Neo-protectionists, like the President and most labor union leaders, like to argue that China is stealing an economic march on the US or, in the vernacular, is eating our lunch. This isn’t really true. In fact, if anything Chinese policy is subsidizing America’s middle class. If China were to reverse its policy, as the President and his union cronies want, America’s working Joes would suffer most of all. If anything, we’re eating China’s lunch every time we shop at Wal-Mart.
In fact, Wal-Mart is key to understanding what is happening. Because of China’s policy aimed at keeping Chinese prices low, we get most of our cheapest goods from China at an extremely affordable price. That is why Wal-Mart has been able to keep its prices low for so long. What this has meant is that, although their wages have not grown as much as those of richer Americans, America’s middle class has experienced a much lower inflation rate than their better-off compatriots. Which in turn means that all that talk about income inequality rising that you’ve heard so much of doesn’t actually tell you the whole story. China’s policy has meant a much better standard of living for America’s lower income earners.
It’s not as if America doesn’t distort trade itself. In fact, Business Insider (which regularly laments that China is eating our lunch) reports that over 12,000 American goods are “protected” by tariffs on imports. That means that those 12,000 goods are much more expensive for Americans to buy than they would be in a world of free trade. If anything, China’s trade policy is the price we pay for our own protectionist trade policy.
If Obama and his buddies in the unions have their way and add more industries to those currently “enjoying” the protection of tariff barriers, we will see a substantial increase in the living costs for the poorest Americans, poverty levels going through the roof and a resulting genuine increase in income inequality.
Then China will really eat our lunch.
Iain Murray is a Vice-President at the Competitive Enterprise Institute
