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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
The fallacy of the ‘free trade” purists argument for trading with China is that the free market mechanisms have all been manipulated to destroy the gains and benefits of classical free trade theory. The lure and illusion of short term lower prices for products from China will surely be followed ugly monopolistic behavior, destruction, ruination of our society and likely deadly war.
• In a true free market, floating exchange rates normally react to rectify trade imbalances. That cannot happen with the yuan pegged to the dollar and with the intervention of the Central Banks.
• Tariffs are just one means of protectionism. There are many other ways to deny imports are fair shake. China knows and is using all the tricks of that trade. So is South Korea, Japan, and Germany.
• China is at war with us. It is seeking to gain both economic and military dominance over America and the Free World. China is not only stealing our Intellectual Property, it is seeking control over the world’s most important raw materials, it forming alliances like it’s Silk Road initiative to deny America and the free world trade access to much of the world, it is using their massive QE to allow Chinese State supported industries to undercut and destroy their American and European competitors, it is using many forms of industrial espionage to spy and destroy American companies, it is seeking to handcuff and gain control over our key military providers within the United States to undermine our ability to defend ourselves, it is buying key American corporations to undermine American control over it’s own economy, it is infiltrating American Universities to influence American public opinion and culture, it has bought off over far too many American politicians and bureaucrats in pursuit of traitorous deals and sellouts, and it has developed many sophisticated next generation space based, land and sea weapons in an effort to impose their will militarily and economically on the rest of the world. In case many of you forgot we are dealing with in China, a ruthless, totalitarian Communist dictatorship that is dedicated to destroying us.
Yet, many of you want to help China destroy us to maintain the illusion of cheap imports, your privileged positions of power supported by Chinese influence and your delusions that this manipulated trade arrangement is somehow “free trade” which it is not.
What level of technology are we talking about here? Do you consider it a threat that, by trading with the West, China advanced beyond an economy of rickshaws and working rice paddies by hand?
Intellectual property ought to be treated as the property it is, although its less-tangible nature can make protecting rights in it difficult. Still, there are numerous law-based and non-law-based means by which firms protect their intellectual property. For example, see how jealously Coca Cola guards its recipe –and that’s just a soda pop! Countries can and do attempt to apply leverage to one another to see that their citizens’ intellectual property rights are respected overseas — that’s one reason why agreements actually freeing up trade can be so annoyingly long.
Whether threatening economic protectionism creates the right kind of leverage, or whether it’s more likely to result in inefficiencies for the home country which then become entrenched by special interests to the detriment of its citizens as a whole *without* the leverage being all that effective at protecting citizens’ intellectual property overseas, is one of the debates we’re having here.
Note the bolded line. I’m told this is the case, and @ekosj at least was arguing with that assumption.
In “things that still annoy me” news, nobody’s bothered to demonstrate that point, one way or another. If the cost to us for their protectionism is zero or a very small amount then I don’t see why we should care. If it isn’t then perhaps we should.
Who the heck is Ricardo anyway?
It’s remarkable how two people can have identical starting positions and principles yet come to such different conclusions. You lay out a fine case for why the economy is too complicated for any government to manage and yet conclude that our government policy should be one of managing trade based on changing conditions. My position is that no government is responsive, knowledgeable or capable enough to manage such a complex system and thus the best option is to remove it from the equation entirely. People will then be free to figure out the best path for themselves and those millions upon millions of choices will be smarter and produce better results.
Hank – given your comment “nobody’s bothered to demonstrate,” I’d like to attempt to tackle the issue, but I’m not entirely sure what you’re talking about.
Are you referring to the assumption that free trade is better for the economy than protectionism? I believe I answered this question in my comment #209. But are you referring to the cost to us of foreign protectionism?
Unsk, this is a lot to unpack.
First, I think you need to demonstrate that “free trade mechanisms have all been manipulated to destroy the gains and benefits of classical free trade theory.” That is an extremely bold statement that cannot be simply assumed.
Second, your point about “ugly monopolistic behavior” is one that I hear quite a bit of, but it is also unsupported by actual evidence. When we do see ugly monopolistic behavior, it is virtually always accompanied by force. The street mafia exercises a monopoly in the protection racket, for instance. But we also see it with unions (especially public sector unions) and any other area where the government can be successfully lobbied to eliminate competition through regulation.
