Monday, March 22, 2010

Is a trade imbalance with China the real problem?

Here is Don Boudreaux responds to Jeremy Warner on suggestions that we should place a "surcharge" on Chinese imports (As Mark Perry points out, what this really amounts to is not a surcharge on imports, but a tax on consumers):
You write as if the alleged trade imbalances between the U.S. and China are real. They are not. The Chinese sell Americans goods; we pay with dollars; the Chinese then use many of these dollars to buy IOUs issued by Uncle Sam. Although the result is a measured U.S. current-account deficit with China, there’s no more any economically meaningful “imbalance” in such a result than there would be if, say, Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem: Uncle Sam’s gargantuan debt. That fast-accumulating debt is a huge problem. It is caused, though, not by trade with China but, rather, by Washington’s lack of fiscal discipline. [emphasis mine]
But that won't stop the politicians from blaming it all on China, rather than themselves.

HT: Carpe Diem

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