Saturday, August 18, 2007

China: Everyday Low Prices, Why Complain?

This is the state of U.S.-China trade relations: China keeps selling cheap stuff to American consumers and businesses, the Americans aren’t selling so much to China (but plenty to other parts of the world). The U.S. is demanding that the Chinese charge more for its products, and the Chinese are refusing.

~Tim Harford, in an excellent article disucssing his trade deficit with his babysitter

MP: Another way to think of the U.S.-China trade relationship, is to imagine that China is actually Wal-Mart and the U.S. is actually Target. Here it goes:

Target (U.S.) complains that the prices that Wal-Mart (China) is charging American customers are too low (currency is undervalued) and therefore the low prices (undervalued currency) are "unfair." To address the situation, Congress tries to pressure Wal-Mart (China) to raise its prices (appreciate its currency) for American consumers, and Wal-Mart (China) refuses, saying that its "everyday low prices" (everyday low currency) are in its best interest and its American consumers' interest. Congress then threatens to impose a special sales tax (import tariff) on Wal-Mart's (China's) products, and raise prices of Wal-Mart's (China's) products in the so-called "interest of fairness"?

Point A: Which is the only group that would support such a policy? Of course, Target (U.S. manufacturers), Wal-Mart's (China's) main competitor.

Point B: What is the consequence of the special sales tax (import tariff) on Wal-Mart's (China's) products? Higher prices for American consumers.

Point C: If we raise prices for American consumers with special sales taxes (import tariffs), are they worse off or better off? Worse off, of course.

Point D: National borders are just imaginary lines, and trade between U.S. and China involves a buyer and seller on different sides of an imaginary line called a national border, which is really no different than trade involving a buyer and seller on different sides (or the same side) of an imaginary line we call a state border, county border, city border, etc. If you support trade between your state and another state, you should support trade between the U.S. and China.


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