But that doesn’t work internationally. What you don’t have (short of Marx’s theories involving means of production, which are virtually irrelevant in today’s economy), are people establishing a monopoly and then using sheer market force to take advantage of it. Fact is, the minute Amazon raises its prices to ridiculous levels because it’s got the monopoly on online shopping, you see people turning elsewhere. The only way that you maintain a monopoly is by providing the best service in town. The very existence of innovation makes this extremely unlikely. Yahoo once had a monopoly. Then myspace. We’re afraid of Facebook and Amazon and Google, but only when we forget our history.
If China is able to gain a monopoly by taxing its own citizens, that monopoly will only last as long as the tax does. Higher prices always invite competition. I may not desire to make widgets when I cannot undercut you, but if you raise your prices for no good reason (the exercise of monopoly power), I am both motivated to undercut you, and capable of doing so. Ugly monopolistic behavior does not lead to deadly war, it leads to increased competition. There is no illusion of short-term lower prices from China. There are actual lower prices from China, and if they are short-term, than we will soon see the introduction of competition. Do you not think India and Mexico desire to compete?
Do you change your own oil? I don’t. I’ve done it before. I could do it again. It’d take me a while, where I’d have to hunt up a filter wrench and watch youtube videos to make sure I know how it’s done. In an economic sense it’s cheaper for me to pay someone else to do it than to spend my own time on it. (Arguably; the value of my time is hardly a fixed number, but you take my meaning.) I could start changing my own oil, and I’d get better and quicker at it each time I did it until I was about as quick as the professional mechanic. That would only happen over time though.
Let’s say we got into a war with China. (As an aside about probabilities, I assume the probability of war approaches 100% the more time passes. Not necessarily with China.) Let’s say we want to go into wartime production of Liberty Ships. By the end of WWII we were making them at a rate of something like one a day. Supposing we jump into production of a modern analogue. Do you think we’d be making them at a rate of one a day? No; we’d have to spend some time tooling up, getting production workers in, getting production workers enough experience that they’re good at their jobs, getting engineering problems wrinkled out, and so on. On a large scale it’s the equivalent of me changing my oil. Production will be slow at first, and liable to make leaky ships. As they get better at the job we’d get to that one-a-day rate. Or something similar; don’t know what all the Liberty Ships of tomorrow imply.
Now here’s the catch. Supposing we offshored our steel industry to China. We’re in the same situation where we need Liberty Ships, only we need a lot of steel to put in one. We begin spinning up our own steel industry, but it’s got to go through the exact same growing pains. And you can’t get started on spinning up your Liberty Ship industry until it has steel. This delays our mass production of liberty ships. Which you could translate into territory lost and lives lost and so forth in terms of battlefield cost.
Now I don’t know what the war of tomorrow will look like, or whether or not it’ll require steel. But it seems like a good bet that we’ll be using steel to make war materiel at some level or another. If we were to offshore all our steel production to China then we’d be at a disadvantage in any war with them for as long as it takes to spin up our own steel production.
@unsk; what I quoted above is a very good example of the classic “slippery slope” logical fallacy.
The slippery slope is not a fallacy because it slippery slopes don’t exist, but because the assumption of slippery slopes generally requires a whole lot of facts not in evidence – additionally, it requires dismissal of a whole lot of intervening possibilities.
But it is tempting, because you can connect the dots. You can say something like “China taxes it’s people in order to produce steel at a crazy low price and put everyone out of business. Then, when competition is destroyed, it jacks the prices WAY back up and keeps them there forever, effectively destroying our economy and leading to WWIII.”
Those pieces all fit, within that vacuum. But the narrative assumes a great many things. First, it assumes that China would actually benefit from that scheme. It would have to drive us all out of business pretty quickly, then jack up prices high enough to repay the initial investment and realize any profit. It would also have to drive out competition entirely, because the minute prices rise, it risks a re-entry of competition into the market. China isn’t quite that stupid – it could tax its citizens and invest that money in a million other ways that would actually pay out, and most of those involve investing in the US. Far more likely, when you see tariffs and bad trade policy, what you’re seeing is relatively unstable governments (or european governments, dominated by liberals) playing to their nations’ desires for protectionism. What’s really happening is they are harming themselves for political gain or out of misguided self-interest. And it will fail, as we can observe in the EU.
