Trade and Political Policy

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Sadly, as I write this (a couple of days before it posts) it looks like events in Hong Kong are coming to a head, and heading for an unhappy ending.  In the lead-up to this I have had some of my friends express their disgust at trade with China–which is doing such horrible things–and speculating that if we cut off trade, the government would fall within…

Well, that’s wishful thinking at best.  In the past, I’ve written on why free trade is the best approach economically.  (Here and here specifically.)  This is true even if you hate the other guy’s guts.  This is true even if the other guy does not engage in free trade.  There may be a few specific cases where that does not hold, but by and large, that’s they way to bet.

Carl von Clauswitz is supposed to have said that war is politics by other means, i.e. that the purpose of war is not its own sake but to achieve political ends.  The same might be said of trade wars.

The questions that one has to ask, however, are threefold:

  • Is the goal to which the war (physical or trade) is intended to achieve worth the price.  While the host in pain, suffering, and death are obvious in a physical war, the same applies in more subtle fashion in trade wars.  Trade wars hurt the economies of all the parties involved.  They reduce the prosperity of all of them.  And, as I have pointed out before, a reduction of prosperity costs lives.  That this cost is more easily ignored does not make it any less real.
  • Does the war actually further that goal.  Flipping the old dark humor joke on its head, if your goal is to save the village, destroying seems a funny way to accomplish that.  Likewise, if your trade war is unlikely to achieve whatever political goal you have, then you’re harming not just your opponent’s economy, but your own to no end.  The goal may be a good one, and worth a war, but not if the war is unlikely to bring about the goal.
  • Are there better, and less costly, ways of achieving the goal? Even if your war can bring about the goal, if there are other ways with less breakage, would it not be better to pursue them?  War may be your only option.  It may be your best (or least bad) option.  But then again, maybe it isn’t.  Nowhere is it writ in nature that there has to be a better way, but if there is, why not pursue it?

What do we have in the case of a trade war with China, in an effort to ameliorate their rampant human rights abuses?

Well, personally, I’d say that ending their human rights abuses would certainly justify the economic hardship of a trade war.  Even the skyrocketing prices of key resources like Rare Earth Elements (used in things like high strength magnets) would be worth it if that goal could be achieved.  And if we could get them to end the abuses, we could then go back to free trade and turn the hardship into nothing more than a memory.

But then we get to Step two:  will a trade war actually accomplish that end.  There are folk who think it would but…I am less sanguine.  For one thing, economic sanctions are rarely successful at bringing about regime change or even significant change in the behavior of a government.  In the specific case of China, never were the Chinese Communists more secure in their control of China than in the period between the Communists attaining control of mainland China and Nixon’s re-opening of diplomatic and trade relations with them.  During that time the US orchestrated a diplomatic and trade embargo against China.  During that time, horrors such as the “Cultural Revolution” and the “Great Leap Forward” saw the Chinese government slaughter tens of millions of its own people.  Yet never was there any serious threat to Mao’s rule of China.

What more could a modern trade war do to China than was being done then?  Such a trade war might inconvenience the leadership who siphon off much of the wealth that international trade brings to China, but the hardships would fall most heavily on the Chinese people.

Perhaps, some say, that hardship would inspire the Chinese people to rise up against their communist leadership.  Perhaps.  Or perhaps with a trade embargo the Chinese government would have an external enemy to point to as the cause of their increased suffering–and actually have that claim have more than a grain of truth to it.  The rulers of despotisms rarely suffer much from trade sanctions.  It’s the people who bear the brunt.

Trade sanctions utterly failed to upset Chinese Communist rule of China in the two decades of the span from 1949 to 1969.  I am highly skeptical that trade sanctions would be any more effective now.

While I would love to see China throw off the yoke of Communism and enter the world market as a free (or at least freer) nation, I don’t see trade sanctions from tariffs to a full embargo accomplishing that end.  And if it won’t accomplish that end, then it’s just virtue signaling.  And we never even get to the point three of “are there better, less damaging, ways to accomplish that end?”

Unfortunately, I don’t have any answers.  I won’t say that sometimes the world just sucks because in cases like this people make it suck.  However, there is hope.  For all their flaws, Boris Yeltsin and Mikhail Gorbachev at least cared a little about their country and its people.  They had at least some desire for their nations to prosper as they were not under communism.  This led to “Perestroika” (change) and “Glasnost'” (openness).  And once that crack in the wall was permitted, it was only a matter of time before it all came down.

Sadly, Xi Jinping does not appear to be such a ruler and with the abolition of term limits on his position, barring a miracle it may be decades before a new chance arises.  The Chinese people will have to hold on until then.

Fortunately, or unfortunately depending on your point of view, the Chinese people have a long history of holding on.

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