Please tell me you're lying, Mr. Romney!

It is rather ungracious of me, I know, because only today I received a friendly comment from a Mr. John Gardner who appreciated reading a blog that was not rude about Mitt Romney - and now I am going to be rude about Mitt Romney!  Sorry, but "truth will out".  And no-one spells out economic truths better than Don Boudreaux at Cafe Hayek.  I have not heard the presidential debates in full, only the excerpts on TV and the written commentary.  However, one thing I keep picking up like a  monotonous  rhythm, is an anti-Chinese shtick which is decidely alarming because it comes regularly from both candidates!  Once again, it seems, we are hearing the dim, dumb clamour of fear and loathing from the Great American Public (GAP) and it is being played upon by Obama and Romney, each attempting to wave the flag higher and more vigorously than their opponent.

Obama may be forgiven because he is, at heart, just another political shyster, this time one hiding behind what I suspect is a totally fraudulent academic record which provides him with a veneer of intellectualism - to the brain dead, that is!  Romney, on the other hand, knows better, or should do, and thus his efforts to outbid Obama on how "tough" he's going to be with China is fraud of the highest, or lowest, calibre.  As Boudreaux puts it, much better than me:

Each man insists that America’s economy can be harmed by inexpensive imports – in other words, harmed by opportunities for voluntary exchanges that lower Americans’ cost of living.

By promising to raise taxes on Americans who buy Chinese-made goods, Mr. Romney again promised to break his campaign promise to not raise taxes.  That he is unaware of the contradiction isn’t promising.

Thus, the GAP (just like their British counterparts from time to time) are encouraged to support a politician who will increase their cost of living by banning cheap imports!  I mean, would you vote for such a thing ?  Oh!  You did once - sucker! - how old were you?

Mr. Obama is no better.  He bragged that he “saved a thousand jobs” with his “tough” trade action that – by raising taxes on Americans who buy Chinese-made tires – ensured “that China was not flooding our domestic market with cheap tires.”

By this logic, the President’s policy is inexcusably lame.  If creating more jobs in U.S. tire factories justifies forcing consumers to pay higher prices for tires, the Obama administration should also outlaw the sale of used tires (which, like low-priced imports, are “flooding our domestic market”).  Indeed, the president should seek legislation mandating that all rubber used to make tires be non-vulcanized.  The resulting decline in tire durability will create even more jobs in U.S. tire factories by “protecting” our market from being “flooded” with cheap tire durability – that is, with tires that last for tens of thousands of miles before needing to be replaced.

If it was just economics (or 'freakonomics' more like) perhaps we might forgive them but their swaggeringly aggressive attitude goes dangerously beyond cheap Chinese imports.  They are whipping up a war scenario.  This time, to the surprise of my readers, I will quote no less an authority than Prof Paul Krugman, er, this is the earlier Paul Krugman, the one who appeared to possess considerable intelligence until he put it down somewhere and forgot it:

I believe that if the rhetoric that portrays international trade as a struggle continues to dominate the discourse, then policy debate will in the end be dominated by men like [protectionist author of The Trap, Sir James] Goldsmith, who are willing to take that rhetoric to its logical conclusion.  That is, trade will be treated as war, and the current system of relatively open world markets will disintegrate because nobody but a few professors believes in the ideology of free trade.

And that will be a shame, because for all their faults the professors are right.  The conflict among nations that so many policy intellectuals imagine prevails is an illusion; but it is an illusion that can destroy the reality of mutual gains from trade.

That comes courtesy, yet again, of Cafe Hayek and is a quote from a 1995 essay by Paul Krugman.

In my poor, meagre opinion, Sino-American relations are going to be absolutely critical during the first half of the 21st century.  The sort of huckster boasting and bragging engaged in by both candidates will be watched with close attention in Beijing and may come back to haunt them - and us!