Second, your narrative completely disregards the motivating force behind prices. Actually, it’s the reason why prices exist – prices aren’t arbitrary, they are market signals. A price tells you whether to buy or to sell. High gas prices after a hurricane indicate an excess in demand. Skyrocketing prices motivate entrants, for whom it is now worth it to transport gas across state lines to sell at the higher price. As more entrants join, supply goes up, and demand falls, which means prices fall. People who can no longer afford to transport goods at low prices disappear, and the market goes back to normal. The “gouging,” (as protectionists like to call it) actually ensures that the area’s needs are met during a time of crisis, and those prices speed the market back to normal levels.
That’s why we only see monopolies accompanied by force. A big business might put smaller ones out of business by lobbying for expensive regulations that the competition cannot afford, but that the big guys can absorb. These tricks don’t work internationally, because tariffs aren’t force, so they don’t have that effect.
People have been saying this for decades and it hasn’t come to pass. First, it was Mexico with its giant sucking sound draining all our jobs, then it was Japan who was going to own the entire country, now its China. I’ll start worrying about this stuff when there is a single example of it coming to pass.
That is kind of a misrepresentation of what several people here are saying. I don’t need to assume a zero sum. Both sides can be “winners” in the current deal, and the US could still wish to make changes to get a better deal. (Under the better deal both sides would still be winners).
The EU has no incentive to restructure the deal especially if they think they have the better end of the deal. Trump imposes tariffs, now there is an incentive to restructure the deal. So the EU guy, Junker, meets with Trump and they start talking about changing the deal. We have to see what happens to figure out if any of it works.
While both countries, on the whole, come out winners in trade deals, there are winners and losers at home. Some business or sectors of the economy get protected in the deals and some don’t. Some new wealth or jobs are created by the deal, some are lost. The economy as a whole improves, but the economy is made out of lots of moving parts. Some of those parts are damaged. To those people harmed, free trade is always a win, kind of rings hollow. If European Cheese makers are helped by the trade deal, why aren’t American cheese makers?
We need a better answer for the sections harmed. You can buy cheap junk doesn’t help if you have no money to buy food, much less stuff.
Let’s say we’re selling coffee to Cuba. Cuba puts a 50% tariff on our coffee. Cuba also sells coffee to us. We assign no tariff to their coffee.
Now, it’s easy to see how their tariff hurts us; higher prices on coffee for their consumers means we have less of a market for coffee. It’s been stated without proof that their tariff hurts them too. How? The Cuban people sell the same amount of coffee in the American market; that price hasn’t changed. They don’t lack for coffee themselves; the Cuban people can purchase local coffee at the same price as without a tariff, it’s just American coffee that’s more expensive. The Cuban manufacturer wins; he gets a larger share of the local market. Why should anyone in Cuba care if the American gets screwed over?
This only works if Cuba makes the best coffee in the World at the cheapest price. In that case, there would be no reason to import any coffee to Cuba. They should be exporting coffee and only importing things they don’t do well, like automobiles. The whole reason to trade in the first place is get better or cheaper stuff than you can make yourself.
I think this is a good point, though. I disagree with your assertion that the possibility of war approaches 100% over time. With a global economy (which we already have), the possibility of war approaches a lot closer to zero.
That said, Liberty ships were important in WWII. We have no idea what a war would look like with China; it seems foolish to artificially “preserve” our steel production on the off-chance that steel is crucial to that hypothetical war. That’s how backward nations stay backward.
But more importantly, we’re not talking about wholly eliminating our ability to produce steel, or getting it exclusively from China. We’re not talking about alienating every other ally and depending entirely on China. Not even in Trump’s hypotheticals is that the situation. Just, “China is beating us in trade.” Leaving aside the fact that this is a nonsense statement to begin with, even taken for granted on its own terms, it does not equate to a complete dependence on China. If, say, we actually did go to war with China (in a vacuum), and it turned out to be a war that relied heavily on physical presence, it would be a massive drag on our economy (as was WWII), but you’d see the repurposing of various industries, you’d see an intense amount of wartime management, and it wouldn’t be “re-learning how to manufacture steel,” it would be more like dropping everything in order to do what we need to do.
