Friday, November 11, 2016

Trade Policy On a Spectrum

I continue to see comments like this here at EPJ on trade and tariffs:
I believe protectionism is protecting THIS country. Protecting our STANDARD OF LIVING! By allowing... low tariffs on in incoming goods we have LOWERED our standard of living in this country. Other countries tax us and protect their jobs and manufacturing and we allow them to do that while 1/2 our work force remains UNEMPLOYED. This is what has occurred because our tariffs on incoming goods are too low : Between 2000 and 2014 70% of all new jobs went to foreigners 
  and
Another dumb argument against renegotiating trade deals that give trading partners *regulatory advantage* over American businesses as opposed to natural comparative advantage.
Libertarians by and large have been very bad this election cycle.

There is a spectrum when it comes to trade. There is full free trade. There is crony trade and there are high tariffs and even more protectionist measures.

Crony trade is better than high tariffs and more protectionist measures. Free trade is better than crony trade.

If the U.S. allowed totally open trade, it would raise the standard of living of Americans because we would have more products and services to choose from at cheaper prices. This would occur despite protectionist measures implemented by other countries.

Thus it makes no sense to promote the idea that we should threaten tariffs to force other countries to lower theirs. We are the MF United States if other countries saw that we kept out trade borders totally open and this resulted in better products and services offered here, other countries would catch on pretty quickly or end up in the dark ages when Neanderthals roamed. That would be their problem if they chose such a path.

The idea that because a country limits imports into its country  that it causes unemployment here where workers can not find new jobs is the Lump of Labor Fallacy. There are always jobs in a region where markets are free.

Free trade is, of course, better than crony trade but crony trade, though it benefits insiders, is still better than no trade. If a life-saving drug is made by 5 different pharmaceutical companies on an island nation but because of crony deals only one is allowed to sell the drug in the U.S., it is still better for the person whose life it saves versus not having the drug at all, though full free trade would be better because it would allow many firms to compete to provide the drug, which would likely result in the  drug being provided at a lower price.

In short, the closer we get to total free trade, the better off we are and there is no situation where it makes sense to threaten tariffs or institute them. Tariffs always lower the standard of living domestically, regardless of what policies other nations adopt.

 -RW




11 comments:

  1. Protectionists don't get that nobody is entitled to anything. They dont want to hear that one is not entitled to particular job in any particular industry. They don't want to hear that protectionism was tried during the Great Depression which made things worse. For right-protectionists who correctly rail against liberal safe spaces, they don't seem to have a problem with desires for an economic one.

    ReplyDelete
    Replies
    1. WANT YOUR PROOF ???
      HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
      Ask a Greek and a German. Ask an Italian Banker.


      I keep reading comments like this """ If the U.S. allowed totally open trade, it would raise the standard of living of Americans because we would have more products and services to choose from at cheaper prices. This would occur despite protectionist measures implemented by other countries. """

      Free Trade is great ! If you live in fairyland, where pixies all love each other and there is enough magic dust for everyone. For everyone else not so much. I can prove why.

      In the real world Free Trade does not work.

      Would you free trade with North Korea and have a dictator who enslaves his population benefit ? Of course not. No one with even the slightest moral or ethic would.

      Would you free trade with China despite their protectionist activities example dumping of aluminum and dumping of steel. Of course not, unless you no longer desired your country to have aluminum or steel production.

      NOW WHAT HAPPENS China dumps aluminum and steel, your home factories cannot compete. They close.

      NOW WHAT HAPPENS China is making all the money, clearly there is a a money flow to China - it has already occurred.

      NOW WHAT HAPPENS China buys the US Companies even your farms Pork for example
      It has already occurred.

      NOW WHAT HAPPENS your country is weak, your values dissolve, - and there is a conflict - guess who loses. Guess who loses all political control. Guess who cannot manufacture a tank, or a motor vehicle and is fully reliant on another country for aluminum and steel.

      .
      Of course real life is different than fantasy pixie land posts on the ways things should be.
      .
      . WANT YOUR PROOF ???
      HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
      Ask a Greek and a German. Ask an Italian Banker.

      .
      .

      Delete
    2. .
      Greek seasonally adjusted unemployment rate 23.4 percent August 2016
      Unemployment aged 15 to 24 years old 46.5 percent.
      .
      German seasonally adjusted unemployment rate 4.1 percent September 2016.
      Unemployment aged 15 to 24 years old 6.8 percent.

      THOSE GREEKS ARE REALLY BENEFITING FROM THOSE CHEAP GERMAN GOODS !
      Interesting more products and services to choose from at cheaper prices.
      WOW Greeks must really love Free Trade and German Goods !!
      .
      .

      Delete
    3. .
      .
      .German seasonally adjusted jobless rate 4.1 percent in September of 2016,
      Youth unemployment rate 6.8 percent
      .
      The Greek seasonally adjusted unemployment rate 23.4 percent in August 2016,
      Unemployment people aged 15 to 24 years old 46.5 percent ..
      .
      .
      I bet those Young Greeks really love Free Trade and more products and services to choose from at cheaper prices.....
      .
      .
      Exports to Greece in Germany increased to 445819 EUR Million in June from 403851 EUR Million in May of 2016.
      Exports to Greece in Germany averaged 20874.13 EUR Million from 1990 until 2016, reaching an all time high of 445819 EUR Million in June of 2016
      and a record low of 199 EUR Million in August of 1995.
      .
      .
      Amazing what Free Trade can do for you !
      .
      .

