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free trade Archive

Thursday

7

January 2016

0

COMMENTS

Why Just Stop With Tariffs on China?

Written by , Posted in Economics & the Economy, Free Markets

Noted scholar and respected intellectual Donald Trump has unveiled another part of his plan to “make America great again:”

Donald J. Trump said he would favor a 45 percent tariff on Chinese exports to the United States, proposing the idea during a wide-ranging meeting with members of the editorial board of The New York Times.

…“I would tax China on products coming in,” Mr. Trump said. “I would do a tariff, yes — and they do it to us.”

Mr. Trump added that he’s “a free trader,” but that “it’s got to be reasonably fair.”

“I would do a tax. and the tax, let me tell you what the tax should be … the tax should be 45 percent,” Mr. Trump said.

Now, I know I’m just a simpleton, but something strikes me as off about this plan. Perhaps The Donald can help a poor confused sap make sense of all this.

Presuming he believes this tariff on goods coming in from China will benefit Americans, why does he not propose similar measures on goods from other countries?

But why stop there. If a tariff on goods coming into the U.S. is good for those within the U.S., then so too must a tariff on goods coming into a state be good for those within that state. Should Florida, then, tax goods made in Texas at 45%, or better yet, do so for goods made in any state other than Florida?

It seems to me that Donald Trump believes taxing goods when they cross borders makes us better off, so I’m having a hard time understanding why he isn’t compassionate enough to want to improve our lot even more by implementing that policy across the board. I mean, it’s all well and good to “make America great again,” but why not make it SUPER DUPER great? Hmm?

Wednesday

5

December 2012

0

COMMENTS

An Unconvincing Case for Protectionism

Written by , Posted in Economics & the Economy, Free Markets

A few weeks ago, Rep. Tom Rooney took to the Daily Caller to make “a conservative case for sugar tariffs.” He failed in my view, but he did succeed in proving my recent point that bringing home the bacon and handing out political “gifts” is a bipartisan disorder.

Rep.  Rooney makes the following arguments, as I understand it:

1) All countries use protectionist and interventionist policies in the sugar market – therefore we must too.
2) Brazil has captured a lot of the market and will drive out US producers with low prices if they don’t receive government assistance.
3) Jobs will be lost and prices will rise if that assistance isn’t provided.

He goes on to say that government assistance shouldn’t be too high, nor should it involve dictating business practices. That’s not enough; it shouldn’t exist at all. I agree with Milton Friedman’s view that even unilateral free trade is a better option than meeting subsidies with subsidies and tariffs with tariffs. If Brazil wants to “plow another $1 trillion into its sugar market over the next few decades,” we should let them. It’s money straight from their taxpayers pockets and into the hands of US consumers. It harms them, not us. As for the 142,000 US jobs supposedly on the line, it’s not either/or. The choice is not between subsidizing US sugar or seeing those people forced into unemployment. Their labor can be used elsewhere, and when combined with lower sugar prices than we would have otherwise seen if not for Brazilian subsidies, the net result is greater production for us. We get cheap sugar and we get whatever else those 142,000 people are able to produce. The only real loser in this equation is the Brazilian taxpayer.

Sure, the decline of US sugar producers would be disruptive to the people whose jobs were lost, but I think the social safety net (more like hammock these days) is more than big enough to handle it. And disruptions happen in all markets in a competitive system. Whether or not its because another firm has developed a more efficient business model or because of foreign subsidies doesn’t really make any difference, so long as it’s not our taxpayer doing the subsidizing. The real issue is that bad government policy has so encumbered the market that absorption of displaced workers is difficult, but more taxpayer handouts are not the solution to that problem.