Given the past 100 years, I’d say that scenario is all but impossible, but even if it was possible, the hypothetical benefits of “preparing” for that exact scenario still do not outweigh the cost if we simply faced that scenario when it arose (keeping in mind, by not “preparing” for that scenario, we encourage a great amount of innovation and growth, both of which make that war scenario less and less likely).
It is interesting to hear these sorts of arguments from Conservatives, though. That is the justification for crippling our oil industry in favor of green energy, for banning forks and straws, for regulating the auto industry to promote electric and hybrid cars. That is the liberal response to global warming.
But lastly, all of that is based on my granting the assumption that tariffs will have any positive effect on that unlikely scenario, and what we’ve been showing is the exact opposite.
p.s. Yes, I do change my own oil. And rotors. Just did it this weekend.
Of course, the reason I do so is because I work from home, on salary, so the value of my time is not directly related to hours spent – or, rather, hours spent elsewhere do not directly reduce my income or my income potential. So it is worth it for me to change my own oil.
As for expertise; I changed two rotors. The first one took me 1.5 hours, and the second one took me 1/2 hour. Yes, repetition is important and expertise is important. If I charged, it would cost you 2 hours of work. If you took it to a professional, he might charge for 1 hour of work. But that just goes to show how prices actually work. If someone can produce a good at a lower cost, that is generally the most efficient allocation of resources. Does it matter if he charges less because he is good at what he does vs. maybe he has a dozen underpaid employees, or maybe he has a special tool that you don’t? At the end of the day, if his prices go up, you will either learn to change your own oil, or you will go to the other mechanic who charges less.
As for Steel – take a look at this graphic. Virtually all of these “worst case scenario” justifications for tariffs require assumption of a vacuum, where there are only two players in the world: the US and China. But that’s simply not the case.
If tariffs didn’t hurt Cuban consumers, they would have no effect (kind of like a minimum wage below market value for labor). Tariffs make goods more expensive for local buyers. Under that scenario, US consumers are not hurt, because they pay market value for coffee, but Cuban consumers are hurt, because they pay above market value for coffee. You might say that the US coffee industry is hurt, and to some extent that is true. But our economy is not hurt. Imposing a tariff on Cuban coffee essentially taxes US consumers in order to compensate coffee producers.
In order to make that “good bet” an actual good bet, we have to know a lot more than those hypotheticals. How much steel is likely to be required? What other foreign countries besides China could provide us with that steel? How necessary is that steel, anyhow, or are there substitutes for it which would do in a time of war? How big, really, would our lag be if we decided a war required us to return to “rolling our own”?
As it happens, the US imports a great deal of steel from countries other than China as it is. The biggest use of steel is in the building industry, not in the more mobile structures such as those we usually associate with war. Moreover, our defense spending is already pretty generous, and if those funds aren’t being horribly misspent, well, part of their purpose is to ensure our military has the resources we need for defense, including materiel.
I’m from an iron and steel family myself, and I grew up around the arguments about what makes steel an extra-special strategic industry. At the same time, it wasn’t hard to see how those arguments could be stretched politically until the need for the US to have “strategic stockpiles” of all sorts of goods could be used to justify not just general defense spending providing our military with reasonable reserves of supplies, but economic protectionism declaring, for example, the citizens as a whole could not survive without a strategic stockpile of cheese created by centrally planning all US dairy farming.
Also, you’ve said the Cuban manufacturer wins… Who loses? The Cuban consumer loses. Ultimately, this does come back to harm the Cuban coffee manufacturer, because the overall Cuban economy suffers (and people very likely buy less coffee). American manufacturers might be priced out of the Cuban market, which simply directs them elsewhere.
Think about it another way. The US is currently priced entirely out of several markets in the EU, right? It would clearly be better if we could introduce competing producers and join those markets, but as far as our economy is concerned, it is no different than it would be if there was simply no demand. Just like the US umbrella industry in the Saharan desert. I will fully acknowledge that foreign tariffs shrink global markets; things would be a lot better without them. The whole point, though, is that US tariffs also shrink the market; it may “benefit” one small group of visible people, but it still shrinks the market and harms our economy. Even a fully lopsided global economy, with zero tariffs in the US and tons of tariffs elsewhere, is better than an economy where everyone has competing tariffs.
