Tuesday, 31 May 2005

Rod Donald's Chinese trade deficits

Rod Donald is bitching about a free trade deal with China, and sadly he is demonstrating he knows nothing about the free trade of which he complains.

Writing in today's 'Press' Donald argues, "I believe we will be better off if we don't lock ourselves into a free-trade deal with China."

Why? "We are already too dependent on China as a source of imported goods," he says. "In less than 12 months [China] is set to eclipse the US and Japan to become our second-largest supplier, behind Australia, but China remains well behind Japan, the US and Australia on the export side of our ledger."

'So,' you might well ask? What's the problem with that? The problem, says Rod, is [cue scary music] those nasty trade deficits! "While New Zealand's exports to China have grown more than 350 per cent since 1992," notes Rod, "we have had a trade deficit ever since then... For the year to March our $1851 million trade deficit with China was more than the value of our exports. In other words, we imported twice what we exported, and have now done so for seven years in a row."

And the problem with this is is what exactly? Are 'trade deficits' actually a problem? Only to a politician. Or a child.

Rod Donald has a child's view of how trade works. As economist Walter Williams explains:
I buy more from my grocer than he buys from me, and I bet it's the same with you and your grocer. That means we have a trade deficit with our grocers. Does our perpetual grocer trade deficit portend doom? If we heeded some pundits and politicians who are talking about our national trade deficit, we might think so. But do we have a trade deficit in the first place? Let's look at it. ...
You can look at it, right here. Send a copy on to Rod when you're done.

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