Thread: A Trade War With China?

A Trade War With China?
By Robert Samuelson

WASHINGTON-- No one familiar with the Smoot-Hawley tariff of 1930 should relish the prospect of a trade war with China -- but that seems to be where we're headed and is probably where we should be headed. Although the Smoot-Hawley tariff did not cause the Great Depression, it contributed to its severity by provoking widespread retaliation. Confronting China's export subsidies risks a similar tit-for-tat cycle at a time when the global economic recovery is weak. This is a risk, unfortunately, we need to take.

In a decade, China has gone from a huge, poor nation to an economic colossus. Although its per capita income ($6,600 in 2009) is only one-seventh that of the United States ($46,400), the sheer size of its economy gives it a growing global influence. China passed Japan this year as the second-largest national economy. In 2009, it displaced Germany as the biggest exporter and also became the world's largest energy user.

The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don't. Every nation, including the United States, would like to do the same, and most have tried. What's different is that most other countries support the legitimacy of the rules -- often requiring the sacrifice of immediate economic self-interest -- and none is as big as China. Their departures from norms don't threaten the entire system.

China's worst abuse involves its undervalued currency and its promotion of export-led economic growth. The United States isn't the only victim. China's underpricing of exports and overpricing of imports hurt most trading nations, from Brazil to India. From 2006 to 2010, China's share of world exports jumped from 7 percent to 10 percent.

One remedy would be for China to revalue its currency, reducing the competitiveness of its exports. American presidents have urged this for years. The Chinese acknowledge that they need stronger domestic spending but seem willing to let the renminbi (RMB) appreciate only if it doesn't really hurt their exports. Thus, the appreciation of about 20 percent permitted from mid-2005 to mid-2008 was largely offset by higher productivity (aka, more efficiency) that lowered costs. China halted even this when the global economy crashed and has only recently permitted the currency to rise. In practice, the RMB has barely budged.

How much the RMB is undervalued and how many U.S. jobs have been lost are unclear. The Peterson Institute, a research group, says a revaluation of 20 percent would create 300,000 to 700,000 U.S. jobs over two to three years. Economist Robert Scott of the liberal Economic Policy Institute estimates that trade with China has cost 3.5 million jobs. This may be high, because it assumes that imports from China displace U.S. production when many may displace imports from other countries. But all estimates are large, though well short of the recession's total employment decline of 8.4 million.

If China won't revalue, the alternative is retaliation. This might start a trade war, because China might respond in kind, perhaps buying fewer Boeings and more Airbuses and substituting Brazilian soybeans for American. One proposal by Reps. Tim Ryan, D-Ohio, and Tim Murphy, R-Penn., would classify currency manipulation -- which China clearly practices -- as an export subsidy eligible for "countervailing duties" (tariffs offsetting the subsidy). This makes economic sense but might be ruled illegal by the World Trade Organization. A House committee last week approved this approach; the full House could pass it this week. Ideally, congressional action would convince China to negotiate a significant RMB revaluation.

Less ideally and more realistically would be a replay of Smoot-Hawley, just when the wobbly world economy doesn't need a fight between its two largest members. Economic nationalism, once unleashed here and there, might prove hard to control. But there's a big difference between then and now. Smoot-Hawley was blatantly protectionist. Dozens of tariffs increased; many countries retaliated. By contrast, American action today would aim at curbing Chinese protectionism.

The post-World War II trading system was built on the principle of mutual advantage, and that principle -- though often compromised -- has endured. China wants a trading system subordinated to its needs: ample export markets to support the jobs necessary to keep the Communist Party in power; captive sources for oil, foodstuffs and other essential raw materials; and technological superiority. Other countries win or lose depending on how well they serve China's interests.

The collision is between two concepts of the world order. As the old order's main architect and guardian, the United States faces a dreadful choice: resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous.

http://www.realclearpolitics.com/articl ... 07310.html

Well, the first thing the author of this article needs to understand if not learn is that there was nothing at all wrong with the Smoot-Hawley Tariff Act of 1930. A few of the rates on some of the products were deemed too high by some and these were later adjusted. But overall, there was absolutely nothing wrong with this legislation. The fact that other countries who had been taking advantage of our country with higher tariff rates on our products than we had on theirs were upset with the changes Smoot-Hawley made is like Mexico being upset that we're going to enforce US immigration law.

