Global Ethics Corner: Populism, Protectionism, and China

Jan 14, 2011

Chinese policies tilt the field and undermine free trade, according to journalist David Leonhardt. Should the U.S. use sanctions more aggressively to enforce free trade principles and to protect domestic production? Or are the negative economic consequences too risky?

Domestic politics creates intense pressures for trade protectionism, popular outrage at overseas competitors.

The logic of free trade, however, is indisputable. Comparative advantage is real and lowers costs of goods for everyone. Restricting trade always raises prices, even when your partner tilts the playing field. Tilting the field moves production overseas.

Forcing partners to play fair requires sanctions, raising prices even more. Ironically, sanctions restrict trade in order to free it; raise prices in order to lower them. So, for policy makers the choices all involve pain; lose jobs or raise prices.

This dilemma is manipulated by countries like China for their domestic needs. According to Leonhardt, Chinese policies tilt the field and undermine free trade.

Chinese monetary policy keeps the value of their currency artificially low, making their exports cheap. Second, Chinese intellectual property enforcement is poor, meaning software and entertainment are illegally downloaded instead of purchased. Finally, there are trade barriers. In some cases, Beijing has insisted that products sold in China must not only be made there, but also must be conceived and designed there.

Today, "trade wars" have become a distinct possibility. Populist and nationalist outrage domestically combined with a weakened global position make America less able to champion free trade, more likely to focus on jobs.

What do you think? Should the U.S. more aggressively use sanctions to enforce free trade principles or to protect domestic production? Are the inevitable, negative economic consequences of trade sanctions too risky?

By William Vocke

For more information see:

David Leonhardt, "The Real Problem with China," The New York Times, January 12, 2011.

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