The Real Problem With Chinese Imports

If allowed to float freely, the Chinese currency would rise in value compared to the dollar. That would make prices of Chinese exports more expensive in the U.S., slowing their exports and leveling off the trade imbalance. But instead, the Chinese central bank keeps buying dollars in the world currency markets -- and selling yuan -- to depress the value of their currency and help their exports. According to the Bank for International Settlements, the Chinese central bank does about $250 billion a year in interventions.

Free Trade and Presumed Bargains

It's dangerous to mess with free trade. America learned that lesson with the Smoot Hawley tariff in 1930, which many argue exacerbated the collapse in the American economy into a global depression. When trade stops, profits stop, and all sides lose.

And it's also dangerous to mess with the American consumer. I'm one of the many millions who enjoy buying cheap stuff -- clothing, towels, household goods and more. The ability to pay a lot less for lots of stuff has made Americans feel they are better off. But are we really getting bargains?

Peter Morici, economist and professor at the University of Maryland, makes a compelling case that these cheap imports are not true bargains for Americans. First, he notes that the Chinese are notoriously inefficient users of energy in manufacturing, so their purchases of oil drive up the price for everyone -- costing Americans more to fill up their tanks. And, the Chinese are notorious polluters, destroying the global airspace. So the low prices of these goods don't reflect their true costs.