Posted on 06/25/2005 7:33:12 PM PDT by CHARLITE
If a store is selling quality products at low prices, why would anyone want to shut it down? This rhetorical question was asked by economist Arthur Laffer last week in connection to an unprecedented attack on China trade by numerous U.S. senators. In response to the China bashing, the stock market plunged.
How fitting that such a misguided approach to both the economy and national security would come on the 75th anniversary of the infamous Smoot-Hawley tariff bill. According to economist Thomas Sowell, that massive tariff helped trigger the Great Depression, with U.S. unemployment rising from 9 percent in 1930 to 16 percent in 1931 and 25 percent in 1932.
Today, senators Smoot Schumer and Hawley Graham have proposed a 27.5 percent tariff on Chinese imports unless China raises significantly the value of its yuan currency. The senators seem to be angry at a rising bilateral trade deficit resulting from Chinese imports to the U.S. But so what? Free trade only empowers our consumers. In the last couple of years the U.S. has created about 3.5 million new jobs, the unemployment rate is only 5.1 percent, and the nation’s GDP is expanding at a 4.5 percent pace. Meanwhile, China’s economy continues to climb near a 10 percent rate, with the heretofore impoverished Chinese population slowly but surely entering the modern realm of rising global prosperity.
Schumer and Graham believe that a higher yuan would narrow the trade deficit. But Alan Greenspan completely disagrees. The Fed chairman told a Senate panel that “some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi [yuan] relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States. … I am aware of no credible evidence that supports such a conclusion.”
More, Art Laffer argues that a stable yuan linked to the dollar has promoted strong economic growth at low inflation for the U.S., China, and the rest of the world. “We have outsourced Alan Greenspan to China,” said Laffer, “and that’s a good thing for everyone.”
Think of the dollar-link as China’s gold standard, stabilizing the value of its currency and attracting foreign investment inflows to rebuild its economy. Destabilizing the yuan would be just as disastrous as the so-called Asian contagion of 1997-98 when Robert Rubin and the IMF forced the smaller Asian Tiger economies to de-link from the greenback. That only led to recession in the Pac Rim and intense deflation around the world.
Ironically, since the dollar has been floating freely, the dollar-linked yuan has also floated compared to a market basket of currencies. Between 1995 and 2001 the yuan-dollar appreciated by nearly 50 percent and in recent years has fallen by about 30 percent. Both the U.S. and China adjusted internally to deflation and inflation. But the common link between the two has given the yuan global financial confidence while at the same time giving the U.S. enormous leverage over the Chinese economy. What’s wrong with that? We buy their goods and they invest in our country through the purchase of Treasury bonds and more recently through direct investment in large U.S-based corporations (like Maytag and Unocal).
Unlike the sale of defense-related technologies there’s no national security problem here. American firms like Anheuser-Busch, the Bank of America, and numerous tech firms are all investing in China. This is free and open trade for the mutual benefit of both nations. Trade and monetary cooperation also provide the basis for national security cooperation, especially in the areas of stopping nuclear proliferation in North Korea and protecting a free Taiwan.
Clearly China is not perfect, though it has reduced government ownership of the economy from 90 percent twenty years ago to about 30 percent today, according to Laffer. Yes, the communist government in Beijing prevents free elections and free speech, continues to persecute religious groups, and has a record of pirating music and software as well as other intellectual property. But according to a recent study by the Council on Foreign Relations, China has also changed 2,600 legal statutes to comply with World Trade Organization rules.
The freedom to trade and the freedom to choose are central to the economic freedom that’s necessary for nations to grow and prosper. Centuries of economic history confirm this, and yet some people seem to want to repeat the worst mistakes of the past. Open trade and currency stability enormously benefit both the U.S. and China and may well lead to improved international relations. Why do senators Smoot Schumer and Hawley Graham want to disrupt the 21st century march to peace and prosperity?
Cutting off your nose to spite your face makes no sense for individuals, nor for nations. Hasn’t history taught us that free trade is part of the solution -- not the problem?
