Free Trade vs Protectionism

I'd like to address this notion.

You're demonstrating pervasive misunderstanding on the mindset of Americans, which was exemplified in the NATO thread and in others. Also, you're frequent to criticize the trade policy of the United States while openly ignoring others when its pointed out to you, so it makes it seem like your position is hypocritical. It is not justifying our own protectionism to your free-trade sensibilities, it's pointing out that free-trading doesn't really exist on its fundamental level... not just in the United States, but in China, in Japan and in many other nations.

I wouldn't dispute that protectionist measures by the United States are in opposition to the thought processes of complete free traders like yourself, nor do I expect not to receive criticism if our nation implements a measure of protectionism. The difference here is that we don't care what anyone thinks, but you have this mistaken impression that we do care and simply can't stand to be criticized. It's sort of like the Chinese, who really don't give a hoot what anyone thinks about their internal policy. Yet, you are routinely remiss in expressing disapproval of the ChiComs or anyone else, even though they're going to do what's best for them in a protectionist fashion.

Remember the Dubai ports deal? Did Americans - who overwhelmingly opposed the deal, until the Bush Administration had to shut it down otherwise they would have had an overridden veto - sit around and think, gosh, maybe some European or Australian would criticize us for doing it, and we simply can't tolerate that. I assure you that we didn't really give much weight to outside opinion.

It isn't that we can't take criticism, but we're not going to be a doormat for the Europeans or anyone else.

Unless we do something about our economic sovereignty by lowering our huge debt financed by other nations, our trade deficits, and our plunging dollar, we're going to be in deep ****, as I said before. We expose ourselves to huge financial risk if these subsidizing nations decide to stop financing us and decide to start dumping dollars. We're overly dependent on other nations.

We're borrowing money at an ever increasing rate. Our manufacturing base has been neutered. Our currency is declining. Our trade balances are some of the most imbalanced on the planet.

Both China and Japan impliment strong protectionist measures. In Japan, since 1950, which is an economic powerhouse; and with China, which is growing at a huge rate.

China has totally debunked the myth that adherence to free trading is indispensable to economic growth.

 

Actually, DM, I'm trying to think of a time in which you guys have been ok with outside criticism. None come to mind.

In any event what you don't geta bout this is amusing. If a person came up to you and starting arguing with you about basic hostpial procedure on the grounds they'd watched some ER and Grey's Anatomy, you'd be pointing out that is at best a passing relationship to reality.

Yet armed with a comparable level of economics training you're taking a position. I mean, believe what you want but you really need to do some research. I mean, it's basic knowledge that economies go through boom/bust cycles and that China's growth was always going to be unsustainable, on many levels because of state interference...

Come on man, read more than reactionary nitwits like Buchanan. China isn't proving anything of the sort; they're cunningly showing in fact trade liberalisation and social liberty are necessary facets of economic liberalism. But I realise that for the mysterious China, which is something that people will remain ignorant about until they go there (and they're just flawed by how wrong their perceptions were - experience talking here), much of what you see isn't what you get. For Buchanan, he has no interest in depth to his research. You don't have that burden.

ES

 

My insistence isn't about China's economic liberalization, but the fact that they're doing so only with consideration to their own national interests. They utilze dumping in my home State to try to drive Louisiana crawfishermen out of business with cheap imports, andd they do the same with to rice and soy farmers here to drive them out of business as well. Yet, we cannot sell Louisiana crawfish in China nor sell them our rice.

As you know, China plays by its own rules. The ChiComs will do what is beneficial to their state to maintain maximum benefit for least cost to them.

I'm not claiming to be an expert on economics, nor have I insisted that I was. However, it seems patently obvious to me that if our debt/deficits keep racking up, our dollar keeps declining, our manufacturing base disappears, and our financial securities become ever more dependent on the financing of nations like China, then we're going to lose in the long run.

At the same time, Japan has controls over their market, especially in relation to the auto industry. China has liberalized, but they utilize serious internal protectionism and huge amounts of beaurocratic red tape. You know this is true, E_S. It isn't DM simply making it up.