We have to protect our trade in order to protect our economy, every nation has to do that. That has always been the case and will always be the case. The notion that the US can outproduce every country in the world by importing everything it wants to buy at a lower cost and export everything we produce at a higher cost that others might want to buy is just the stupidest most uneducated, most ridiculous political folly ever to be bantered in serious conversations.

Free trade is a joke, a bad joke, a dangerous joke, a disastrous joke, and if all Americans can't see that by now, then God Help US because we're certainly too ignorant to help ourselves.

How to Fix the US Economy:

1. stop illegal immigration
2. pass the FairTax
3. protect our trade
4. legalize/regulate/tax under 2 the illegal drug trade
5. drill baby drill

It's not complicated. It's very simple.

www.fairtax.org

Judy you are spot on.....Statements that the S moot-Hawley Tariff Act was bad for the US is nothing more than propaganda from the internationalists. When the manufacturing sector is in the tank ( as it was in the 30's and now) you have to protect yourself. Not only do we have China to contend with we have NAFTA. We send steel to Mexico … they send it back in the form of cut steel... we move it to another boarder town and ship it back to Mexico … they send it back as a finished product such as a piece of Cat. equipment... it is then shipped to Houston bound for some country like Russia and it is counted as an export... no duties of any kind are charged. Exports are fine but you have to produce something to export...
If China wants to retaliate against an import tax then we should stop paying the interest on our debt they hold. We must get back some of the 3million or more jobs that have been shipped to China and India.

Originally Posted by justme

Judy you are spot on.....Statements that the S moot-Hawley Tariff Act was bad for the US is nothing more than propaganda from the internationalists. When the manufacturing sector is in the tank ( as it was in the 30's and now) you have to protect yourself. Not only do we have China to contend with we have NAFTA. We send steel to Mexico … they send it back in the form of cut steel... we move it to another boarder town and ship it back to Mexico … they send it back as a finished product such as a piece of Cat. equipment... it is then shipped to Houston bound for some country like Russia and it is counted as an export... no duties of any kind are charged. Exports are fine but you have to produce something to export...
If China wants to retaliate against an import tax then we should stop paying the interest on our debt they hold. We must get back some of the 3million or more jobs that have been shipped to China and India.

Thank you, justme.

And, you're absolutely right. So called "free trade" treason worldwide has cost the US economy over 5 million manufacturing jobs for no valid reason whatsoever. Because of the economic multiplier effect of industrial production, every 1 manufacturing job lost to an economy takes 5 other jobs with it. Just as when Governors announce a new manufacturing plant and include all the jobs this new industry will create in their state economy, they use the 6 to 1 multiplier effect and announce all the jobs created. Well, when you close one of those plants, we didn't only lose the 1 manufacturing job, we lost 6 jobs for every 1 manufacturing job lost.

So, "free trade" policy that forces trade deficits at the 2008 levels, cost the United States and the American People over 30 million jobs total, not just the 5 million shipped overseas, but the other 25 million jobs that fed off our manufacturing base.

The sooner Americans wake up and grasp the reality of this trade catastrophe, the sooner we'll fix the problem and get our nation and good sustainable employment back on track. Then our entitlement programs that fund unemployed and underemployed workers and their families won't be necessary and taxpayers will no longer be burdened with this monkey on their backs dragging them and our whole nation into the sewer of becoming the World's Largest Banana Republic.

And you are spot on, justme, about the "internationalists" being the only ones to claim Smoot-Hawley was bad. I could only add to that the group who didn't take the time to see through their propaganda and thought anything that was "free" was "good for America". Nothing is free, onto eve our own freedom, and "free trade" has bankrupted the greatest economic superpower the world had ever known, and did so in less than a decade, as most of us thought it would.

We can't cry over spilled milk. All we can do now is stop this nonsense, end the insanity, and take the appropriate steps to fix it. It's not complicated. It's very simple:

1. stop illegal immigration
2. pass the FairTax
3. protect our trade
4. legalize/regulate/tax under 2 the illegal drug trade
5. drill baby drill

Make 2010 count, folks. Make it count, and please do NOT confuse the terms "free enterprise" with "free trade", they are 2 entirely different animals, and do not fall for the propagandists who want to mislabel protectionists as isolationists and always remember, the people who conspire for free trade are the very same people who conspire for open borders. They are the Globalists who have no love for country or citizenship ... they are self-servists lining their own pockets off the misery and suffering of others including their own relatives, families and friends who are US citizens.

There's only one word for them, which I can't use on this forum, but it starts with an "M" has an "F" in it, and ends with "ers".

It's time to shut this pond scum down once and for all.