Read Paul's bio and previous columns
May 26, 2008
Memo to the Democrats:
We Need Free Trade with China
That a basic understanding of economics is severely lacking in the halls
of Congress is no secret to anyone who does understand economics. For
decades, congressional policy on taxes, regulation, spending, Social
Security and a myriad of other economic issues have demonstrated an
ignorance, often willful, of how the free market works.
But perhaps the most blatant denial of economic reality has come from
American politicians’ – mostly Democrats, but some Republicans as well –
blind opposition to free trade. If there is one issue on which good
economists overwhelmingly agree, it is the fact that unhindered
international trade is beneficial not only for the United States, but
for the rest of the world as well. In other words, free trade raises the
standard of living for humanity in its entirety.
Enter the politicians who either do not understand the basics of free
trade, choose not to do so or do understand them yet purposefully ignore
them in exchange for votes. Of course, every electoral season introduces
a fresh pool of such politicians. This year, the leading voices happen
to be those of Barack Obama and Hillary Clinton, who have spent much of
the primary season competing for the title of anti-free trader #1. In
the process, of course, China, this decade’s preferred boogeyman, has
been unfortunate enough to take the heat.
The primary argument against free trade with China is that such free
trade allows the Chinese to sell us many of their products cheaply, thus
putting some U.S. manufacturers of the same products out of business. To
some degree, it is true that some workers lose their jobs when faced
with cheaper output from other firms in the same industry, or from the
same industry in another country. But overall, the American people
experience a net benefit from the same set of transactions. And if we
are to put emotion aside, as reasonable Americans we must think of what
is best for the entire country, as opposed to what is best for specific
industries, and inefficient ones at that.
Importing cheap products from China means that every single American
gets to spend less on the products he or she needs. If I spend $2 on a
pair of Chinese-made socks instead of $5 on American-made socks, I have
an extra $3 left to buy something else, and I am richer for it. And
since Chinese imports comprise a large number of products that are basic
necessities, such as clothing, kitchen pieces or standard household
items, it is lower income Americans that benefit most from the savings,
since they tend to spend a larger percentage of their income on such
products than richer Americans do.
Another way to think of it is that, although the U.S. sock industry
might need to lay off or reduce the wages of hundreds or even thousands
of workers, at the same time we have 300 million Americans whose real
wages have been essentially increased, in the sense that they can get
more for their money. Thus, when the likes of Obama and Clinton claim
that free trade policies are urged by “special interests,” they have it
oh so very wrong.
Free trade benefits the general interest, while it is the special
interests, such as the U.S. sock lobby, who get temporarily hurt by free
trade, and thus ask for special protection for their industry. When the
politicians are influenced by such powerful lobbies, they are tempted
to, and often do, impose tariffs on imported Chinese products such as
socks. Although such a move might temporarily retain the wages of
workers in a limited number of companies, it would also essentially
reduce the purchasing power of all Americans. And of course, the
politicians would get away with it. The loss of sock industry jobs is
clearly tangible, while the loss of consumers’ purchasing power is
nowhere near as lucidly visible.
it unfortunate that thousands of workers have to be laid off in exchange
for the improved standard of living of all Americans, not to mention the
Chinese? The immediate effect of course is sad for these particular
workers. But in the long run, these workers will be absorbed by
industries that are efficient and that do not need special protection in
order to survive foreign competition. In such an industry, they will
become more productive and, as such, will contribute to even further
improving the standard of living for people around the world.
use an example from the real world, one might look at the tariffs
imposed on wire hangers imported from China. Although the tariffs have
allowed for the retention of literally a couple of hundred jobs in the
U.S. hanger industry (but more notably, the profits of their bosses), it
has increased the operating costs of 30,000 dry-cleaning businesses and
the expenses of millions of their customers. As this unfortunate
anecdote demonstrates, little net good can come out of interfering with
This is especially true when we are trading enormous volumes with an
enormous country that is giving us enormous benefits. And this is all
not to mention that every U.S. dollar we pay the Chinese in exchange for
their products must come back to America, the one place where it could
be spent, if not in the form of payment for U.S. exports, then through
investment, tourism or other such ways.
This truth, however, remains inconvenient for Obama, Clinton and their
friends in the most inefficient U.S. industries. And until Americans
wake up to this unfortunate reality, their standard of living will
remain much lower than it could be.
© 2008 North Star
Writers Group. May not be republished without permission.
Click here to talk to our writers and
editors about this column and others in our discussion forum.
To e-mail feedback
about this column,
click here. If you enjoy this writer's
work, please contact your local newspapers editors and ask them to carry
This is Column # PI109.
permission to publish here.