I don't see China as some 'beast' like you may think. I see it as a huge area for opportunity in investment, but it must be on a fair basis. If they think they can screw us by dumping cheap products on us while at the same time heavily regulating our imports, then we must consider what is in the ultimate best interests of our nation.

The question is, are we going to sink ourselves for our desire for cheap products?

We're already a huge debtor nation, both on the governmental and civilian scale. What if the Chinese and others decide to quit financing our debt?

We've become so absolutely dependent on other nations to sustain our debt, that we'll have an economic collapse if they change their minds and dump our dollars and forget about financing us any longer.

 

ChiCom is a fairly antiquated term, smacking of Cold War bias and showing that for a supposed moderate and man of the people, your thinking is decidedly 1950's. There's nothing remotely communist about the PRC and if you keep calling it that it will get harder to take you seriously on the matter; it's like referring to the Socialist Republic of Vietnam as the VC.

If the LA crawfisherman were competitive and offered a better product, they'd be fine. Being American doesn't automatically confer preference for consumers; they want quality at the best prices.

In WoW speak; L2fish

You'll notice, DM, if you take the time to read posts other than yours in their entirity and not just the first line, that I actually said that because X, Y or Z engages in protectionism does not make them right or the concept of hiding one's head in the sand of modern economics, ok.

Now as to the notion that China would quit financing your debt; again, this is where just reading the right wing chest thumpers like Pat Buchanan will sell you short.

China's largest export market is the US, and so tanking it makes little to no sense. It's more reactionary ignorance from the people who are still petrified of the eeeevil remnant of the Cold War - the "ChiComs" - and their eeeeevil plan to buy US currency whilst selling US goods. Yes, oh how they lull you into a false sense of insecurity whilst leveraging your debt only to collapse their largest export market and source of FDI.

And only right wing nationalists can spot it!



Give me a break, DM. Gearing the US economy isn't going to cause you any harm and if nothing else it keeps you afloat. I'm sorry Louisiana crawfisherman can't compete in a global market but that's not the fault of those who can. But so long as the US has a lion's share of capital in the labour:capital ratio and so long as the US economy retains the top slot on MER and PPP ratings you're fine.

E_S

 

This quote alone adequately enough demonstrates what I've previously asserted, which is why I refered to your position as hypocritical. It is abundantly clear here.

It isn't that our crawfishermen can't compete, it is that they are not allowed to by Chinese protectionsm, while the free-traders in the Bush Administration have allowed the Chinese to dump their imports into our market to give Americans a cheap import while at the same time having the potential to drive more American manufacturing out of business. Believe me, Louisiana crawfish here are much preferred here than those frozen bags of Chinese crap, even if more expensive.

What I'm trying to drive home to you is that your position - as demonstrated above here - is inconsistent with your ideology. You state that you don't like protectionism, and then in the same breath you make a false statement about Americans who can't compete but your beloved Chinese can, and that's that, when it simply isn't what is occurring.

You make excuses for the Chinese, and you berate Americans.

That's where your position seems oxymoronic.

You say it's nonsense that China may cut back on financing our debt, and I say it's not. Take a look at the BBC: China 'may cut US debt holdings'. That's certainly no 'reactionary' site.

Or this article from the New Yorker, certainly no 'reactionary' publication:

It is entirely possible that China could also shift and diversify with the Euro.

 

DM are you just trying not to get those articles or something.

The thing is if you knew nearly as much about this as you assumed you did you'd see answers to your points already addressed.

Gearing is a troubled way to finance an economy and so basically the US will end up being the one to blame.

I know, I know, it says in the bible or something America's perfect but since I understand economics I can make that claim.

Because it's in the interest of the lenders to see the US economy stable and operating at optimal efficiency, they'll lend to keep it afloat. China is lending the Us money because it can afford to and it's basically lending you money so it can keep selling to you.

The assumption being that the money will be used to stimulate the economy so it can be repaid.

