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Politics is the problem—trade is the answer

Summary:
In a recent column, I expressed the hope that China would win its trade war with the US. One commenter responded as follows: If you want to understand why Libertarians have lost political traction in recent years, the answer is succinctly expressed in that sentiment. And it doesn’t even make sense. Scott: How can you support in any way the most murderous, totalitarian empire in world history? And that is not hyperbole. Libertarians ought to be for human liberty everywhere on Planet Earth. Yet apparently, they are for liberty for themselves: and screw Chinese, Hong Kong, Tibetan, Uighur, Taiwanese human beings as long as they–American “Libertarians”–can buy cheap Chinese widgets. It is not a good look; the hypocrisy is obvious to the non-tone deaf. And never mind

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In a recent column, I expressed the hope that China would win its trade war with the US. One commenter responded as follows:

If you want to understand why Libertarians have lost political traction in recent years, the answer is succinctly expressed in that sentiment. And it doesn’t even make sense. Scott: How can you support in any way the most murderous, totalitarian empire in world history? And that is not hyperbole.

Libertarians ought to be for human liberty everywhere on Planet Earth. Yet apparently, they are for liberty for themselves: and screw Chinese, Hong Kong, Tibetan, Uighur, Taiwanese human beings as long as they–American “Libertarians”–can buy cheap Chinese widgets. It is not a good look; the hypocrisy is obvious to the non-tone deaf.

And never mind that working class Americans know full well the disdain Libertarian Wall Street apologists have for them.

At an emotional level, I understand the frustration with China.  Under Mao, China was arguably the most brutal regime in world history, in terms to total damage done (not on a per capita basis.)  While Mao is gone, the Chinese Communist Party remains in charge and human rights have deteriorated in recent years.  So why trade with a country like that?

The answer is simple.  Hundreds of years of human history strongly suggest that trade makes people better, both at the individual level and the national level.  Countries that engage in international trade tend to be more peaceful than countries that do not.  People in market economies tend to behave better than people in non-market economies.  History shows that if you want to bring peace and freedom to the world, trade is one of the best ways of doing so.  (Mainland Chinese who travel to Taiwan are surprised by how polite the people are.  That’s because the Taiwanese grew up in a market economy.)

Of course history is complicated, and there are many exceptions to this generalization.  But when dealing with public policy, we need to consider the outcomes that are the most likely.  It’s possible that China will have an evil, expansionist regime in 30 years, despite being rich and open to international trade and investment.  But I think that’s exceedingly unlikely.  How many such regimes are there in the world today?  Outside of oil rich nations there are basically zero, by which I mean zero that are also rich and open to trade and investment.  It’s always possible that China will become an exception, but I would not count on it.

Of course the other side has arguments.  Human rights have deteriorated under Xi Jinping despite China becoming more prosperous.  Yes, but human rights are still several orders of magnitude better than under Mao, when China was a poor, non-market economy.  The long run trends are still positive.

Another exception is Europe, which was partially open to trade during the first half of the 20th century, and yet fell into two world wars.  Even so, Europe decided to become much more open after WWII, and has become much freer and more peaceful.  So even that’s not much of an exception.

When making public policy, you must go with the most likely outcome.  While history shows that free market economies are less likely to fight others and oppress their people, there may be a few cases where trade sanctions are appropriate.  In my view, that would only occur when you are intentionally trying to make a country poorer.  Normally, making a country poorer will make them more violent and repressive.  But if you are already fighting them (say Nazi Germany), then trade sanctions will reduce your foes’ ability to wage war.  In that case, sanctions are appropriate.

But as of today, we should be rooting for China to become a rich country, because in the long run that’s the only way to preserve world peace.  Our current trade war is giving the hardliners in the Chinese government the upper hand, and sidelining the liberals.  (Ditto for Iran, where sanctions have also backfired.)  That’s exactly the opposite of what my commenter wants to happen.  We tried trade sanctions against Japan in the 1930s, and that did not work.

It may feel good to “take a stand” against evil.  But the best way to do so is to engage in mutually beneficial trades with the victims of the evil regime, which means helping the oppressed residents of the country you are trading with.  If we had been trading with Cuba over the past 60 years, the Castro regime would likely be gone by now.  It’s the average people who suffer when you cut off trade, not the leaders.

Now let me answer the commenter’s question:

Scott: How can you support in any way the most murderous, totalitarian empire in world history?

I strongly oppose that regime, and trade with the Chinese people is my method of opposing the regime.

If China wins the trade war, the US will be less likely to launch such foolish actions against other countries.

BTW, I also support the Hong Kong protestors, so I’m certainly no fan of the Chinese government.

Politics is the problem—trade is the answer

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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