 

Comments

[JK]

Don't be fretting the little stuff David - the ways've been cleared and now the coast is clear for President Romney!

http://abcnews.go.com/blogs/politics/2012/10/billy-grahams-website-removes-mormonism-from-cult-list/

[Able]

I'm not sure I agree entirely. Why? Well, because I'm not sure anyone has told the Chinese that "trade will be treated as war" is a bad idea (look at their actions on rare earths, in Africa, ostensibly 'companies' but in reality funded by Beijing buying ports etc.). I suspect China views trade as a means of both economic growth, entirely understandable and laudable, but also as a means to power - hopefully not as a precursor to anything.

The theory of open trade is certainly more 'morally' and economically correct, however it presupposes open markets on both sides. I can't think of any country that doesn't act in some way to protect its domestic producers/manufacturers (consider the EU, Japan, etc.). China with legislative, economic and monetary means, if I remember correctly - how much trade, as opposed to technology/job transfers actually occurs in that direction?.

Also consider the consequences, ie. our now none existent auto and manufacturing industries. Yes, people can buy cheap products, but only those who can actually find a job. A balance would have been 'nice'.

Part of the problem is 'projection', whilst we view trade in such a way, it doesn't necessarily mean other countries/cultures do (Japan, China, the entire Middle-East). Many can, and do, use our sense of fair-play against us.

(Just because I'm paranoid, It doesn't mean they really aren't all out to get me!)

[ArizonaCJ]

Romney is right on one issue; the artificially low pegging of China's currency to the US$ must end. That isn't free trade, and it is hurting the US. It's long past time to end it.

[rogerh]

Prof Boudreaux is being a bit economical with the argument here. The simplisitic idea is that cheap imports will simply encourage domestic workers into newer more profitable industries. However if you were setting up a new factory making Ipad Mark 99 would you be employing Jo from Hoboken? - no way.

So what new industries will employ Jo? Well, now that transport is cheap and any new market entrant can buy the best machine tools etc and set up anywhere Jo from Hoboken has to be cheaper than Ping from Peking. OK, so we move into smart stuff, satellites, rocket engines, computer chips. Snag, Jo is too dumb to sit at a CAD terminal and the market is satisfied by a small factory in Seattle - with plans to move to India next week. Similarly with lawyering or insurance. Finance? we screwed that up!

Growth is good, but tends to leave the Jos behind as a cost (ie tax) to all the smarty-pants folks still in a job. No good blaming Jo (many will try), Prof Boudreaux and his pals need to do some mighty serious thinking - the rules have changed - not easy finding a new job for Jo that pays a tax dollar.

[dearieme]

The threat of war that worries me is that if O really wants to keep his job he might launch an attack on Iran.

[David Duff]

There's no such thing as a free lunch ineconomics. What you gain here, you lose there. Thus it is with currency valuations. Emerging nations need a low currency (and the subsequent help for their exports) in order to break into markets. This can be painful for the people already in the field but, as a consumer, it helps me because either the imports are cheaper or the home producer has to become more efficient - either way I win! We went through all of this with Japan after the war. Their car industry destroyed the British car industry (more or less) and good riddance to Leyland and all their rubbish. Now, for various reasons including a reasonably priced pound, the Japs run a very successful motoring industry in Britain.

Today, China is following the same path but has NOW reached a turning point. They held their currency low in order to gain entry to export markets but that meant imports for them were very expensive. Today they have a burgeoning middle-class and their economy is hopelessly one-sided. They need to switch to a higher consumer economy inorder to balance matters. As the WSJ reports:

"That boom has reached the end of the road. As exports have grown, they have consumed more labor, commodities and capital at the expense of the domestic economy. Those inputs were plentiful enough to sustain a decade of spectacular growth, but they are now becoming scarce, forcing up prices.

The next phase of growth will require greater emphasis on total factor productivity, meaning creating more with the same amount of inputs. And that requires better allocation of capital, through a larger bond market and a commercial banking system based on market signals."
http://online.wsj.com/article/SB10001424052702304432704577347901443326084.html

Yes, American politicians (and European ones, come to that) might feel the need to huff 'n' puff because their dumb & dumber audience wants to hear nonsense but they need to watch their tone. Raising temperatures is easy, cooling them very much harder. That is not to say that one has to be overly soft towards China but too much aggressiveness could be dangerous.