Rooney repeatedly warns of a Brazilian led OPEC for sugar, presumably to explain his seemingly contradictory (amazingly, I find myself in agreement with Think Progress of all places) concern that Brazilian control over the market will mean both lower prices (to drive out American producers) and higher prices (to hurt US consumers), but OPEC strikes me as a bad comparison. An oil cartel can be effective (somewhat) at manipulating prices because oil production is necessarily concentrated in places where oil can be found, and the major national producers are few. If you have no oil deposits, it doesn’t matter how high and enticing prices get, you can’t join the market. It’s true that sugar cane cannot grow just anywhere, but the barriers to entry are not near so significant as oil. Non-Brazilian producers can simply increase production to offset any attempts by Brazil to artificially raise prices. In other words, even if US producers dwindle because Brazil is able to charge below-market prices thanks to subsidies, any later attempt to raise prices and charge above-market rates after capturing a dominant position would result in the return of US producers, or other new entrants to the market.

There is also a national defense issue with regard to oil that doesn’t exist for sugar. Interruption in the supply of sugar does not pose the same concerns as interruptions in the supply of oil.

What I think it comes down to is whether we adopt the protectionist view that within all arbitrarily designated political borders there must be complete self-sufficiency, or we instead allow ourselves to be blessed by the productive advantages brought about by global trade. Free trade is best, to be sure, but if the only available choices are between letting others foolishly distort their markets or joining them and doing the same to ours, I think it’s an easy decision which path to follow.

Sunday

2

December 2012

0

COMMENTS

Overgovernment: Limiting Libations Edition

Written by , Posted in Big Government, Free Markets, Government Meddling, The Nanny State & A Regulated Society

The US government poses a serious obstacle to the import and consumption of foreign liquors. Like a product made overseas? Too bad! As for as the government is concerned, you have no more right to purchase the liquor of your choice than you do to manage your own health care.

First off – the United States drinks its whiskey from 750ml bottles. The entire rest of the world (except for South Africa, I believe) does not. 700ml or 70cl is the global standard. The United States does not want its citizens to be confused between two different measurements, so they do not allow for 700ml bottles of booze to be sold domestically. That means that any liquor company that wants to sell its booze in the U.S. needs to put it in an entirely different bottle with a new label as well. All of their other booze can be shipped with ease to every other nation (except South Africa, I believe) around the world. Then a separate, special, time-consuming batch has to be made just for the Americans. That sounds annoying and it probably is annoying to many small companies in the whisky trade, so they say forget the Americans. It’s too much extra trouble.

The reason? You’re too bloody stupid, that’s why (Hat-tip: Overlawyered)!

Kevin Erskine of The Scotch Blog inquired with the Tax and Trade Bureau as to why the US has this regulation. In short, it’s because the agency transitioned in the late 1970s to metric measurements and 750 ml was very close in volume to the then standard “fifth” (referring to a fifth of a gallon). Allowing 750 ml and 700 ml bottles was deemed too confusing for consumers, and so we’re stuck with an aberrant standard and less access to rare spirits.

Big government, limiting your freedom one condescending rule at a time.

Saturday

14

July 2012

2

COMMENTS

Does the Left Hate Foreigners?

Written by , Posted in Economics & the Economy

If I took liberal arguments seriously, it would be hard not to conclude that they just don’t like foreign people. They have come completely unhinged over the idea that Romney allowed some dirty foreigners to handle his money. Matt Welch described how this “Swissophobia” harms middle-class Americans, and I similarly called them out in an editorial at the Daily Caller:

In an effort to score political points, Democrats are pounding Mitt Romney over his use of offshore bank accounts. Over the weekend, Senate Majority Whip Dick Durbin remarked, “You either get a Swiss bank account to conceal what you’re doing, or you believe the Swiss franc is stronger than the American dollar.” DNC Chairwoman Debbie Wasserman Schultz recently wondered aloud, “Why does an American businessman need a Swiss bank account and secretive investments like that?” Maryland Governor Martin O’Malley even called Romney’s Swiss bank account a “bet against America.” These attacks reek of populist nonsense tinged with more than a little economic xenophobia.

Harry Reid similarly called on the US Olympic committee to burn the Team USA uniforms because they were made by filthy Chinese fingers. Senate xenophones have even introduced legislation that would prohibit US athletes in future Olympics from wearing contaminated foreign made uniforms (even though they are purchased with private dollars, and thus none of their business). So do Democrats just hate foreigners? Do they not care about the welfare of anyone who’s not a US citizen?

