Sunday, July 31, 2016

What Should the United States Do If Other Countries Impose Tariffs and Use Other Methods to Distort Trade

I have occasionally seen here in the comments at EPJ the argument made that free trade is all well and good but that other countries are manipulating their trade practices and we must battle these countries back.

This thinking needs to be examined.

Bilateral free trade is good, but if the U.S. must move ahead with unilateral free trade there is nothing negative about this for the U.S.

To the degree that U.S. citizens are buying foreign goods (even if foreigners prevent U.S. operators from selling foreign goods in those countries), it is a net gain for the U.S. since no one is going to give up dollars unless they believe they are gaining by the trade.

If in the U.S. we can buy Russian caviar, French champagne and Italian suits, We gain regardless of whether Russia, France and Italy allow U.S. products into their countries.

Further, this has nothing to do with climbing unemployment in the U.S. As long as we do not end up back in the Garden of Eden, there will always be demand for workers somewhere in the economy.

Free trade is always good.

Here's Milton Friedman take from a slightly different angle on the same topic.

Friedman was terrible on monetary theory and methodology but generally solid on general free market theory.


1 comment:

  1. " since no one is going to give up dollars unless they believe they are gaining by the trade. "

    I read your posts from time to time. They are often quite simple or should I say
    seem to miss the boat.

    I will explain an issue or two with this recent post.

    " unless they believe " Quite true. They may believe, but they are often incorrect.

    You underestimate the naivety of the purchaser, and also the effect of the marketing and media for starters. You also underestimate the selfishness of the purchaser along with their ego and other personal flaws.

    For example, how is it we gain from purchasing a French Champagne. Most 90 % or more, of the consumers of Champagne could not possibly taste the difference between a French Champagne or a California Sparkling (which is the same it is Champagne).

    How is it one gains. Do they gain from momentarily a fleeting moment, thinking they impressed me with a French Champagne ? Because it is French and they over paid for it ?
    Is it their ego that gained ? My opinion of them did not gain.

    You then underestimate the cruelty of the Producer.

    Lets take an example. North Korea. Kim Jong Un could and effectively has
    enslave his people and produce goods far ' cheaper ' then say they would be
    produced in the United States.

    Let the US have unilateral free trade with North Korea. Let Kim enslave his
    people to produce a widget so the United States Citizen can purchase a cheaper
    widget, so that Kim profits ( personally not his citizens of course) and the US
    has reduced employment.

    Did we really gain ? Is it the same if a 13 year old girl is making I Phones in China
    with a skyrocketing suicide rate. Did we really gain. Did we gain because China started dumping the steel in the market, but caused incredible pollution to create it.

    Did we gain from Japanese cheap exports and Fukishima that has destroyed
    an entire ocean ?