Monday, April 25, 2016

Free Trade, No Trade, Crony Trade and Trump Trade

I see we now have some confusion in the comments on trade, free and otherwise, as evidenced by this exchange I had at the post, A Discussion on Trump, War and Protectionism:

  1. The inherent fact that all "free trade" deals are conducted by and for crony capitalists via the structures of governments voids any possible beneficial effect for the normal--non-connected--individual or industrialist. Wenzel's wilfully blind support of such trade deals also delegitimizes his supposed hatred of government intervention.

    There is no "free trade" if governments, between themselves, agree the terms of trade. Why is this so difficult to accept?

    1. Where exactly have I supported government created trade deals?

  2. Every time you have railed against Trump for not supporting "free trade", you support the current notion of "free trade"--which is nothing more than government approved and conditioned trade. Your hypocrisy is palatable.
It should be noted, I have neve ever confused crony trade with free trade in 32,000 plus posts here at EPJ, You won't find such confusion ever. Never once have I called NAFTA or TPP free trade, Indeed, it would be extremely difficult for you to find me saying anything positive about NAFTA or TPP (Though they are better than Trump trade).

Because one is against Trump trade does not mean that one is in favor of crony trade as opposed to free trade.
That said, the distinctions that exists between free trade, crony trade, and Trump trade must be understood,

It must be understood that Trump's view on trade is simply an old tired mercantilist view that money coming in and goods going out is the ultimate goal of trade. He views any manufacturing leaving the US as evil.  This is what is behind his tirades against Ford, Carrier and Apple, for  paying to have goods produced overseas. He wants manufacturing done in the US so that the money comes in when those products are sold outside the US and he doesn't want the products made outside the US so that American consumers (or American manufacturers) don't send money outside the country to acquire them.

Murray Rothbard, years ago, explained the absurdity of Trump's concern:
Protectionists focus on the horrors of imports being greater than exports, implying that if market forces continued unchecked, Americans might wind up buying everything from abroad, while selling foreigners nothing, so that American consumers will have engorged themselves to the permanent ruin of American business firms. But if the exports really fell to somewhere near zero, where in the world would Americans still find the money to purchase foreign products? The balance of payments, as we said earlier, is a pseudo-problem created by the existence of customs statistics....
We conclude that the sheaf of protectionist arguments, many plausible at first glance, are really a tissue of egregious fallacies. They betray a complete ignorance of the most basic economic analysis. Indeed, some of the arguments are almost embarrassing replicas of the most ridiculous claims of 17th-century mercantilism: for example, that it is somehow a calamitous problem that the U.S. has a balance of trade deficit, not overall, but merely with one specific country...
Must we even relearn the rebuttals of the more sophisticated mercantilists of the 18th century: namely, that balances with individual countries will cancel each other out, and therefore that we should only concern ourselves with the overall balance? (Let alone realize that the overall balance is no problem either.)
Attempts to block trade are all always bad ideas, but it must be understood that on a scale from bad to worse, no trade is worse than some trade and they are both worse than total free trade,

So to the degree that Trump is actually serious about preventing Carrier, Apple and Ford to buy or produce some products overseas that are allowed under current crony trade deals, it is worse than crony trade. We should object to crony trade deals because we want trade that is completely free, not trade that is more restrictive, which appears to be what Trump is in favor of, if we are to believe his rhetoric.

Let us try and understand these three possibilities, Trump trade, crony trade and free trade in a mental experiment. Let us assume that the cheapest and most tasty apples can be made overseas, rather than here in the United States. Under total free trade, Americans would be able to trade freely with any overseas farmer who produced these cheap and tasty apples. Under crony trade, some powerful crony operator would get onerous regulations written into a trade deal that would prevent his competitors from exporting apples into the US, but the regulations would still allow him to export the apples into the US. Thus, Americans still have it better than if no trade were to be allowed, but the cost would no doubt be higher and the number of apple buying options would be limited because of the cronyism.

Under Trump's mercantilist view, he would want the apples produced in the US, even though that would mean apples that were less tasty and more expensive. He sees himself as some kind of bizarre master negotiator. where he will measure his success by the degree by which he keeps as much production in the United States as possible. This, of course, means that he fails to understand the problems with the mercantilist view, but also the law of comparative advantage.

Thus, on a sliding scale from bad to worse. Trump's mercantilist trade perspective is the worst, crony trade is a better alternative but far from the best and free trade is the best alternative. That is, total free trade is great and some trade is better than no trade or extremely limited trade.