If the US government - no, since the US government is spending like a weekend millionarie it's doing nothing to stimulate growth and I say that thinking about the billions wasted on Iraq. Not to mention porkbarrelling.

If the US continues to be so fiscally irresponsible, I wouldn't expect China and Japan to continue to leverage it's economy. That's just absurd.

As in, put your damned house in order before you drag us down with you? Please?

Similarly the New Yorker's conclusion is off; China won't watch Japan for leadership when there's problems at home. Once again, fatal Western cultural and intellectual imperialism clouds and ****s their judgment of the Middle Kingdom. China will look inwards; for example, to the ShangHai SX which is overvalued and a tight, not easily resolved crisis.

China is also likely overheating so that will impact their capacity to bail your leaders out of their fiscal irresponsibility.

See in the analogy I made about a guy who's watched ER and thinks he knows medicine, y ou're the ER guy. If you took the time to do some elementary reading on the subject you'd looka t your posts with a mix of shame, regret and humility as you'd realise they're elementary questions.

There's your key. If they're not being sold they won't be imported; and they're cheaper. People care about cheaper. It's a basic principle of economics that's magnified to a global stage.

I didn't; I just berated American reactionarism. Which I'm right to do since it's digusting and the antithesis of the leadership we know America for. You're just unable to accept criticism that's not mitigated by caveats.

And it's possible they'd go with the Euro? Oh, so you think the Chinese are stupid - why not just admit you hate China and be done with the poor hints DM.

The greenback is still ridiculously stable as a currency and if you had to peg your currency to any international standard after it my money woul dbe on pounds sterling, not the Euro. The Euro's PPP is all over the place, and so it wouldn't make a huge deal of sense to invest in large swarthes of money with completely variable RoI.

E_S

EDIT: DM, the difference between you and me is that when I read articles, I'll often come across something that backs up my point. I don't go looking for articles to back my point up, unless I check them first. It's a basic research habit.

I read the BBC piece and thought, that's odd, we're not aware Mr Hu is going to Washington shortly. Then I checked the date. 4 April 2006.

And your New Yorker piece? 11 April 2005.

DM today's date, in case you're unaware, is 1 March 2007.

lol, pwnt.

 

...which was my point.

 

Except, they're in the right for not doing it. But that doesn't make the Bush Administration's fiscal irresponsibility or being anti-free trade justifiable. Just think; if the US had stupidly gone to war in Iraq, then Afghanistan wouldn't be collapsing and your economy wouldn't be pumping wasted billions into Iraq which could be used to, gasp, pay off foreign debt and start delivering a surplus!

Nice job in admitting you screwed up using old news for a current situation too.

E_S

 

Markets and the world economy

Part one in a series of useful pieces on the state of global markets, for DM and others.

E_S

 

My point was that it isn't simply reactionary sites that post such worry, as you seemed to imply.

So, you went on an irrelevant tangent about articles only about two years old.

 

Defiant in the face of sure pure pwnage.

DM, generations from now your lineage will still feel the effects of that pwnage. Have mercy on them, admit to it!



Given, you know, events since then being what they are, those articles are basically, well, wrong.

It'll be like people writing about how America was going to attack NK in 2004 were also wrong when writing about it with certainty in 2003.

Just admit, for perhaps the first time in Senate history, you were wrong?

E_S

 

Let's see the ways that you've either misrepresented reality or have been proven hypocritical in relation to this matter:

You clamed that Americans have a specific mentality that coincides with your view. False.

You claim that only cretinous reactionaries are responsible for expressing concern. False.

You claimed that American farmers can't compete in an open market. False.

You claimed that there was no risk from China discontinuing to finance our debt, and in the next breath (where I quoted you) you stated that it would be absurd for them to continue doing so under our 'millionare weekend' type irresponsible fiscal policy, which was my point to begin with.

I'm not playing a game here where I'm here to 'win' or 'lose'. I'm here to ferret out the truth of the matters at hand and the possible implications from our irresponsible fiscal policy accompanied by nations that are taking advantage of our open market while protecting their own.

