It seems that more and more Americans, pro-Trump or not, are concluding that trade with China is a threat to the United States. The objections are typically one of three: (1) freer trade with China after it was admitted to the World Trade Organization (WTO) in 2001 has cost U.S. manufacturing jobs; (2) the Chinese have thrived by stealing our intellectual property (IP) and that has made Americans worse off; and (3) the Chinese will use some of their progress in cybertechnology to engage in surveillance of Americans.
Each of these objections contains a kernel of truth. But the objections together are not nearly enough to offset the huge gains that Americans reap from freer trade with China.
These are the opening two paragraphs of my latest Hoover article, “Is China an Economic Threat?” Defining Ideas, August 27, 2020.
Another excerpt:
Interestingly, in a 2019 article in Foreign Policy, deputy news editor Michael Hirsh quoted Autor: “One could say that there was something of a guild orthodoxy [among economists]: The key dictum was that policymakers should be told that trade was good for everyone in all places and times.”
Since 1976, when I earned my Ph.D., I’ve thought of myself as a member of the “guild,” that is, the economics profession. But somehow I missed that memo. More important, every other economist I know or read who talks about trade missed that message also. Indeed, I have yet to meet the economist who denies that trade is bad, especially in the short run, for those who must compete with cheaper imports. But, as noted above, the benefits of trade with China greatly outweigh the costs and go disproportionately to lower-income households.
I owe that one to Donald Boudreaux, who first made me aware of MIT economist David Autor’s statement. It’s possible, of course, that Hirsh misquoted him.
On TikTok, I also take my Hoover colleague John Cochrane’s side against our Hoover colleagues Niall Ferguson and H.R. McMaster, and I point out a serious breach by the Chinese of my privacy that our federal government, with its apparently low-quality security, helped create:
I clearly recall that the hacked form I filled out the year before asked me if I had engaged in adultery in the last seven years. That was important, you see, because the U.S. government needed to know if I could be blackmailed. Fortunately, my answer was no, but notice that the U.S. government had made it easier for the Chinese government to blackmail federal employees who answered yes.
And on draining the swamp:
President Trump, who came to power with the goal of “draining the swamp” is, with his order that TikTok be sold to an American company, reducing economic freedom and deepening the swamp. In this way, the TikTok controversy highlights, in plain sight, a real threat to our freedom: the threat from our own government.
READER COMMENTS
Warren Platts
Aug 28 2020 at 9:20am
The reason why there should be absolute zero trade with the Chinese Empire is very simple: the PRC CCP regime is the most evil regime since Nazi Germany.
There is no need to repeat the laundry list of ongoing atrocities and expansionism. Not to mention the fact that they are using our technology and the profits they make off our trade and investment to rearm specifically so they can “fight and win” a hot, kinetic war against us. To trade with a genocidal regime preparing for war against us is not only immoral, it is suicidally stupid.
Jon Murphy
Aug 28 2020 at 9:59am
Question:
The other day, you argued forcefully that the increased costs from the reduction of trade in a nation actually increases productive capabilities in the nation. Furthermore, in the past you have claimed that imports “destroy factories better than any missile.”
If these two statements are true, then “absolute zero trade with the Chinese Empire” would only serve to strengthen China. The increased costs to them would actually be increased productivity, which would in turn become new factories.
Would it not make more sense for the US to flood China with goods, thus “destroy[ing] factories better than any missile”? Indeed, if China represents such a national defense concern, we should flood them with high tech war materials. This will absolutely destroy their factories that produce such war material and reduce the productivity of the Chinese worker, all in one fell swoop! No need for war (and Congress). No need for loss of life. Sure, such a massive increase in exports and trade would reduce US productivity (if your theory is correct), but as you like to quote Adam Smith: defense is of far more importance than opulence.
In short, your comment here stands in stark contrast to the economic theory you poised the other day. I wonder how you resolve the prima facie contradiction?
Warren Platts
Aug 28 2020 at 10:40am
(A) You are wrong (you are ignoring the differences between trade deficits and trade surpluses).
