On Friday the Commerce Department announced a crackdown on shiny Chinese paper. I can’t even begin to tell you whether the particular decision was warranted, and I don’t know if it’s mere saber-rattling about a triviality or the beginning of a new era in U.S. trade policy. But I do know that if Americans really want to erase or at least reduce our burgeoning trade deficit with China and much of the rest of the world, there’s a much better way to do it.
What’s that way? Stop spending more money than we’re taking in. This would involve getting the federal budget back in balance, then looking for ways to boost the personal saving rate. These could go hand in hand: A carbon tax, for example, would reduce the amount of money going overseas to buy oil, cut the federal deficit, plus help fight global warming. Some sort of automatic, government-organized retirement-saving plan for all American workers, or at least those without pension plans or 401(k)s, would both reduce current consumption (much of which flows abroad) and help ease worries about the future of Social Security. An end to government subsidies for home ownership would cut consumption and boost the country’s fiscal position.
Do all these things and the trade deficit with China would shrink dramatically. Economic growth in the U.S. would slow, too, at least at first. Unemployment would probably rise. But both those would also happen if we got into a serious trade war with China, without any of the positive side-effects outlined above.