  1. You've now clarified your position as favoring, by degrees, crony-trade versus an environment where the interventions of government are evenly applied (that is to say, tariffed) to all participants in the domestic market.

    And Austrians wonder why they are accused of being proponents of big-business!

    1. phil you know perfectly well that when Bob talks of free trade he means between two parties who have contracted with each other, with no involvement of the state.

  2. Let's look at a more real life like example.

    A company called Chicago Widget makes a high quality widget for a low price in the USA. They compete for labor, respect the property of their neighbors, honor employment contracts, all the things one would expect in a libertarian world plus complying with a huge regulatory burden imposed by layers of government. Their competition, Federal Widget is much larger.

    Federal Widget makes a good enough widget and has most of the market share. It doesn't last as long as Chicago's but it's okay and slightly cheaper. They have political influence and make it so there is free trade widgets allowed from Elbonia. They get crony deal with an Elbonian partner to set up a factory there. They don't have to worry about emissions or much of anything. Cronyism and corruption is how things work in Elbonia and it's officially communist nation. There's no competition for labor, people have little choice (by law), and they enjoy a huge upper hand. It's more or less the opposite of everything libertarian.

    Federal Widget can now cut their price dramatically. It's not as good as the old one but you can now buy 2.25 of their Widgets for every Chicago Widget and it lasts long enough, about half as long as Chicago Widget's product. Chicago Widget starts suffering sales wise and eventually has to build its own factory in Elbonia to survive. They make an okay Widget over there, it lasts a little longer than Federal Widget's product costs about the same.

    Now the widget factories are closed in the USA and widgets are made in crony communist Elbonia. Now americans enjoy a cheap, decent for it's price and prone to fail early widget. Many hang on to their old "made in the USA" widgets.

    People see this as rather unfair. The US government makes it costly to build in the USA and the people largely believe in the goals behinds it. Problem is the government then turns around and lets in products made without meeting those same goals and certainly not honoring libertarian concepts like private property and honoring contracts with people who don't have political power.

    That drives the attraction to Trump Trade. The argument that we enjoy cheaper widgets doesn't do much for them or even many libertarians. You don't see much protest about competing with products made in Germany these days or even Japan. Why? Because factories there are on a more or less even footing. People in the USA don't want to live like Elbonians to compete with them. Sure Trump doesn't see the real problem but neither do most libertarian free traders. Many libertarians think order doesn't matter. That free trade with Elbonia will sped their adoption of libertarian principles or whathaveyou. Order does if you want people here to support libertarianism. They resent being told to compete with Elbonia when Elbonia doesn't have to play by the same rules. That's where Trump comes in.

    1. I would have to ask you why would I have to mind the environmental rules in Elbonia so that I prefer to plunk down my hard-earned cash to SUBSIDIZE Chicago Widget rather than buy the cheaper widget from Federal?

      It's easy to think about 'fairness' when it is NOT your money. I am not willing to subsidize Chicago Widget nor do I care about what Federal does in Elbonia. That should be the business of the Elbonia people IF they care enough. Why is it imperative that I hold MORAL ISSUE over that situation? Because you're merely making a moral case for protectionism, that's all. It is not an economic argument.

    2. I haven't argued any side. Nor made a case for a moral imperative. I found the apples example lacking so I've explained the attraction to Trump Trade and continued rejection of libertarianism wrt this issue in the USA as I see it.

      You get cheap widget under the trade deal and that benefits you at least in the short term but don't expect your neighbors who worked at the widget factory to support your way of thinking. No matter how much you argue the benefits of cheap widgets for us at the expense (lack of property rights, etc) of those in Elbonia your neighbors are going to support Mr. Trump. In their view they lost their $55,000 a year jobs to save a few bucks on widgets because the government let those commie bastards sell their crap here. What you're telling them is "look how much cheaper widgets are, sorry about your job" so don't expect that argument to work for them.

      It's worse than a poor argument for free trade or crony trade deals, it's actually a self-destructive one. If you give people the option between their good paying job and paying more for a washing machine they'll pick their job. Except when they go buy a stove they'll be influenced by the low prices of the ones made in Elbonia but they won't connect their savings to the crony trade deal the way they connect uncle bob losing his job at the widget plant to it.

      And just to get ahead of where you're going: They aren't going to like it much if you tell them they can go do something else, because the state here has made creation something else to do so difficult, so subject to its approval, that there likely won't be something else for them. Someone might have a great idea to reopen the widget factory and sell US made wodgets in East Endor but barriers to entry from the state are too great. So it just becomes more of the great unseen.

