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Heavy-Handed Politics

"€œGod willing, with the force of God behind it, we shall soon experience a world
without the United States and Zionism."€ -- Iran President Ahmadi-Nejad

Thursday, April 27, 2006

Should We Worry About China-U.S. Trade?

Politicians are missing the point in their trade rhetoric.

By Donald J. Boudreaux, Ph.D.
Free Market Project Adviser
Donald J. Boudreaux, an adviser to the Media Research Center’s Free Market Project, is chairman of the Department of Economics at George Mason University in Fairfax, Va.

Chinese President Hu Jintao’s visit to the United States occasioned all sorts of commentary – much of it sound and sensible, but much of it superficial and silly.

The sound and sensible commentary focused on tensions between China and Taiwan as well as on Beijing’s commitment to respecting intellectual property rights. But as is typical, most of the superficial and silly commentary focused on Chinese trade with America.

The silliest concern that many Americans – including the Bush administration and many members of Congress – have today about China is that country’s trade surplus with America. It’s true that the Chinese now sell more goods and services to Americans than Americans sell to the Chinese. And it’s true that this excess of U.S. imports from China over U.S. exports to China is called a “U.S. trade deficit.”

What’s not true is that this situation is evidence of any wrongdoing by the Chinese.

[snip]

Of course, the U.S. runs not only a trade deficit with China; it runs a trade deficit with the whole world. But this fact isn’t worrisome.

Ask: why do foreigners willingly ship more goods and services to the United States than they demand in return? The answer is that foreigners find America to be an astonishingly attractive place to invest. To invest in the U.S., however, requires dollars. Foreigners get these dollars for investment by buying fewer goods and services from Americans than Americans buy from them. That is, foreigners save and then invest a large bulk of their savings here.

This investment creates jobs, improves worker productivity, and increases American economic output just as investment made by Americans. It’s a blessing; it’s a benefit; it’s a ringing testament to the dynamism and strength of the U.S. economy. Full story.

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