Cost and benefits of trade

Mark Perry at the Carpe Diem blog writes

From a WSJ article today "China Boosts Lead in Global Exports" about China's exports setting several new records in June:

"China's critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters."

While at Cafe Hayek Don Boudreaux writes,

You report that “China’s critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters” (“China Boosts Lead in Global Exports,” July 11).

Indeed. If Beijing truly is pursuing such a policy, that government is beyond doubt unfairly enriching some people at the expense of others. And the people unfairly enriched do include a few Chinese exporters. Overwhelmingly, though, the beneficiaries are non-Chinese consumers (including Americans) of China’s subsidized exports. In contrast, the people unfairly burdened are exclusively Chinese citizens – both as consumers forced to pay higher prices at home, and as taxpayers forced to fund Beijing’s practice of purchasing U.S. dollars in order to depress the price of the yuan against the dollar.

It is, in fact, obscenely unfair for Beijing to oblige the Chinese people to hand over chunks of their wealth to Americans, even the poorest of whom is far richer than is the typical man or woman in China.

and

Protectionism does reduce U.S. exports. The resulting loss to Americans, though, isn’t the valuable goods and services that Americans don’t ship to foreigners; instead, it’s the valuable goods and services that foreigners don’t ship to Americans.

Consider the U.S. exports that Mr. Norton mentions. Directly or indirectly, South Koreans purchase these exports with South Korean won. Of what use are won to Americans except as currency for purchasing goods and services from South Korea? If South Koreans refuse to pay for exports received from America – or insist on paying for these exports only with Monopoly money – no one would regard Americans’ failure to export to South Korea as a loss to America.

Americans’ losses from protectionist policies are measured exclusively in the value of the imports that those policies prevent us from receiving.

So if China is undervaluing its currency, then long may it continues as we get the benefits and the Chinese pay the costs. And remember the up side of trade is the imports we get, not the exports we have to give up to obtain the imports.