Sunday, September 13, 2009

Is A Trade War With China Wise?

President Barack Hussein Obama ignited a trade war with China this past week after his administration decided to impose heavy tariffs on tires manufactured in China to assuage the union representing U.S. steelworkers. None of the U.S. tire companies publicly supported the steelworkers' complaint. The Chinese are angry and contemplating retaliatory acts against the U.S. Is it wise to start a trade war with the country the American government relies upon to purchase our government-issued bonds that allow the U.S. government to spend more than it takes in from the American people in taxes? Some are already beginning to suggest this has shades of Smoot-Hawley written all over it, referring to the 1930 protectionist law that some historians blame for causing the Great Depression.


Sean Shepard said...

Economically, protecting higher prices on domestic tires just means that whatever savings people might have realized will not get spent (or saved which equals 'spending by other means') to create activity in other areas of the economy.

Protectionism is basically a type of bailout. Propping up an industry that is suddenly threatened by competition. Capitalism is 'creative destruction' (build a better mousetrap) but Capitalists also hate risk. Like atheists in a foxhole asking God to intervene, even hardcore Capitalists will cry 'government save me' when feeling threatened. Although, in this case, it sounds like it was just the unions not the actual manufacturers. Interesting.

Imagine an island with 10 fishermen, then somebody invents something called a "net" and 2 people in one boat can do the work of 10 each day. The boat manufacturers petition for extra high taxes on the sale of nets and the "fisherman's union" tries to get them banned or demands high tariffs on fish imports to try and increase demand for domestic goods.

In the meantime, the cost of fish just dropped 80% and people on the island can use that savings to buy products and services they couldn't afford before (or better products or services) or would not have otherwise purchased - shifting economic activity to other segments, not destroying it.

swan said...

Imposing this tariff on tires made in China, seemingly out of the blue starting a trade war with our creditor, does remind me of President Herbert Hoover's actions. I do think that the Obama administration is leading us into a very great depression and worse. Enough!!