy. They have allowed the dumping of their goods in U.S. markets, as well as the government subsidizing Chinese manufacturers. China's monetary policy is, in essence, the de facto pegging of their currency to the Untied States dollar by an exchange rate of about 6:1. This pegged exchange rate encourages exports to the U.S. and a balance of payments which leaves the United States in heaps of debt to the Chinese.
- The second reason is a mixture of populous rhetoric and special interest indulgence. In acting to restrict trade with China, politicians, and the president in particular get to look as if they are "doing something." It allows them to tout how they are helping working men and women. At the same time it enriches unions as production is shifted away from the Chinese producers and shifted back to the United States producers.
However, this is misguided for several reasons.
First of all, if we look back on history, protectionism's history has been particularly disastrous. During Hoover's administration the Smoot-Hawley Tariff Act brought trade to a halt with a tax on several thousand items had been imported prior, as well as subsequent retaliations from the countries which were affected. The act was responsible for reducing world trade by sixty-six percent, according to Treasury Department numbers. This is no small feat, and ensured a deeper, longer depression. So here we are now. In a recession, or attempting to move forward out of one, and the government acts as if it's ignorant of history (most likely because it is).
Second, by enacting these tariffs it increases costs for consumers. If the tariffs were not in place we would be importing more goods from abroad from countries with comparative advantages in those respective goods. When those imported goods come from countries who are more cost efficient, it is cheaper for consumers to purchase those goods.
Third, there are no fixed amount of jobs. If by allowing Chinese citizens to have some jobs over in their country, it does not necessarily mean they are "taking" any jobs from U.S. citizens. I will concede that there will be some losses in certain industries in the short run. But wealth is created by innovating, taking risks, investing in human capital, and improving the human condition. If a few manufacturing jobs goes overseas, this frees up a great deal of human capital, allows individuals to take risk and innovate, which in the long run improve the human condition.
Finally, in addressing the concept of China subsidizing their industry and allowing their goods to be sold cheaper over here, I say; "so what?" In the words of Milton Friedman, "Why should we object to them giving us foreign aid?" If they want to subsidize our consumption by allowing companies to sell their goods for cheaper than it may cost to produce, I'm not so sure this is such a terrible thing, especially for consumers.