(B) Such economic considerations are utterly irrelevant to the topic at hand. Even if there are economic benefits because of trade with China, that does not matter in the slightest, and should not figure into any calculation about what to do with a Communist, totalitarian regime dedicated to achieving global hegemony.
We can debate the pros and cons of free trade versus protectionism with countries like Bangladesh or Mexico or even Vietnam, but when it comes to the Chinese Empire, such considerations are worse than irrelevant.
Jon Murphy
Aug 28 2020 at 10:51am
Re (A): You’re going to have to be more specific. Wrong about what?
Re (B): Of course there are non-economic considerations, but what I am saying is the economic theory you espouse leads us to the opposite conclusion of your original post.
Warren Platts
Aug 28 2020 at 8:17pm
No, what I am saying, the decision to end trade or not with China, at this point has nothing to do with economics. You economists think that trade is your bailiwick, and thus the decision to end trade must also be in your bailiwick: but nothing could be further from the truth. The economics, at this point, are a mere sideshow, at best.
If we want to discuss economics, then we can discuss whether it would be more economically advisable to shift the displaced China trade to other low-income countries, or whether we should provide incentives so that much of that trade gets reshored back home. That is a discussion worth having where there is still room for debate.
Given that China is the 21st century equivalent to 1939 Nazi Germany, complete with gestapos, rearmament, concentration camps, genocide, and expansion of borders, the China trade apologists these days are no better than old Henry Ford who advocated free trade with Hitler right up until the day war was declared. It is sad, really, that an otherwise great man will be forever remembered as a Nazi sympathizer. No doubt many a G.I. was dismayed to find out that half the trucks used to provide the logistic train that kept the Nazi war machine supplied were Fords! We don’t want that. The USA should not be helping China to build weapons that are expressly designed to kill American soldiers and sailors (and civilians).
Jon Murphy
Aug 28 2020 at 8:57pm
I know you’re saying economics is irrelevant here. What I’m saying is that point is irrelevant and your theory of economics contradicts what you’re saying here; that your theory says that cutting off trade would make China stronger. If your method to resolve that conflict is to handwave it away as irrelevant, then your theory is not that good.
Michael Sandifer
Aug 29 2020 at 9:35am
There’s also the problem that Platts presents zero evidence for any claim about China’s intentions to fight a hot war. And as pointed out, given his obvious deep confusion about economics, with patently contradictory ideas, and ideas themselves that are wrong anyway, I doubt there’s a single coherent thought here at all.
Warren Platts
Aug 29 2020 at 4:25pm
Jeez, Michael, I thought everybody who had an internet connection was aware of China’s growing belligerence under the leadership of Chairman Xi. Google is your friend. Anyway, here are a couple of articles published in the last 24 hours:
China fires ‘aircraft-carrier killer’ missile in warning to US
Why China brought out the ‘aircraft-carrier killer’ to flex its military muscle
As for economic theory, I agree with every bit of it. I just have different values than you all.
zeke5123
Aug 28 2020 at 2:59pm
I support free trade with China, yet I personally will try to go out of my way to not buy products from China (hard these days). Knowing that I am providing at the least accounting profits to the evilest regime in the world is distributing to me. However, I don’t think the US government should be in the business of picking which regimes are sufficiently moral to receive my business.
Those who would oppose free trade with China on the grounds that China is immoral cannot be upset if the government conditioned business licenses on supporting e.g., BLM. Whether something is immoral is a matter of conscience; in that, I think it must be an individualistic approach.
Jon Murphy
Aug 28 2020 at 3:28pm
You make a good point, but I want to point out one factual issue:
If the Chinese government is really doing everything they’re accused of (dumping products on the US, subsidizing their state-run enterprises, predatory pricing, etc), then they are not making accounting profits.
Michael Sandifer
Aug 29 2020 at 9:38am
As Milton Friedman used to say, to paraphrase, I’ll take all the dumping and “predatory prices” they want to give us. This is bad for them, but good for us, in the aggregate.
