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Wednesday, August 1, 2007

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At least the Club for Growth is realistic

The Washington Post reports that Congress is preparing to pass a really stupid, counterprouctive bill to punish China.

In the meanwhile, over a thousand economists have signed the following:

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China.

By the end of this year, China will most likely be the United States' second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That's an average growth rate of almost 20% a year.

This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade.

As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China.

There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth.

We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.

This also appears in an ad today in the Wall Street Journal.

As Greg Mankiw sadly observes, petitions like this have very little political effect. Indeed, by linking to this older petition, the Club for Growth recognizes this as well.

posted by Dan on 08.01.07 at 08:27 AM

Comments:

I'm a "Reagan Republican," and I think The Club for Growth is a bunch of dittohead hacks.

Shouting cliches has replaced conservative thought.

Freer trade has not worked as advertised, except for perhaps the top 20% of Americans.
As long as the free traders refuse to admit this, there will be poltical problems.

posted by: save_the_rustbelt on 08.01.07 at 08:27 AM [permalink]

There's a difference between "Freer trade has not worked as advertised" and Freer trades does not work at all and therefore the US should resort to protectionism. There's an interesting podcast that touches on some of these issues: http://www.econtalk.org/archives/2007/07/henderson_on_di.html.

Many manufacturing jobs were likely "outsourced" to automation by technology, not to China. If you want those jobs back, you will have a more convincing case proposing barriers to technology. Perhaps a high innovation tax and quotas on the amount of efficiency a business can employ.

While people often claim that the US stopped making things, the GDP data shows otherwise: http://www.bea.gov/bea/newsrel/gdpind05_revchart2.gif. Less manufacturing jobs, but a growing output of domestic goods. That's a productivity issue, not a trade issue.

posted by: Jason on 08.01.07 at 08:27 AM [permalink]

I'd just like to know how free trade is going to "solve" China. I've heard arguments that as prosperity comes they will naturally figure out things like free speech and not repressing people, but I don't buy it. So what to do? Not that tariffs are the way to go, but it seems reasonable to me that before we happily give them a helping hand in overtaking us as the world superpower we'd better know what we're doing. Maybe it's worth harming our economy to harm theirs, for political reasons. Seriously, I'm hoping to be corrected, but despite the apparent ignorance of politicians' economic meddling, economists don't seem to have answers to the questions we actually care about.

Relatedly, are there any organizations devoted to recommending how to use economic policy wisely? e.g. Is it ever appropriate to use tariffs? Is there something else that would do the intended trick? What's good about EITC? etc.

posted by: Mike on 08.01.07 at 08:27 AM [permalink]

Perhaps you should suggest the US set its own RMB/USD exchange rate at a lower level and duke it out. Let's see how creative the Chinese would be at sneaking money out of China.

posted by: Lord on 08.01.07 at 08:27 AM [permalink]

I'm not sure I buy it either, but surely it is better that the Chinese people are just politically repressed rather than both dirt poor AND politically repressed, isn't it? And, from a geopolitical standpoint, isn't it far better for China to be deeply integrated into the world economy (and, therefore, have much to lose from conflict) than isolated?

posted by: Slocum on 08.01.07 at 08:27 AM [permalink]