Probably not, since I know better than to take their arguments seriously. After all, many of the same folks condemning Romney have similar investments. In reality, they are just displaying (or preying upon) economic ignorance. They don’t understand the globalized economy, nor the benefits of trade.

Sadly, the left is not the only side guilty of this. Populists on the right, like the ignoramus Donald Trump,  also sometimes prey on such ignorance and similarly distrust free trade. The central fallacy of this fear of foreign competition is the belief that economics is a zero sum game. It’s not, and because of the benefits of specialization, trade can and does make all parties more prosperous. Don Boudreaux put it better than I can:

Mr. Reid’s outburst reveals his ignorance of a foundational conclusion of economic science, namely, that people are enriched when they’re free to purchase from whomever they choose regardless of political boundaries.  …[E] economists’ overwhelming, non-partisan, and research-based consensus today is, as it has been for years, that free trade (even when unilateral) is beneficial.  Mr. Reid’s temper tantrum proves that he is either inexcusably dimwitted about matters on which he legislates, or interested, not in science and realism and truth, but in scoring political points by appealing to the uninformed emotions of constituents.

If people could be made more prosperous by limiting trade across political boundaries, why not prohibit interstate trade? Do the citizens of Texas lose out when they buy from Florida? Would the people of New Jersey be more wealthy if they quit trading with New York? Of course not, and anyone who suggested such would be laughed out of office. So why aren’t Reid and the other trade deniers?

Tuesday

29

May 2012

0

COMMENTS

When Special Interests Collide

Written by , Posted in Economics & the Economy, Energy and the Environment

The President has made promotion of “green energy” a central part of his agenda. His efforts have thus far been littered with waste, fraud and abuse, but nevertheless it remains a key plank of the President’s platform.

So why then is his administration slapping tariffs on solar panel imports?

The United States on Thursday announced the imposition of antidumping tariffs of more than 31 percent on solar panels from China.

…The antidumping decision is among the biggest in American history, covering one of the largest and fastest-growing categories of imports from China, the world’s largest exporter.

…Many solar panel installers in the United States have opposed tariffs on Chinese panels, contending that inexpensive imports have helped spur many homeowners and businesses to put solar panels on their rooftops. The new tariffs are likely to mean a substantial increase in the price of solar panels here.

…Chinese officials have been indignant at American criticism of their solar power industry, pointing out that the United States has urged China for years to embrace renewable energy as a way to reduce air pollution, combat climate change and limit the need for oil imports from politically volatile countries in the Mideast.

Chinese confusion is understandable given the rhetoric of this administration.  But there’s more than one special interest in Obama’s coalition, and while environmentalists like the proliferation of solar panels no matter their source, unions and other domestic manufacturing fetishists would rather limit their availability and harm consumers by raising prices in an effort to insulate domestic producers from competition.

“Anti-dumping” rules in general, because they are designed by and cater to these very same special interests, are a counter productive and unnecessary burden on the economy, and often work at cross-purposes with other policy actions, as explained by this video from the Cato Institute:

Wednesday

13

April 2011

0

COMMENTS

Are There Limits to Free Trade?

Written by , Posted in Economics & the Economy, Foreign Affairs & Policy, Free Markets

I am a strong advocate of free trade. I also tend to pooh-pooh complaints about “unfair” Chinese trade practices. I even advocate unilateral free trade in the face of international protectionism as a better alternative to domestic protectionism. Despite all this, there might be a time where even I think free trade can be problematic – or more precisely, when other considerations might trump free trade – and that’s when it involves national security.

Two companies are competing for a contract worth up to a billion dollars to supply the Air Force with a new kind of plane designed for light attack and armed reconnaissance (LAAR) missions. One of the companies is Hawker Beechcraft, a Kansas-based company, and the other is Embraer, which is Brazilian owned and operated. I won’t bother evaluating the relative merits of the two companies’ aviation production capabilities, because I wouldn’t know where to begin. I’ll limit my focus instead to the issues of trade and national security, topics of which I am more familiar.

