Paul

Ibrahim

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May 30, 2008

Memo to Conservatives: Free Trade with China Is Good

I rarely write a column that receives more criticism from my conservative readers than from my liberal ones. And it is even rarer when the column in question approaches a topic from what is supposed to be a “conservative” perspective, as it usually does.

Yet this is precisely what happened recently when I wrote a column titled “Memo to the Democrats: We Need Free Trade with China.” It targeted the leading anti-trade voices in the Democratic Party, particularly Hillary Clinton and Barack Obama, and continued by explaining why free trade with China does indeed benefit the United States, at least economically.

As usual, I heard plenty from my liberal readers with inquiries as to why I detest “working-class” Americans so much. (Is there a non-working class?) Yet, disappointingly, the feedback from the same conservatives who normally appreciate my pro-life, anti-tax, and pro-war columns was just as negative. Now this would be understandable if their concern was one of national security. Some (though not I) might suggest that we should cut trade relations with China solely in order to slow down their progress, though the logical argument would concede that we would be taking an economic hit as well. But no. The conservatives I heard from disagreed with my column because they were absolutely convinced that free trade with China was economically harmful.

Let me first make it clear, in order to avoid giving us conservatives a bad name, that free trade is a conservative cause, despite what some of its detractors might say. It is perfectly consistent with other conservative causes of keeping government out of the economy. In other words, free trade makes economic sense.

The primary problem with anti-traders is their lack of understanding of international trade. Yes, we do have what is commonly referred to as a “trade deficit” with China, in the sense that we import more physical goods from the Chinese than we export to them. But the billions of additional dollars that we are paying them are U.S. dollars, which they can only spend in the U.S. In other words, unless the Chinese use all of this money to build a great wall of physical U.S. dollars across their landscape, they would have to return this money to America if they want to get anything out of it.

There are several ways they can do so. One way is to purchase U.S. goods. Another way – and this is the major factor that is never included in “trade deficit” calculations you see on TV – is investment in the United States. Tourism is yet another way. If the Chinese come to a point where they do not need anything more from the U.S. economy, they will exchange their remaining U.S. dollars with another country’s economy, which will in turn run through all of these options.

In reality, the Chinese use their U.S. dollars in a combination of these ways. This means that if the Chinese found no satisfying way to spend their U.S. dollars in America (or to exchange them with someone else who wants to spend them in America), they would not export anything to America, because they would have no use for the U.S. dollars they would receive. In other words, every U.S. dollar we pay for imported goods, which are made more efficiently (and more cheaply) by the Chinese than they are by us, has to and does come back to our most efficient industries and most attractive investment opportunities, creating jobs and wealth. Indeed, both economies benefit greatly.

The voices of my anti-trade friends might still insist, “But what about the American workers who lose their jobs due to cheap Chinese imports?”

Let us not forget, first of all, that for every worker that loses his job due to free trade with China, there are thousands of American consumers (who are also workers!) who make significant savings because of this free trade. This saved money will then be spent on goods in U.S. industries that will expand their efficient production (by hiring more workers). At the same time, the increased money that went to China will be used to purchase products from the most efficient U.S. industries, or to invest in promising U.S. companies that will grow and hire more workers. In short, although some workers might be temporarily laid off, they will eventually be more efficiently employed in industries that are efficient producers. More importantly, the country as a whole will benefit from increased production and a higher standard of living brought about by lower prices.

Now, my conservative friends, if you wish to argue that we should cut these trade ties with China in order to stop its economic progress, that’s your national security argument and you are free to make it. But if you do hold this position, you must concede that cutting trade ties would also hurt the U.S. economy, and that it is a sacrifice you are willing to make in order to achieve national security goals. Alleging, on the other hand, that cutting trade ties would help the U.S. economy is factually incorrect as well as disingenuous. Don’t go down that road. It is not one for conservatives.

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