Sunday, June 27, 2010

The Anti-Bastiat Taiwanese Opposition

China and Taiwan recently struck a free trade deal which will reduce and eventually eliminate tariffs on 539 Taiwanese products exported to China and 267 Chinese products exported to Taiwan, as well as liberalizing a lot of other cross border transactions.

A really good deal for both countries, but especially for Taiwan. Yet the Taiwanese opposition is strongly opposed to the deal, arguing it sets the stage for a Chinese political take over of Taiwan, and would turn Taiwan into a new Hong Kong.

But even setting aside the fact that Hong Kong's situation is hardly miserable (having one of the highest per capita income levels in the world, the highest level of economic freedom in the world and having a lot more political freedom than in the mainland), it overlooks that as long as a majority of Taiwanese opposes political unificatiobn, the only way that China could take over Taiwan would be through a military invasion. And as Bastiat long ago pointed out the more extensive trade is the higher will the price of war be, and the higher the price of war is, the less likely will it be. Thus, if anything, this will reduce the probability of Taiwan becoming like Hong Kong.

The Bastiat principle of "When goods don't cross borders, soldiers will" doesn't hold true in all situations if hatred is strong enough. The best example of this is the Israeli-Palestinian conflict where complete free trade (causing a dramatic boom in the Palestinian economy, with West Bank & Gaza GNP growing 7% per year between the Israeli takeover in 1967 and and the start of the first intifada in 1987) before the Intifadas between Israel and the West Bank and Gaza didn't stop the Palestinians from launching their Intifadas, as most Palestinians valued (and still values) hating and killing Jews higher than having a high material standard of living. But under normal circumstances (which is arguably the case for China), where people value having a good life higher than hating their neighbors, free trade will create peace.