If someone were to ask me if we should buy military equipment from overseas, I would be forced to give that favorite answer of academics and scientists: it depends. It depends on the equipment, on the country or origin, the available alternatives, and of course the various costs of each.

For instance, many might reflexively say it is better from a national security perspective (all economic considerations being equal for the sake of discussion) to build a plane in the U.S. than to buy it from overseas.  Sounds reasonable enough. But my knowledge of trade and globalization forces me to consider a related question: just how American are those American made planes?

Remember that whole auto bailout fiasco? There were many who justified the intervention on the grounds that there would be no American automotive sector without GM, Ford, and Chrysler.Let’s consider the assumption while setting aside the question of whether the companies would have died for good without government help. What about the cars made right here in America by Toyota or Honda? There is foreign investment in “American” GM, American investment in “foreign” Honda, American jobs created by Toyota, and foreign parts in Ford. In fact, Cars.com found a few years ago that the Toyota Camry was the most American vehicle, besting even Ford’s F-150 on the scale of ‘Americanness.’ So much for saving the “American” automobile sector.

Be skeptical of claims that simplify complex global economic systems into “domestic” versus “foreign.” It’s rarely so simple. The idea that we can construct something with as many working parts as a modern plane of war entirely within the U.S. is simply no longer practical. I’d bet money that even “American” Hawker Beechcraft will be using foreign parts.

Of course, this doesn’t exactly settle the question of whether national security dictates that normal economic considerations be overridden and domestic military manufacturing given special favor. For instance, buying a piece of an airplane from overseas is not exactly the same as purchasing the whole kit and caboodle. Unless the piece can only be purchased from that country, the producer really has no leverage over us, as we can always take our business elsewhere if they try anything fishy.

So where does this leave us? It depends. The issues of national security are grave enough, and the answers to these questions murky enough, that I’m willing to set aside my instincts for unfettered free trade and grant at least a slight home field advantage. I don’t think we should demagogue the idea of using the entire world marketplace to build our military forces where practical, but if it comes down to it, we should start the home team with some extra points on the board.

Sunday

19

December 2010

3

COMMENTS

Do Not Fear the Chinese Economy

Written by , Posted in Economics & the Economy, Free Markets

Hand-wringing over Chinese economic growth is both common and bipartisan. Commentators and politicians from the left and right alike find something fearsome in the rise of China as an economic force to be reckoned with. From Paul Krugman to Pat Buchanan, we are told to be concerned. Be very concerned. But these concerns are almost entirely based on faulty economics, and are therefore misplaced.

Before I get into some of the specific arguments, I want to make a simple point that few seem to truly accept: the economic success of another is not your failure. There is no set, fixed pie of wealth.  We are not “falling behind” just because the Chinese economy is growing faster (and why shouldn’t it be when they have so much farther to climb?). The left can be somewhat excused for not seeing how this applies to China since they don’t even see how it applies among Americans, but the right does get it domestically, by and large. This is why I get frustrated to see Chinese economic scaremonger from the right as well as the left.  The rhetoric surrounding the rise of China mirrors closely the fearmongering over Japanese growth that was so common throughout the 80’s. Needless to say, the fear proved ill-founded, as the Japanese economy collapsed in 1989, and subsequent dabbling in Keynesian stimulus policies condemned the nation to a “Lost Decade” of stagnation.

Now the next great Asian threat is China. And the primary cause of this threat is their so-called “currency manipulation.” China, we are told, is unfairly devaluing its currency and thus boosting exports. This costs America jobs and harms the US economy. Sounds plausible enough, right? In fact, it was this reasoning that led to  bipartisan support for recent legislation granting President Obama  “expanded authority to impose tariffs on virtually all Chinese imports to the United States.” I doubt any supporters of the legislation stopped to consider how well it turned out the last time tariffs were imposed in the midst of an economic slump.

