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Richmans' Trade and Taxes Blog
Greg Richards: "We must be much more aggressive with mercantilist countries in enforcing the rules of the road so that we protect out production and technology."
Howard Richman, 8/24/2010
In the August 22 American Thinker, Greg Richards (Conviction Conservatives and the American Renaissance) argues that conservatives must reexamine America's trade policy. Here is a selection:
In economics, we have to reassess one of the most firmly held views in academic economics, and that is the value of free trade -- or perhaps not free trade per se, but trade as we find it. Going back to the 1970s, Japan was successful with its export-led growth model, which was a mercantilist model. Yes, it is true that this model means that the mercantilist country is offering us cheap goods in return for "only" our paper.
But economists are dangerous because they do not understand balance sheets. If you own a ranch but find you are losing money on your cattle, as a rancher you are in trouble. You are negative on your current account. But if you then sustain your income by selling off a portion of your ranch each year, to an economist, you are doing fine. You are negative on your current account, but you are equilibrating your finances in your capital account...everything is fine! But of course, in the real world, you are selling off your homestead, and if you sell it all, you are then out on the street. Economics does not take this problem into account. That is why economists are so unconcerned about our trade deficit....
What to do? We must be much more aggressive with mercantilist countries in enforcing the rules of the road so that we protect out production and technology. We cannot always let the other country set the rules. This includes but is not limited to currency value. It means the government must be more proactive than pure free-market theory would suggest. With countries whose markets are open, free trade works fine. But with mercantilist countries, the relationship must be managed, and it is better to manage it badly than not to mange it.
The conservative American Thinker has been running many commentaries, including our own, calling for a change in American trade policy.