Monday, December 12, 2016

Trade Fallacies Galore…

… infect Robert Romano’s latest attempt to justify Trump’s proposed protectionism.  Here’s a Don Boudreaux letter sent in response to the publisher of Romano’s wrong-headed piece, Net Right Daily:

Arguing that “China has more to lose in an economic fight with the U.S. than we do” (Dec. 12), Robert Romano writes: “And then there’s the cheap goods we buy from China, but then again, those could be produced here or somewhere else.  Doesn’t have to be China.”

Mr. Romano, like Mr. Trump, is deeply confused about trade.

If by “cheap” Mr. Romano means either trinket-like or low-value-added, then any success that Pres. Trump will have in fulfilling his campaign promise to shift the production of many of these goods from China to America will not raise Americans’ wages.  While producing trinkets and other low-value-added goods is the first step forward, toward prosperity, for poor countries such as China, producing such goods would be an economic step backward, toward poverty, for wealthy countries such as the United States.

But perhaps by “cheap” Mr. Romano means, not trinket-like or low-value-added, but simply “low-priced.”  Either way, while he’s correct that such goods could “be produced here or somewhere else,” he’s flat-out wrong to suggest that these goods could be produced here or somewhere else economically.  The goods that we now import from China we import from China for a sound economic reason – namely, the prices that we pay for these Chinese-assembled goods are the lowest prices available.  If Trump’s economic policies artificially block Americans’ access to such goods from China, the prices we will pay for similar goods “produced here or somewhere else” will be higher than are the prices we pay now.  Americans’ real wages and standards of living will fall.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Mr. Romano’s essay is infected also by flaws other than those that I flag in my letter.
The above originally appeared at Cafe Hayek

1 comment:

  1. The Trump Movement is so strange. They're skeptical of classical economics. Fine. But what alternative system do they propose? They seem to hate the Keynesians as well. Their economic guru is a video game designer and musician who repeats centuries-debunked mercantilist fallacies. Their "defense" of their proposed economic policies rarely amounts to more than open xenophobia and nationalistic in-group signaling. It goes way beyond skepticism and into blatant anti-intellectualism.