The currency-manipulation argument sounds plausible enough, but it’s not actually valid.  It is a common protectionist misconception that exports are benefits and imports are the price we pay to export goods and create jobs. This view is entirely backwards. In fact, exports are the price we must pay in order to get the goods we desire. When you go into a store, your goal is invariably to minimize what you must export (pay) for what you wish to import (buy). The more you can get for less, the better. It is no different on a national scale. There is no more reason to complain about cheap goods offered from China than there is to complain about bargains from Best Buy or Barnes and Noble.

Consider the impact of a devalued Chinese yuan (assuming it actually is devalued, which is debatable). Chinese workers are payed with a currency worth less than it otherwise would be, giving them less purchasing power and thus making them poorer. US consumers, on the other hand, get more Chinese goods for a cheaper price than they otherwise would. This is essentially a subsidy of American consumption by the Chinese worker. We are the winners and they are the losers in this arrangement.

“But wait,” I can hear the mercantilists saying, “what about the lost American jobs? What good are cheaper trinkets if we have no jobs and no income!”

Why, dear mercantilist, do you assume that we would have no jobs? Sure, there will inevitably be some particular jobs lost by any influx of cheap Chinese goods, but that’s true of all trade regardless of who it is with or the valuation of their currency. Even in the strongest economy, tens of millions of jobs are lost every year. Uncompetitive sectors close down and new ones rise up. Most people don’t see this, however, because economic statistics only report net job changes. Hiding behind these figures are a dynamic system of destruction and creation. Jobs producing goods which we can get cheaper elsewhere are lost, while jobs making new goods and providing new services are added. When the Chinese subsidize a product, allowing US consumers to buy it cheaper than American manufacturers can make it, it frees up labor to be utilized elsewhere.  We then benefit both from that labor and the cheap Chinese goods, which grows our economy.

There is no set number of products throughout the entire world that can be manufactured, for which all countries must then compete. Economic activity is not a race to grab a fixed pie, it’s a cooperative endeavor to grow the pie. New products and services are invented everyday, and the less it costs us to get existing products, measured in either dollars or labor, the more that is available for expansion elsewhere. The  industrial revolution was only possible after most agriculture jobs were “lost” to greater productivity.

Outside of the strictly economic arguments, there are some legitimate concerns about China. The share of American debt held by China, and its possible usage to strong-arm the US on matters of defense, is at least arguably problematic. I’m not staking a position on this point either way, but even if we assume the concerns to be legitimate, the problem is not the value of the Chinese currency, nor even the dynamics of trade between the US and China, but the size of the debt itself. They can only buy so much of our debt because we have so much debt in the first place, after all. Assuming Chinese ownership of American debt is problematic, the correct solution is not to hamstring our economy with protectionism, but to reduce government spending!

Furthermore, if you believe China will use its greater wealth to challenge US interests military, then that’s fine. I’m not attempting to address their political or military motivations here. What I am doing is challenging the notion that they are some how cheating us economically, or that trade with China is being manipulated against us. That couldn’t be further from the truth.

China is going to grow economically whether we like it or not. Their population is several times larger than ours, providing them that much more labor to tap. The reason we remain a wealthier country despite this disparity is our free economic system. One important characteristic of this system has been free trade. Let’s not start hacking away at the principles that have made us so prosperous in a futile effort to stop anyone else from becoming so. But if you’re still fearing the growth of China, then let me help you get a head start on the next big economic threat: India will surpass China in population by 2025.

Tuesday

19

October 2010

0

COMMENTS

China Calls Out Obama's Subsidy Hypocrisy

Written by , Posted in Energy and the Environment, Labor Unions

When Barack Obama promises green subsidies, it’s an energy plan that will create “green jobs” (it isn’t and it won’t, but that’s another story). When China does it, it’s time for an investigation!

China’s top energy official said the U.S. was playing electoral politics with an announcement that it will investigate a union complaint that the Chinese government gives unfair subsidies to its alternative energy industry.

“Does America want to get fair trade or a genuine dialogue, or get transparent information?” National Energy Administration Director Zhang Guobao asked at a Beijing press conference last night. “I think not — it seems America’s main reason is to get votes.”

