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Free trade with China a path to growth

Commentator David Frum

TEXT OF STORY

Bob Moon: Hillary Clinton is on her first trip overseas as secretary of state. She's making several stops in Asia, hoping to broaden economic ties at a critical time -- just when coordinated global action is needed to improve the flow of trade and financing.

Just today, China pledged to keep its exchange rate stable and use its foreign currency reserves to boost imports and consumer spending. Still, commentator David Frum thinks it's a good time to ask China to do even more.


DAVID FRUM: The great bulk of the money in the so-called stimulus bill won't be spent for months. That ought to be a big defect in a bill advertised as a response to economic emergency. But the Obama team has an answer: Big government spending, they insist, can accelerate economic growth over the long term.

OK. It's never worked before, but who knows? Still, it might be smart to have a back up plan for accelerating growth down the road. Here's an idea: This would be a very good moment to propose a free-trade agreement with China alongside the agreements the US already has with Canada and Mexico.

China has risen to become America's number two trading partner. Yet trade with China is fraught with difficulties: a manipulated currency, courts that are biased in favor of locals, and all kinds of non-tariff barriers. For years China has shrugged off US demands for reform. They might be more responsive now.

China is facing its gravest economic crisis since opening its markets in the late 1970s. By some estimates, as many as one-fifth of the factories in Guangdong province have already closed. Demand for electricity has crashed, wages in Chinese factories have dropped by half. And still the export slump continues to worsen.

Facing this crisis, China might pay a lot for expanded access to the U.S. market. It might consider lowering trade barriers. It might agree to manage its currency in ways less injurious to the United States. It might make concessions on intellectual property. Or maybe not. But there will never be a better moment to ask.

When trade barriers drop, global economic growth accelerates. We saw that effect most dramatically after the Kennedy Round in the 1960s. We could see it again if China more fully joins the world economy. Freer trade alone will not contribute much to solving the immediate crisis. But we can use the immediate crisis to promote freer trade with an important but reluctant partner -- and to build stronger prosperity in the decade ahead.

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Oh, and by the way. Large government spending is undertaken to increase aggregate demand in cases of economic downturn due to aggregate demand levels resting far below potential GDP, and thus high unemployment. The logic being to hold off depression and increase aggregate demand and therefore decrease unemployment until the economy can function on its own. Inflation increases as a function of decreases in unemployment, and vice-versa. Its a short-term strategy, you hope the initial injection of government spending generates enough employment. its a function of Keynesian economics--Keynes is quote as say in the long run we are all dead. at the time the prevailing economic philosophy was classical economics--the long-run model. Classical economics offered no solution to cyclical depressions, other than to wait them out. Keynes theory, gave rise to monetarism in the 70's when the US was plague simultaneously by unemployment, and high inflation--stagflation. A relationship that Keynesian economics held as being inverse, and therefore permitted no method of solving.....

Start by reading a Principles of Macroeconomics textbook. Then read Adam Smith's "Wealth of Nations", and then Ricardo's "On the Principles of Political Economy and Taxation" Over the course of flipping through numerous, mind-numbing pages, you all may discover a concept know as comparative advantage, and a related term specialization. Plus, you'll see some models that prove the mutual benefit of trade via specialization when free trade policies are adopted at an institutional level, and prices therefore, are permitted to guide resource allocation. The Smith-Ricardo demonstration of the gains from trade via specialization, and the associated case for free trade has won acceptance by a majority of economists since the publication of The wealth of Nations in 1776.--It has been a universally accepted principle amongst economists for many, many years. When one country decides to close its doors to free trade, doesn’t mean we should close our doors to that state. It is blatantly absurd to deny ourselves the benefits of free trade because of what others wish to do in their trade policy. If others throw rocks into their harbor, there is no reason to throw rocks in our own. The economists is a scientist. Would you be so presumptuous to speculate on the proper amount of thrust required to carry an information satellite into a geosynchronous orbit of 35786km? Conceited enough to tell a General how to position his forces on the battlefield? Or even arrogant enough to tell your mechanic how to fix your car--that you broke? When it comes to the study of politics and economics, the political scientists and the economists unfortunately have to put up with a great mass of people, who assume that through some osmotic miracle they've managed to absorb from thin air what learned scholars have labored for 8yrs to achieve.

Dear Walt Miskman,

My pie hole shall remain open as long as you reply with insults, instead of facts.

American companies are simply not terribly competitive globally. Siemens sells high speed trains to China because China can't make high speed trains. Can any American firm sell high speed trains in China?

As for other products, China is already starting to manufacture its own pharmaceuticals, cars, computers and even satellites. In addition to that, American companies have to compete with fiercely competitive and often richer European concerns in China. So, free trade with China will not save the American economy because we are failing in the marketplace.

What evidence do you have that American companies are succeeding in the marketplace?

OK. Frum is an idiot.
He and Anthony Sanders need to take a hike.

David Frum's commentary on Free Trade with China is one of the most ridiculous set of statements I've heard in the many years I've listened to MarketPlace.

Free trade with China will not put a significant number of Americans to work. We are in a crisis of job loss, crumbling infrastructure, contamination of our food sources, and thievery by the trusted. We need the roll-over of money within the economy of the United States, to assure growth..

IF Frum simply presented an alternative argument (however absurd - and they are usually quite so), I would understand his role on Marketplace, but instead every editorial is filled with derision, underhanded attacks and snarky, pointless criticisms that do nothing to bolster his point or support his argument. Surely you can find a more thoughtful voice to support these outdated conservative ideas (or maybe not - which in itself should tell you something).

I thought I'd entered an alternative universe when I heard that government spending had never done anything to accelerate long-term growth, and that the way to solve the long-term problems with the credit and housing markets is to... force China to open its markets more.

While Chinese trade policies are far from perfect, it's not Chinese trade policies that got us to this point. And why would Obama spend political capital increasing trade with China after a year of issues with Chinese imports? I'd prefer that the government focus on this universe and work on the crises at hand than get distracted by an issue that just isn't that critical right now.

I gladly second Malt Whiskman's comment. I turned off Marketplace tonight shortly after Frum madehisridiculously out-of-thin-air claim that "big government spending" has never worked to accelerate long term growth. Why is Marketplace peddling a commentator who has no grasp of American economic history? I am of course surprised that Frum is not willing to note that the U.S. arms industry, that pork-ladened all too big subsidiary of the U.S. taxpayer and our politicians for much of the last six decades, has been and remains one of our largest jobs, export and wealth-creating engines of our so-called free-market economy. For a more humane example, let Mr. Frum imagine the American economy over the years if federal disaster relief was not regularly made available to restore entire states and regions to economic and social health after devastating hurricanes, earthquakes, floods, droughts etc etc. Marketplace, please fire Mr. Frum forthwith and find someone with fewer opinions but more education and wisdom on matters economic.

Why is David Frum on Marketplace? And talking about globalization to boot. That's just what will fix this whole mess. Have American workers compete with the Chinese on labor costs and working conditions. It's brilliant! What could possibly go wrong?

Please don't inflict Mr. Frum's delusions on us again.

attn Payam Minoofar

Are you implying that China's currency manipulation and myriad trade barriers don't factor in this? If so, shut your pie hole.

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