Free trade with a hostile nation is a losing game.
The following is an excerpt from Jonathan Pelson’s new book, Wireless Wars: China’s Dangerous Domination of 5G and How We’re Fighting Back.
Why didn’t the regulators and government authorities in the United States and Europe stop the damage from Huawei? Why did they allow the Chinese company to sell their gear in the U.S., and all over the world, at prices that were clearly below cost, low enough to take business from most competitors, and so low they destroyed the margins on competitors who had to slash their own prices to win the business? Shouldn’t countries prevent foreign companies from entering and dominating their markets, selling products below cost? And shouldn’t countries put up trade barriers to block foreigners if their home country doesn’t also open its markets to imports?
This is often the response from governments, whether in the Americas, Europe, or elsewhere. Leaders come to the aid of domestic industries, decrying unfair competition. Companies under threat try to position themselves as “strategic,” and warranting protection. Somehow, the truly strategic telecom sector failed to earn this designation. But should any sector block foreign suppliers, even if those suppliers are selling their products at unreasonably low prices?
There aren’t simple answers to these questions, says Mike Munger, an economist and former chair of the department of political science at Duke University, where he continues to teach political science, public policy, and economics. He argues that trade deficits aren’t a problem, and he makes the case for continuing to trade even when a partner subsidizes their products and puts up barriers to yours.
“My trade deficit with Kroger’s supermarkets is gigantic,” he deadpans. “I buy a ton of groceries from them and they never buy anything from me. The last time I tried to sell them some of my stuff, they called the cops.” Munger says that if one party has something of value and the other party has money they want to exchange for it, no voluntary exchange is bad.
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Author: Ruth King
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