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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
Hmmm., I’d have to look up the history of the term. I believe Bryan holds the same positions I do given this thread, so perhaps we’re all just getting the nomenclature wrong? Maybe we can use this space to better define terms for use going forward. The internet definition of “Free Trade” is “international trade left to its natural course without tariffs, quotas, or other restrictions.” Being left to its natural course without tariffs seems to imply that my fair trade definition is in fact NOT the free trade that you’re talking to, but close to it.
That being said, there is still some adamant opposition to Trump using the tariffs in this thread. If we’re all for the definition of free trade that you used, i.e. “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…”, what do you make of current events regarding trade?
I would guess most of those people don’t think Trump believes in free trade and wants the tariffs to be permanent. Trump has a long history of being an anti-free-trade mercantilist.
A week ago, that was my firmly held position. I know Trump has tweeted a couple of times that he offered zero tariffs to Europe, but as Trump supporters always tell me, we should ignore his tweets.
His announcement last week about negotiating toward zero tariffs with Europe on non-auto industrial products was, I thought, the first meaningful indication that he actually meant it and I celebrated it in another thread.
Temporarily. Yes. You are fixated on a static, one period analysis. The proper analysis is done over a longer time horizon. Multiple periods. I’m certain that was clear.
As long as the present value of the temporary cost is less than the present value of the future benefits, ‘A’ should take this action. It is the exact same calculation one would make to analyze whether or not to forego some present consumption and invest that forgone consumption into some interest bearing investment. As long as the present value of the cash flow from the investment is bigger than the present value of the cost, one forgoes the consumption and makes the investment.
There is always the option of doing nothing and accepting an endless stream of losses resulting from B’s tariffs. A could send a harshly worded letter.
I am not sure what sorts of war you think we will be fighting in the future. Considering how long today it takes to design and produce a new aircraft, I don’t think we would have time to produce it.
This always seems to be the out: Because things might be, heck, will be abused, better to not risk it at all.
I clearly do not think China should understand how all our military devices work. That people on this forum think that it is A-OK for them to know how, and be able to duplicated it in the most up to date way possible is mind blowing.
Yes, a nation should be able to feed itself if it wants to engage in a long war. In fact, starving someone out was the way to defeat an enemy in the old days.
I don’t appreciate being told I am Dailykos. Guess I am guilty of wrong think
I have seen this before. It used to carry me.
However, if trade restrictions hurt both sides, then using trade restrictions to force the other guy into a better deal also makes sense.
I don’t think free trade is a magic bullet that in all ways, all the time, is best. That is hardly endorsing full on protectionism.
In fact, I have now seen on the last page, a great argument for using restrictions to get the other guy to lesson his, and then everyone wins.
So now we cleared things up, are you saying that removing all importation of drugs laws that prices would still not go down in America? Why?
Exactly.
Whatever happened to, “Nothing is so permanent as a temporary government program?”
Someone smarter than me said, there are no solutions, only trade-offs.
Believing in magic bullets is a left-wing utopian phenomenon.
If there is no trade imbalance, why then have the term at all?
Now I’m confused. If you believe everyone wins when trade barriers are lowered, then it sounds like you believe in free trade, which you’ve consistently decried throughout this thread.
Well then we can agree on that.
No! Just don’t risk it unless you show your work!
And how do steel tariffs and farm subsidies further this goal?
Except what is being advocated here is that government mandarins know what the long term benefits will be and force the choice on people through taxation.
No we don’t. Stop arguing in bad faith.
Fair point, but I wish it was more explicitly stated up front. “I don’t trust Trump to do it well” is a different argument than “It doesn’t work.”
You know, because a “Nuh-uh! Yuh-huh!” argument about Trump would have been more productive.
And yet you casually throw around accusations of people wanting the Chinese to know how our military works. Therapist: heal thyself.
Check with the Hammer Man. Seems like he was arguing that exact thing a page or so ago. To give him credit for the nuance, that whatever advantage they’d gain from being able to duplicate our most up-to-date hardware would be outweighed by the advantage we’d get from free-trading up until the point of war.
Because old style leftists and union bosses needed something to bleat on about.
This has nothing to do with Trump. I don’t trust anybody to do this well.
I agree! The term is misleading. It makes it sound like one side is getting more than the other side. What they should say is “China is exporting a ton of cheap factory goods to the U.S in exchange for a few airplanes, pharmaceuticals, and savings bonds.” But this is not as easy as saying the trite sound byte “Trade Imbalance.”
Also a fair point.
Assuming that free trade is a better state for both players than any one-sided protectionist deal, what methods would you suggest for breaking down someone else’s protectionism?
It’s simple math.
To make it simple, let’s imagine a drug that cost $5 per dose to manufacture is sold in the US for $100 a dose and country B for $6 (in your example, they were selling for just above the cost of manufacturing). That is profit optimizing under the current regime because the drugs sold in country B cannot be re-imported in the US.
If you allow re-importation, any dose sold in country B can be sold in the US for, say, $6 (with $1 per dose in transportation costs.) Under the current regime, the manufacturer makes almost all its profit in the US. If you allow re-importation, the company would never sell for $6 in Country B because whatever doses it sold it in country B for less than the US Price plus the cost of transportation would just wind up in the US undercutting the $100 US price. In that case, the profit maximizing thing would be to charge $99 a dose in Country B or stop selling in country B altogether and only sell in the US given how marginal the sales in Country B are. If anything, since none of the development costs are recovered in country B, the price in the US would rise slightly (but only slightly given how little profit is coming from Country B.)
If we allowed re-importation, the price in other countries will rise without the price in the US falling because the lowest selling price the manufacturer would be willing to accept anywhere in the world would be the US price less transportation costs. I suppose an alternative would be to never seek approval in the US and continue to sell in the rest of the world, which, given the high cost of approval might be more likely, but that would make the drug illegal in the US, and if there is anything the war on illegal drugs has taught it, it is that making drugs illegal just drives up their price. Either way, the US pays more.
There might be some drugs that have small US markets that would see a decline in US prices, but in aggregate it seems obvious to me that re-importation would increase prices overseas rather than decrease prices here.
Not exactly on point but I think we should contemplate a 100% trade embargo on all nations that support terrorist organizations. Even though I don’t trust them, I suppose ‘State’ would make the call on which nations those are. I might then also put tariffs of some sort on countries that traded certain items with those embargoed nations as well.
I don’t know. My expertise is in history, not economics.
But history tells me that protectionism is a disaster.
What’s not to get about the nostalgia? The country, and much of classical liberalism, was founded upon the ideal and cultural legacy of the yeoman farmer. As society has become more urban, its become less conservative and less classically liberal. To say nothing of the desire to preserve small-town life, with its cultural solidarity, community support, and sense of belonging, things that greater material prosperity has limited capacity to compensate for. A society centered around rural farming may be gone forever, but a desire (however misplaced) to preserve or promote it is a perfectly understandable impulse.
One cannot hope to change people’s minds if they fail to understand, or are dismissive, of the concerns that motivate policy preferences, however misguided those may be.