Trade and Tariffs: China and the Second Invisible Hand

Even though I put myself in the ardent free trading category, I must say the arguments that tariff mongers are putting up in response to Obama's 35% tariff on Chinese tires are worthy of consideration and debate (even though I don't entirely agree with them for reasons I'll get to in a minute). For example, consider some of the statements in this UPI story investigating the issue. In it, the author writes that "The global economy has over the last 50 years been built on the expansion of free trade and free markets, which rely on Adam Smith's "invisible hand" of market forces to encourage more trade, more investment, more production, more jobs and more prosperity. The question now is to what degree China's industrial, trading and currency policies amount to a second invisible hand, improperly weighing down the scales." But does this behavior -- in the context of our own and the rest of the world's -- justify a trade war?

I'd argue no, especially in the context of our own economic and trade history. Consider our own economic manipulation of currencies in the West not to mention the most recent unprecedented role of the FED and Treasury in bailing out failing industries. Might Chinese auto companies have gotten a more rapid chance to take on the world market if the US did not step in and bail out GM and Chrysler? You bet. Or what about all of the agriculture subsidies and trading barriers the US erects. Why, for example, can you bring some forms of ethanol into the US with a lesser or no tariff than others? It's because we're protecting the domestic agriculture lobby, that's why.

Perhaps true free trade will never exist. But I believe in my heart and my head that we can thank the tremendous economic progress most countries have made in the past fifty years on keeping our borders as open as possible. There's a reason that a typical middle class American can afford two cars, a house and a flat screen TV. And there's a reason why the poor Chinese farmers have been given a shot at providing a better future for their families by playing their own role in the industrialization of the country. In our debate about trade, while we should never forget the hypocrisy in our own arguments, we should also never forget about the individual members of society that anti-trade policies hurt.

Jason Busch

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