Mark Z
Aug 28 2020 at 6:56pm
“The reason why there should be absolute zero trade with the Chinese Empire is very simple: the PRC CCP regime is the most evil regime since Nazi Germany.”
No, it’s not even in the top 10, and isn’t even the most evil regime in power right now.
“To trade with a genocidal regime preparing for war against us is not only immoral, it is suicidally stupid.”
We’re not trading with the regime. If the argument is “everyone and everything in China is a de facto agent of the CCP” then a similar argument can be made with the US or any country where businesses pay taxes to their federal governments (and, as often as not, receive special subsidies from them as well). What’s your answer if the EU had decided to outlaw imports from the US in response to the Iraq war or the myriad other policies of the US federal government they might find morally atrocious? What’s the limiting principle for how immoral a state has to be to make it morally repugnant to trade with its citizens?
“We can debate the pros and cons of free trade versus protectionism with countries like Bangladesh or Mexico or even Vietnam, but when it comes to the Chinese Empire, such considerations are worse than irrelevant.”
No, they’re not, they’re of the utmost importance. You’re advocating impoverishing millions of Chinese people (and plenty of Americans as well) to punish its government. You have to show more than “China bad,” you have to show that it’s worth it, and I’d say if it’s naive to believe that trade liberalization would induce rapid reform in China, it’s delusional to believe that trade illiberalization will induce reform. The policy you’re advocating will make China’s evil regime more popular, and more evil. It will also – if free traders are correct – hurt the US as much or maybe more than China, thereby weakening the US’s strategic position relative to China. So I’d argue that almost the exact opposite is true: how much the Chinese government deserves this punishment in some deontological sense is pretty much irrelevant; how it would affect the well-being of Chinese and Americans and the political economy of China are what matters.
Jon Murphy
Aug 28 2020 at 9:50am
Maybe the reason the Chinese government want to use TikTok to spy on us is so they can gain the secrets of our teenagers’ sick dance moves. That way, when the inevitable dance-off happens in some New York back alley, those Chinese can have an equal footing (pun intended).
David Henderson
Aug 28 2020 at 11:43am
Good one. I think we’ve got a shot at beating them at dance, though, although admittedly in researching this article, I didn’t watch a single TikTok video. I did watch AOC’s video, though, and I really do think she’s a hell of a dancer.
Thomas Hutcheson
Aug 28 2020 at 9:57am
The more general question is whether the differential growth rates and eventual difference in the sizes of the economies present a threat to the US and other liberal democracies? I think the answer is yes, but that trade restrictions do more harm than good. A better way to address the Chinese threat is with greater immigration of talented young people (especially from China) and promoting higher savings rates by moving from income to progressive consumption taxes and lower/negative fiscal deficits.
george jonisch
Aug 28 2020 at 10:13am
Agreed that efficient production is enhanced by external cheap labor.
what about internal cheap (otherwise unemployed but subsidized) cheap labor hired by subsidized entrepreneurs to level the playing field when Adam smith competes with pres. of CCCP?
2 more questions: 1- who, which group of people, (immigrants, minorities, degreed, intellectuals and college employed, factories in Midwest, stock traders, bond traders, military,) will benefit if we double our trade and which groups will lose? If we cut trade by 90%?
2 – how can we best challenge an alien economic culture from creating cultural, rather than just economic inroads; more trade or less trade? Is China’s “Road” economically or culturally motivated? Or both?
Jon Murphy
Aug 29 2020 at 11:35am
Point of fact: “cheap” labor does not mean superior. Cheap labor is not necessarily an advantage. Wages are low in China (and other places) because labor is relatively unproductive compared to American labor.
Consider the following: if low wages are an advantage, then why don’t the Washington Nationals cut Max Scherzer (the greatest pitcher in Major League Baseball right now and one of the best of all time) and hire me? They could pay me league minimum wage ($500k) as opposed to Scherzer’s approximate $20 million salary. If low wages are an advantage, the Nationals should be jumping at such an opportunity that I and millions of other people are offering. Why don’t they? Why are the Nationals willing to pay 40x for Scherzer?
