Wednesday, October 7, 2009

Obama's Just Launched a War on Trade...Or Not


Add the phrase “war on trade” to the war on drugs, and the war on terror. The latest war, according to conservatives, was of course created Barack Obama. This year, a 35% tariff has been levied on Chinese tire exports.

Perhaps in an ideal world, there would be no tariffs or taxes, and complete free trade. But politically that’s impossible. In order to have some semblance of free trade, the working and middle class have to buy in. Many of these are disproportionately in manufacturing industries which are hurting right now in the economic crisis. They need to feel some sense of protection and concern on the part of the government if they’re going to support any free trade.

I think a tariff on this one good accomplishes that, and allows us to have duty-free trade on most other items, which does give us free trade to a large extent. Now I understand the concern that the Chinese government will retaliate, which will cause still more tariffs. But I’m sure the Chinese will make take a hard look before they do that. And when they do so, they’ll see that they have a good trade relationship with the US, and that they shouldn’t jeopardize it.

Remember, the Chinese economy is extremely dependent on exports. An over-the-top retaliation could cause a huge drop in American demand for Chinese products. That would cause a recession in China, but more importantly, social unrest which the Communist Party can ill afford right now. So I don’t see the Chinese launching a trade war any time soon.

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