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The Challenge of Free Trade: How Does One Side Win When Everyone Cheats?
I used to be a believer in Free Trade. No matter what, I thought the trade policy of America should be that there are no limits whatsoever to trade. If the other side had all sorts of restrictions, it did not matter, because it was always better for Americans on the whole to have total free trade. Why did I believe this? Because learned people said it was so, and that was good enough for me.
However, as I have aged, I have grown more an more uncomfortable with the idea that one side trading free and the other side putting up restrictions is always best for the most Americans. It is counterintuitive, to say the least. For instance, how can it be better for me as an American, that American farmers cannot sell their goods in the EU so that EU farmers are protected? How does that help Americans as a whole, exactly, when American farmers have to compete on an uneven playing field? Less competitive EU farmers get the benefits of higher prices, while American farmers have to run even leaner. How does that help the average American?
From a security standpoint, the US armed forces are buying electronics from one of our two rivals. I cannot imagine that the Chinese government is using this to spy on us somehow, but setting that aside, if we went to war with China, where will get the parts? It makes no sense to outsource a strategic industry to another nation. At least to me. I am sure it makes 100 percent sense to the Free Traders. All Free Trade, no matter what, all the time. Nothing is zero-sum, everything is win-win, even when the other partner is a geopolitical rival. Germany should not worry if it is dependent on Russia for its power, because that is the best way to get power, and if the whole Germany power industry goes down, well, that is just free trade to Russia. No worries.
So, I no longer believe in Free Trade at all times. If you are a free trader, I’d love to have my mind changed.
Published in General
Virtually any “worst case scenario” where the US suffers due to a reliance on [foreign product XYZ] assumes that the US is, essentially, a non-entity. It assumes away the reality that “foreign entity” is also reliant on the United States, even though it may be in some other area. In placing all of your focus on some sort of product “imbalance” (which is a nonsense word that gets thrown around a lot in these discussions), you neglect a million other things where we are major players. Yet, individually, literally all of us have a trade imbalance. I run a 100% trade deficit on every single product except legal services. But nobody thinks to consider that a problem. Of course, it can certainly be a problem. It is a problem for people who are entirely dependent. It’s a problem for the unemployed guy who lives on the public dole. It is a problem for, say, Greece…
They know how our defense works largely because we have told them how our defense works; I am suggesting that informing potential enemies of how our defense works is maybe not a good idea.
tfw you check the browser to see if you hit ricochet.com or dailykos.com. What will change your mind on free trade is when President Warren enacts tariffs and they all of a sudden become the worst thing ever, again.
And here’s Milton Friedman addressing this issue: https://www.youtube.com/watch?v=59YWFR8lCEc
I think we’re talking about 2 different issues here though.
Your point makes sense but isn’t one that’s been talked about so far.
Firstly, I’m FOR the current tariffs because they’re a means to an end that will leave America much better off (lower tariffs, lower trade barriers, lower subsidies, more leverage against China, etc). However, me being for tariffs now doesn’t mean that I’d be for tariffs used by Warren, and your point is that I’ve got to be willing to put up with bad tariffs if I’m currently for these good tariffs.
I understand your point, and it’s certainly valid, but I’d assume that our current subsidies/tariffs/barriers are already a tool that the left has used. So my issue would be “Why would we just sit here and let the left use the same tools that are available to us, without using those tools ourselves, very much to our detriment”?
Do you have any numbers? Did anyone make that claim? I mean, free trade is the natural state when you don’t have government butting in on people’s affairs and economics shows the theoretical benefits of free trade.
That would seem to put the burden of proof on the side that wishes to deviate from both the natural state of things and the recommendations of experts.
As Jamie pointed out, do you grow your own food? Do you make your own clothing?
China already understands how things work. They have most of the same things. What gives us an advantage over our “enemies” is not that they lack technology. And any technology they lack, which we have, is not stuff that is floating around the private sector, anyway, which we would be getting from other countries. So no, it is not a problem.
But – I am still interested in hearing about any scenario where it might become a problem. I am also interested in hearing about how potential government defense secrets have any free-trade implications… because even if you’re right, it’s not an issue of trade, it is an issue of secrets.
No, it really isn’t. The proposed solution is to make both sides temporarily worse off in order to restore free trade between A and B, thus making them both better off in the long run.
There’s quite a bit of assumption there; that you can accurately make that calculation and that B will respond as you expect them to, but it’s a starting point.
Correct me if I’m wrong, but I don’t believe we obtained the atomic bomb through the American private sector.