Tom DeMeo
Aug 28 2020 at 10:21am
I fully agree with your analysis and do believe that the trade with China has been very good for America.
What I’m concerned about is the future. We are building a relationship we cannot easily back up from, and given the Chinese notions of state dominance and human rights combined with their obvious competency, it is becoming more and more likely we will eventually find ourselves in a dangerous position.
David Henderson
Aug 28 2020 at 11:44am
You wrote:
I’m glad we agree.
You wrote:
Are you willing to be more specific? What would that danger look like?
Scott Sumner
Aug 28 2020 at 12:57pm
David, I just shake my head when I see economists and reporters suggest that the idea of losers from trade is a heterodox idea. It’s in every single principles of economics textbook!
David Henderson
Aug 28 2020 at 3:33pm
Yes. And surely Autor knows better.
Warren Platts
Aug 28 2020 at 7:35pm
Hold on a sec. What Autor actually said was “that policymakers should be told that trade is good for everyone in all places and times.”
Do you see? Autor did not mistakenly ascribe a false belief to the guild orthodoxy; Autor is accusing the guild of offering disingenuous policymaking advice. Big difference!
Probably, the disingenuousness is largely unconscious. For example, David, you write above that the benefits of trade go disproportionately to lower-income households. To the casual reader, however, that comes awfully close to saying that everyone necessarily benefits from free trade.
After all, in a country where the average household income is $90 thousand, garment workers and furniture makers can hardly be classified as high income workers. Since such displaced workers belong to lower-income households, and the benefits of trade go to them disproportionately, it is not a huge leap to conclude that the displaced workers must be better off under free trade.
Of course that is not your position. Workers displaced due to import competition are in the main made worse off–that is to say, their real wages decline, entailing that the gain in consumer surplus due to increased imports does not outweigh the loss of their former producer surplus. Thus, even though the benefits of trade disproportionately flow to lower-income households, they do not benefit on net.
In other words, even though the benefits of trade flow disproportionately to the lower-income folks, the costs of trade flow even more disproportionately to lower-income households. And, since the nationwide benefits of trade necessarily outweigh the costs of trade (right?), then that entails that the real beneficiaries of trade (“real” in the strict sense of real incomes) are higher-income households!
Thus I agree there is plenty of confusion to go around. But I’m not sure it is fair to blame David Autor and his ilk for that.
Dylan
Aug 29 2020 at 8:42am
I think David is being uncharitable to Autor here, based on this one quote. As Warren points out, he’s actually saying what should be communicated to policymakers. But even there, I’m not taking him literally. What I think he is pointing out, at least how I took him after listening to his EconTalk episode a few years back (one of my favorite episodes), is where the emphasis is. Here, I think it should be uncontroversial that most economists spend a whole lot of time pointing out the benefits of trade, and not much time talking about the losers. This is mostly how it should be, convincing people of the benefits of trade is counterintuitive, you kind of need to spend more time and emphasis on the benefits.
However, this means the plight of the losers has gotten short shrift. One of the most memorable lessons from my undergrad classes was pointing out how some policy was saving 80, $50,000 a year jobs, but was costing $500,000 a year for each job saved. The professor talked about how we could literally give each worker $200,000 a year to not work, and still come out way ahead. Powerful argument! But that’s about as far as it went. Mostly, in my memory, there was some talk about taking some of the gains from trade and use that to fund retraining programs for the people that were displaced (ignoring the questionable efficacy of those programs).
I’ve been reading you pretty regularly for a few years now and I can’t recall you having much to say in the way of Pareto-improving policies that would benefit those that are displaced due to free trade?
Jon Murphy
Aug 29 2020 at 9:55am
Warren’s objection is irrelevent. It doesn’t change the fact there never has been any effort to communicate only the benefits to policymakers. Indeed, if you read any popular writing of economists, they all discuss the costs of trade.
Autor is being too glib and Warren is taking him too literally.