Contrary to what you may think, I don't have a problem with the Chinese per se. I merely pointed out that - even with their economic liberalization - that they impliment huge amounts of beaurocratic red tape and utilize protectionism to protect their internal situation while taking advantage of ours.

We are allowing it to happen by allowing other nations to basically keep our financial situaiton afloat by not reducing our debt/deficits.

We are allowing it to happen by spending ridiculous amounts of money on defense in Europe and on the S. Korean penninsula. Both of these areas are wealthy and have enough captial to spend their own money on their own national defense, which was my point in the NATO thread.

I have no problem with trading with nations to the best interests of both parties, but I do have a problem with giving away our national sovereignty by allowing other countries to have so much control over our fiscal destiny by financing our debt while protecting their own markets.

 

Yeah, um, ok but if your wonderful farmers can compete why are you subsidising the hell out of them?

I mean, you can import other agri products at a fraction of the cost but you prop up the farming industry and protect the hell out of it vs foreign competition. You do this because farming ends up being an important lobby sector but it would collapse if you didn't.

Any industry which requires expenditure from the state to exist cannot compete in a global market. A few sectors can, like US prime grade beef but that's because of the quality of the product itself. In Taiwan, for example, the local beef was stringy crap; but the imported NZ and US beef was a quality item.

Mostly, however, the first farming industry isn't able to compete against developing nation states and their cheap agri products. You didn't notice contention at every major trade talks on the planet?

No, but thanks for playing this grown up discussion.

China wouldn't be wrong to stop financing if the SHSX situation didn't correct itself, or if they burst, or if you kept spending into recession.

Currently, however, the largest source for Chinese exports and investment is the US. In order for risk to be of real concern, and that is without the US economy to mitigate it, then there's no risk of China bailing out. And even on their bust, with the 10.4% growth of the last 8 years in their coffers they won't need to liquidate foreign equity reserves for some time.

So when I talk about that being a risk, it's as much a risk as flying or stepping out your front door. Risk is a mitigated but inescapable facet of any transaction. But you're talking about it as an absolute term; ie it exists and therefore is bad.

Protectionism will not solve US economic woes, and will in fact compound them. Retreating behind protectionism strikes me as less useful than actually being a leader and saying, no, it's not acceptable to have protections. The biggest obstacle to this, however, is the US agri-subs.

E_S

 

The agri-subs you're speaking of work in both contexts, as you know. The Chinese do not allow American imports into their market, specifically in the cases I elaborated on above.

We do subsidize our farmers, and I don't have a problem with it. Europe does the same thing with their air industry. Japan does it with their auto industry. I'm not pointing out a 'right' or 'wrong' here. I'm simply pointing out reality.

What I'm trying to point out here is that in the 'ideal' (note: not real) world, free trade would exist and be the norm with all parties proceeding in a fair basis. As you know, it doesn?t work that way, because these nations all implement protectionist measures .....to a certain extent to protect their own interests.

China will dump cheap products into American markets while heavily restricting imports into theirs and business startups in their own country. Japan gives their auto parts manufacturers heavy favorability. America subsidizes our farmers.

In your ideal free trade theoretical reality, none of this would occur.

It is naive, in my opinion, for a country to allow itself to be exploited by this free-trade mythos while other nations are not practicing it and taking advantage of the situation.

When we have our government that is so fiscally irresponsible, by wasting billions on other nations' defense when they should be doing it themselves. We are spending billions in Iraq racking up our debt. We are not showing ourselves to be responsible caretakers of our economic prowess, while at the same time allowing our manufacturing base to be emasculated. Our cities are decaying from the lack of availability for manufacturing jobs for the lower income urban constituency. Our middle class is being driven further into debt by consumerism and stagnant wage growth.

So, we've gotten to a point in the country where we consume and our production capacity has fallen. Our economic strength was built by manufacturing and our immense capacity at production. Now, we're turning into consumers and a service-driven economy, dependent on other nations for production of goods and subsidization of debt.

 

Actually, there are some relevant other reasons for agricultural subsidies, they just aren't economic.

