Obama’s Tariff

I am terribly disappointed with Obama’s tariff. Especially I believe that he is an intelligent person. He definitely should understand the reaction from Beijing and is well aware of the impact of Smoot-Hawley Tariff Act to the Great Depression. He is basically risking all these for the political capital needed for his health reform. While I agree the necessity of the latter, imposing the tariff is extremely unwise.

Just go read any economic textbook, tariff is bad to economy. Period. The logic is actually very simple. There is something known as the comparative advantage. It is just like one doesn’t want to mow his/her lawn but hires someone else to do it since one can pursue more meaningful stuffs with his/her limited time. So instead of making tires, the US could have invested money on high tech, green, and creative industry. Now, the money is artificially subsidizing a dying industry (tariff is a form of subsidizing since consumers are paying more on tires instead of putting money on other products). Moreover, because of the subsidy, the industry will not receive the essential incentive to improve itself and become more efficient. So when the subsidy is taken away, the industry simply dies. It is like computer industry in South America in the 90’s.

One argument in justifying the tariff is that the Chineses  are artificially pushing down their currency and thus it is not a fair trade. It is basically nonsense and ignorant. Especially, most of these people do not realize that Yuan actually has risen from 1 USD to 8 Yuan to 1 USD to 6.8 this couple years. For some weird reasons, people now seem to think that the cheaper the currency the better. Actually, continuing decline of a currency usually do more bad than good. It does of course encourage export as everyone points out. But it reduces internal consumption and internal/foreign investment and thus slows down the overall economy. It is even more silly to think that the Chineses pushes down the currency so that they can pay the workers less. After all, the average wage of the workers is determined by their productivity (unless you are running a real communist country!). The total wages cannot be higher than the revenue earned from the final product. The average wage in china is low mostly because the productivity is low. Instead of artificially subsidizing the union wage through tariff, the US should try to increase the productivity of the workers here. Or we will end up another GM mess in a couple years.

Again, I support Obama in trying to change the health system but the tariff is really a horrible political move. I thought he were much better than this but I was very disappointed with him now. I don’t understand why we can’t have a President who was sensible in both domestic, international, and economic policies. It seems like that if we don’t want to hurt the environment and fight some stupid wars, then we need to accept some elementary school level economic policy. God bless America…

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