In Defense of Free Commerce

In response to my op-ed regarding trade with China, a reader writes:

[The op-ed] is wholly simplistic, written from the usual academia point of view.

I will admit that my argument regarding free trade is simplistic. It should be. On its very core, free trade ensures that individuals have the freedom to interact and trade with one another without obstacles created by the government. There is no economic or moral reason why individuals should only be allowed to trade with only those within arbitrary lines on a map.

Additionally, calling my piece the typical academic point of view is no better an argument than if I were to call his view the non-academic point of view. I am unaware of any circumstance under which an academic point of view is any less credible than the alternative. In fact, I find it quite ironic that academics that favor free trade are derided for their academic point of view, while those academics who specialize in climate change are treated as though their word is gospel.

More substantively, he goes on to claim that I am wrong to assert that the Chinese are only buying U.S. Treasuries and that the Chinese are using government and private funds to purchase U.S. assets. Unfortunately, he apparently wasn’t reading closely enough because I never claimed otherwise in the piece. In fact, my discussion of U.S. Treasuries was merely used to point out that the federal government creates debt, not the trade deficit.

Finally, and most amusing, is the gentleman’s arguments regarding why we should not trade with the Chinese:

The communist leaders trade using predatory trade; they target industry after industry using any and all unfair trade practices at hand: currency manipulation, intellectual piracy, industrial espionage, counterfeiting and requiring products sold in-country to be produced in-country.

Point by point:

1.) I acknowledged that counterfeit goods should be of concern.

2.) Pegging a currency to another currency — or basket of currencies — is not currency manipulation. As an economist and a supporter of free markets, I would always prefer that the value of currencies be determined on the open market. However, if a state wants to outsource their central banking to another country — or group of countries — they are free to do so at their own risk.

3.) The most ironic argument is his claim that we should resist trade with China because they require that products sold within the country should be produced within the country. So should we retaliate by requiring that products purchased here should be produced here?

Carrying protectionist logic to the fullest extent would require self-sufficiency. If I should not trade with someone in a different country, why should I trade with someone in another state? Or city? Or on another street? Or in another house? Self-sufficiency is the road to poverty. Utilizing specialization and the division of labor will only lead to greater prosperity.

China is an easy target for protectionists. They can easily point to the corrupt, authoritarian government. However, I suspect if this discussion were in regards to another country, the rhetoric from the other side would be the same because the Chinese government merely serves as a red herring.

2 responses to “In Defense of Free Commerce

  1. Josh:
    Authoritarian capitalism will never be free traders with Democratic capitalism after all their Communists. Here is the latest example I could find at AP.
    Paul Wohlfarth

    Cerberus Buying Paper Plants for $2.1B
    By JOHN SEEWER
    The Associated Press
    Friday, September 21, 2007; 3:31 PM
    TOLEDO, Ohio — A privately owned company that supplies paper to magazine and catalog publishers is buying the North American operations of one of the world’s largest makers of paper products for about $2.1 billion.
    NewPage Holding Corp., owned by private equity firm Cerberus Capital, hopes the deal announced Friday will give it a boost in the shrinking U.S. paper industry, which has been hurt by Chinese imports and increasing use of the Internet.
    “Together, we have the opportunity to build competitive, coated-paper operations,” said Mark A. Suwyn, the company’s chairman and chief executive.
    NewPage is acquiring eight factories from Finland-based Stora Enso Oyj and will combine those plants with its North American coated paper operations. NewPage and the Stora Enso operations being acquired each employ more than 4,300 people.
    Stora Enso said the North American plants make a wide variety of products including paper for magazine and catalog publishers, retailers and commercial printers.
    The transaction includes $1.5 billion in cash, a 20 percent equity stake valued at $370 million in the combined operation and $200 million in vendor notes, Stora Enso said.
    NewPage, based in Dayton, also is assuming about $450 million in debt in the deal, expected to be completed in the first quarter.
    The deal will help NewPage cut costs by $265 million each year, much of it from improved productivity and lower shipping costs, Suwyn said.
    NewPage has charged that Chinese paper imports have created unfair competition because Chinese companies received subsidies from their government. That prompted the U.S. Commerce Department to announce earlier this year that it will impose sanctions against some Chinese paper imports.
    Suwyn has said previously that the Chinese had been selling paper at up to 25 percent less than the price NewPage could offer. Friday, he said Chinese imports of coated paper products now amount to 30 percent of the market, up from 4 percent or 5 percent in the late ’90s.
    Nearly 100 paper and paperboard mills in the U.S. have closed in the past six years, leaving 410 at the end of 2006, according to the American Forest and Paper Association and RISI Inc., an industry consulting company.
    Suwyn doesn’t see online buying hurting NewPage’s business, saying customers of retailers like to look at catalogs first before buying products online.
    NewPage, one of the biggest U.S. paper producers, accounts for about 22 percent of the U.S. coated-paper business. It owns and operates mills in Michigan, Maryland, Maine and Kentucky.
    Its customers include magazine publishers Time Warner Inc. and the Hearst Corp.

    The deal will give NewPage about 28 percent of the coated-paper business and 28 percent of the supercalendered-paper business that makes shiny paper designed to look like coated paper, Suwyn said. NewPage also will get a specialty business that sells paper for bottles and cans.
    Suwyn said there are redundancies, but it is too soon to talk about cutbacks. He said NewPage will have a better idea of where cuts will be made after the deal closes.
    Six of the mills NewPage is buying are in Wisconsin and were a part of Consolidated Papers Inc., which in 2000 accepted a $4.8 billion buyout offer from Stora Enso.
    The other two factories in the deal are in Duluth, Minn., and Port Hawkesbury, Nova Scotia, Canada.
    NewPage was created in 2005 when it acquired the paper business once operated by the Mead Corp., which combined with Westvaco Corp. in 2001.
    Analysts said Stora Enso sold the mills for less than expected, but said the move will allow it to cut its losses in North America where it has struggled.
    “Stora Enso is a European company which has had better success here and this will allow the new leadership to concentrate on improving performance on one continent,” said Harri Taittonen, chief analyst at Nordea Bank.
    Stora Enso is one of the world’s largest forest product companies, making magazine paper, newsprint, fine paper, pulp and packaging boards. It employs 44,000 people in more than 40 countries.
    ___
    Associated Press Writer Matti Huuhtanen in the Helsinki bureau and Mark Williams in the Columbus, Ohio, bureau contributed to this story.

  2. Keep up the free trade good work. As a non-economist, the biggest hurdle I had to overcome to support the concept was the terminology: trade “deficit”. It’s similar to the damage wrought by a “weak” or “dropping” dollar. Those are powerful words to the average “non-academic” guy.

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