      And there lies a better argument for free trade. Tell them how they can't have the wodget factory because of the government here. Just taking aspects of the libertarian world without regard to building it in an orderly fashion hurts them in a way they see and they'll oppose it.

    3. @Jimmy Joe Meeker,

      ─ I haven't argued any side. Nor made a case for a moral imperative. ─

      Here: "Cronyism and corruption is how things work in Elbonia and it's officially communist nation. There's no competition for labor, people have little choice (by law), and they enjoy a huge upper hand. It's more or less the opposite of everything libertarian. "

      That's a moral judgment, not an economic argument. From the standpoint of my deity-damned money, the fact that Elbonia is a feces-hole is only the concern of the people in Elbonia and not mine.

      ─ I've explained the attraction to Trump Trade and continued rejection of libertarianism wrt this issue in the USA as I see it. ─

      Yes, it can be explained perfectly as the result of a general lack of understanding of economics. That's no big secret.

      I understand the gist of your explanation but at the same time you have to understand that it is one thing to know or realize why Trump's notions have traction. But at the same time you and I fall on a rhetorical trap if either of us starts accepting that there's a moral case for not doing business with countries the likes of Elbonia. That has nothing to do with free trade. If *YOU* don't want to do business with Elbonia, be my guest.

      I will never accept the argument that Trump's attractiveness stems from the failure of libertarian education or my efforts as a libertarian. I am a libertarian because *I* (myself) hold the libertarian principles and live them by heart. The rest of you lot can go to hell for all I care.

    4. That's merely conditions I set for the example. It's entirely judgment neutral. Many think that's the way things should be. You're making the judgement, not I. There are no property rights in Elbonia as I set the example. That a connected neighbor can pollute one's land or foul the commons is how it is. That's how (in part) he can provide cheap widgets to you in the USA. It's stating a fact of the scenario. Elbonia is the opposite of libertarianism. I made no judgement of it of it as bad or good or otherwise. I didn't argue it should be your concern either. That's all you.

      You're making the moral judgement that Elbonia is a bad place. Elbonia is about the same as countries like Cuba or China in many respects or other nations that collectivists hold up as shining examples. You're making the moral judgement that a lack of property rights is bad. That cronyism is bad. That corruption is bad. I've heard the arguments about honest corruption of other countries being better where the regular person can bribe a cop away and so forth. It's not a moral judgement to say that's how it is. You're making the judgement. For my purposes it's just the way it is.

      If you want cheap goods from feces-holes and think that's a benefit to the people in the USA or the world in general that's fine. It's simply not going to be an attractive argument. It's not even a good libertarian argument as it's a compromised step in the right direction one.

      The trouble it's a later step without the ones that need to precede it. So crony trade gives us cheap goods. Great. Now how do we earn the ability to buy them when the government here stifles non-cronies? Don't expect to win people over when you tell people you don't care about their jobs and in their minds say they too have to live in a feces hole to compete. It's going to fail and it hurts libertarian views all around to make these compromised step in the right direction but out of order type arguments. People aren't going to sit down and read Rothbard to figure out the compromise being made. They are just going to lump in with a pro-big business mind set, oppose it, and vote Trump or Sanders.

  3. Murray Rothbard did an about-face on open borders. I wish he were still alive today. I would not be surprised at all were he to walk back his support of free trade as you envision it, Robert. Alas, he's not, so I can only speculate. But the same arguments apply, so it's fair to assume he would.

    1. thats on immigration, not on free trade. Unless you sign a contract promising to let the 'association' vet anyone coming into an area administered by the association, than theres no stopping you.
      as for the Elbonians they probably can't belive their luck that these American want to set up a brand new sparkling factory there with all the dumb ass peasants that they have employed ("4 bucks an hour? jeez back on my estate they get a buck fifty if they are any good) and shake their heads in bewilderment at US regulators chasing the factory out.

  4. @Shimshon,

    ─Murray Rothbard did an about-face on open borders. I wish he were still alive today. ─

    It becomes necessary for you to clarify your own position on immigration considering that the position taken by Rothbard in that essay would automatically mean that someone from Alabama should not be allowed to move to Ohio, or someone from California should be stopped at the entrance of Texas and turned away with the wife, kids and all.