Any country that has the resources to support a vital industry (such as food, energy, etc) has a very real security interest in maintaining a minimum level of production in that industry. It helps promote self-sufficiency in the event of an emergency (sort of like many emergency preparedness experts recommend maintaining a home garden even if you can buy produce cheaper than you can grow it).

It's for that same reason that while many pieces of military equipment could be built cheaper by foreign companies, there are some contracts that can only go to a domestic company. The economic side is not the only one. You have to balance all of the considerations.

Kimball Kinnison

 

Not just US companies either. Especially with military hardware, foreign companies may be required to open a factory inside of the US as part of the contract. I'm sure other countries have a similiar requirement.

When Beretta was awarded the US pistol standardization contract, it had to open a plant in the US (it's in Maryland)

FN, Inc. had to follow the same requirement when it was awarded the contract to produce the M16 rifle, as well as the upcoming SCAR. (The FN plant is in South Carolina)

Part of the rationale given was to generate jobs in the US, but also to act as a buffer against a major conflict disrupting supply lines and such. Even though Beretta is an Italian company, there is a US military representative at the factory who could take charge in the event of a war.

Not that this has anything to do with trade protectionism per se, but it's an interesting example of other types of protection.

 

But even still KK that's something that could basically fall under the umbrella of comparative advantage theory anyway (aka Ricardo's Law). It could be cheaper to import beef and corn than to grow it at home; but producing corn might be cheaper than producing beef and so the US is less worse off producing just corn.

E_S

 

But we wouldn't survive any emergency that disrupts global trade to the point where we can no longer import food or other goods anyway. Self-sufficiency is an illusion for an economy like ours. International supply lines are our blood vessels. If the blood supply stops, we die.

 

Like I said, a minimum level. That's not necessarily self-sufficiency.

For example, look at what I mentioned about a home garden. Most people don't have gardens that produce enough food to feed a family without buying stuff from the store. My parents had a good sized garden when I was growing up, and we could get some stuff out of it, but certainly not all of our meals (or even all of our vegetables) out of it. Probably not even enough for one person.

That doesn't change the fact that having that minimum level of production from a garden is very useful when your regular supplies are reduced for some reason.

Most people put far more money into a garden than they would spend on buying the same food that comes out of it. From the purely economic standpoint, it makes almost no sense to have a garden. However, that doesn't change the fact that there are other non-economic reasons to have it, even if it doesn't provide full self-sufficiency.

Economic subsidies can act in a similar fashion on the national level.

Kimball Kinnison

 

Here is a paper I am working on, I don't really expect anyone to read all of this but if you do let me know what you think:

