May 20, 2005
Speaking of Economics

It's actually quite a bit more complicated than "China is stealing American jobs":

China is not the only trading partner of the United States and Europe, but, listening to politicians in the past few weeks, you could be forgiven for thinking it was. In reality, China supplies about one-seventh of American imports and a tenth of European ones.
Moreover, those shares are increasing because Americans and Europeans want them to.
Now, the United States and EU want to turn the clock back by imposing new restrictions on Chinese textiles. In general, the World Trade Organization has been sympathetic to such measures when they were strictly temporary and used to protect industries in transition. There is no such excuse this time; the United States and EU had a decade to prepare, and anyone could have predicted China's actions when the agreement expired.
China keeps the yuan trading within an extremely narrow range by buying billions of dollars worth of American securities. It supplies financing for businesses and the government, making up for the low saving rate in the United States. Again, consumers in the United States benefit - they can keep spending.

In spite of this, as the article notes, protectionism does seem to be on the march, and I agree it bodes well for no one.

"But they're taking our jobs! My friends just lost theirs to foreign competition!"

Quite so, but this is happening because we are making it happen. American regulations and unionized labor have artificially inflated labor costs and made it impossible for our native textile industry, to take one example, to produce clothing and make a profit.

"That's because the other places cheat! Look how they live! These Americans have families! Mortgages! Bills to pay! It's not fair!"

Again, good points. However, there are many definitions of "fair". True, it certainly doesn't seem "fair" for a forty-year-old textile worker to lose their high-paying job because their company can't compete with cheap imports. But it also doesn't seem very "fair" that an entire nation of 280 million people should be forced to pay billions of dollars more for clothing every year just so a few thousand of their fellows can keep their jobs.

What should happen is consumers are given a choice... cheap, reasonably well-made clothing from China (or India, or Vietnam, or wherever), or more expensive, reasonably well-made clothing from the US. The chips (or dollars, if you will) then will fall where they may... if you want to save US jobs, you buy US clothing. If you want to save money, you buy the cheapest thing you can find.

What is going to happen (if Western regulators get their way) is we will be forced to pay more for our clothing than we otherwise would to ensure inefficient factories, poor management, and overpriced unionized labor are able to seem to be competitive. But at least they'll get to keep their jobs, no?

Notice too this burden of higher prices will inevitably fall disproportionately on the poor. I can now in fact afford to pay an extra $5 for a shirt, and probably not even notice it. But there was a time not too long ago when $5 was to me the difference between making my rent or bouncing a check, and I know there are tens of thousands of people across the country to whom $5 is still "real money". The simple fact is that opposition to free trade and globalism, the two great lietmotifs of the left, does not protect the poor, it merely redirects cash from one set of rich people to another.

"Oh, I see it now. What you're saying is we should just toss all these people to the curb simply because they can't compete! How typically neocon of you!"

No, that's not what I'm saying. I'm saying that protectionism as a response to competition does not work, is in fact counter-productive, and hurts far more people than it would ever help. This does not mean we should simply "toss people to the curb", rather we should re-define our strategies for helping them. Make it easier and cheaper to get a good education. Reform regulations and business law to make it simpler and cheaper for anyone to start and run their own business. Keep taxes low so people can keep more of what they make. Ensure capital markets are strong, rich, and healthy so that the very rich (all over the world) deposit their money in our banks, allowing them in turn to lend it out to anyone with a dream and a willingness to work for it. Provide opportunities, don't guarantee results.

Does this mean people will fail? Of course it will. One of the defining features of capitalism is that there are winners and losers. But by ensuring such loss does not automatically exclude future opportunity, we give everyone the chance to keep trying until they finally get it right.

Protectionism is the bastion of utopian idealists, ivory-tower socialists, and cynical special interests. It always creates far more problems than it ever solves. Far better to give people the tools to succeed and the opportunity to use them. Only by allowing them to fail can we ever hope to see them succeed.

Posted by scott at May 20, 2005 10:53 AM

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