Dylan
Aug 29 2020 at 11:18am
Pretty sure that Autor was not trying to suggest a cabal of secretive guild economists that are commanding the rank and file from on high. Can’t it simply be that Autor is suggesting that economists have tended to emphasize the benefits of trade and de-emphasized the costs, to the point where it can come across to the layperson as if free trade is a free lunch? IIRC, he admits that was his own personal view in that Econtalk episode.
Sure, they might discuss it, but I’d argue that it’s been mostly in the context of handwaving it away, particularly pre-Great recession. How many times have you heard some variation on “free trade is the closest thing to a free lunch we have”?
Jon Murphy
Aug 29 2020 at 11:26am
Not if we take his comment seriously.
Jon Murphy
Aug 29 2020 at 11:43am
Here’s the thing:
Are there poor economists who probably tried to sell free trade as a free lunch? Possibly (though I cannot think of any). Are there uncritical readers who read op-eds and misunderstood “net increase” to mean no costs? Likely.
But, was there “something of a guild orthodoxy [among economists]: The key dictum was that policymakers should be told that trade was good for everyone in all places and times”? Undeniably no. In fact, you never, ever want to lie to policymakers or when making your case, especially over something so fundamental. It makes you look like a quack.
Indeed, the whole article makes Autor’s comment stand out as particularly odd. The whole article is about how economists underestimated the social backlash from trade, not how they denied there would be no costs.
I’ve only heard one economist say that economists should say only what the policymaker wants to hear: Peter Navarro. And Navarro was rightly lambasted for the profession for his comments.
Autor’s comments don’t make sense in the context the reporter provides nor in real-world experience.
Warren Platts
Aug 29 2020 at 3:11pm
Autor’s comment is not odd if you understand what he’s trying to say–that the economics guild is guilty of perpetrating a shell game. What Autor is NOT saying:
that the economics guild literally believes that free trade is Pareto improving
that the economics guild should lie to policymakers
If Autor is guilty of something, it is of using imprecise language. However, David above, in so many words, corrects Autor: what the economics guild should tell policymakers is that the benefits of trade flow disproportionately to low-income households.
But what does ‘the benefits of trade flow disproportionately to low-income households’ even mean? Answer: it is unclear; the sentence could have two completely different meanings. The plain sense meaning that ordinary policymakers will take from that sentence is that poor Americans benefit from trade more than rich Americans do. And that, in turn, implies that trade is good for everyone.
But of course that is not what the economics guild means when they say ‘the benefits of trade flow disproportionately to low-income households’. What the guild intends is that (a) the main benefit of trade is lower consumer prices; (b) poor people spend a larger proportion of their income on consumption than do rich people; (c) therefore, the ratio of $$$-saved/$$$-earned is higher for poor people than it is for rich people.
But where are the costs? Well, they get mentioned perfunctorily in a separate paragraph. Cf. this article and its comments. What is rarely mentioned (although it is no secret) is that the costs for low-income American households outweigh the benefits of trade, however disproportionate they may be. Within the economics guild, this is no surprise: when the scarce factor of production in the home country is unskilled labor, then free trade with countries with abundant unskilled labor will lower wages in the home country. This is of course is the Stolper-Samuelson Theorem, that is turn a reworking of the 19th century protectionist pauper theory of free trade.
Hence the shell game. The guild is not lying, technically, but the policymakers are left with the impression that free trade benefits everyone, including low-income workers. The policymakers then sell the free trade agreements to working-class voters on the basis that they will be made better off. The workers, gullibly, believe the policymakers at first. But after 30 years, they figure out they were sold a bill of goods. Hence the backlash. Hence Trump.
Jon Murphy
Aug 29 2020 at 3:16pm
I don’t see a shell game. I see misunderstandings on your part and uncritical thinking (like I said above), but no shell game.
Dylan
Aug 29 2020 at 3:50pm
You can take the comment seriously without taking it literally, particularly when you have an economist speaking causally to a reporter. That’s why I said I think that David was taking an uncharitable reading of the comment.
