Domestic politics creates intense pressures for trade protectionism, popular outrage
at overseas competitors.
The logic of free trade, however, is indisputable. Comparative advantage is
real and lowers costs of goods for everyone. Restricting trade always raises
prices, even when your partner tilts the playing field. Tilting the field moves
production overseas.
Forcing partners to play fair requires sanctions, raising prices even more.
Ironically, sanctions restrict trade in order to free it; raise prices in order
to lower them. So, for policy makers the choices all involve pain; lose jobs
or raise prices.
This dilemma is manipulated by countries like China for their domestic needs.
According to Leonhardt, Chinese policies tilt the field and undermine free trade.
Chinese monetary policy keeps the value of their currency artificially low,
making their exports cheap. Second, Chinese intellectual property enforcement
is poor, meaning software and entertainment are illegally downloaded instead
of purchased. Finally, there are trade barriers. In some cases, Beijing
has insisted that products sold in China must not only be made there, but also
must be conceived and designed there.
Today, "trade wars" have become a distinct possibility. Populist
and nationalist outrage domestically combined with a weakened global position
make America less able to champion free trade, more likely to focus on jobs.
What do you think? Should the U.S. more aggressively use sanctions to enforce
free trade principles or to protect domestic production? Are the inevitable,
negative economic consequences of trade sanctions too risky?
By William Vocke
For more information see:
David Leonhardt, "The
Real Problem with China," The New York Times, January 12, 2011.
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