Protectionists Never Learn

This commentary appeared in the Wall Street Journal on March 12, 2007

I’m thinking of a country. America’s trade deficit with this country just reached an all-time high. This country holds more U.S. Treasuries than any other foreign country. It’s one of the world’s largest economies. And the name of that country is?

Japan.

Japan? Yes. Remember when Japan was a big threat to the American economy? You have to go back to the late 1980s. Back then, every politician in the mood for pandering to economic ignorance could scare a bunch of folks with worries about how the Japanese were stealing our jobs. How our trade deficit with Japan was going to destroy the American economy. How the Japanese economy was soon going to pass America’s. How the Japanese auto industry was part of a sinister strategy to destroy our core competencies.

You’d think Japan would still make good political fodder. The story of the baseball off-season is the Red Sox spending $100 million to bring Daisuke Matsuzaka from Japan to the United States. Dice-K, as he’s known, is the ultimate import. He takes away a job from an American pitcher. And the Japanese baseball teams discriminate against American players with strict quotas. But even though America’s trade deficit with Japan just hit that all-time high, no one uses Dice-K as a symbol of unfair Japanese trade policy.

Why not? Instead, it’s China all the time. We’re told that China cheats on its currency, stealing America’s manufacturing capacity and destroying American jobs. China’s holdings of U.S Treasuries threaten our sovereignty, according to Hillary Clinton, even though Japanese holdings are almost twice as big.

Why isn’t Japan just as scary as China? One answer is that Matsuzaka smiles too much. He’s only scary if you’re 60 feet 6 inches away from him, trying to hit his famous gyroball with a wooden stick in your hand. And unlike other imports, it’s easy to see how he doesn’t just help his relatives in Japan with all that money he’s getting from the Red Sox. He helps the Red Sox. Trade makes both parties to the trade better off.

But still. Why isn’t Japan scary?

One answer is that the doom-and-gloomers already tried, but nothing happened. They told us that Japan was going to destroy our economy. They told us we needed a plan to cope with brilliant Japanese economic strategies. But then the Japanese economy hiccupped and played Rip Van Winkle for a decade, while America kept growing.

The real reason Japan isn’t scary is because it wasn’t and isn’t a threat to our standard of living. Trade makes both parties better off, remember? But when Japan slumps and the U.S. surges, it’s too hard to fool people with bad economics.

So when the sky didn’t fall, a new candidate had to be found. Mexico and Nafta fit the bill. Not Canada, even though Canada was part of Nafta. Evidently, politicians and some voters find Mexicans more scary than Canadians. So it was Mexico. When that great “sucking sound” was never heard, a new sinister foreign nation had to be found. And so it’s the turn of the Chinese.

Yes, China holds a lot of our bonds. But Japan holds more. Yes, we run a big trade deficit with China. But that lets us buy lots of inexpensive stuff instead of having to make it for ourselves. Yes, there are more than a billion Chinese. I guess that means they can take all of our jobs four times! But our economy keeps growing. We have more jobs than ever before. And contrary to popular belief, the American standard of living and the American middle class are thriving.

We were told that at a minimum China (and India with its own billion-strong population) would take all our high-tech jobs. But the high-tech sector bounced back from its downturn (a downturn that had nothing to do with outsourcing) and is growing again, partly because we can get some of the simplest database and programming tasks done so cheaply by Indians and Chinese.

So why can politicians still make China scary? Why didn’t Americans learn from the previous sky-is-falling episodes? The simple answer is that if you don’t understand economics, you might be convinced by a politician who says that trade with China is bad for America.

The next time you find yourself losing sleep over China, remember that you were worried about Japan and Mexico and everything turned out OK. Then ask yourself if America would be a richer country if China cut itself off from the rest of the world.

Leave a Comment

You must be logged in to post a comment.