My only direct exposure to Autor is from his Econtalk episode a number of years ago now where he talked about his study. IIRC, his key points were, a) trade with China was undeniably a net positive for both countries, b) the costs to specific sectors and individuals were higher than anticipated and readjustment took longer, sometimes much longer, than what economic orthodoxy predicted, to the point where many of those affected were made permanently worse off.
I don’t recall many mainstream economists in the 90s and early 2000s shouting that message from the rooftop or having a vigorous debate about how to share the vast gains from trade in a way that the losers from trade were compensated for their loss. Are there any blog entries on this site that focus primarily on the losers from trade and what to do about them?
Jon Murphy
Aug 29 2020 at 4:05pm
Compensation is a different matter; it is irrelevant to the comment in question. You can acknowledge losers to trade without accepting the need for compensation.
Though, in the debates around NAFTA, there was much discussion of compensation, especially by Paul Krugman, in the popular media. See his book Pop Internationalism which is a collection of many of his writings at the time.
Jon Murphy
Aug 29 2020 at 4:13pm
By the way, here is a incomplete list of the books I’ve read in the past few months by economists written for public consumption which explicitly talk about the losers to trade (You’ll notice the books over the last 50 years or so):
FA Hayek: Law, Legislation, and Liberty
James Buchanan: Limits of Liberty
Don Boudreaux: Globalization
Doug Irwin: Free Trade Under Fire
Warren Platts
Aug 29 2020 at 5:24pm
They weren’t any. The one guy who was shouting that message from the rooftops was Ross Perot–who was ridiculed by the “guild”. Thus, the more I think about it, I think I was a little too nice in my assessment above. There was lying going on, and the “guild” was complicit in it.
Imagine if Bush/Clinton had got on TV and solemnly told the truth and said, “The new free trade agreements are going to lower real wages for the 2/3 of U.S. citizens who constitute the American working class and possibly slow down the overall U.S. economic growth rate. However, the FTAs will be worth it because hundreds of millions of Mexican and Communist Chinese peasants will be raised out of abject poverty.”
Well, we all know what would have happened: there would have been no NAFTA, and no China PNTR WTO. Thus to the extent that the “guild” helped to suppress that narrative by overemphasizing the benefits of trade, there was indeed a shell game deliberately perpetrated.
Mark Z
Aug 31 2020 at 11:13pm
Of course a Kaldor-Hicks improvement doesn’t actually need to be turned into a Pareto improvement (by winners being made to pay off losers) for it to be an improvement. So free trade is still an improvement irrespective of whether compensation is made. Furthermore, I also don’t think this scenario necessarily implies that forcing winners to compensate losers is the best use – morally or economically – of the ‘winnings.’
Still, it could be the politically optimal thing to do. The reason I’m not sure about that though is that I think this view over-esteems protectionists by thinking they are just strategically holding international trade hostage so they can get a piece of the pie. I don’t think that’s true. I think they sincerely believe trade is harmful and want to bring industry and agriculture and whatnot back to America etc., and even with more generous redistribution, they would still support protectionism.
Warren Platts
Sep 1 2020 at 4:03pm
Indeed. Protectionists want good, high-paying jobs, not handouts.
But perhaps more importantly, in order to make an improvement Pareto improving, there has to be an improvement in the first place. As far as I can tell, the “huge gains” supposed to be made on net, are theoretical, no empirical. U.S. economic growth has drastically slowed down during the free trade era over the last 30 years. The huge ramp up in trade, along with the accompanying trade deficit, has been the only big thing that has changed. If growth rates had been maintained, per capita GDP would be $25K more than it is now. Sure, many people profited bigly; but all their winnings put together would not make up for the loss.
Michael Sandifer
Aug 29 2020 at 9:48am
An important point here is that, to my knowledge, there’s no evidence China seeks a hot war with any country, and no evidence managed trade is superior to free trade.
This is particularly true with the government we have in the US. How many trust this government to manage trade properly, even if you think it would be beneficial?
Warren Platts
Aug 29 2020 at 2:06pm
Untrue. China is on record that their intention is to invade Taiwan the moment Taiwan declares independence.
