It's interesting to compare the different American policy responses to the rise of Japanese industrial might in the 1970s and 1980s to the rise of Chinese industrial might in the 1990s and 2000s. The Reagan Administration negotiated a "voluntary export restraint" agreement with the Japanese government that limited the number of Japanese cars imported into America. The limitation stayed in place until 1994. In the meantime, Japanese automakers built numerous car factories in the U.S., which have proved highly successful.
This strike me, and, I would guess, most Americans, as a reasonable outcome -- at the cost of 13 years of protectionism, Americans wound up with a long-run solution in which American consumers now get quality cars at reasonable prices built primarily by American workers, while fashion-conscious Americans can buy even higher quality cars at less reasonable prices made by Japanese workers.
And yet, despite all these huge factories providing good paying jobs to large numbers of Americans, this bit of recent history has disappeared down the memory hole, so complete is the victory of the free trade ideology. While the U.S. government took effective action in the early 1980s regarding Japan, doing anything about the rise of China to industrial dominance has simply been off the intellectual table over the last 15 years.
Back in 2004, I blogged:
Why I'm a true believer in utterly free trade -- The theory of free trade has never been contradicted by history. For example, as we all know, the tremendous growth of the American economy in the 19th Century was due to Alexander Hamilton's insistence that free trade be the absolute cornerstone of our economic policy. Every schoolboy knows Abraham Lincoln's 1860 campaign slogan: "Free Labor and Free Trade!"
In contrast, Britain's slow, sad decline from its position of economic supremacy after 1846 was due to Prime Minister Peel's betrayal of Britain's traditional free trade policy in favor of protectionism.
Likewise, Bismarck's insistence on zero tariffs enabled outnumbered Germany to almost conquer Europe in WWI using its free trade-nourished industrial might.
And who can forget how contemptuously Ronald Reagan rejected a plan to impose quotas on Japanese car imports to get Toyota and Honda to build car factories in the U.S.?
Oh, wait a minute... Excuse me. Those were the policies of America, Britain, and Germany in the Bizarro reverse world.
Never mind...
On National Review's Corner, two normally level-headed people attacked me for daring to joke about the sacred ideology of free trade:
Ramesh Ponnuru answered, "I respect Steve Sailer's intellect too, Derb, but it's sad to see him embracing every bit of paleocon dogma."
Yup, there's nothing more dogmatic than satire.
Former Reagan speechwriter Peter Robinson, author of "How Ronald Reagan Changed My Life," jumped in to attack my examples. I particularly admired his alternative explanation of how Bismarckian Germany became an industrial powerhouse: "Industrialization." Now I've often expressed my taste for nearly-tautological explanations, such as "survival of the fittest," but this one might be a tad too tautological even for me.
It's hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can't be ruled out. Economists are terribly proud that Ricardo's Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker.
Comparative Advantage theory should have starring role in the sequel to Stuff White People Like.
My published articles are archived at iSteve.com -- Steve Sailer
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72 comments:
The battle is heating up this of the Atlantic as well. The underlying premise of the new Left (ex East German ruling party) "Neue Linke" aka SED is protectionism, in conjunction with more social spending, i.e. increased dole. The SPD (traditional socialists) have to compete so they don't lose even more voters. So the combined left is competing on who can promise the most handouts and the highest degree of protectionism. Of course what only few realise is that this leads to Germany junking the EU in the long run. Some on the far left have understood this and advocate as much, just as the miniscule and suppressed far right also wants this.
The "conservatives" and liberals (FDP) are still selling the open borders/free-trade junk. But they have to. They have bought into the EU and business elite. However even they realise they cannot keep this up if Germany goes into a recession. One small consolation is that the EU has some tariffs in place versus China, Africa and the Americas (incl. US). But of course the best solution for Germany would be to get out of the EU, close the borders and slam tariffs on everything undesirable. That's what Switzerland has been doing with great success. The place is actually also a high-tech military fortress. Most people have no idea how heavily defended Switzerland really is. But then they are sitting on a huge pile of money, and that typically attracts bad company.
Comparative Advantage theory should have starring role in the sequel to Stuff White People Like.
This seems like a pretty bogus observation to me. I don't meet too many fashionable leftists who are big fans of free trade. Obama and Hillary give their constituents obligatory protectionist signals.
Libertarians like free trade, but geeky male libertarians are often the opposite of Stuff White People Like.
Would you also favor trade restrictions between U.S. states? Why or why not?
Dean Baker had a great point - they 'won' the argument simply by the way they framed it 'free trade' how could you be against freedom? and for Proctectionism? That's probably racist against Chinese too!
Funny though the biggest advocates are the most protected industry : wall street - who has a semi private agency practically do their bidding and bail them out whenever they screw up.
Steve:
Many points here, but *aside* from the currency manipulation issues -- which I agree are real and important --
1) Most important: you aren't taking into account the consumer's well being. All manner of products from low-end to high-end would be far more expensive if we raised tariffs or impulsively impeded trade with China.
