Raising barriers isn't 'Fair Trade'

The following appeared Sunday, 5 August 2007 in the Lansing State Journal: LSJ Link

Michigan’s future hinges on the decisions we make in the next few months regarding … trade. You were expecting me to say union contract negotiations?

As important as those, and a variety of other issues are, the possibilities of punitive tariff threats against China by the US Congress tops my list. That’s why I recently signed a petition that was released in the Wall Street Journal on August 1 opposing the proposed tariffs.

There are those in the state who think that trade is a zero sum proposition: if China gets more, we get less. If our traditional industries aren’t winning, we must be losing. They argue that it is only fair to prevent further expansion of trade with China. Making trade “fair” is their mantra; and punitive tariff protection is the means they want to employ.

The problem with the “fair trade” mantra is that what they are calling for really isn’t fair. The expansion of trade with China has led to more affordable goods for ordinary Americans and Chinese, higher productivity in both countries, expanded opportunities for businesses in both countries, and a higher standard of living for both countries. Cutting off that trade would hurt us all. The biggest losers would be those without the political clout of the advocates of “fair trade”—small and medium size businesses, individual households, and ordinary citizens and businesses in the other country that don’t get to participate in our political process. That just wouldn’t be fair. Trade with China, India and the rest of the world has been, and continues to be, a win-win proposition.

The fair trade advocates will tell you that increased trade has taken jobs in traditional Michigan industries. But those industries thrived until we forgot that innovation and expanded opportunities through trade were the keys to their success. Michigan once supported a vibrant entrepreneurial culture which competed with the world and built industries that were strong because they were good at what they did. They won, but they did so because they created value for everyone affected by their industries. We need to regain their vision of creating value for the world, knowing that in the process, the value we need will be returned to us as well.

Fair trade advocates will tell you that free trade is fine as long as the playing field is level. But the reality is that the playing field is never level; various policies create barriers, as do simple things like geography and education. It is free trade, not “fair trade” that provides the greatest range of opportunities to overcome those obstacles.

Free trade promotes innovation, entrepreneurial activity, the efficient use of our resources, and prosperity. We need to resist the call for a return to “beggar thy neighbor” policies and instead promote free trade, innovation and prosperity.

Economists speak out about protectionist sentiments

Over 1,000 economists put their names to the following petition. A full-page ad ran in today's Wall Street Journal, along with an editorial by Pat Toomey, the president of the Club for Growth (sponsors of the petition). MCIEP co-director Ross Emmett was one of the signatories. The actual number of signatories was 1,028: the same number that signed a petition asking Hoover to veto the Smoot-Hawley tariff in 1930.

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China.

By the end of this year, China will most likely be the United States' second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That's an average growth rate of almost 20% a year.

This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade.

As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China.

There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth.

We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.