NCPA - National Center for Policy Analysis


September 14, 2006

Our deficit with China -- $202 billion -- is big.  But that, in itself, is not a bad thing.  And Americans benefit enormously from free trade -- something that is rarely noted, says Investor's Business Daily (IBD).


  • As economist Gary Clyde Hufbauer recently estimated, the average American family's income is about $10,000 higher today, thanks to the dismantling of trade barriers over the last 50 years.
  • Meanwhile, a University of Michigan study has calculated that family incomes could be increased an additional $2,500 just by reducing the remaining barriers by a third.
  • We now live in a $12 trillion economy in which one of five factory jobs is supported by exports.
  • On average, those jobs pay 13 percent to 18 percent more than nontrade jobs, according to the U.S. Trade Representative's office.

As U.S. exports grow, so do U.S. jobs.

But it isn't just the United States that's benefiting.  According to a recent study in Foreign Affairs by David Dollar and Aart Kray, poor countries that globalized most aggressively saw average annual gross domestic product (GDP) growth rates surge from 1 percent in the 1960s to 5 percent in the 1990s.  Dozens of other studies have made similar findings, says IBD.

And the debate isn't just academic.  Sen. Charles Schumer (D-N.Y.), is pushing a bill to slap 27.5 percent tariffs on all Chinese imports unless China sharply revalues its yuan against the dollar.

This is protectionism, plain and simple, says IBD.  The yuan may indeed be undervalued against the dollar, but a sharp, sudden revaluation could create massive financial instability in China, the United States and the world economy.

Besides, those who'd redress trade imbalances through gimmicks such as tariffs -- really just a tax on consumption here -- miss the point.  Free trade makes everyone wealthier, says IBD.

Source: Editorial, "A Case for Trade," Investor's Business Daily, September 14, 2006.


Browse more articles on Economic Issues