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 Richmans' Trade and Taxes Blog

Krugman: "We're in a world in which mercantilism works"
Howard Richman, 8/17/2010

The New York Times had an August 15 editorial (Return of the Killer Trade Deficits) which parallels the commentary that my father, son and I wrote for the August 16 American Thinker. While we were concerned with the effect of the exploding U.S. trade deficits upon the American economy, the Times was only concerned with the effect upon the world economy. Here is a selection from their editorial:

(T)rade statistics released last week indicate that American consumers are sucking in large quantities of imports as spending recovers, while weak demand in the rest of the world is crimping American exports.

Meanwhile, China is mopping up demand everywhere you look with its artificially cheap supply of goods. Germany, the world’s other exporting power, is cutting its budget and relying on foreign demand to drive its economic rebound. This isn’t sustainable.

The Times is pretending that the U.S. problem is also the world's problem. What nonsense! A U.S. trade deficit is a one sided problem. Our trade deficits hurt us. The resulting trade surpluses in Europe and China help them. The Times advocates more of what the Obama administration has already been doing -- talk, talk, and more talk -- while they oppose anything that would work. Here is what they say about tariffs:

There are bad ways to address this problem. Punish China rumblings are back on Capitol Hill, but any move to slap punitive tariffs on Chinese goods could lead to destructive tit-for-tat retaliation. The drive by Congressional Republicans to end the Obama administration’s sensible (and still too weak) stimulus policies might help cut the trade deficit — but only by tipping the economy back into recession.

In his August 16 blog entry about this editorial (Killer Trade Deficits), Nobel Prize winning economist Paul Krugman, a New York Times columnist, had a much more realistic perspective:

(W)hat China is doing amounts to a seriously predatory trade policy, the kind of thing that is supposed to be prevented by the threat of sanctions.

Yet the Chinese have taken our measure, and decided that we won’t act. Until or unless that changes, we’re just whistling in the wind.

I say confront the issue head on — and if it leads to trade conflict, bear in mind that in a depressed world economy, surplus countries have a lot to lose from such a conflict, while deficit countries may well end up gaining. Or to put it differently, right now we’re in a world in which mercantilism works. In the long run we’ll emerge from this kind of world; but in the long run …

We advocate something that would stop mercantilism from continuing to succeed: our proposal is to place a  scaled tariff upon our imports from the mercantilist countries, thus enforcing the International Monetary Fund's rule against currency manipulations in order to produce trade surpluses.

Comment by crizzy, 4/24/2013:

This is my first time to your blog and I've really enjoyed looking around. I will return in the future to check out some other articles.

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