The increased integration of markets across international boundaries promises greater effective utilization of the world?s resources resulting in more wealth for humanity. Without proactive measures to more equally distribute the benefits from this endeavor, the instability created by vast inequalities between those profiting from the system and those marginalized by it threatens to undo the entire global economic system.
Globalization has come to have a variety of meanings, however for my purposes I will use the term to mean the rapid increase in international economic integration of markets in production and finance. International trades in goods and services as well as international financial flows have both increased dramatically in recent decades (Frankel 309). Keohane defines Globalism as a state of the world involving networks of interdependence at multicontinental distances. Globalization is the increase in globalism, while deglobalization refers to its decline. He refers to several different forms of globalism, with economic globalism involving long distance flows of goods, services, and capital, as well as the information and perceptions that accompany market exchange (Keohane, Nye 105). While cultural and political convergences are important, cross-border flows of goods investment, and information are seen as vastly changing the world we live in.
Since Adam Smith published The Wealth of Nations, we have come to understand the benefits that division of labor provides by enhancing productivity. David Ricardo applied this concept to international trade (Frankel 319). Economists are now virtually all in agreement than liberalization of trade and markets always produces greater aggregate output than any individual or nation could create alone. Frankel in a study of 100 countries demonstrated that a country?s growth rate as well as the level of GDP increased with more openness (Frankel 320). The United States has benefited tremendously from the trade and investment liberalization over the past decade, according to Kenneth Scheve it has ?added between $500 billion and $1 trillion in annual income -- between $1,650 and $3,300 a year for every American (Scheve 2).?
Proponents of Globalization are thus primarily concerned with increases of aggregate wealth measured in per capita GDP.
With the economic growth of globalization comes great promise of a richer world for all. However global inequality is increasing the divide among the rich and the poor throughout the world (Economist). Some argue that by increasing trade and investment, the poor of the world can access a powerful source of growth (Frankel 321)
According to Mandle, maximization of aggregate wealth is not a requirement of his conception of global justice, and can sometimes be incompatible with it. He believes that ?inequalities that markets generate may be limited in the name of egalitarian considerations, even if this means some sacrifice in overall wealth maximization.? (Mandle 130) This is a vital point, because if any economy refuses to address the concerns of the losers in a free market economy, vast inequalities of wealth will lead to social unrest and disorder. His solution to the problems of free markets is to make them work for the poor. This means decreasing the protectionist barriers that rich countries impose on trade, especially in agriculture (Mandle 133). He also calls for what is known as the Tobin Tax which would create a negligible tax on trades of international currency to halt short term speculation and provide the funds to alleviate poverty. (Mandle 136) Mandle however does not believe that any moral duty exists to extend labor standards, reasoning that as long as basic human rights are protected countries should be free to choose the level of protection they give their workers. (Mandle 139)
This statement is similar to laissez-faire capitalists who claimed a ?Liberty of Contr

 

A few points.

It's incorrect to state that the inequalities are vast. The Gini coefficient was created to measure inequality and it's getting closer to a median score over time.

That is, the world is getting less unequal; the inequalities are therefore not vast.

The Tobin Tax is idiocy glorified by bleeding hearts. Nobody has successfully worked out who would collect it, and like every happy lovely lefty idea would leave people worse off.

The Guardian rebuked it thusly:

What is more, the Tobin thesis rests on an assumption that speculators - whether in forex or any other market place - are a bad breed. In fact they are an exceptionally useful lot, working day-in, day-out, risking their own wealth to supply a thing called liquidity.

Without liquidity, markets dry up, prices become volatile and goods become difficult to shift. The net result is that everyone involved - producer, trader, buyer - becomes poorer, not richer.

Also, how can you write an essay on globalisation and not mention Jagdish Bhagwati?

E_S

 

Espaldy, the problem is you assume globalisation is bad. It's not. In fact, the biggest problem with globalisation comes from it's successes, not failures.

Basically the problems are:

1) It lead to very powerful competitive forces in China and India being unleashed on the world economy, and new competitors makes things tougher, not easier.

2) Economic weight eventually leads to political weight, which means that power is imbalanced in the world geopolitically. Too much power in too few hands, where America (300m ppl), China (1.5bn) and India (1bn) constitute just shy of half the world's population and most of the power.

3) The people at the top end of the income distribution doing very well out of it, the people below that perhaps aren't losing out but certainly aren't doing as well, and there is a gap opening up between them

4) YOu mentioned this; the consequences of trade with very low income economies, as that trade rapidly expands - what does that do for social equality within the rich world itself?

5) The success of globalisation in China has meant China has become resource hungry, and so people are going to fight over the last drop of oil and the last scrap of coal. It also presents enormous environmental challenges.

The biggest problem with your thesis, E, is that you are almost a decade out of date. You're very much akin to people circa 1997-99 saying it'll never work and people will just get poorer.

Thing is, it not only worked, but almost everyone got richer. But what does that mean?

E_S

 

Thanks for the comments, and now that you mention Jagdish Bhagwati it does seem I really should have looked into him.

I don't really think that I assume Globalization is bad, but that because of #3 and #4 there is a good chance that if no action is taken the social unrest could cause a backlash against Globalization, which would be a bad thing.

 

Well what you have to ask yourself is, how is that any different to, say, industrial England on a Macro/Micro level?

E_S

 

Ender
how is that any different to, say, industrial England on a Macro/Micro level?


Are you asking about the consequences of #s 3,4?