Finally, it is worth remembering that if the yuan is truly undervalued against the dollar, then it is like giving every American a 40 percent discount card on everything made in China. Our real incomes are higher in terms of what they will buy because of the Chinese policy. Instead of complaining, we should all be grateful.
Of course, there are those who will point to jobs in the United States that have been lost due to competition from Chinese imports. But is this really a sensible rationale for putting tariffs on Chinese goods, as Sen. Charles Schumer, D-N.Y., proposes? If Wal-Mart suddenly decided to cut the prices on all its goods by 40 percent, would Schumer endorse a tax on Wal-Mart because Target was losing jobs? I think not, but the analogy is accurate.
Even if Schumer's 27.5 percent tariff is imposed on Chinese goods, it is not necessarily going to restore any American jobs. In all likelihood, companies now importing from China will just buy from the next cheapest producer, which may be Korea, Singapore, Mexico or someplace else. They are not going to start manufacturing here the goods that are now being imported from China unless we put high tariffs on imports from everywhere.
Putting tariffs on all imports to create jobs would be extremely bad policy for many reasons. The cost would likely be in the hundreds of thousands of dollars per job, all of which will be paid by Americans in the form of higher prices for things they consume. And many U.S. jobs will be lost because of the higher cost of imports, which are often inputs for U.S. manufacturing, and because of foreign retaliation. In the end, such a strategy has always been a lose-lose proposition.
Unfortunately, the Bush administration is playing politics, with Commerce Secretary Don Evans bashing China for unfair trade and Treasury Secretary John Snow demanding a rise in the yuan. One cannot rule out the possibility that it will pander to voters in key states by imposing restriction on Chinese imports, as it imposed tariffs on steel last year. It is worth noting that three Republican senators have already cosponsored the Schumer bill: Jim Bunning of Kentucky, and Elizabeth Dole and Lindsey Graham, both of North Carolina.