If You Are A Protectionist . . .
By Pejman Yousefzadeh Posted in Economic Antediluvianism | Economy | Free Trade | Protectionism — Comments (17) / Email this page » / Leave a comment »
The Chinese will love you. And why not? If the Chinese are seen as a reliable trading partner and the United States is not, then China will likely beat the U.S. to being able to access markets around the world.
I certainly don't begrudge the Chinese as they try to do well in the field of international trade. But I certainly begrudge American "leaders" who apparently are bound and determined to have us unilaterally disarm and retreat behind protectionist walls--reconciling ourselves to less and less prosperity in the process.
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If You Are A Protectionist . . . 17 Comments (0 topical, 17 editorial, 0 hidden) Post a comment »
the principle of free trade works like this. Each country has things it does and doesn't do well. By opening up free trade, each country can specialize and simultaneously import those goods and services they don't have a lot of.
Was it over when the Germans bombed Pearl Harbor
has a lot of sugar for instance. There plenty of goods and services that other countries have that aren't plentiful in the U.S. We don't have unlimited supply of all resources. That is frankly a silly question. The U.S. doesn't have a monopoly on everything, and thus we import those things we don't have in large supply.
Was it over when the Germans bombed Pearl Harbor
when they trade with us.
I think Nixon knew that engagement with China would be a very long-term project, a view consistent with traditional Chinese thinking, actually, because only in America do we expect overnight results with anything. It may be another generation or two before China is truly free but the cause is only helped if we encourage their capitalistic efforts. Certainly they're not evangelical about communism as the Soviet empire was.
But I realize I invited it.
What is behind the "race to the bottom" narrative that dominates the discourse in this area.
Arguments regarding "race to the bottom" come from the idea that comparative advantage analysis is inappropriate in the area of labor and environmental costs. The Chinese don't have some innate ability to make shoes more efficiently than Americans,nor do they have some special access to natural resources unavailable to Americans. They can make shoes more cheaply than Americans because of far lower labor costs and environmental regulation costs. To put it another way, the Chinese have a comparative advantage vs. the U.S. in the realm of shoe manufacturing solely because Chinese workers get paid far less than American workers and businesses in China don't have to pay as much in environmental costs as do business in the U.S.
Since there isn't any natural or fixed reason why the Chinese have the comparative advantage in shoe making, the U.S., if it lowered its labor and environmental costs enough, could take back the advantage in the shoe manufacturing arena and become the lowest cost provider. This is the race to the bottom concept- in industries not requiring access to specialized technology, rare resources, or highly trained & educated workers, the sole way that countries gain the comparative advantage in that area is by undercutting other countries in labor costs (worker pay and benefits) and environmental costs. It encourages countries to adopt legislative schemes encouraging less and less worker and environmental protection in order to attract foreign business. The more willing a country is to allow foreign businesses to mistreat its workers and environment, then the bigger advantage that country will have in attracting industry.
Critics of unfettered free trade argue that this "race to the bottom" mentality is nothing but an end-run around the past 150 years of worker's rights movements and environmental movement. Big business, having had to make serious compromises in the west in these areas, bail out to the developing world as a method of avoiding the consequences of their 20th century losses. U.S. workers are hurt because union jobs leave and are replaced with lower paying, fewer benefit service jobs, while 3rd world workers are hurt because they're getting paid wages that are far lower than they should be (e.g. Nike shoes cost $2 to make, but they're sold in the U.S. for $120- while the workers are paid fifty cents a day, the corporation makes a huge profit. This is also used to argue that U.S. workers don't really receive that much of a goods price benefit from this process, as the corporation absorbs most of the "savings" from this process as corporate profit.) The 3rd world workers also suffer because of the lax environmental standards- their country because more polluted, causing health problems in the population.