“We need a better answer” presumes we don’t already have the best answer, whether or not it’s satisfactory to you or anyone else. Trade restrictions make prices rise, meaning it’s harder to buy things like food. It’s like pushing on a balloon. You can’t press in on one spot without another spot expanding.
Also, the EU has all sorts of incentive to eliminate restriction and free up trade. It would help their local economies immeasurably. They don’t, because their governments are corrupt, or beholden to special interests, or simply run by wrong-headed liberals. The EU is a giant protection racket, and some of their producers maybe get rich at the expense of all others. We see this playing out in Greece and in other smaller countries where protection results in an overall shrinking of their economies. Perhaps they don’t know (though this is highly dubious) that they could solve many of their problems simply by opening up trade, but they certainly have every incentive to do so.
For what it’s worth, I – and I assume everyone arguing on my side in this thread – fully understand the argument that Trump may believe his tariffs can act as incentives to produce more free trade. We can argue about whether that works… but that’s not what I’m hearing. The OP says “I no longer believe in free trade,” and that is a lot different than saying “the ultimate goal is more free trade.” I’ve heard a lot of people arguing that tariffs help industries or give us a competitive advantage. These things are simply not true. Tariffs are a burden, and a cost. If you want to argue that the cost will result in more free trade, that’s fine, but it’s a different argument than what I’ve been hearing.
I’ve left two of your paragraphs – the first paragraph argues what I was just saying, that the cost is worth the outcome. But your second paragraph argues something very different, that tariffs help sections of the economy. What you are arguing for is redistribution. In that sense, tariffs are a welfare program – yes, they “help” one group by taxing everyone else. The cost is spread, and the benefit is localized. But the exact same arguments that apply to welfare apply here: incentives against innovation, dependence, opportunity cost, etc…
I don’t think having no trade agreements is necessarily a good thing. Nice to have but not necessarily good for this country.
Yeah, still going to disagree on unlikelyness of war. As such I don’t think I’m likely to come to an agreement with you on the relative costs and benefits.
I’m not suggesting that any war is unlikely, I am saying that that particular war scenario is extremely unlikely. First, it assumes that the only participants are the US and China. Second, it assumes that the war is primarily physical, involving ground forces – may the strongest man win. We don’t really see wars like that, anymore, as we did in WWII. Iraq and Afghanistan have not been about production but about strategy.
A war with China would most likely hinge on international support rather than a balancing of physical force. In that sense, if China is the guy who makes all our junk, more power to China.
Think about this rudimentary caveman analogy. One caveman invents arrows. He decides to outsource arrow production to Caveman #2. Caveman #2 thinks “damn, now I’ve got the secret of arrows!” But what did Caveman 1 do with his now-freed capital? He innovated, and now he has a catapult…
Obviously, that’s a silly analogy, but that’s very similar to where we are with China. We may outsource production, and much of that is driven by stifling local regulations and redistribution schemes. But we don’t generally outsource innovation. The minute China becomes the foremost producer of iPhone 4’s, we’ve developed the iPhone 6.
In a war scenario, China may have the advantage of population, but it does not have any really meaningful advantage when it comes to capital.
Well, we may have the best answer in one dimension but not others. For example, what if we have unnecessary regulatory hurdles making it difficult for the losers to reinvent themselves? Those sorts of hurdles make life more painful for the losers, too. But then maybe lowering those hurdles, rather than, say, making necessities more expensive for everyone, would be the best dimension along which to find a better answer.
I’ll add, too, that the more life improves for the vast bulk of us in one area, the more morally painful and isolating it is to be one of the few left behind. Being left behind in this way really is a source of existential anguish. But holding the bulk of people back so that unfortunates can feel less alone in their anguish is paying a steep price. I have been relatively unfortunate in one dimension, and as alienating as it’s been, the thought of others forgoing their benefits just to keep me company is really too horrifying to contemplate. Prosperity isn’t a panacea because nothing is, and it should not be faulted for failing to achieve what nothing (in this plane of existence, at least) can.
I am not a libertarian. I believe there’s a healthy role for government in helping its own citizens.
I am actually a committed management by objectives (MBO) devotee. Anything the government wants to do needs to be evaluated in the context of overarching goals.
Okay, that makes sense. I’m assuming that American and Cuban coffee are generally the same. Still, some people will purchase the more expensive tariffed stuff for whatever reason, and those people will be hurt by it. Sure.
