We should be fighting a trade war with China, not Mexico

cross posted with Howard Richman of Trade and Taxes

We should be fighting a trade war with China, not Mexico

Country U.S. Exports 2008 U.S. Imports 2008 Export/Import Ratio
Mexico $176.2 billion $235.3 billion .75
China $87.4 billion $347.9 billion .25

In the 2009 appropriations bill, just signed by President Obama, Congress terminated the pilot program that lets Mexican truckers drive inland into the United States. In response, Mexico just announced plans to place tariffs on 90 U.S. industrial and agricultural products.

This is a foolish trade war. For every dollar that the United States pays to Mexico for goods and services, we get 75¢ back when Mexicans buy our products, but our purchases from China go into a black hole with only 25¢ coming back as purchases of our products. China, unlike Mexico, practices mercantilism, the strategy of maximizing exports and minimizing imports.

The Chinese central bank bids up the dollar and bids down the yuan so that American goods and services will be overpriced in world markets and Chinese goods and services will be underpriced. As a result, in 2008 China exported 4 times as much to the United States as it purchased. Not only that, but because Chinese currency manipulations caused American goods and services to be overpriced, the United States ran a trade deficit with Mexico.

The United States economy would clearly benefit from a trade war with China. Instead, President Obama and the Democratic Congress have chosen to pick a fight with Mexico.