Ben Stein How Not to Ruin Your Life

One of the smartest men I know is a lawyer named John W. Keker. He was my law school classmate right after heroic service as a Marine officer in Vietnam. Now he's probably one of the top white-collar defense lawyers in the nation. Among the many brilliant things he said to me in the last 40 years was this gem: "People don't like to be pushed around, and when you push them too far, you regret it."

This comes to mind because of recent trade numbers between the U.S. and China. The latest figures -- really a continuation of earlier figures, only more so -- show that America is importing a lot more from China than we export to them. This is upsetting many people terribly, especially those in the textiles business, many of whom have lost their jobs because of a flood of cheap Chinese textile imports.

The Worst Idea in Trade

Some U.S. senators, notably Charles Schumer, a Democrat of New York, and Lindsay Graham, a Republican from South Carolina, are proposing to punish China for selling its goods to us so cheaply. Schumer and Graham (and others) have proposed a 27.5 percent tariff on everything we buy from China (see "China: Friend or Foe?" http://finance.yahoo.com/columnist/article/yourlife/1615). It's about the worst idea in the field of trade I have ever heard of, and here are a few reasons why.

First, let's admit that when we import hugely more from China than we sell to them, decent, hardworking Americans lose their jobs, in New York and South Carolina and a lot of other places. But on the other hand, the whole country benefits from buying manufactured products far cheaper than before. The whole idea of Wal-Mart is basically to offer us Chinese goods dirt cheap. This raises the standard of life of almost everyone who lives near a Wal-Mart. The U.S. benefits when it can buy cheaper T-shirts, pajamas, table cloths, toasters, and TV sets because we get them from China.

The solution for the displaced workers is not to penalize the whole nation by slapping a tariff on Chinese goods. Instead, we should retrain those workers whose jobs have been lost and let them have careers (in health care, for example) where they cannot be harmed by overseas competition.

Second, when we buy more from China than they buy from us, they wind up with a lot of U.S. dollars -- hundreds of billions of dollars. What do they do with them? They buy U.S. Treasury bonds, in large part. This helps us finance our immense federal deficit, keep interest rates low, and allow America's economy to grow faster than any other large Western economy.

The Chinese don't do this out of charity. They buy U.S. Treasury bonds because they see the country as a safe, stable place to park their money until they need to withdraw it to pay for their workers' retirement. If we started a trade war with China, the Chinese can stop buying our bonds, sell some of what they already have, and make life uncomfortable for us.

Why should we ask for such confusion in the debt markets to punish a country whose main sin apparently is selling us goods very cheaply? (Obviously, China has other sins, including gross human-rights issues. But I notice no one is proposing to punish them for their arbitrary and cruel "justice" system.)

Too Late for Isolationism

Third, China is a major trading partner for most of the world and a part of the World Trade Organization. It's very questionable whether the U.S. is even allowed to slap on a tariff beyond what was already agreed upon to punish a nation for exporting too much. We're already in so much trouble in the world that to start a trade war on top of Iraq seems to me the height of folly.

Moreover, we export to China in a big way. Timber, hides (on an immense scale), passenger planes. China can buy these from Canada or New Zealand or France. If we put on a punitive tariff, the Chinese will unequivocally retaliate. They're a proud and strong people. We shouldn't push China around. The country is in a position to make a lot of agony for the U.S. about Taiwan. Why encourage them to do so?

Frankly, I'm not sure what the solution is to the trade imbalance with China. I suspect that -- as usual -- the ticket is for all of us to save more so that when the dollar depreciates against foreign currencies, as it surely will, and imports get more expensive, we will be able to buy them (see "Living Hand to Mouth -- and Barely Getting By").

But the solution is not to stir up a hornets' nest, raise prices at Wal-Mart, start a trade war, insult a proud and strong people, harm the employees of Boeing and thousands of other companies, and make us all look foolish and have to eventually back down.

It's far too late to turn back to isolationism -- and it never was a good idea in the first place.