Libertarian Rebuttal – The U.S. Should Do Something About Chinese Currency Manipulation

The Chinese currency manipulation story is all over the news now. The senate is moving forward rapidly to pass a bill that would impose sanctions on China for keeping the value of the renminbi, the Chinese currency, artificially low. Economic relations between the U.S. and China will surely sour as a result.

The libertarian position on this issue is pretty straight forward. It is not the job of any government to interfere with the monetary policies of other nations. In reality, the libertarian position prohibits a government from having control over money even within its own borders. It falls on the shoulders of principled libertarians to understand and  fight back against the bellicose economic policy currently being pursued.

So what’s wrong with what the Chinese government is doing anyway? The reasoning goes something like this: The Chinese have an export driven economy. In order to make their exports cheaper and more marketable, they’re intentionally lowering the value of their currency, the renminbi. With a weak renminbi, Chinese products gain an unfair advantage in the marketplace. People will buy goods made in China instead of American made goods. The Chinese economy will continue to grow while American companies are forced to lay off workers and scale down their operations. It isn’t fair that Americans are being treated this way. The government needs to take action to make sure that no more American jobs are lost. There are two ways to go about it. Option one is to convince the Chinese to stop printing money and making their goods artificially cheaper so that American companies can compete. Option two is to slap tariffs on Chinese imports so that when they finally do come to market they won’t be so much cheaper than American products. If, as a result, more American products are sold, this will create jobs and help the economy.

This seems like a pretty strong argument for taking action against the Chinese. However, I assure that a libertarian rebuttal using the following talking points will let you hold your own. I’ve already had success using this line of thought on a couple of occasions.

1. Quickly explain how China actually goes about manipulating its currency. First an American decides that he will buy a Chinese product. Say the product costs ten dollars. The Chinese good comes to the United States and the ten dollars goes to China. In a non-manipulative environment, the Chinese company that received the ten dollars would either have to use the ten dollars to buy something from a merchant that accepts dollars, presumably an American company, or sell the dollar to a currency trader in exchange for renminbi. In the first case, the ten dollars would go right back to the United States in exchange for an American good. Trade would be balanced. In the second case, the increased supply of dollars being sold in exchange for renminbi in China would weaken the dollar against the renminbi. This temporary weakening of the dollar would make American products momentarily more attractive. More competitively priced American goods would be purchased by Chinese consumers with dollar balances and the ten dollars would its way back to the United States. Under this scenario, trade is balanced as well. This is all to the good and describes how things work when governments aren’t manipulating currencies. In the real world, however, the Chinese government steps in and interferes with the automatic balancing process. When the inflow of dollars into China starts to weaken the dollar and strengthen the renminbi, the Chinese government prints new renminbi and buys dollars with them. The newly printed renminbi increase the supply of the currency and consequently weaken it against the dollar. The dollar never goes through the weakening process which would make American products more attractive. Trade cannot be balanced and huge trade deficits occur.

2. If the trade deficit is never balanced, Americans win. This seems counter intuitive but it is the truth. Imagine that you and another guy are neighbors. You agree to mow his lawn for a month and in exchange he will paint your house. Now imagine he paints your house first and in exchange you give him an IOU for lawn mowing services. If for some reason he has to move before he is able to claim his IOU, you win and he loses. You got a free paint job. When the Chinese government manipulates its currency, it both exacerbates the trade deficit and make it impossible for the Chines people to obtain what they have coming to them. The Chinese government is essentially forcing its citizen to work for Americans for free without getting anything in return for it. Or to use the example above, they’re painting our houses without ever getting the benefit of having their lawns mowed.

3. Work isn’t good in and of itself. It is crucial to understand that work isn’t inherently good. We all work because resources are scarce and if we didn’t work we’d starve. To make this point clear, imagine a situation in which all humans could have anything they wanted by simply wishing it. It is absurd to think that any person would go out and break their back when all they have to do is think of what they want and they’d have it. Of course, this example is merely made to prove a point. We don’t live in a world that even approaches resembling it. However, when the Chinese government manipulates their currency and makes their goods cheaper they allow us to move in the direction of a work free world. Let’s say I work forty hours a week, make one thousand dollars, and need one hundred widgets to stay alive. If widgets cost ten dollars each than I can never work less than forty hours a week without dying. Now consider what happens if the Chinese government manipulates their currency and all of the sudden Chinese widgets are available for eight dollars each. Now instead of having to work forty hours a week, I only have to work thirty two hours a week. The ideal situation would be for the Chinese to manipulate their currency down close to zero. We wouldn’t have to work at all! That is it would be ideal for us. It would be hell on earth for the Chinese.

4. The Chinese people should hate currency manipulation. The first three points lead us to the conclusion that the Chinese people are being ripped off by their government. Chinese politicians are pursuing a policy which forces the Chinese people to work hard, send their wares overseas, and receive less and less in return. Some may argue that at least their is a lot of employment in China as a result. That’s true, but we’ve already established that work isn’t inherently good. The Chinese people are killing themselves with work so that we don’t have to. Its a great deal for us and a rotten deal for the Chinese.

5. Tariffs will make us work harder for less. Slapping tariffs on Chinese goods will make the American people work harder for less pay. If the Chinese will sell me a widget for eight dollars but the government slaps a three dollar tariff on it, than I’ll have to work longer and harder to able to afford the widget. I could buy an American widget for ten dollars but that will lower my standard of living as well. If I am forced to buy an American widget, will it create American jobs? Yes. Will it also destroy other American jobs? Yes it will. If I have ten bucks and I buy an eight dollar widget I have two dollars to spend on something else. If I have to spend all ten dollars on the widget, it is clear that I will have to forgo the something else. Workers will lose jobs in the something else industry. Whichever industry has the best lobbyists will benefit from tariff policy. Those without influence in Washington D.C. will lose out.

6. The U.S. government is a prolific currency manipulator itself. The U.S. government has no right to complain when other governments print money. The Federal Government has made money printing its explicit policy for dealing with the economic down turn. It has literally created trillions of new dollars. If currency manipulation is so immoral, the U.S. government should lead the way and stop printing money itself!

There you have it. This is a solid plan game plan for arguing that the U.S. government should not do anything about Chinese currency manipulation. When you hear somebody saying that the government needs to do something about the Chinese and their currency manipulation because Chinese products gain an unfair advantage in the marketplace, that Americans will buy goods made in China instead of American made goods, that the Chinese economy will continue to grow while American companies are forced to lay off workers, and that it isn’t fair for Americans to suffer such an injustice, respond with the following points:

1. Quickly explain how China actually goes about manipulating its currency.
2. If the trade deficit is never balanced, Americans win.
3. Work isn’t good in and of itself.
4. The Chinese people should hate currency manipulation.
5. Tariffs will make us work harder for less.
6. The U.S. government is a prolific currency manipulator itself.

If you’re able to make these points, you might just prevent a trade war. Get out there and give it your best.

Adam Pearson


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