I’m a huge fan of Robert Samuelson’s long repeated harping on the coming Medicare train wreck – tell it brother! But I much oppose his war-mongering: No one familiar with the Smoot-Hawley tariff of 1930 should relish the prospect of a trade war with China — but that seems to be where we’re headed and probably should be where we are headed. Although the Smoot-Hawley tariff did not cause the Great Depression, it contributed to its severity by provoking widespread retaliation. Confronting China’s export subsidies risks a similar tit-for-tat cycle at a time when the global economic recovery is weak. This is a risk, unfortunately, we need to take. …
I don't understand how I can have read so many words and grokked so few rational arguments. I feel like I've been dropped into some bizarro universe where my universe's basic economic theory doesn't exist in any form - where some people are stating completely obvious truths, and the others are rambling completely irrationally and insanely with theories that have never even been suggested by reality.
My God... Is this what it's like to be Glenn Beck?
Joking aside, tariffs are borne of fear of foreign nations, short-sighted selfishness, and the idea that self-sufficiency is superior to wealth (an idea that microeconomics China has been all-too-happy to reject with increasing force, regardless of the party line). Assuming that trade relationships are not destabilized by e.g. wars (which would make self-sustenance a good thing), there is no economic benefit to tariffs.
a non-floating currency can only be undervalued or overvalued to the extent that the utility of its backed real-world entity provides a given actor - and since it's typically gold, there's virtually no capacity to undervalue or overvalue at all, since only a handful of livelihoods actually make use of gold in a non-currency sense. A floating currency can have absolutely no under- or over-value of any kind, even in theory. Everything is worth what its purchaser will pay for it; this includes currency. If one side is getting the short end of the stick, it's because they're willingly entering into an irrational decision. Fools and their money are soon parted - this is a truth that governments have repeatedly failed to ever remedy (not that I would want them to, personally).
Economics simply work; anything that makes it appear otherwise is politics and scheming, or nationalism wherein you think your neighbor down the street has more of a privilege to opportunity than some faceless Chinaman, or wherein you believe there can be no situation in which China can ever be a more efficient producer of any good or service whatsoever than America can.
The problem with treating China like the sun giving us free light is that under no circumstances will the sun ever buy American exports. Whereas, if the Chinese bought certain American exports where American manufacturing had a comparative advantage, on balance this would be good for America. But currency manipulation ensures a certain level of economic inefficiency. But there are certainly winners on the American side for this as well.
China isn't following any of these policies just for fun - it thinks there is a benefit in the long term. Considering how well their economy is going (and how poorly the US is going in comparison) I expect they are right. It takes quite a bit of faith to say that they are getting it completely wrong and I suppose if that is the case the US is REALLY in trouble if they ever float.
Agree: against trade war. However I would like to bring back some of that manufacturing by getting real about a couple of things. First, take back services like health care from government, and perform them in ways that we actually have a chance to equalize our wages with the rest of the world. Because even under the best of circumstances, this is the eventual reality.
Scott, the point is that you don't WANT manufacturing jobs that have left the US to come back. If you want to be as rich as the Chinese, then compete with them for those particular jobs. But we are like 6 times RICHER than the chinese. I don't think it makes sense to call all our jobs back and cut our national GDP by a factor of 6.
I realize your never going to get this by listening to the popular press. But really, lets run this stuff through our sanity checker. If the Chinese were GIVING us all that manufactured stuff, would they really be winning and us losing? If they'd be winning in your opinion, we may not have enough common ground to discuss this. If they wouldn't be winning giving it to us, how can they be winning half-giving it to us, i.e., giving it to us at what you think is a manipulated too low price? You don't get rich by undercharging people for things, and your customers don't get poor by buying low priced stuff from you.
Right, I wasn't saying it was necessarily stupid, I was just saying if the Chinese govt didn't force them to do it, individual firms could do it themselves if they wanted. So the Chinese govt's activities are unnecessary. And of course US firms could use the same strategy in return if they liked.
It isn't about different industries, but more industries. Returns to scale and technology are enormous; they are the lifeblood of the economy and the core of growth. They make comparative advantage a joke. Innovation is done by producers, not consumers. While advantageous to firms, most of the benefit falls to society but especially to the local region. A simple comparison exists. We traded for centuries before the industrial revolution, but only technology was sufficient to lift us out of the Mathusian state.
Naturally stemming from your arguments would be that unemployment in the US could be lowered simply by employees accepting low wages because alternative, higher paying jobs are not available. But economics is not that simply, and as many have theorized, wages are "sticky" which is why labor supply doesn't follow classical economics all the time.