    The notion that immigration poses a threat to 'culture' sounds to me like pedantic nonsense. It is also quite contradictory, because the argument suggests the local culture needs 'protecting' (which implies it cannot stand on its own superiority.) It has become the norm that it is the immigrants who tend to protect *their* culture from the influences of the local culture, at the end succumbing to change - AND NOT THE OTHER WAY AROUND.

    And before you start equivocating, I am talking about IMMIGRANTS, and not 'invading armies'. William did not migrate to Britain. Neither did the Ottomans when they took Constantinople. Migration implies a peaceful and voluntary change of address.

    1. Your arguments display total ignorance of American history (yes, states can and did restrict who could reside in them), and history in general. 60 million immigrants to the US since 1965 is an invasion. The recent term "rapefugee" didn't arise from nothing. Europeans aren't protesting about nothing. The West ("Christendom") has been in conflict with Islam since its inception. Islam is literally incompatible with the West, and importing (or allowing) large numbers of Muslims in inevitably results in war. Reconquista (SEVEN HUNDRED YEARS!)? The Gates of Vienna? Yes, culture matters very much and is very much worth preserving, and MUST be fought for. Typical of SJWs and Cuckservatives who take the culture they grew up and live as a given.

    2. Re: Shimshon,

      ─ Your arguments display total ignorance of American history ─

      Oh, REALLY? Are you arguing from historicism? Come on.

      ─ 60 million immigrants to the US since 1965 is an invasion. ─

      Stop equivocating! I can argue that 120 million BABIES are an 'invasion' just as easily as you did. An invasion is an aggressive action. MIGRATION is NOT.

      ─ The recent term "rapefugee" didn't arise from nothing. ─


      ─ The West ("Christendom") has been in conflict with Islam since its inception. ─


      ─ Yes, culture matters very much ─

      Oh, please. Spare me with the "we must protect our precious bodily culture, Mandrake!" If the culture is superior IT WILL PREVAIL. It is as easy as that. And most often than not, the local culture PREVAILS over the culture brought over by immigrants because immigrants DIE. Their kids absorb the local culture.

      ─ and is very much worth preserving, and MUST be fought for. ─

      'Must'? Speak for yourself.

      ─ Typical of SJWs and Cuckservatives who take the culture they grew up and live as a given. ─

      I don't give a SHIT about 'culture'. No one's. How about that?

    3. the West was in conflict with Islam and other Christian kingdoms and other Christians within those countries. Reconquista? gates of Vienna? what of it? Culture? check the history of europe between the world wars and see were culture got them.

    4. "I don't give a SHIT about 'culture'. No one's. How about that?"

      Sure you do. Enough to yell at me and use foul language in disdaining my support of Western Civilization. Sounds like you want to destroy it. If you really didn't care, none of what I say would matter to you.

      "Their kids absorb the local culture."

      Laughable. First generation Muslim immigrants to Europe (like Algerians in France and Turks in Germany, and whoever went to Belgium) did assimilate to some degree. Their kids have rejected the local culture, and because of that, they will soon be rejected by the Europeans in whose midst they live. It will likely be very bloody. And people like you with your devil may care attitude and even approval, will be to be blame.

      If Germans couldn't stomach the highly assimilated and German culture-loving Jews in their midst (and having a German-Jewish grandfather, I know how deep that love ran, even AFTER the Holocaust), how much longer do you think they'll tolerate the Western-hating Muslim hordes invading their country today? You should consider this, and extend it to all the various European nations. But you're too self-absorbed to do so.

  5. Why not just let China destroy US steel companies?

    You see the problem here is one of enforcement: govt's do not like being told they can't unfairly benefit their domestic industries, whether they originate these penalizing subsidies or adopt them as retaliation. Now, who will do better at forcing the CHICOMs to stop this unfair practice? Trump has business sense but we are unsure how tough he would be at prosecuting a trade war with China without triggering a shooting war, or the seizure of ROC Taiwan. Sanders would probably invite the CHICOMs over to tell Americans how awesome Socialism and our steel industry should be nationalized. Cruz is an unknown: he's very smart but we don't know how he would approach this problem. Hillary: well, what a question. Would she be happy with billions in CHICOM bribes to distribute to now-unemployed steel workers or would she push sanctioning tariffs?

    Perhaps we could to grant a tax break to US steel companies until China stops their practices, but again, that leaves us open (a bit less so) to CHICOM action in the South China Sea.

    Perhaps the solution is to triple the deduction for people making under $30K a year, so that businesses keep US-based companies open.


    Here's some real knowledge of Wenzel's "free trade."