Lawrence Kudlow is a former Reagan economic advisor, a syndicated columnist, and the co-host of CNBC's Kudlow & Company.
I believe in free trade, but I don't agree that it's bound to be disastrous to pick out one country and decide not to make them (actually their government, people don't see anything of the money, or at least a pittance) any richer than they are if you can help it. Especially if that government is widely seen as our most likely rival.
Uh, all free trade with China does is pump money into a country that we may have to fight one day.
In my personal opinion, they need to double their proposed tariff. There are some people you can trust with Free Trade, the Chicoms are not among said people.
The biggest, absolute biggest mistake Clinton ever made as President was allowing MFN status to go through.
Following the free trade with China logic, I suppose we should immediately set up full and free trade with Tehran
It would be a bad move to start a trade war right now.
Garbage!
'nuff said.
Free trade promotes freedom.
Perhaps free trade is a way for us to strategically prevent the likelihood of having to fight them.
For any reasons less political reasons.
Haven't you achieved the understandable of the Dogma of politics?
Garbage!
Oh, to the lengths some "anti free trading zealots" will go to disavow the title of "The only remaining superpower in the world" a title obtained because of freedom.
Your key assumptions are all wrong.
Why? Explain.
If the Chinese revalue the Yuan upwards, as everybody seems to want, their cost to buy oil will be correspondingly lower. They will be able to buy more, putting upward pressure on crude oil prices.
That's right. Everybody loves us, hates us, admires us, despises us, respects us, dis-respects us. That makes everybody a potential rival, and a potential ally.
Better to engage them in commerce, than to use that commerce to initiate a conflict.
All of this with an eye towards national security, of course.
Catch alls are not the way to go with China... including with trade.
Technically though do you think I am against trade with China? What say ye?
I am for China trade. I am for Free Trade.
Yet your definitions of things are all messed up.
For one, Free Trade is not a concept. It is like a marriage. Its a mutually binding agreement ratified by both official governments.
We cannot hence have Free Trade ourselves. We need a willing other half to have Free Trade.
I can see your concept but it doesn't work like that in real life with China.
Chinese currency is a non-deliverable currency, hence it cannot leave the country.
Hence, China is not buying oil with RMB.
We are a nation that just ruled that people's property is no longer their property, and that any state can seize their home to put up commercial offices.
"Freedom" my ***. Freedom comes with safety and security, freedom comes in knowing that what is yours is yours, and freedom comes in knowing that your livelihood and career is never at stake. You "free trade mongrels" will do anything to promote corporate interests above anything else, even if it means depriving this country of its very own sovereignty in making us reliant on China as a trading partner, and even if it means sending jobs abroad so they can "save capital."
You can call me an anti-free trade zealot if you want; I expect such behavior to take place here at FreeRepublic, where those of you in your nice comfy employment situations have the comfort of being able to promote policy that will not harm you, while the average Joe continues to lose his manufacturing, textile, or technology jobs because of the policies YOU people support.
Now go ahead and call me a socialist if you want, even though it is the farthest thing from the truth. It's the only talking point you free traders have when it comes down to it.
Its a concept thats been in place for years.... like 30 years ala China.
To NOT take China up on some of these issues though is just as bad for our security, economic and otherwise, as it would be as you say to 'start a conflict'.
Its kind of like always saying yes to your kid regardless. Do you say yes to your kid regardless (or would you)? Probably not.
You guys here tend to make everything war or peace. If its peace we have to give China everything they want and enjoy bending over in the process.
Anything else (to some here) is "war".
I am not at all for cutting off engagement with China, nor cutting off trade. I am for hard ass negotiation to get them to change and do it now.
We're talking ultimatums.
Now there's a group we ought to listen to...These are the scoundrels that are pushing Congress to eliminate our borders AND the name of our Country...They want us to join with Canada and Mexico to become the country of 'North America'...
Any opinion or advice they might have, it would behoove us to move in the opposite direction...
How about you read up on Asia and get back to me first.
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