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Nobody Wins a Trade War

The Huffington Post The Huffington Post 14/03/2016 Terry Savage
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In this political season, attacking international trade for causing job loss in America has become a popular theme in certain quarters of both political parties. It's easy to understand why. Everyone wants someone to blame for our slow-growth, stagnant-wage economy. And it's easier to blame foreigners than it is to recognize that our own politicians -- of both parties -- share the blame for this anemic economic recovery.
Here are five things you should know about the importance of international trade before you jump on either party's bandwagon.
--History shows trade wars hurt everyone. In 1930, just after the huge stock market crash, the U.S. enacted the Smoot-Hawley Tariff, which raised taxes on imported products by about 20 percent. (By the way, both Smoot and Hawley were Republicans.) The reasoning was that so many Americans had lost jobs and confidence after the market crash, raising tariffs on imports would keep those cheap products out -- and create jobs for Americans.
But exactly the reverse happened, making the Depression deeper and longer. Just when Americans needed cheap goods to maintain their lifestyles in tough economic times, the price of everything imported went up, reflecting the tariffs. Consumers were worse off, not better.
Making things even worse, other countries retaliated with their own tariffs. As economist Milton Ezrati pointed out recently in the National Interest, total world trade dropped 67 percent in the two years after the tariff was enacted. Imports into the U.S. fell 40 percent, but U.S. exports fell even more -- by 75 percent! In today's global economy, the impact would be worse.
--Chinese trade helps fund our deficits. Much has been made of our $365 billion annual trade deficit with China. Yes, they're selling us a lot more "stuff" than we sell to them. But when we pay for those goods, the Chinese take the money and lend it back to us, buying Treasury bonds at very low interest rates. The Chinese have accumulated $1.2 trillion of our IOUs. Interest rates would move a lot higher if the Chinese suddenly didn't earn money in trade to lend to us.
--China has NOT been manipulating its currency against the dollar. It's a fact that until last year, China kept its currency tied to the dollar. As a result, in recent years the Renminbi strengthened along with the dollar. That made China's exports more expensive to other Asian countries. China's most recent moves to lower the value of its currency have resulted in only a 6 percent decline against the dollar.
During the same period, many of our other trading partners, including the euro zone and Japan, have dramatically lowered the value of their currencies to make their products more attractive. The Euro has fallen 20 percent against the dollar and the Yen has fallen 25 percent in the past five years. Why target China?
--Canada, our largest trading partner, has helped America grow. The value of the Canadian dollar has fallen 33 percent against the U.S. dollar in the last three years, primarily because of lower energy and commodity prices. Yet we have the lowest tariff barriers, and our cross-border trade is the most balanced.
--America is on the verge of energy independence. Our nation now imports only 15 percent of its energy needs, and we are becoming more self-sufficient every year. That gives us a tremendous edge in global markets. In fact, we are finally starting to export energy. To wall us off from the world of trade and exports would destroy more jobs in the energy sector and create greater instability in the global credit markets.
Let's not sell America short. As part of our historic growth we have always discovered new industries and technologies, creating new and better jobs to replace manual labor on farms and in factories. Instead of bemoaning the past and berating others, we need to create incentives for the next round of economic growth and job creation. And that's The Savage Truth.

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