An article at Bloomberg expresses deep concern over the fact that, recently, the United States has experienced a strong dollar, relative of course to the world’s other fiat currencies.
While the steel industry has been fading in the U.S. for decades, things have gotten worse recently. A strong U.S. dollar, combined with a slowing Chinese economy, is bringing unprecedented amounts of cheap, foreign steel to the U.S., swamping domestic producers.
>”Things are getting worse.”
>”unprecedented amounts of cheap, foreign steel to the U.S.”
For real? Consider:
Jones: “Things are getting worse in my household financial situation”
Smith: “Oh yeah? What’s going on?”
Jones: “Well everytime I go to the store things are getting cheaper and now I am able to purchase unprecedented levels of goods.”
Smith: “Yikes. I’ll keep you in my prayers.”
The doctrine of mercantilism weighs economic success by the ability of the domestic producers to lead the industry worldwide. Thus, when foreign producers are able to produce things cheaper, the mercantilist panics. For this means that the domestic producers are not able to compete. But why is it inherently better for economic progress is the domestic producers in one industry maintain control of the industry? There is no reason for this.
Economic prosperity and progress depends on the division of labor. It depends on the fact that some people are better, more efficient, at producing some things than others. And it is good for the economy that those who are best at something specialize in it and those who are not as good at something find another role in society. While Bloomberg panics that the Chinese are able to produce more cheaply, they should be thrilled: for now the American consumer of steel can save money, invest what he would have spent, and thereby direct scarce resources into productive activities in the domestic area.
Bloomberg complains: “The recent devaluation of the yuan could make Chinese steel even more attractive to U.S. buyers.” This is exactly right. And this is the lesson that the entire mainstream economic commentator profession needs to understand: Chinese devaluation is not a boon for China… it is a boon for the US consumer! China, far from “cheating” by devaluing, are merely hurting themselves and their own consumers. The US citizen is the primary beneficiary!
“U.S. producers have had no choice but to pull back. Andrew Lane, an analyst at Morningstar, expects U.S. steel production to come in at around 85 million metric tons this year, down from 98 million in 2007. “I don’t think we’ll get back to that level until 2020,” Lane says.”
There is nothing wrong with this. Obviously those employed in the steel industry will be negatively affected. But those in the importing industries, as well as those in the industries that will suddenly receive more money from the savings of the American consumers who will no longer be spending as much money on steel, will be positively affected. Economics, as Bastiat and Hazlitt taught, is a matter of considering the bigger picture; not just the immediate and obvious consequences.