China Bashing and the US Election [acting-man]

Protectionism is Back in Fashion


Of course protectionism is always fashionable, so it is perhaps not entirely correct to state that it is ‘back in fashion’. However, there are occasionally  stretches of time when politicians at least give lip service to supporting free trade. As soon as they begin talking about ‘fair trade‘ it is time to hold on to one’s wallet however. We will never understand why the policy has so much popular support (protectionism is widely held to be a ‘populist’ policy), given that the population at large is bound to be the major loser when protectionist barriers to trade are erected. After all, they merely serve to protect a select few producers to the vast detriment of all consumers.

Consider in this context the currently highly popular ‘China bashing’, which has  become the modern-day replacement of the ‘Japan bashing’ of yore (which was equally moronic). In essence, US politicians are demanding from China to raise its prices. How stupid is that? It is the functional equivalent of Wal Mart customers complaining to the retail chain’s management that it isn’t charging them enough. No-one would ever get such an absurd idea – and yet, it is the declared policy of the US to get China to do just that.

Given that a presidential election is imminent, China bashing has gone into high gear. Mitt Romney, in another desperate attempt to differentiate himself from his  opponent, promises to declare China a ‘currency manipulator’ the very moment he comes into power. Of course it is true that China is a ‘currency manipulator’, but so is everybody else.  Moreover, contrary to conventional wisdom, the  party that is disadvantaged by this is China, not its customers. Its customers get to buy things more cheaply than would otherwise be the case, which is an unalloyed  boon for them. As they save money by purchasing cheap goods from China, they have funds available that can be used for other purposes (either for saving and investment or additional consumption). Lastly, the idea that the Chinese yuan is ‘undervalued’ is highly questionable given the amount of money printing that has taken place in China over the past decade.

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