Symposium 2012: Is a trade war with China looming on the horizon?

Cartwright: A trade war with China would be the worst thing we could do. I’m tired of hearing everyone bitch and moan about how China is taking jobs from America. The simple fact is that we can’t compete with their low wage labor. They’re producing goods with every bit as much quality or even better than what we can produce here in America, and they’re doing this at a fraction of the cost. American workers aren’t willing to work for $2 an hour. Besides, we’ve got a minimum wage law that sets wages at levels that make us less competitive than manufacturers in other countries.

But who’s benefiting from this low wage labor in China? The consumers. They love being able to go to Wal-Mart or wherever and get quality goods at low prices. If we get in a trade war with China, that all goes away. If we start tacking on tariffs on Chinese goods, the consumers aren’t going to be able to get the cheap goods anymore. Prices will end up doubling or tripling or more in many cases. Is that what we want? I doubt it. And here’s another sad reality. The vast majority of American consumers don’t give a damn if the product is made in China or Mexico or here in the U.S.. There’s no economic patriotism among Americans. Too many people are just struggling to survive right now to care where it’s made. They’re only concerned with prices, and they’re not willing to pay more for an American made product. It’s sad but true.

Listen, no good would come from a trade war with China. The consumers will suffer. Our economy will suffer, and ultimately America as a whole will suffer. We get into a trade war with China and they may just stop buying our debt. Then what are we going to do? Interest rates will rise rapidly and an economy that’s already in the tank will be further in the tank. Is this the path we want to take?

RMC3: Mr. Cartwright is absolutely right. No good would come from a trade war with China. You know, I appreciate my colleague’s very kind comments earlier about my patriotism. I do love this country, and I want America to be successful and great. We’re the greatest nation on earth, but we’ve got some very serious problems that are threatening to erode the very foundation of all that makes America great. I would love for everyone in America to show economic patriotism by buying American made products. I try to buy American made when I can, but that’s increasingly hard to do. You go to any department store and it seems like everything is from Mexico or China or Southeast Asia. You’re hard pressed to find American made goods. And on a side note, it’s really sad that a lot of our food isn’t even from American farms anymore. Produce and other goods are coming from Central and South America. It’s just plain sad.

We talked about the economic principle of comparative advantage before. It’s really quite simple. They can efficiently manufacture labor intensive goods more economically than we can. We can do certain things more economically than they can. For example, we’re developing the technologies at a much more advanced rate than they are for the time being. Thus, they produce the labor intensive goods and trade with us for the technology. If we fall behind in the technology realm, they’ll end up overtaking us and we’ll suffer economically since we don’t really produce much here in America anymore. We can’t permanently sustain as a service economy. We have to produce something.
Sydney: In essence you could say that China has been waging a trade war on America for many years already. The fact that the yuan is pegged to the U.S. Dollar rather than operating as a ‘floating’ currency as most global currencies do means that its value is being kept artificially low. This means that American manufacturers are forced to compete with much cheaper Chinese imports. The Federal Reserve has recognized the damage this is doing to the American economy and this is why interest rates have been reduced to 0%. This, in addition to Quantitative Easing has led to a large drop in the value of the American dollar. As such you could argue that both countries are now engaged in a trade war. But what does the future hold? The American economy is still weak so interest rates won’t be increased any time soon but they inevitably will be at some point which will increase the value of the dollar. The real question is whether China will change its policy of pegging the yuan to the U.S. Dollar. This is unlikely in the near future although it should be noted that in recent years the Chinese Government has allowed the Yuan to ‘float’, albeit within a very small range.
Michigan: A trade war with China would not benefit either country. Import-export makes up about one third of our economy. We have organizations and agreements such as the World Trade Organization that acts as a court to resolve problems. We are China’s biggest customer. I think we would stand to lose the most in a trade war. We really do need each other in spite of our love-hate relationship

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