I’m very grateful to Dave Hebert that he’s never gone wobbly on the genius of free trade. He’s right that we agree. Why my response to his? It’s an attempt to convince him not about free trade, but about currency, IP, and so-called “trade deficits.”
Will I succeed? It recalls the line from the great essayist, Joseph Epstein: while he’s never lost an argument, he’s also never won one. Alas, this isn’t an argument. Just an exchange of ideas.
Hebert writes that “When China holds down the value of the renminbi, it’s making Chinese goods cheaper for American shoppers while effectively robbing its own citizens.” But China’s not holding down the value of the renminbi, rather it’s had a currency peg to the dollar since 1994. Many countries do the same explicitly or implicitly, including free market haven Hong Kong explicitly. Implicit in Hebert’s analysis is that the Chinese currency should rise alongside growth in China, but Hebert might agree that Adam Smith would disagree.
Smith pithily wrote that “the sole use of money is to circulate consumable goods.” Money is just a measure. We don’t adjust the inch up and down for tall and short people, and for centuries the dollar had a fixed definition in terms of gold despite soaring growth. We weren’t holding down the dollar then, nor is China doing so now. It’s just importing U.S. Treasury policy, for good and bad.
Hebert adds that an allegedly cheap renminbi is “making Chinese goods cheaper for American shoppers.” I don’t think Hebert believes that. Assuming a cheap renminbi, the latter is logically making the imported inputs that inform all production more expensive, not to mention labor costs reflected in a currency. Currency devaluation doesn't alter reality any more than a shrunken inch would make me taller.
Hebert writes that the theft of intellectual property allows Chinese manufacturers to “skip the costly research and development phase of production and jump straight to the low-cost manufacturing phase.” If we ignore that Bill Gates and Steve Jobs were legendarily great lifters of ideas, we can’t ignore that it really doesn’t matter. As Gates would say now, and as Jobs would have said, most commercial leaps fail very quickly. In other words, if Hebert can distinguish between junk and the lofty notion of “intellectual property,” then it’s a safe bet that he and I could raise billions between breakfast and lunch to start what would be the world’s most successful investment fund.
So-called “trade deficits” and “surpluses.” Hebert is clear that they’re economically meaningless. I agree. He says he references them because they act “as a scoreboard for the trade war.” No doubt they do for economic illiterates, which means my critique here is stylistic. Why give any credence to what is meaningless, but also frequently contradictory? Some of Hebert’s colleagues say so-called “trade deficits” are made up for by “capital surpluses,” but even this is wrongheaded. Nothing is made up for. A so-called “trade deficit” is an effect of soaring foreign investment. It’s bullish, period. When we write about what is ridiculous, we give it life. Still, that’s just a stylistic thing.
The main thing is that as Hebert notes, we agree on trade. My aim is to simply remove all the exceptions made by situational free traders regarding China. And no, Hebert is not situational. Still, if China’s bad or an economic/military threat, that’s more reason for us to maintain 100% open lanes for Chinese goods, not less. The open country wins, always and everywhere, plus it’s rendered safer from attack while winning.
