Trade, China, and Economic Reform

1776 was a watershed year. Not only was America born, but Adam Smith penned his famous treatise on capitalism, "The Wealth of Nations," wherein he advocated for free trade and the dismantling of protectionist schemes. His ideas were as true then as they are today, and in the long run, nations which follow his advice are the most wealthy. But it is a constant battle, as governments have a natural inclination to protectionism and, in many cases, subsidization of elements of their domestic economy. And we see these forces playing out in the grand stage today in China and the U.S. It was the recent topic of an interview on NPR with United States Treasury Secretary Henry Paulson.

BLOCK: People whom you might consider protectionists would say, 'We're defending American workers who have seen their jobs shipped overseas. That's not – if that's protectionist, that's protecting people at home.'

PAULSON: Oh, absolutely. That's absolutely what they're saying. And another point I made in the speech is, let's not trade away the benefits of the future to deal with short-term problems, dislocations. You know, we've always had – job losses are very painful wherever they occur, and I don't take them lightly, and I don't think at any point in our history people have taken them lightly — but the fact is more of the job losses, in my judgment, are coming from technology and automation than they are for global integration. But I don't have people – one of the things I said in the speech is, you don't hear people say, let's turn back technology; let's shut off the Internet.

Read the transcript of the entire interview here.

Update: Niall Ferguson has an article in today's Telegraph discussing the interrelationship of the Chinese and American economies, or as he terms it, Chimerica.