All Commentary
Wednesday, March 30, 2016

Why Do the Candidates Want War with China?

Trade Wars Lead to Shooting Wars

Who is the peacemaking candidate this year?

It is neither outsider. Sanders and Trump are both economic illiterates whose policies, if implemented, will result in a trade war with China. And, as we will see, trade wars can lead to shooting wars.

Sanders and Trump are both economic illiterates whose policies would result in a trade war with China.

Some may chafe at the idea of lumping kindhearted Bernie with vulgar Trump. Surely Sanders’s intentions are peaceful. But good intentions are never enough. To paraphrase economics professor Don Boudreaux, reality is not a puppet of our preferences.

Trump has threatened a 45 percent tariff on Chinese goods and has told Americans, “They’re killing us.” Sanders, too, sees cheap Chinese and other imported goods as the cause of a disappearing middle class; he wants to “develop trade policies which demand that American corporations create jobs here.”

Establishment candidate Hillary Clinton is little different from the outsiders with her stand-up-to-China rhetoric, and her theme is clear: China has to be made to “stop unfair trade practices that hurt US businesses and kill US jobs.”

Some are hoping a brokered GOP convention will deliver up a more “respectable” candidate for president, perhaps Mitt Romney. But on China, Romney is just as bellicose — and as economically illiterate — as the rest. While running for president in 2012, he offered negotiations but then warned that if China didn’t comply, “I will not continue an economic relationship that rewards China’s cheating and penalizes American companies and workers.”

Some libertarians, such as economist Walter Block, are promoting Trump as the peace-making candidate; they believe he would get along with Russian president Vladimir Putin. But personality-based alliances are not the basis of peace.

Peace results when individuals and organizations are free to cooperate and promote prosperity across borders without restrictions on trade.

Is There Such a Thing as Dumping?

On trade issues with China, the Obama administration seems just as belligerent as the current crop of candidates. In March 2016, the Department of Commerce imposed huge “preliminary duties on imports of cold-rolled steel, used to make auto parts, appliances and shipping containers.” Seven countries, including China, will be required to pay duties of 266 percent. In 2012, the Department of Commerce imposed new tariffs on Chinese solar-panel companies after finding them guilty of dumping their products.

These are good decisions for the companies competing with Chinese firms — and disastrous for everyone else.

Dumping simply means that the Commerce Department has determined that an import’s price is “unfair” — usually that the price of a good is different between domestic and foreign markets.

Last summer, my son and I found ourselves shopping at Kohl’s. He hates to shop, and, lucky for me, is not brand conscious. I was stunned at the price of Levi’s jeans, and therefore pleased that he liked Lee jeans, which were less than half the price of Levi’s.

If Lee matches Levi’s on quality, is Lee therefore engaged in unfair competition?

At the end of a season, clothing is often sold below “cost.” On our Kohl’s shopping trip, I found a full selection of Chaps polo shirts at 75 percent off. Was Kohl’s therefore guilty of dumping? The Tommy Hilfiger store manager who didn’t get my business that day might think so.

Is Price Competition Unfair?

Soon after the first Sears catalog was mailed in 1888, the catalog began to offer an astonishing array of goods to a population whose shopping had previously been limited to the local general store. Many such stores closed, unable to compete on price or selection. Yet, American prosperity increased.

Consider this when your family buys Chinese clothing: What do you do with the money you save each year? 

If a farmer ordered a work shirt from the catalog, did that mean his daughter lost a job sewing shirts for the family? Yes, but it also meant she could turn to other pursuits, whether work or leisure. Either way, specialization increased the family’s wealth.

In the 1930s, when America’s first supermarket, King Kullen, opened in Queens, New York, the array of goods offered and the low prices were breathtaking. Should supermarkets have been banned to save the jobs at smaller grocery stores?

Saving such jobs always costs Americans growth and prosperity.

Foreign Trade and American Jobs

Before the invention of the washing machine, women and children spent several days a week on household laundry. If only there were a law against washing machines, teenagers who are having trouble finding summer jobs could make money washing their neighbors’ laundry by hand. Similarly, adults who have found economic conditions tough could begin hand-laundry businesses. Yes, banning the washing machine might create jobs, but does anybody think we would be better off for doing so? (For more on the glories of the washing machine, see economist Steve Horwitz’s “The Nightmare of Living in the Past,”, October 20, 2015.)

In the 1870s, American farmers watched their sons and daughters go off to work in the city. Did this migration make farming families worse off? Had their kids stayed home, they could have helped on the family farm. And we’d still have 19th century living conditions.

Today, poor rural Chinese are making the same journey that Americans made over a hundred years ago.

Consider this when your family buys Chinese clothing: What do you do with the money you save each year?

When politicians talk about the American jobs lost to China, what they do not talk about are the American jobs created in the computer industry, in the entertainment industries, and in other sectors of the economy because of the money we save on Chinese clothing and other inexpensive goods.

Will a Trade War Lead to a Shooting War?

In his book The Fair Trade Fraud, author James Bovard observes how US textile manufacturers “inflamed public hostility towards Japan” and helped poison relations before World War II. The 1930 Smoot-Hawley tariff helped to create the Great Depression.

Financial analyst Robert Prechter points out that a common cause underlying wars and bear markets is a negative collective social mood. A negative social mood is based on fear. As fear increases, politicians seek to harness that fear for their personal advantage. They blame other countries for domestic problems. They threaten and then institute trade barriers. As trade barriers increase, the economic situation further deteriorates, both in their own country and around the world, further increasing fear. Eventually, demagogic politicians provoke wars.

Writing in the Wall Street Journal, columnist Andrew Browne explained the economic rift growing between the old industrial part of China and its booming coast.

China’s economic slow lane is choked with state-owned industrial firms in sectors linked to real estate — steel, cement, coal and construction equipment.… They are zombies in a phantom economy.

Zipping along in the economic fast lane are private companies producing goods and services for a burgeoning consumer market that has taken over from manufacturing as the engine of China’s growth.

Peace results when individuals and organizations are free to cooperate and promote prosperity across borders without restrictions on trade.

The result of increasing tariffs on Chinese goods will be a declining Chinese economy. Chinese leaders will feel the pressure when “fast-lane” companies can’t absorb displaced workers from the state-owned firms.

Increasing fear among Americans has already produced the Trump phenomenon. Imagine what countries with authoritarian traditions will produce if the global economy deteriorates due to trade wars. If trade wars begin, economic tensions will mount. To divert attention from the economy, Chinese politicians could escalate tensions over Taiwan or North Korea. Or, perhaps, they could direct their efforts farther abroad. Will American fears of a cyberattack on our electrical grid prove prophetic?

A prosperous world dramatically reduces the odds of such catastrophic events.

Economically illiterate politicians who promote trade wars threaten human cooperation, international harmony, and general prosperity. They threaten peace. Good intentions are meaningless if your trade policies lead to war.

  • Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. 

    To receive Barry's essays subscribe at his Substack, Mindset Shifts.

    His essays also appear at the American Institute for Economic Research, Intellectual Takeout, Learn Liberty, The Epoch Times and many other publications. Barry’s essays have been translated into many languages, most frequently Spanish and Portuguese. He is the author of The Inner-Work of Leadership.

    Barry holds a Ph.D. in economics from Rutgers University and a B.S. in mathematical statistics from CCNY.