The U.S. acted on a complaint from the United Steelworkers union that China’s aid to its clean-energy producers violates global trade rules. Accepting the petition may lead the U.S. to file a protest at the World Trade Organization. The complaint, called a Section 301 filing, is the first filed and accepted by President Barack Obama’s administration after his predecessor, George W. Bush, turned down trade complaints against China.

Obama and the Democratic-controlled Congress are under increasing pressure ahead of the Nov. 2 congressional elections to take measures to reduce China’s trade surplus. The trade gap widened to a record $28 billion in August, bolstering claims that a weak Chinese currency is hurting American jobs. Last week Montana Democrat Max Baucus, chairman of the Senate Finance Committee, said a bill targeting China’s yuan may pass the Senate later this year and be sent to Obama for his signature.

And here we go with the trade deficit nonsense again. The “trade gap” is just a fancy way of saying that we get more stuff from China than we have to give them in return. I run a similar deficit with BestBuy, and it’s certainly not a bad thing for me.

But the real point here is the absurdity of an administration that promotes subsidies and protectionism to shield unions from competition – which incidentally raises prices for consumers and reduces overall prosperity – even considering complaining to the WTO when other countries do the same. Obama’s consistent disgust at practicing free trade gives him zero moral authority on the matter.

Friday

15

January 2010

0

COMMENTS

Krugman Wants To Learn From France, But Ignores History

Written by , Posted in Economics & the Economy, Health Care, Welfare & Entitlements, The Nanny State & A Regulated Society

We don’t need to fear turning America into France by passing ObamaCare, says Paul Krugman in a recent column. After all, European welfare state economies are doing great!  What’s his proof?  Just trust your eyes!

Actually, Europe’s economic success should be obvious even without statistics. For those Americans who have visited Paris: did it look poor and backward? What about Frankfurt or London? You should always bear in mind that when the question is which to believe — official economic statistics or your own lying eyes — the eyes have it.

What Krugman doesn’t say is that none of these European welfare states actually got their wealth by being welfare states. They got wealthy the way all countries do: through liberal markets and free trade. They then built massive welfare states on top of already wealthy societies. And lo and behold, when they did that their growth rates dropped significantly. They trade away higher future levels of prosperity for the illusion of present day security. That seems like an ok trade when it’s first made, but as more and more time passes, the difference between what people have and what they could have had with a more dynamic economy renders it a bum deal. And that’s before getting into arguments about the inherent instability in large, bureaucratic government and centrally planned societies.

Krugman does later provide some manner of statistical support for his apparent contention that there are no economic trade-offs (that’s his theme these days: no costs for implementing the radical agenda!) for instituting a cradle-to-grave nanny state, but Greg Mankiw’s numbers are better.

Wednesday

8

April 2009

1

COMMENTS

A Pathetic, Slobbering Love Affair

Written by , Posted in Foreign Affairs & Policy

The Castro lovefest by the American left is disgusting.

Key members of the Congressional Black Caucus are calling for an end to U.S. prohibition on travel to Cuba, just hours after a meeting with former Cuban president Fidel Castro in Havana.

“The fifty-year embargo just hasn’t worked,” CBC Chairwoman Barbara Lee (D-Ca.) told reporters this evening at a Capitol press conference after returning from a congressional delegation visit to Cuba. “The bottom line is that we believe its time to open dialogue with Cuba.”

Lee and others heaped praise on Castro, calling him warm and receptive during their discussion. But the lawmakers disputed Castro’s later statement that members of the congressional delegation said American society is still racist.

“It was quite a moment to behold,” Lee said, recalling her moments with Castro.

It was almost like listening to an old friend,” said Rep. Bobby Rush (D-Il.), adding that he found Castro’s home to be modest and Castro’s wife to be particularly hospitable.

We should end the embargo, but not because Castro is a good guy who we can work with in any way, shape or form, but because a policy of free trade and cultural exchange is the most effective way to undermine the stranglehold his murderous regime has on Cuba.  The best way to free the oppressed people of Cuba is to show them the advantages of freedom.