The U.S. Should Be More Like Hong Kong

While airports frequently have “Duty-Free” stores within them, Hong Kong is a Duty-Free city-state. It levies no taxes on incoming foreign goods. The only taxed products (regardless of country origin) are tobacco, gasoline, alcohol, and methyl alcohol. 

Free Trade and the Division of Labor

That Hong Kong is open to the world’s plenty very much explains why it’s so prosperous. The sole purpose of work is to exchange it for other goods and services, which means Hong Kong’s citizens get the most in return for their work. 

An economy is just a collection of individuals, and individuals are better off when they have the whole world competing to meet their needs.

Even better, the eagerness of Hongkongers to divide up production with the rest of the world means that they’re most likely to be doing the work that most amplifies their talents. The latter is a reminder of just how incorrect President Trump’s faux trade guru (Peter Navarro) is about openness to global production coinciding with job loss and impoverishment. If it were true, Hong Kong would be the living definition of poor and unemployed. That it personifies rich is a reminder that free trade doesn’t force us into breadlines as much as it makes it much more likely that we’ll get to do the work most commensurate with our talents. 

To be clear, the fact that Hong Kong is a Duty-Free marketplace is a major driver of its immense prosperity. An economy is just a collection of individuals, and individuals are better off when they have the whole world competing to meet their needs. After that, they’re much, much better off when they’re doing that which elevates their skills the most. Division of labor is what enables the latter.

Free Trade, Not “Trade Deals”

As such, Hong Kong’s authorities are in a very real sense the ultimate dealmakers precisely because they’ve made no “trade deals.” Crucial here is that they don’t concern themselves with high tariffs in other countries, or the false notion of a “level playing field.” What matters is that Hongkongers are free to purchase whatever they want tax free.    

Supposedly Trump will “win” with higher tariffs for them, forcing down tariff barriers to U.S. goods in other countries. He should instead do nothing.

Which brings us to President Trump. He fancies himself a dealmaker. The latter informs much of the dissembling on the right when it comes to defending his attempts to start “trade wars” with other countries. Supposedly Trump will “win” with higher tariffs for them, forcing down tariff barriers to U.S. goods in other countries. He should instead do nothing.

We’re already winning precisely because the U.S. is an open market to the world’s production. Well, almost. The average tariff on foreign goods in the U.S. is 1.4 percent. We’re almost Hong Kong—that’s why we’re the richest nation in the world. See above.

The False Narrative of “Winning”

Yet despite this truth, some on the right have gone wobbly. Seemingly eager to be team players, they’ve accepted Trump’s false premise that trade amounts to war, or Americans being taken advantage of. They’re incorrect. Here’s how a recent editorial at normally free-trading Investor’s Business Daily (IBD) put it in an attempt to defend Trump’s meddling:

We understand why Trump has pursued this tack. Many of our past trade deals have been badly negotiated, giving away too much and getting too little in return. There’s a difference between truly free trade and lop-sided trade, and sometimes it’s hard to tell the difference.

The editorialists at IBD have momentarily forgotten that with trade, the country that opens its markets up the most is always and everywhere the winner. It’s negotiating the best deals, by far. The latter is a statement of the obvious. 

Implicit in IBD’s reasoning is that the U.S. would have been better off had trade authorities kept tariffs on foreign goods higher as a way of protesting high tariffs in other countries. Ok, but why? Why would the world’s richest country want to imitate poorer ones? Better yet, why would the U.S. mimic the policies of other countries that explicitly render their people poorer? So while U.S. trade policy would ideally amount to a zero tariff on all foreign goods, it’s better than most. Individuals in the open-to-global-production country always win no matter what other countries do. We’re richer when more people are vying to serve us, and we’re exponentially richer when we can divide up work with the whole world. 

The Obsession with China

Trump’s obsession with Chinese imports has blinded him to the basic truth that they’re not producing feverishly so that they can forever endure living standards that are a fraction of ours. They produce because they want to live as we do.  That they do is a strong signal the Chinese themselves will most effectively demand lower barriers to American goods. It can’t be stressed enough that to produce is to demand, which means China’s tariffs on U.S. products will gradually come down thanks to insatiable demand within China for the world’s plenty. 

China’s tariffs on U.S. goods are a market intervention like any other, and as such, they injure the Chinese people the most.

Ok, but what if they don’t? What if the Chinese government continues to injure its people with high tariffs on foreign goods? If so, that’s too bad. It is because the existing tariffs on American production are impoverishing the Chinese in a relative sense, but it’s most unfortunate for the tariffs existing as a barrier to innovation within China. When we’re not dividing up work, we’re not specializing as much, and when we’re not specializing as much, we’re not creating as much wealth. 

China’s tariffs on U.S. goods are a market intervention like any other, and as such, they injure the Chinese people the most. Just think how much better off the Chinese would be economically (and by extension, American workers) if the government approached commerce in the way that Hong Kong’s authorities do. If so, Americans would benefit even more from Chinese production. Yes, you read that right. Benefit.

We Don’t Need More “Deals”

That the U.S. is open to the world’s plenty is the surest sign the American worker is not being taken advantage of. Stating the obvious, the global competition for the paycheck of the American worker is the surest sign that Americans are getting the best deal of all. What imperils all this is Trump’s much vaunted “dealmaking,” not the status quo.

All of which calls for President Trump to sit on his hands. The problem is that Trump wants to make a deal that would make the U.S. less like Hong Kong, which means less of a winner. Translated, Trump will negotiate reduced American greatness unless his obsequious base demands the economic freedom from him that it would most surely be demanding from a President Clinton.  

Reprinted from Real Clear Markets.