[scl0577]

Mr. Herbener, this question is related to the previous one on tariffs and free trade. I’ve been seeing people like Trump and Sanders claim that we can’t allow unfettered free trade because countries like China devalue their currency and engage in trade wars. I’m not 100% sure how they are claiming this works but the argument is that they are devaluing their currency and causing their exports to be more affordable to American consumers, putting US businesses at a disadvantage. Can you explain their argument on this in case my understanding is flawed ?

This sounds like a broken window fallacy and seems to be all about protectionism. But I’ve had arguments with people who claim we can’t have free Trade because the other countries are not “playing fair”. One argument for free trade as you know, is that it allows both countries to shift resources and labor into industries that they are more productive in. But if the reason for the resources being shifted is currency manipulation and not that the other country produces the good more efficiently, how can I refine or make sense of that argument? I’m assuming it still benefits is in the long run nonetheless. Can you shed some light on this please? As always, I greatly appreciate your time!

Spencer

[jmherbener]

Consider this analogy: suppose your family had a homestead in the American territorial west and, while mostly self-sufficient, your family traded with the merchants in the local town for goods that they could sell more cheaply than you could produce. Then one day the merchants decided to give your family a discount for goods they sold to you because they wanted to expand their own business in these lines (let’s say they are forerunners of the strategy of Sam Walton). By accepting their discounted goods, your family would raise its standard of living by shifting to areas of production in which it had comparative advantage and the producers supplying the merchants would be doing likewise.

[Author]

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