The topic of conversation on date night with my wife last weekend turned to an area she's been thinking quite a bit about recently. And that's free trade. Lisa had just come back from some time on the road that week visiting with a couple of large organizations in the steel and metals industries, one of which was a company with a strong anti-free trade stance (or at least a strong anti-China stance). Now, to know Lisa's position on trade and politics is to know mine -- potentially even in the extreme.
Lisa is about as free market, free trade as they come. She can't stand protectionist kvetching in the least. But she came away from one of her meetings with a general manager at a steel company at least partially convinced that the steel lobby had a point regarding China. Was she softening her stance on the issue? Not exactly, but she thought the steel lobby -- and the general protectionist lobby -- could make a far better argument in their favor if they tried staying away from rhetoric and moved toward grounding their arguments in facts.
At the heart of the argument against free trade with China, these organizations argue, is the country's currency manipulation that led to the original trade surplus in the first place. Directly manipulating the RMB downward made China's exports less expensive than in the past both for a range of raw materials, and as we all know in the global sourcing world, finished products as well. Now, it's possible to counter this argument in quite a strong capacity. After all, even though the US does not manipulate its currency in the same manner, we have a long record of providing agriculture and other subsidies to support certain favored industries.
But the metals industry lobby potentially has a strong trump card to use against China. Taking their basic premise on face value, their primary argument against free trade is that free trade never existed in the first place given the Chinese government's initial move to devalue the currency. Moreover, given recent government incentives to maintain base metals and other production (e.g., buying-up and inventorying capacity) and the not-so-fine line between private sector companies and government investment -- as my friend, Brian Sommer, likes to say, "they don't call them the Red Chips for nothing" -- it becomes pretty clear that China does not exactly level the global playing field through its economic policy.
Without question, I'm sure China could point to a similar number of US and European policies that actively protect domestic producers in the countries that their suppliers are trying to sell into. But the constant meddling and micro-management of the Chinese economy is certainly without par in the modern era (the same can be said for its mercantilist policies in Africa and other regions where it attempts to get its hands on raw materials).
I initially wrote this column to see if I could take a contrarian stance on my usual free-trade rants. But the more I thought about it, the more I began to understand the argument that posits the need to implement some protectionist measures to level the free-trade playing field. I'm not sure if I agree with all of them, but I can at least see their point. What do you think? Especially you free-traders out there in the audience -- should we implement policies that may appear protectionist but are really the only possible way of righting the free trade ship? Or should we risk heading into the lifeboats and back to shore, leaving the sinking barge behind, regrouping for another trade mission in the future once the current seas calm down.