Copyright 2011 by John T. Reed

Attacks on Chinese monetary policy

A number of Republicans have demagogued free trade lately, most notably Donald Trump and Mitt Romney.

In particular, they and lots of people in Congress want to punish China for its efforts to keep its currency relatively cheap compared to the dollar.

First, I am not sure that’s a bad thing. It gives their exporters a competitive edge, but it also gives our citizens cheaper goods and it hurts China when it comes to buying dollar-denominated products on the world market, like oil.

The solution they propose is to hit China with tariffs and other anti-free-trade laws. Great idea. That will cause them to retaliate and the retaliation may include their ceasing to buy U.S. government bonds and/or selling the ones they already own. The number one owner of U.S. bonds is U.S. citizens and institutions, but the number one foreign owner of U.S. Bonds is China. They own about $1T which is about 6% of our national debt.

That would cause inflation within the U.S. and lower the value of the dollar in international trade worldwide.

Trump is a trash-talking, publicity-seeking clown. One expects him to throw the f-bomb at China and brag about what a tough negotiator he is. True great negotiators strive mightily not to have any such reputation because it makes it harder to do deals.

But Romney, who has a Harvard MBA and JD degree, knows better than to threaten a trade war. But he lacks the integrity to refrain from it because he wants the votes and figures he can avoid the blame if we have a trade war, which would probably cause another depression. The Smoot-Hawley Tariff enacted in 1930 by Republicans in Congress and the White House was one of the main reasons the 1929 recession turned into a ten-year depression. Romney is just another politician who will say anything to get elected, regardless of the consequences.

South Korea/Colombia/Panama trade treaty

In stark contrast, the Congress passed and Obama signed or will sign, laws to reduce trade barriers between South Korea, Colombia, and Panama. Great!

These laws could have been signed years ago except that Obama is owned by the unions and they are protectionist. Protectionism causes depressions which means job loss. Unions are supposedly against job loss, but their members are generally morons who cannot understand why free trade creates the most jobs so unions pander to those members.

Obama sat on the laws for years unil he could get a Republican House and a Senate where the forces of protectionism were weakened. The opposition to these laws in Congress was primarily Democrats. It is to Obama’s better-late-than-never credit that he finally submitted these bills for a vote and will sign them into law.

The Republicans also deserve profile-in-courage credit for supporting them, because a lot of Republicans are also protectionist morons.

Thank God for small favors.

With regard to China, a bunch of Republicans are pushing bills that roughly match Romney’s financial suicide pact against China.

See my article on the Democrats’ 2009 protectionist machinations.

If I were king of the U.S., I would make a law that says U.S. residents have the right to buy whatever they want (other than mass weapons) from whomever they want. In other words, zero tariffs or trade sanctions on any country. That would lower U.S. prices, force some Americans to move to other industries where they can compete, cause soft drinks and other products to have real cane sugar rather that corn syrup finally, and end most retaliatory trade actions that were taken against us and were still in place. Some say we should hold out to force such lower barriers elsewhere. Nope.

As economist Milton Friedman said, tarriffs are a way that governments kick their own citizens in the shins. Refusing to stop kicking U.S. citizens in the shins until other governments stop kicking their citizens in the shins is stupid. If the governments of the world want to pander to their union morons by selling us artificially cheap (caused by governments subsidizing their exporters in various ways) products, we should enjoy it while it lasts.

If you are for free trade, good on you, mate

So-called “fair” trade is just a code phrase for protectionism. Same is true of being in favor of “free trade but…”

Leave us alone—including when we want to buy foreign products. If you think protectionism makes sense, you failed to study, or failed to understand, economics and comparative advantage and the benefits of specialization. Take an economics course.

John T. Reed