Thursday, July 21, 2016

Trump Has No Clue About Comparative Advantage

Donald Trump attacks NAFTA but not because it is a crony backroom trade deal, but because he views it as resulting in job losses, which means he exposes once again that he has no understanding of comparative advantage.

Trump told NYT during an interview:
If I don’t get a change, I would pull out of Nafta in a split second. Nafta is signed by Bill Clinton, perhaps the worst trade deal ever signed in the history of this country. It’s the worst trade deal ever signed in the history of this country and one of the worst trade deals ever signed anywhere in the world. Nafta is a disaster. You have to understand, I just campaigned, as you probably read, and I won all these states, and one of the reasons was because of Nafta. Because Nafta has drained manufacturing out of New York State, out of Pennsylvania, out of Ohio, out of so many different places. It’s drained. And these companies have gone to Mexico, and they’ve gone, they’ve left with the jobs. David, I have statisticians, and I know, like if I went to Pennsylvania, I say, “Give me the statistics on what is going on with respect to manufacturing.” Numbers — 45, 55, 65, I have states that are so bad. New England. Look at New England, what happened. Nafta has been a disaster for this country. And a disaster for the worker and Nafta is one of the reasons that, you know, there are people that haven’t had a wage increase 18 years in real wages. Actually, they’re lower, some are working two jobs, working much harder, then making less and they’re older. It’s supposed to work the opposite. You’re making more, you’re making more I hope...
You’ve got to be fair to the country. Everyone is leaving. Carrier just announced they’re leaving. Ford is building a massive plant. So I have a friend who builds plants and then I have to go. I have a friend who builds plants, that’s what he does, he’s the biggest in the world, he builds plants like automobile plants, computer plants, that’s all he does. He doesn’t build apartments, he doesn’t build office space, he builds plants. I said to him the other day, “How are you doing?” He goes, “Unbelievable.” Oh, great, that’s good, thinking about the United States, right, because he’s based in the United States. So I said, “Good, so the country is doing well.” He said, “No, no, not our country, you’ve got to see what I’m doing in Mexico.” He said: “The business there is unbelievable, the new plants we are building. People moving from the United States.” That’s what he does. One-story plants. You understand?
Yeah, we understand Donald.

You don't understand comparative advantage.




 -RW

12 comments:

  1. Might it be an artificial comparative advantage created by the trade treaty? We have constructed so many barriers with legislation that we have choked out our own industries. I'm not privy to the specifics of NAFTA, but I would imagine a bad treaty coupled with bad legislation could raise the cost of doing business in the US.

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    1. @Rob,

      --- Might it be an artificial comparative advantage created by the trade treaty? ---

      You're jesting. How would a trade deal create "artificial" comarative advantage? Comparative advantage is an economic phenomenon driven by productivity.

      -- We have constructed so many barriers with legislation that we have choked out our own industries. ---

      That would only mean it is more difficult to do business within the US but does not mean it affects comparative advantage. Even if the business environment within the US as much freer it would still not result in companies manufacturing sneakers and shirts in the US instead than Malaysia. That's ridiculous.

      --- I would imagine a bad treaty coupled with bad legislation could raise the cost of doing business in the US. ---

      NAFTA doesn't affect the cost of doing business in the US. You can't couple two things that are not related with each other. At most it reduced the barriers for goods coming from Mexico and Canada.

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    2. How could a trade deal create "artificial" comparative advantage? That is pretty simple. If the deal creates new barriers within a country or increases the cost of doing business in a certain sector that could shift profit margins and make another (foreign) market look more enticing.
      Like I said, I don't know all the specifics of NAFTA but it is quite obvious that a trade deal could shift the economics and make one country more profitable than another. For instance, NAFTA did kill the corn farmer in Mexico because Mexico could not afford to subsidize their industries to the extent the United States did. Would that not be an ARTIFICIAL COMPARATIVE ADVANTAGE? Mexican corn farmers were doing just fine until NAFTA.
      NAFTA increased the cost of doing business in Mexico in the corn market, why wouldn't there be other areas where it could adversely affect the United States? And please, write your reply in a "holier-than-thou" fashion. El Franco knows it all.

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    3. Re: Rob,
      ─ If the deal creates new barriers within a country or increases the cost of doing business in a certain sector that could shift profit margins and make another (foreign) market look more enticing. ─

      That's not what the deal did. And you're confusing things. If the deal LOWERS barriers of entry in country A then that country's economy will greatly benefit min terms of imports and capital compared to country B. That does not mean country B imposed barriers or made it more difficult to do business. That is merely confusion. And that's far from being "artificial comparative advantage". Thinking it would be is the equivalent of thinking that taking your hands off someone's windpipe makes his breathing "artificially free".

      ─ NAFTA did kill the corn farmer in Mexico because Mexico could not afford to subsidize their industries to the extent the United States did. ─

      Actually corn growing, as an industry, was in trouble for years, since the 70s. Mexico had to rely on corn imports from America and Canada because farming in Mexico was primarily collectivized through a series of ill-advised land reforms starting in the 30s. By the 80s most farmers were already migrating to the cities or to the United States. You probably don't know this but Mexico had been a socialist country ever since the ratification of the 1917 Constitution which would put the Soviet Union's Constitution to shame. So ANY deal that freed the economy even a bit would have made it seem like it was more advantageous to Mexico than the other countries but, again, that's mere appearance.

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  2. Great video! Unfortunately Trump's opportunity cost for promoting free trade is the loss of loot from his crony business friends. Thieves make lousy trading partners.

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  3. Explain how he has misunderstood comparative advantage. He is saying that NAFTA is bad for America because it gives concessions to Mexico, but does not grant equivalent concessions to America, right? What does that have to do with comparative advantage?

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  4. @Matt@Occidentalism.com,

    --- Explain how he has misunderstood comparative advantage. ---

    Robert is not claiming that El Trumpo "misunderstands" comparative advantage. His claim - which is sound - is that El Trumpo is that he doesn't know it at all.

    --- He is saying that NAFTA is bad for America because it gives concessions to Mexico, but does not grant equivalent concessions to America, right? ---

    El Trumpo is claiming or insinuating that companies move to places like Mexico because of NAFTA, which only shows his complete and utter ignrance of basic economics.


    --- What does that have to do with comparative advantage? ---

    What does Carrier moving to Mexico have to do with NAFTA?

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  5. Mexico's comparative advantage is lower wages for labor and a large comparatively poor population.

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    Replies
    1. Yes, and a one-sided trade agreement that makes it difficult to do business in America regardless of American comparative advantages.

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    2. It matters not a wit whether Trump understands comparative advantage or not. His whole career is based on crony businessmen using the government to force themselves into money making positions and force their competitors out. That is what has made him wealthy and that is what he will continue to do. NAFTA should be eliminated not renegotiated. It is only meaningful to people who believe in might makes right rather than commerce without coercion.

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    3. @Matt@Occidentalism.org

      ─ Yes, and a one-sided trade agreement that makes it difficult to do business in America regardless of American comparative advantages. ─

      That's a crock. NAFTA didn't create difficulties to do business in America. From where are you getting this idea?

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