Thursday, August 02, 2007

China Bashing Baloney

Seventy-seven years ago, economists from both sides of the political aisle warned President Hoover not to sign the Smoot-Hawley protectionist trade bill—1,028 economists to be exact. Hoover didn't listen. He signed it and the Great Depression ensued.

Yesterday, the Club for Growth released a petition signed by 1,028 economists (once again—from both sides of the political aisle) advising Congress and the president against imposing retaliatory trade measures against China.

One of the signers, John Rutledge, joined me on Kudlow & Company last night with his unique perspective. John is a former Reagan economic adviser, chairman of Rutledge Capital, president of Mundell International University Business School in Beijing and the chief adviser to China's Silicon Valley governor. Simply put, he knows a thing or two about trade.

KUDLOW: Look, John, here's the deal. I want to challenge you a little bit—just to play devil's advocate. Economists love free trade, no question about it. Half of the signers today were Democrats. But Main Street may not love free trade. And you know the rap, John. Free trade, particularly with China, is costing Americans jobs and wage inequality. How do you respond to that?

RUTLEDGE: Baloney. That’s how I respond. Larry, Congress is the only whorehouse in America that loses money. Today they proved why. The Senate Banking Committee today passed a China-bashing bill 17-to-4. It wasn't just the Democrats, it's the Republicans too. We're having a race to the bottom now of politicians trying to get in front of that Main Street lynch mob you were describing with tax increases, with protectionism. People are scared. The world is changing fast. Politicians have chosen short-term political gain over long-term growth for the US and abroad. They should be ashamed of themselves.

KUDLOW: Okay. That's the usual mantra with Congress. I don't disagree with you. But on this point, let me go back to it. So many people have come to believe that trade deficits, large trade deficits with China are costing Americans jobs and lower wages and benefits, and therefore free trade is a bad idea. I mean, are the Democrats smarter than we think here? I'm not looking at it from the economists’ perspective, I'm looking at it from Main Street.

RUTLEDGE: I think the Democrats are very smart politically. They're not idiots. But they're doing a bad thing here intentionally to garner votes. Main Street doesn't think about free trade and long-term growth. And right now growth is what's in danger. We've got Obama, we've got Hillary and others, all competing to be the biggest foreigner basher we've got. That's just like what happened in 1930. This is a grave situation. The world is growing now faster than ever. The only risk is protectionism out of America. We've got to do something to stop it.