How is it that the US coffee industry is hurt but the economy is not? I’ll grant that I care very little for the welfare of the US coffee industry and that the damage to the overall economy in my hypothetical would be minimal, but minimal damage is not no damage.
Why does the Cuban economy suffer? In the short term there may be less coffee available, but supply meets demand and you’ve got more coffee manufacturers and a new equilibrium point is reached.
Okay, I hadn’t been arguing US Tariffs yet, just the one-sided Cuban example. But what do you mean “Shrinks the market”? The number of coffee drinkers is the same as it was before.
Steel has been an essential component of war material in every shooting war since before there were shooting wars. The probability that it is an essential component in the next war is pretty high. I’m less certain that microchips will be required (as I was discussing upthread.) That doesn’t necessarily apply to any other commodities.
(Briefly, on your other questions, China produces roughly half the world’s steel. The EU comes next at about a tenth, and they also use about that much steel. There are substitutes, but they’re all more expensive, even more expensive than importing steel at crash priority wartime prices. You could build a building with a Titanium skeleton. No point, really. And my experience in manufacturing says that the lag time would be surprisingly long.)
Why am I assuming the only participants are the US and China? Third on that list of steel producers is Japan; if China takes Japan before we can do anything about it that only worsens our steel position.
Ground forces, no. Navy? Seems likely. Takes an awful lot of steel to produce an aircraft carrier.
Hinging on international support? Possibly. Given the quality of international support we generally get the notion doesn’t fill me with optimism.
Well, think about it like any other market force, right? If people simply stop drinking coffee, the coffee producers are hurt, but the economy is not. This happens all the time. It happens in various ways. Sometimes, through creative destruction and innovation (uber and the taxis or cars and the horse buggy, or the loss of department stores and outlet malls), sometimes through simple changes in habits (which drove the hammer-pants industry out of business). In this instance, the demand for coffee goes down. That might hurt individual coffee producers, but it doesn’t hurt consumers. Consumers save money and that money is allocated elsewhere. Coffee producers also have to re-allocate their own resources, say, by producing something else. The economy shifts, but it does not suffer. Meanwhile, Cuban consumers are being taxed to drink coffee. If that tax goes away, their demand will increase, thus inviting new entrants (very likely US coffee producers) into the field.
You can say that, in a global economy, damage to one country impacts us negatively, and that is true. We would all be better off if Cuba had a free market, for sure. But we will not make things better by taxing our own consumers in order to prop up one industry.
Okay, I take your meaning. Not sure it applies.
The US sells so much coffee to Cuba before the tariff. Cuba imposes a tariff. The US sells less to Cuba. Okay, the US has extra assets in coffee production that it now shifts to… what? How do you guarantee that a market appears as the previous one disappears?
The Cuban economy suffers because its consumers are being taxed to pay for an industry. This harms the economy in many ways. One is the simple allocation of resources. Who has the best market knowledge in an economy? The individual. You know the best and most efficient ways to spend your money. You know what you want. When the government tells you how to spend your money (you don’t really want that, you want this), it creates an inefficiency. When the government has to force people to do something, that is generally because those people wouldn’t otherwise do that thing, right? So when a government “picks winners and losers,” it is picking for political reasons, never for economic reasons. The market already picks winners and losers, and this is based on who can produce the best, most necessary, products at the lowest cost. The only reason a government would ever intervene is to do something different, which will always be inefficient, and therefore create a loss.
We see this with so many things, but all-out socialism is the easiest example. It is necessarily one-size-fits all. Instead of letting everyone buy their own shoes, the government confiscates your money and hands out shoes that don’t fit. It is a big problem with Obamacare… instead of letting people weigh their own risks, you require them to “protect” against risks that don’t exist. So I’m paying for gender-reassignment surgeries, etc… It is a massive inefficiency and it all but cripples the natural market. Our entire health-care system lacks any meaningful price-mechanism because of the sheer volume of regulation and government interference.
If Cubans purchase the coffee they want at a price that motivates them, they encourage businesses that give them the best product (raising quality for everyone), they free up their own money to be spent elsewhere, and they invest in things they actually want (and yes, every purchase you make is an investment). Economies always benefit from this consumer freedom.