Jon Murphy
Aug 29 2020 at 2:57pm
I think one can, and perhaps should, consider China a potential military threat. However, the justifications for Trump’s trade war is on economic arguments are incorrect, as David shows. It’s only recently that the national security justification has been applied, only after we’ve been getting data showing that “China will pay the tariff” is incorrect. That makes the national security concerns raised by the Administration reek of ad hoc justification of tariffs to me: “tariffs didn’t being economic results we wanted, but they’re still needed for these other reasons.” In short, they’re just pulling whatever justification they can for tariffs, whatever justification fits whatever particular situation.
Although, even the “national security” justification for protectionism is weak. In fact, I am working on a paper now with a co-author where we argue the justification is actually incorrect: protectionism cannot, and does not, support critical industries nor enhance national security.
Michael Sandifer
Aug 29 2020 at 10:04am
Very solid article.
David Henderson
Aug 29 2020 at 12:20pm
Thanks, Michael.
john hare
Aug 29 2020 at 4:19pm
There is some discussion here of compensating losers from trade with the idea that it would be a small percentage of the consumer gain. I don’t think this is a very good idea. Even top down retraining paid for by the government would likely miss the mark.
In my construction business, the track builders are mass producing houses locally and dictating what they will pay sub contractors. The offered rate is well below my prices that are geared to custom builders that are getting priced out of the market. It is my responsibility to find other markets or better methods if I am to compete. It is my responsibility, not yours, and definately note the innocent taxpayers.
RPLong
Aug 31 2020 at 10:32am
I would guess that trade with China also creates a substantial number of jobs for Americans. The article had some discussion of the net effect on the manufacturing sector’s job losses, but I’m curious to know what the estimated total effect of job creation from trade with China is. I’d guess it’s huge.
I also appreciated this part:
Iceland is an interesting case in point here. When I visited Iceland, I was told that the vast majority of food production in Iceland is domestic, by law. They grow their produce in hothouses, of course, have a thriving fishing sector, and produce a lot of very high-quality free-range livestock. The result is some of the best, highest-quality food I’ve ever tasted. But it is so expensive! $5 for a gallon of milk, another $5 for a dozen eggs, $9 for a pint of beer!
I often wonder, though, how much higher-quality groceries would be, in general, if trade were even freer and all food were produced in the most efficient location.
Viktor Arends
Sep 8 2020 at 5:59am
Henderson, after bringing up the valid points in defense of trade and comparative advantage, paints an unmitigated picture of health from the trend of outsourced production.
He conspicuously omits the relevance of the Dollar Empire to the outsourcing issue. As Peter Schiff says, “Americans have gone on a shopping spree with printed money”. The global central bank regime and political petrodollar empire has given Americans the dubious benefit of a fountain of overvalued currency which makes otherwise equivalent foreign-produced goods cheaper than domestically produced ones.
Henderson paints the unemployment harms as temporary with long term benefits, but in fact the opposite is true. Sure, we can buy cheaper stuff now, that is seen but what, in Bastiat’s words, is “the unseen” here?
The unseen is that the petrodollar empire will crumble and when it does, Americans will have lost the know-how, the trained work-force and the internal liberty to rebuild production of the things a modern economy needs to survive. A nation of hair-straighteners, entertainers, bureaucrats and facebook moderators will not have a prosperous future, once it can no-longer buy real goods produced elsewhere with monopoly money.
It is hard to believe that Henderson is unaware that the Fiat Dollar Empire has ‘blessed’ America with the ‘resource curse’. As Spain suffered atrophy and decay from decades of spending looted gold, America’s capacity to produce real goods is atrophying. The lost knowledge, the human capital, the skills built-up over generations have no transmission-line to the future absent companies which carry them. This knowledge isn’t downloadable from schoolbooks; it is ‘Hayekian’ embedded knowledge, carried in the brains, culture, processes and patterns of living firms.
These are fundamental and well-known objections to Henderson’s narrative. Omitting them from consideration looks like evidence that he has no rebuttal to them.
Comments are closed.