- The petition is organized by a nutty right-wing group called the "Club for Growth," which automatically undermines its credibility.
- Though I share the general sentiment that free trade is (usually, mostly) good, China's currency intervention itself represents a significant deviation from free trade in the sense that the government is manipulating prices. The efficiency of "free markets" (in internationally traded goods or otherwise) crucially depends on free adjustment of prices.
- The petition says that "There is no foundation in economics that supports punitive tariffs." I'm no game theorist, but I suspect a game-theoretic argument could be made that a credible threat of retaliation might lead to a better outcome, i.e. free trade and freely floating exchange rates.
Wednesday, August 1, 2007
If 1028 Economists Agree
Mankiw reports that 1028 economists have signed a petition opposing congressional action to use retaliatory tariffs to pressure China to increase the value of the Yuan (doing so should lead to higher prices for Chinese goods in the US, while making US goods cheaper in China, reducing the trade deficit). Nobody asked me to sign (sniffle), but I'm not sure I would have anyway, for several reasons: