To: The New York Times
From: Patrick Barron
Date: June 15, 2010
Re: Senators Losing Patience With U.S. Policy on China
Last week several members of the Senate Finance Committee dressed down Secretary of the Treasury Timothy Geithner over whether China is or is not moving fast enough for our satisfaction in eliminating its policies to protect its domestic industries. The sheer uselessness of this exercise is matched only by the implied danger that the U.S. will start a world wide trade war. China hurts only itself by intervening in its own markets, and, anyway, it is none of our business. No one in Washington seems capable of understanding why, if one wishes to benefit one’s own nation as a whole, unilateral free trade is the only rational policy to pursue. Unilateral free trade--in which the U.S. would freely import whatever goods Americans wished to buy, regardless of whether or not the country of origin allowed American goods onto its shores—means that Americans live better, more prosperous lives. If China or any other country refuses to buy from us or restricts our imports into their country in some way, then we have imported goods that we enjoy and have exported to China dirty pieces of green paper. Now, who wins from this policy?
When China intervenes in its currency markets to give more yuan per dollar than the natural, open market, it imports inflation onto its own shores while holding down inflation in the U.S. It is not true that by keeping American goods out of China, we are “harmed”. True, we have lost a sale, but that is not the same as harm. I refer you to Dr. Patrick Burke’s well-reasoned exploration of the subject in his book No Harm: Ethical Principles for a Free Market. According to Dr. Burke, no harm is incurred when one is left in a prior condition, and losing a sale leaves one in the prior condition.
Yet it seems inevitable that the US is about to commit itself to another Smoot-Hawley moment. Already we are following the playbook of Hoover and the early Fed by increasing federal spending and pumping up bank reserves respectively. So why not go for the trifecta and start an international trade war to go along with massive debt and the threat of hyperinflation? Our best policy is limited government (which means limited spending and limited regulation), sound money, and free trade. None of this needs to be managed by anyone, for a free market manages itself.