A new story focuses on Argentina’s restrictions on trade, forcing importers to export goods of equal value.
Complaints have been made to the World Trade Organization from the US, the E.U., Japan and 10 other countries.
Argentina’s motivation is to preserve domestic jobs, ignoring the true advantages of real free trade, which accrue to consumers through lower prices and greater demand for both domestic and foreign-made goods.
The irony in all this is that the countries making the complaints are guilty of similar tactics. The most familiar is the US demands that China increase the value of its currency, afraid that it will cost the US more jobs.
After 200 years, people–including politicians–should better understand David Ricardo’s explanation of comparative advantage, where free trade encourages countries to specialize in the production of goods and services that they produce relatively best.
Not sure how important this is for the U.S.–but it seems a significant story–that China has recently been striking deals with many South American countries to allow more trade. Nice for the Chinese need for resources, like oil, and nice for the potential market of exported consumer products. Encouraging the deals, the Chinese are making development funds available to several countries.
All this is interesting because of the relative absence of U.S. influence in the region. The US economy is also greatly dependent on trade, so it seems strange that they would ignore the needs of nearby markets.
“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”
One of China’s bigger deals was with Argentina, giving them easy access to the Yuan and encouraging the import of Chinese manufactured goods. It cost the Chinese 10 billion dollars, and recently they made similar deals with South Korea, Indonesia, and Belarus. It is said to “lead the way to China’s currency (becoming) a reserve currency.”
Is it worth it? Nice to encourage growth in export industries, but what is the value of your currency being used as a reserve currency? It will help your money from losing value during wide-spread recession.