      Delete
  2. I think it's worthwhile to play devil's advocate on these issues.

    One issue Trump, conservatives and progressives bring up is China manipulating it's currency and dumping products here. Now, I understand and support the Austrian viewpoint that if someone wants to sell you goods at below market prices that you'd be a fool not to take it.

    However, playing devil's advocate here, should we not worry about distortion of markets for goods that are "dumped" in the US? If the Chinese "dump" steel in the US and it forces US Steel manufacturers out of the market, then Chinese firms can begin to raise the price of steel and US manufacturers don't have the infrastructure to go out and compete because of the high startup costs and the fear for capital investors that as soon as they re-enter the market the Chinese will begin to "dump" steel again.

    Simplistic example, but you see the point I'm trying to get at. We worry about money manipulation distorting capital markets, what is the difference here?

    ReplyDelete
    Replies
    1. China is no longer manipulating its currency against the dollar. Even Krugman admits this.

      As far as steel, here is a quote from Mises.org:

      "For example, a Chinese firm might decide to “dump” steel in America. If the firm were to do so, this would be of great benefit to the consumer. Even if the consumer could not directly buy steel at the lower price, the consumer would benefit because American producers (i.e., an auto manufacturer) that make steel products would likely see the price of one of their factors of production decrease. Moreover, the purchaser of steel would then be able to pass on this cost savings to their consumers. Although it sounds great when politicians say they are going to protect American businesses and create anti-dumping regulations, they are increasing the price of the product that is being “dumped.”

      Delete
    2. That's the short term answer. I'm looking for an answer to the long term issue of Chinese government-subsidized goods destablizing their competition as a tactic. When the competition is gone, they are free to raise prices.

      I'm using steel as a hypothetical just to discuss the theory.

      "The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups." Henry Hazlitt

      Delete
    3. "That's the short term answer."

      How so? Provided Chinese steel producers continue to do this because it is affordable, US labor in Steel industries will be permanently relocated in other industries. This can easily be long term depending on the comparative advantage.

      If they decide to raise prices, competition will provide a cheap substitute. Not a difficult concept.

      Your Hazlitt quote is misused. He would agree with Wenzel and myself, not the position youve taken.

      Delete
  3. WANT YOUR PROOF ???
    HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
    Ask a Greek and a German. Ask an Italian Banker.


    I keep reading comments like this """ If the U.S. allowed totally open trade, it would raise the standard of living of Americans because we would have more products and services to choose from at cheaper prices. This would occur despite protectionist measures implemented by other countries. """

    Free Trade is great ! If you live in fairyland, where pixies all love each other and there is enough magic dust for everyone. For everyone else not so much. I can prove why.

    In the real world Free Trade does not work.

    Would you free trade with North Korea and have a dictator who enslaves his population benefit ? Of course not. No one with even the slightest moral or ethic would.

    Would you free trade with China despite their protectionist activities example dumping of aluminum and dumping of steel. Of course not, unless you no longer desired your country to have aluminum or steel production.

    NOW WHAT HAPPENS China dumps aluminum and steel, your home factories cannot compete. They close.

    NOW WHAT HAPPENS China is making all the money, clearly there is a a money flow to China - it has already occurred.

    NOW WHAT HAPPENS China buys the US Companies even your farms Pork for example
    It has already occurred.

    NOW WHAT HAPPENS your country is weak, your values dissolve, - and there is a conflict - guess who loses. Guess who loses all political control. Guess who cannot manufacture a tank, or a motor vehicle and is fully reliant on another country for aluminum and steel.

    .
    Of course real life is different than fantasy pixie land posts on the ways things should be.
    .
    . WANT YOUR PROOF ???
    HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
    Ask a Greek and a German. Ask an Italian Banker.

    .
    .

    ReplyDelete
  4. WANT YOUR PROOF ???
    HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
    Ask a Greek and a German. Ask an Italian Banker.


    I keep reading comments like this """ If the U.S. allowed totally open trade, it would raise the standard of living of Americans because we would have more products and services to choose from at cheaper prices. This would occur despite protectionist measures implemented by other countries. """

    Free Trade is great ! If you live in fairyland, where pixies all love each other and there is enough magic dust for everyone. For everyone else not so much. I can prove why.

    In the real world Free Trade does not work.

    Would you free trade with North Korea and have a dictator who enslaves his population benefit ? Of course not. No one with even the slightest moral or ethic would.

    Would you free trade with China despite their protectionist activities example dumping of aluminum and dumping of steel. Of course not, unless you no longer desired your country to have aluminum or steel production.

    NOW WHAT HAPPENS China dumps aluminum and steel, your home factories cannot compete. They close.

    NOW WHAT HAPPENS China is making all the money, clearly there is a a money flow to China - it has already occurred.

    NOW WHAT HAPPENS China buys the US Companies even your farms Pork for example
    It has already occurred.

    NOW WHAT HAPPENS your country is weak, your values dissolve, - and there is a conflict - guess who loses. Guess who loses all political control. Guess who cannot manufacture a tank, or a motor vehicle and is fully reliant on another country for aluminum and steel.

    .
    Of course real life is different than fantasy pixie land posts on the ways things should be.
    .
    . WANT YOUR PROOF ???
    HOW WELL IS EUROPE DOING WITH FREE TRADE AND OPEN BORDERS ?
    Ask a Greek and a German. Ask an Italian Banker.

    .
    .

    ReplyDelete