Do we need tariffs in order to maintain government secrets? I agree that it is not a good idea to go around sharing these secrets with potential enemies. But what does that have to do with the topic at hand?
I love the last line, “Why should we object if the Japanese give us foreign aid?”
That’s fine as a motivation – if that’s actually the motivation. At which point, we’d be discussing strategy, because the end-goal is still free trade, is it not? I don’t have any problem with that discussion.
But Bryan didn’t say that.
I am still interested in how you apparently think that the technology gap played no role whatsoever in our winning WWII. If the fact that we had the technology for the atomic bomb and Japan didn’t is not the reason why we defeated them, than pray tell, what is?
P.S. My Dad fought in the Philippines in WWII, and he had first hand experience of Japanese soldiers. He is pretty much certain that the atomic bomb is why we won that war, but if you have another reason, I would love to hear it.
P.S. I am not saying that we couldn’t have won without the atomic bomb, just that it would have been much harder, taken much longer, and cost far more lives on both the American and the Japanese sides.
This is a fantastic video, by the way. Everyone should watch it.
Then I have absolutely no idea what you are talking about.
You say you don’t believe in free trade but you are not willing to say that you endorse protectionism. What else is there in opposition to free trade?
I am not saying that the technology gap played no role in our winning WWII (although, Germany had some pretty great technology as well). I am saying, first, that the atomic bomb is not something that was created in the US private sector. It is, therefore, irrelevant to our discussion of tariffs. However, I’m also saying that the sorts of things that we might import at a lower cost from places like the EU (and even from China) are not things that the knowledge of which will give those folks some sort of advantage. For starters, if we’re importing them, that means they already know how to make them. But even then, it’s not the existence of microchips or plane engines that give us the advantage (I’d argue that there are probably no “goods” used in defense, which we purchase elsewhere, that other countries don’t already know how to make), it is how we use those things.
All that to say, there is virtually nothing that our government uses for defense that requires tariffs to protect some American industry from foreign competition.
The question isn’t technology, it’s trade. Japan was building it’s on Southeast Asia Co-Prosperity Sphere because it was looking to lock down supplies of war material like oil and rubber.
For that matter, Germany took over the oilfields of Romania and attempted to steal the ones at Baku in order to fuel it’s war machine.
For that matter as well Germany lost WWI at least in part due to the British blockade which made it difficult for them to get enough food.
These are all natural resources; it’s hard to imagine how the U.S. would be cut off from our own grain fields, or oil fields, or uranium mines, or what have you in terms of a war. It’s possible we could lose something higher up the technology chain.
Let’s say we export all our microchip production to China, Taiwan, Japan, and Malaysia. Let’s say China goes all WWIII and conquers her nearby neighbors. If 21st century war depends on microchips we’ve lost all our supply chain and are in a strategically parlous situation. Now, we’ve got all the raw materials to make microchips, we even know how the science works. However, actually building chips is a complex endeavor (cough cough). There’s a lot of practical know-how that you get when you’re making the stuff. America certainly could bootstrap her way into a functioning microchip industry again, but it would take more time and effort than would otherwise be necessary if she had held onto some of the microchip industry.
You didn’t answer the question you quoted, though.
Can you give me some scenario where our imports create a major problem with respect to national defense? Or… any problem at all?
I suppose you can say that our reliance on foreign oil can cause us higher gas prices. That’s legitimate. But why are we dependent (to the extent that we are) on foreign oil? That isn’t because of the free market; quite the opposite. It is because of government interference with the free market – the exact same protectionism that you’re advocating on this thread, only it’s coming from democrats, and it is protectionism that favors green energy.
I think your reference to the loss of jobs for “lower IQ” people really just means the loss of menial jobs and manual labor. It is already pretty well established that there are jobs Americans won’t do. This is why the farmers have a hard time finding fruit pickers, and the landscaping companies in Cleveland can’t find workers. Illegals often fill these gaps.
This has nothing to do with IQ, It has do with with the fact that so many people are living on welfare and don’t feel compelled to get a job. If you took away the welfare payments tomorrow, millions of people would start filling out employment applications. America has had for quite some time, the highest number of unfilled job positions in our history. There is something like 5 million jobs just waiting for somebody to show up.
Exactly my point. Even in the extremely unlikely event, the end result is merely a pain in the butt… a pain in the butt that, even theoretically, doesn’t exceed the real impacts of protectionism. So, it’s pretty well worth our betting on that extremely unlikely situation not arising.