Free traders argue that this "race to the bottom" concept is inconsequential, because both developed and developing countries benefit from this type of free trade: 3rd world workers benefit, because the foreign companies (e.g. Nike) pay them more than what they would make working for a native company, and U.S. workers benefit because the foreign made goods are much cheaper than they would be if they were made in the U.S. under current wage and regulatory coditions.
requires low skilled labor and not much in the way of sophisticated equipment, countries with low labor costs can produce at a significant cost benefit to us.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
Unlike the distribution of heat between two rooms in a short period of time, wealth is not a fixed amount distributing itself in a zero sum environment. If since the beginning of time the world simply had a fixed amount of wealth that has been sloshing around the globe the room analogy would apply. However, wealth is created.
This is why it is in your economic interest to do trade beyond your property line, beyond your municipal borders, beyond your county borders, beyond your state borders and yes, beyond your national borders. At the aggregate, the more involved in trade the more wealthy all those involved become, and the more stable the world becomes through the spreading of prosperity.
Use your two rooms example. If your room can create heat, and electronic devices while mine can create furniture and rugs it is in our interest to remove the wall that separates them so you can trade heat and electronics for furniture and rugs while I trade furniture and rugs for heat and electronics. As we prosper together my room starts to create board games and knick-knacks while your room creates art and lamps. Again we trade to make both rooms more prosperous. When a third room comes into play that has kitchen appliances and even art and board games at more efficient prices it behooves us to let them engage. All three rooms become more prosperous through the increased trade.
It's all in the human incentive to create and have someone to trade the creations with. The more to trade with the merrier, and the wealthier for all.
"Honor is self-esteem made visible in action." - Ayn Rand, West Point, 1974
...otherwise, people doing a deal wouldn't freely do a deal.
Your heated rooms example isn't an example of trade, it's a model of redistribution- a zero-sum scenario, which necessarily leaves one party losing in order for the other to gain. Trade isn't like that.
Why wouldnt we expect the same thing to happen with trade, substituting degrees for quality of life, wealth, or any other measure that we currently enjoy some degree of advantage over the developing world?
Because protectionism doesn't provide a net advantage to a country- in fact, the opposite is true. The added cost we pay for Steel or Lumber in this country is something on the order of 30-40% more than steel or lumber cost on the world market, because we have tarriffs to protect domestic industry. That total cost is more than the value we get out of keeping failing US steel and timber companies afloat, plus the added prices we pay in the form of retribution: the EU has slapped punitive tarriffs on the commodities we DO produce efficiently, meaning we lose export revenue in the deal. At its root, protectionism is a form of redistribution- it makes something artificially more expensive than it would otherwise be, to the benefit of those producing it, but at everybody else's expense.
There are some reasons to foster domestic industry- it's nice, for example, to have a food surplus- but the idea that doing so is economically to our advantage is wrong. We pay for our subsidized food crops first in the form of taxes, then second in the form of depressed labor values overseas (the natural consequence of putting foreign farmers who don't have their own subsidy programs out of work), and third in the form of more expensive imports as other countries retaliate with their own trade barriers.
of free trade is being able to put parts together to manufacture products more easily. This was discussed in an excellent op ed by a Canadian Finance Minister. (sorry I read it too long ago and there is no link) Sometimes, one part of a chain is made well in one country and another part in another country.
The finance minister pointed out that cars have certain parts manufactured in America, Canada and even in Europe.
On any rational or reasonable level, the benefits of free trade are obvious, however when someone loses their job to a factory moving, opponents can play on emotions.
Was it over when the Germans bombed Pearl Harbor
of do the diffuse benefits to the entire population of cheaper goods outweigh the concentrated costs of job loss for our labor force?
The Boston Tea Party was a cry for free trade.
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"If we want to take this party back, and I think we can someday, let’s get to work." – Barry Goldwater
becuase my understanding of trade is minimal.
It seems me when you remove restrictions, the natural tendency is to reduce variation and the whole envirnoment will revert to the mean.
To make perhaps an overly simple analogy, if one room of a building is 60 degrees, and another is 80, and I remove the wall between them, the temperature becomes 70.
Why wouldnt we expect the same thing to happen with trade, substituting degrees for quality of life, wealth, or any other measure that we currently enjoy some degree of advantage over the developing world?