China Bashing

This is a reprint from a column I write for a local newspaper. — JH


If you watched the last presidential debate between President Obama and Mitt Romney you got an earful about that evil bastion of trade manipulation, China. It seems that whenever a candidate for public office is desperate to attack an opponent, the specter of China is rolled out.

The main issues we hear from both sides are that:

  1. China is unfair in its trade policies with the U.S. They are “cheating” and putting us at a disadvantage.
  2. They steal American manufacturing jobs by unfairly underpaying their workers.
  3. They are currency manipulators, unfairly keeping their yuan too low in order to out-compete us in world trade.
  4. And, worst of all, we are indebted to China. We are forced to borrow from China to fund our government.

These same politicians say we’ve got to be tough on China and bring jobs back to America.

That, my friends, is hooey.

The issue here is free trade. All the candidates say they are in favor of free trade (it sounds good when they say it), but they really aren’t. At least if they rant about China stealing jobs.

Free trade is good for us. It creates jobs and wealth. If you look at the stats, we’ve been trading with other nations for years. Actually that is a bit of a misnomer. What it really is, is people like you and me having the freedom to buy a wider selection of goods. “Nations” don’t buy T shirts, I buy T shirts. “China” doesn’t sell T shirts, some company there does.

If I can buy a Billabong T shirt at Costco for less than it would cost if it were manufactured here, then what’s the problem? I have more money to spend on other things. Costco sells more shirts because of the lower price; they make more money, Billabong makes money, and the guy in China gets paid for the shirts. Win-win. We’ll get to slave labor, so hold on to that outrage for the moment.

We have greatly expanded trade with world since the 1980s yet the economy has grown dramatically and employment has gone up. Our present or even long-term problems have absolutely nothing to do with China. See my last week’s comment on the root of our problems.

The biggest importers to the U.S. are (according to size): China, Canada, Mexico, Japan, Germany, South Korea, UK, Saudi Arabia, Venezuela, and Taiwan. Our biggest export markets are (according to size): Canada, Mexico, China, Japan, UK, Germany, South Korea, Brazil, Netherlands, and Singapore.

I could say, using the logic of the anti-free traders, that U.S. exporters take away jobs in the countries they sell to (pity the poor Dutch). But the idea that one side loses in a transaction is wrong. If I buy a T shirt at Costco, does that put someone out of work at Macys? No, Macys has learned what its market is and so has Costco. Last I looked both doors were still open.

Like any business deal, both sides benefit from the transaction. Just because there is a border between us doesn’t change that fact. Foreign trade is just a fancy term for business between buyers and sellers who happen to be in different countries.

Let’s go back to the above criticisms of trading with China. They steal American jobs because they pay their workers very little, keep them in semi-slavery, enrich a very few, and turn out cheap goods. They compound the problem by unfairly keeping the yuan too low, making Chinese goods cost less than they would if they didn’t keep the price artificially low. Because of these devious moves they have piles of U.S. dollars and now we are indebted to them making them kind of our overlords.

These are canards. Not true. False. Misleading.

Of course they pay their workers less than we do. There are more workers in China needing jobs and eager to work. Yet no one is forcing them off the farms to go to Guangzhou to work in a factory. They go there because things on the farm are bad and factory jobs offer them and their families a way up. We may think their working conditions are bad, but, of course, we aren’t the workers and don’t have their perspective coming off the farm. Ask them and my guess the overwhelming majority would say they are glad to get the work. While China has turned a major corner toward more economic freedom, remember that it is still a top-down command economy run from Beijing. It will take another generation or two for China to create enough wealth to begin to resemble Western countries.

There are always places that manufacture goods cheaper and better than we do. Does anyone remember the Hupmobile or Wang Computers? They competed and lost yet we all benefited by having better products and cheaper prices. And that was from friendly American fire. America needs to allow businesses to thrive and compete, not to protect them from competition.

And who benefits? We do. Otherwise you should march over to Macys and demand to pay more for those jeans so American workers can have a fair chance. Not going to happen. Ask yourself what you would do if you had to pay more. Would you buy fewer things? Economists would say yes because, well, you have less money.

We know who benefits from trade barriers: the unions who keep wages artificially high thus driving out jobs. We now know why union membership has collapsed.

Currency manipulation? If China wants to keep their money artificially low, who benefits? Look in the mirror. For some reason they wish to subsidize we American consumers by making their currency at or near parity to the dollar even though foreign currency markets would value their yuan higher if it were allowed to freely float. Let’s have a big round of applause for the Chinese currency manipulators. Besides there is no currency manipulator worse than the U.S.

All that money we owe them? They hold about $1.152 trillion in U.S. Treasury debt. In 2007 they held about $727 billion. OMG!

We should thank them for that as well. Let’s face it, we buy more Chinese goods than we sell to them. (Shame on you.) What are they supposed to do with all those dollars? They have only two things they can do: buy U.S. debt or buy other U.S. assets. Oh sure, you say, why don’t they use the bucks to buy Brazilian soy beans? Then what would the Brazilians do with the dollars? It’s a hot potato.

Eventually those dollars have to come home. Otherwise two bad things would happen. Our interest rates would climb forcing the Fed to print more money, thus further devaluing the dollar. Or the international markets would be flooded with dollars, driving down the value of the dollar to the point where foreign banks would get queasy holding them. That would, uh, destroy the dollar as the world’s reserve currency. Not a good thing.

Ask yourself instead, who created all the debt? We are the party at fault here. We have an out-of-control recklessly spending government. Our federal debt has doubled since 2007 ($8.6 trillion to $16.0 trillion) with not much to show for it. We should be thankful that the Chinese have nothing else to do with those dollars than to buy our debt.

We have enough to worry about than having politicians spread lies to scapegoat their own failures. Ignore the noise and wear that Billabong T shirt with pride.

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1 comment to China Bashing

  • China hallows out the United States to provide subsidized employment to rural workers moving to the cities as technology pushes farmers off the land.

    The is no equivalency for low interest rates compensating for U.S. job losses due to China pushing down the value of their currency. Seniors in America lose the normalized return on fixed income and end up eating dog food.