No. What he’s saying is that if A imposing tariffs suddenly causes B to come to their senses, and B decides to go back to free trade in a short enough amount of time, then A benefits in the long run even though it takes the short term hit.
I think this is the best argument there is in favor of tariffs. But it only works if it works.
Nothing in opposition, but not 100% free trade: “fair trade” as a means to achieve free trade. I.e. a tariff to reduce tariffs. It’s not pure free trade due to a temporary tariff, but it’s certainly not protectionism.
Steel. If we allow the U.S. steel industry to be destroyed by foreign imports, that could create a major problem with respect to nation defense.
Right, and assuming that the technology wasn’t stolen, chances are, they already know how to make them because we told them. Perhaps in the future we should think twice before doing that.
You describe a turnover tax. A 10% VAT collects 10% at the end of all stages of production, distribution no matter how many stages there are. No more no less. It shows on the receipts and every stage, since the tax on most inputs exceeds what one owes, each stage gets most of its’ prepaid tax back and has incentives to be accurate on its VAT and on income taxes if there are any left. And yes it’s a cash cow, raises more revenue with a small uniform rate than any distorting income or profits taxes of the same rate, so they could be eliminated or reduced. My preference would be to replace the payroll tax with a low uniform VAT tax so that we could afford to privatize SS, stimulate national savings to reduce the current account deficit. We could eliminate that deficit in a few years and begin reducing external debt.
So you are betting? Good to know. In a wartime situation, I am not convinced that any setback can be described as “merely a pain in the butt”. I am betting that such a setback would be much worse than just a pain in the butt.
For what seems to be a plausible assessment, Michael Vlahos (Part I, Part II) talks Xi Jinping’s 2030 predicted watershed over with John Batchelor.
In the US: Red vs Blue OR populous vs less populous OR: The US is divided not ideologically but by a deeper coming apart between the elites and those left behind. Party politics is moving to where the (R) is populist and the (D) is increasingly elite, (though Vlahos sees the socialist move as opposed to that). The hardening reality in US: small elite owns power and the disposition of wealth and the rest are irrelevant. The core of this is (D); AND the Confucius Institutes etc have meant that the top Left leaders are the compradors of the CCP’s ideology. [Plus: Given the tech industry’s dependence on Chinese hardware, how much are key tech companies in the bag for China?]
Russia is weak, Putin is playing a very bad hand brilliantly and has created a presentation in which Russia is a great power which can move American elections; the US Russia obsession makes Russians think this is so.
China: low savings, rapid aging, huge unrest among minorities and even the Han heart plus a changing economy; all this implies that Xi will move sooner rather than later…
And the US is not ready. We won’t have much military improvement within 10 years; the Chinese buildout is well under way. China has asserted territorial sovereignty in its near abroad without without effective opposition, and the next election will paralyze us more.
Moscow and China (and Iran) are working together. China assumes world domination by the end of the century. Xi has to deliver results by 20121 or President for Life may take on a new meaning.
Obama failed to correctly assess China. China did not return the favor, but rather stole IP, created an economic system that gutted the US economy with no response and took over the South China Sea (shades of Crimea, says Batchelor) with no US response
Are we like France vs Germany in the 1930s? We passed the opportunity to respond for China when we did have dominance, we will have to put up or shut up soon, kowtow to the new Emperor or…
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My questions: is the whole Russia obsession a maskirovka in which Russia’s intelligence services (or former intelligence operatives) are acting on behalf of China? Is China the ultimate procurer of the Steele Dossier and driving the Russian Collusion narrative?
My concern: is “2030” a distraction? Maybe; 2025 or 2026 should a Democrat succeed Trump, otherwise 2027-28 at the latest.
“Fair Trade” is a term invented by the left wing opponents to free trade to rationalize tariff and non-tariff barriers to free trade.
If you are for temporary tariffs with the hope of eliminating tariff and non-tariff barriers to free trade, then you are for free trade, which Bryan unequivocally says he no longer supports.
I understand what you are saying here, but I think it can be made clearer by stating “there is no such thing as a trade imbalance.” When you pay money for something, it is an even trade. That money is an IOU, a promise of an equal amount of work or stuff that you will trade back with someone else.
When it comes to trading between countries, it is the same story. The only reason economists say that we have a “trade imbalance” (or deficit or surplus) is that they only count certain tangible items in the exchange, like steel and widgets. They don’t count the intangible stuff like when foreigners buy our savings bonds or invest in our stock market, but the trades are on a completely even basis.
The only true trade imbalances are when things are taken by force, as someone else mentioned Germany taking Romania’s oil fields in World War II.