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Trading Opinions About Free Trade

Your articles "The China price," "How to level the playing field," and "Shaking up trade theory" (Special Report, Dec. 6) totally ignore a fundamental change that comes with globalization: The notion of nation is becoming less important. Economic analyses that turn on "national" performance or competitiveness are inadequate for current trends. Units of analysis that are taking on new importance are regions such as the European Union, NAFTA, even the Mekong River valley.

John L. Graham

University of California

Irvine, Calif.

"Shaking up trade theory" has some interesting points but reflects confusions in the public debate rather than dissensions in trade theory. The [Paul A.] Samuelson paper is not about offshoring of services through the Internet or other mediums, which created a panic wave, but really about a different and indeed conventional question that has recurred for half a century: Can changes such as productivity increases outside the U.S. hurt the U.S.?

Thus, imagine that you are exporting aircraft, and new producers of aircraft emerge abroad. That will lower the price of your aircraft, and your gains from trade will diminish. You have to be naive to believe that this can never happen. But you have to be even more naive to think that the policy response to the reduced gains from trade is to give up the remaining gains as well.

The critical policy question we must address is: When external developments, such as the growth of skills in China and India, for instance, do diminish the gains from trade to the U.S., is the harm to the U.S. going to be reduced or increased if the U.S. turns into Fortress America? The answer is: The U.S. will only increase its anguish if it closes its markets. Every trade economist understands this.

Jagdish Bhagwati

Arvind Panagariya

Columbia University

New York

Editor's note: This letter was also signed by economists Kyle Bagwell (Columbia University), Robert Baldwin (University of Wisconsin), Donald Davis (Columbia), Avinash Dixit (Princeton University), Ronald Findlay (Columbia), Gene Grossman (Princeton), Douglas Irwin (Dartmouth College), T.N. Srinivasan (Yale University), Robert Staiger (Wisconsin), and David Weinstein (Columbia).

No industry builds wealth the way manufacturing does, with its layers of added value. By letting China gut American manufacturing by manipulating its currency, dumping goods, and counterfeiting everything that is American, we've become a papier m?ch? economy needed by the world only for consumption. There is nothing we can do that the Chinese can't do now at one-tenth the cost, and this paints a bleak future for America.

Raymond Santilli

Oklahoma City

A way to slow the outsourcing of U.S. white-collar jobs is to increase the H1-B visa quotas for white-collar professionals from India and China. The presence of increased H1-B job opportunities will drive up Indian and Chinese domestic wage rates for white-collar professionals from good educational institutions. This will decrease outsourcing of white-collar jobs to India and China while increasing competition for American workers and increasing U.S. gross domestic product through the economic multiplier effect.

Arun Khanna

Butler University


Paul Magnusson's "How to level the playing field" (Special Report, Dec. 6) points out that the balance-of-trade deficit includes borrowing foreign capital to the tune of $413 billion, our budget shortfall. The current-account deficit, now headed for $620 billion this year, measures trade and capital flow, like a bank account. Americans do not save, and they consume more than they make. We are borrowing against our future. Replacing the income tax with a consumption tax is one change that will increase our savings rate, increasing our "bank account" for investment and job creation.

Magnusson also proposed enforcing trade laws more aggressively. The example he used was the semiconductor trade agreement in the mid-1980s. It disadvantaged a much larger segment of industry and increased prices about eightfold overnight to consumers of semiconductors. And it resulted in leaving U.S. companies less competitive and creating large windfall profits to Japanese manufacturers.

Chris Quackenbush

Miamisburg, Ohio

Editor's note: The writer is former chair of the Silicon Valley Council of the American Electronics Assn.

I propose a versatile and flexible instrument that can pull this country out of the quicksand of the current-account deficits. It involves the U.S. setting an upper boundary on the allowed annual trade deficit in consumer goods for each country or group of countries. Under my plan, Congress sets annual limits on the trade deficit, and the President allocates the deficit among trading partners. A country may exceed its limit if its government pays to the government of the U.S. a stipulated percentage (up to the full amount) of the excess deficit in consumer goods. Both the number and zeal of customs inspectors dedicated to accepting goods from a country would directly depend on this country's relevant behavior.