Given a reduction in regulation and unemployment benefits, there is no reason why there couldn't be a resurgence in American manufacturing at lower wages over the long, except, you know, the Chinese would still be manipulating their currency.
I didn't know that the US doesn't have unemployment. That's certainly great news! No seriously, your agriculture example further below is a good case in point: The shift from agriculture to industry was pretty disruptive but as you rightly point out, in the long run everybody was able to find another and often better job. But until very recently, these jobs weren't necessarily more mentally challenging. Furthermore, every western country had a vast reservoir of untapped talent. People who just one generation earlier would have worked on a field could go to school and college and become engineers. The same is happening in China, India ect. right now. But as we already made that transition, there aren't too many people left who are able to become engineers who are not already one. And most likely their kids won't have the mental capacity either. IQ being mostly hereditary and all that. You may have noticed that no matter how much money we throw at schools, the results just don't get any better. So what do you think these people will do once we outsourced or automated every job they are capable of doing?
They would if they had the capital and the vision to do so. They would and they do. Look at Hyundai selling cars at effectively below market price in to the US market. They are building market share and brand capital by doing this. I imagine they anticipate a few decades of being able to convert that to cash return once they have the brand and capital built.
The fact that a country does something is not prima facie evidence it is stupid, despite simplifications you sometimes get from anti-government types.
Your concerns about unemployability would be a lot more salient if the US ever had an unemployment rate, absent world-shaking recessions, that was high. The fact that even with all our chinese imports most of the time US workers are employed should be meaning SOMETHING to your analysis.
Essentially, you are NOT right. In an important sense, bilateral trade is always equal when all things are considered.
In the case of China, the export lawn furniture, PCs, and clothes to us, we export dollar bills to them. Essentially, we actually export t-bills to them but t-bills are just a slightly more efficient way to store dollar bills. We put the chinese stuff in our homes and businesses, they store their dollar bills in big boxes under the ground (vaults).
Ultimately, the ONLY thing a dollar bill is good for is buying something from the US. If China ever reverses its savings, it will necessarily result in more of a demand for our exports, as well as more of a demand for our property. That is, if china decides not to put its next bunch of US$ in a box under the ground, then it has to come to the US and buy wheat, airplanes, office buildings, businesses, stock, or whatever.
In a trivial equilibrium where neither trading partner saved the currency of the other, their imports-exports would be EQUAL, even if one was a first world technological power house and the other sold nothing but cheap sneakers that fall apart in the first puddle and carved onyx chess sets. This equilibrium is not just a good idea, it is a conservation rule, as the only US$ the other country has to buy stuff from us with are the ones they get from us buying stuff from them, and if they are not saving US$, then every one they get from us they have to turn around and buy something from us with.
The US went from a majority of its citizens working in Agriculture to just a few % working in agriculture. And yet we do not currently have 50% unemployment and never have. When old jobs leave, almost by definition it is because new better jobs have taken their place. When American Labor is too expensive to compete with Chinese labor in some manufacturing enterprise, it is because somebody else is hiring those Americans, raising their wages.
Yogi Berra said "no one goes to that restaurant anymore because it is too crowded." The argument that Americans will PERMANENTLY lose jobs because they get paid too much to compete with Chinese is just like that. You don't get paid too much without someone demanding your labor. A restaurant that is too crowded has SOMEBODY going to it, for sure.
I propose as a slogan: "If you want a third world economy, keep all those third world jobs right here at home." Because every time lower wage jobs have disappeared, it has been just one of the moving parts of the economic machine that has raised American standard of living to the stratosphere. Observations of the blips and wiggles around that trend are all "no one goes to that restaurant anymore because it is too crowded" observations.
See Mark Perry's blog on why you wish China would make things even cheaper. Some easy ways to think about it that lead you to the right answer. That right answer being, it doesn't MATTER why people give you something for less money, it is a good deal for you. That doesn't change if you are a country.
It is so tiring to see people who cannot apply first principles.
As Keynes remarked, in the long run, we are all dead. That is why we cannot wait around for flawed economic arguments to work.
China's actions are destroying lives here in America as I type this response and if it takes a trade war, so be it.
PS, the low cost producer argument is obviously flawed. A company that goes bust in China will not be replaced by a more expensive producer in the USA. It will be replaced by a still lower costs producer in China, who will benefit from the write down of the capital investment of the failed producer.
People need productive work to have meaning and grace in their lives. China has adopted a vast array of policies that have forced millions of Americans into lives of now quiet but soon to be heard round the world desperation
"But on the other hand, if they had no trade barriers, they would develop different industries."
The US seems to have developed different industries, which mainly consist of creating money and selling it cheap. I'm sure if the world converges on another reserve currency people will eventually develop different industries again, however, probably not without a bit of nastiness.