Vladimir A. Masch

Warren, N.J.

We will never reduce or eliminate our trade deficit as long as we continue to export industries instead of the products of industry. As Henry Ford said: "There is one rule for industrialists and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible."

Eric Dalton

Germantown, Tenn.

I am no economist. I am, however, alarmed by the rapid change in thinking in the States. As a Chinese, I want to share with you some history. The decline of China's power, starting from roughly 1400 onwards, was in large part due to its closed-door, trade-with-none policy. The rise of modern China is due to its open-door, trade-with-all policy. I hope the U.S. can learn from this.

Li Siu-wah

Hong Kong

I find it very interesting that the grabber "How America can meet 'the China Price"' (Editorials, Dec. 6) says "Start by cutting the budget deficit. And boost funds for education." Both of those things are exactly what George W. Bush won't do, and exactly what John F. Kerry said he would do.

James V. Showalter

San Francisco

In reading this Special Report, a wave of d?jà vu swept over me. All you have to do is dig out your stories from the 1980s and '90s, change the titles from Japan to China, and reprint them. Not only are the articles the same, but the conclusions are the same.

Richard Brawer

Ocean, N.J.

Like your earlier pieces on outsourcing and our ballooning trade deficit, you have kept on message: We need to "start by cutting the budget deficit. And boost funds for education." However, we also need to recognize that the stage is set for the advance of a new "Creative Age," in which creativity and innovation will be the hallmarks of the most successful communities and vibrant economies. In that process we need to engage communities across the nation, and importantly those in each community with responsibilities for education. Those communities placing a premium on cultural, ethnic, and artistic diversity, and reinventing their educational systems -- from preschool through graduate school -- will probably burst with creativity and entrepreneurial fervor.

John M. Eger

San Diego State University

San Diego

There are just not enough manufacturing jobs to go around in the world, and the U.S. will lose as a result, as it cannot compete with the Chinese and Indian shops. Twenty years from now, the U.S. won't be holding on to the high-skilled labor market. As Jagdish N. Bhagwati suggests, these jobs will already be gone. This nation is at the forefront of another revolution, transitioning into a completely service-oriented economy with all the manufacturing being done overseas. It's time economists realize that Ricardo's comparative advantage theory is outdated and insufficient to describe the current world economy.

Michael Abernethy

Pflugervile, Tex.

If "The china price" is such a threat to the U.S. economy and business, can you imagine the problem it has created in the other developing and less-developed nations? The undue advantage that the Chinese manufacturers have in terms of the currency and government subsidies should be addressed before the world economy becomes one-sided.

Mohan Iyer

Hockessin, Del.

In your reports on China, there was not one mention of how much more abuse the environment can tolerate. There have to be limits to how much cropland can be consumed for factories and how much air and water pollution the populace can absorb. China is poisoning itself in ways that will be difficult and costly to reverse.

David Johnson

Chula Vista, Calif.

How unfortunate that we just passed through a Presidential election without considering the implications of our new two-superpower world. Surely the Chinese people's rise from poverty represents great progress for the world. But this remarkable rise has been largely financed by U.S. investors, for whom low wages and high profits always seem to trump democratic process and national interests. Should not the U.S. government also represent the belief of other Americans that democracy and human rights in both countries are as important as free markets and profits?

Carl Proper

Lexington, Mass.

America is complaining that more engineers are produced by China, India, and other countries, and it's wondering how to increase the output of U.S. engineers. The cost of producing a student is much higher in the U.S. than in other countries. I think a long-term approach is needed to introduce more competition and level the playing field among the educational institutions.

Abolish the notion that degrees earned through online or distance study are of "lower value." Additional incentives for people pursuing education in math, science, and engineering are needed to make up for the uncertainty of knowledge application later in life, such as fast-track applied degrees in engineering.

The main aim of such endeavors should be to achieve a flexible "ubiquitous" educational system. After all, education should not be a privilege of few but a lifelong activity that helps all people change their lives and accomplish their dreams.

Momchil Tsonev

Sevlievo, Bulgaria

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