2) With the exception of Lenovo, there aren't many "name brand" Chinese multinationals on the level of Toyota, which is why you haven't heard of them (yet). But Lenovo is a bellwether and is already starting to build plants outside China:
http://www.chinadaily.com.cn/bizchina/2007-11/28/content_6284486.htm
"This year, Lenovo has announced four new facilities in Shanghai, Baddi of India, Monterrey of Mexico, and North Carolina."
3) Economic nationalists seem to be inconsistent as to whether it's good or bad for foreigners to have economic stakes in the US. I'm sure you remember during the 80's the outrage over the Japanese buying various American landmarks. I'd like to hear your point of view on which of the following is desirable and under what circumstances.
a) US companies buying stuff in Asia (good: staking territory there, opening up new markets. bad: employing non American workers, undermining the nation state).
b) Asian companies buying stuff in the US (good: employing Americans, bad: industrial espionage, putting US companies out of business, gaining control of US assets, e.g. Dubai Ports)
4) Also, do you agree with the following premises?
a) Nothing (short of war) could hold back the Germans/Japanese/Chinese except the bad choices of the Germans/Japanese/Chinese themselves.
b) In particular, the UK could not stop Germany's ascent through trade policy. Neither could the US stop the ascent of Japan or China through trade policy.
c) So, once China decided to shuck off communism, at best the US could slow its ascent -- but not indefinitely, and not without arising hostility.
Watch out the “free marketers” will declare you a heretic.
They so love the “free market” that they see it everywhere, they think that when a Dubai government owned corporation buys US port facilities which were subsidized by huge amounts of US government taxmoney that it’s a “free market” deal. Or when a Chinese communist government owned corporation buys a US corporation that that is also a “free market” deal. They think that buying goods from a factory owned by the Chinese Red Army is also ‘free market”.
There is nor such thing as free trade. Even if we open our markets totally, other countries still skew their markets in their favoe and see our naive "free market" idealism as something to take full advantage of. Just because we see images of McDonald's in Beijing and Toyota plants in Alabama doesn't mean that globalism and free trade are working. Every country (except us) is still looking out for themselves first.
Free Market Economics is an ideology believed only by academic economists. Show a real capitalist a free market and he'll try to fix it.
When Britain was the world's only industrialised country Free Trade benefitted Britain. When British statesmen said FT benefitted everyone they knew they were lying. One of many things that worried me about Thatcher was that she said the same thing when Britain was comparatively much weaker and apparently believed it.
No country ever successfully industrialised without tariff protection. The US, across the Atlantic by sailing ship, had tariffs about 30% when it was getting started. Yet the industrialized countries now demand that the "developing" (3rd world) countries should adopt free trade in industrial goods.
Free trade is the one principal that the Republican party can be counted on to stand for. And this shows what they really believe in, and whom they really serve. They believe in money, and they serve the wealthy. Everything else is negotiable.
Yeah, our response to Chinese imports today is different. I wonder how much of that is a function of the types of imports. China isn't selling us cars, and there's nothing quite like cars--they cost thousands of dollars, everyone buys them, and they are easily loaded on a ship. It's not the same thing as a container ship full of $10 and $200 doodads destined for Wal-Mart. You'd have a lot work finding all the American workers displaced by that container ship's cargo, compared with identifying laid-off auto workers.
There's also the quality issue. Trade with Japan felt threatening because their manufacturing quality is better than ours. No one perceives Chinese products as better quality (usually the opposite), just a whole lot cheaper.
" Comparative Advantage theory should have starring role in the sequel to Stuff White People Like."
Agreed, but you know well that economic theory often does not translate well into the real world. The Leontief Paradox is the first example of this that they taught us when learning comparative advantage.
Yes, free traded bakes a bigger pie, but the negative externalities might outweigh the benefits, and anyway, isn't the friggin' pie big enough? Humans are not mere economic inputs.
For smaller countries without a diverse economy free trade is a tough sell. I did my Peace Corps in the Caribbean and saw this myself. Price of bananas drops a nickel due to genetically modified super plantations in some not-so-democratic country, and another country goes back to the stone age, where before they had negotiated export deals. Which, I guess, I really shouldn't give a crap about because they don't care about the white man.
Under NAFTA, crossing the border from Canada to the USA has never been tougher. I know guys with arrests - not convictions, but arrests - from twenty years ago who are getting turned back at the border, we're talking people with good jobs who own half million dollar homes. This is not cricket.
i don't think everyone believes the current situation is hunky-dory. u seem to have overlooked the bit about US car makers outsourcing their own manufacturing to mexico, china, india etc, while they've been closing plants in north america.
the upshot: US owned manufacturing paying high wage labor union jobs in the north are traded for foreign owned manufacturing (with enormous 20 yr tax breaks) paying non-union rates in the southeastern US.
"It's hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can't be ruled out. Economists are terribly proud that Ricardo's Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker."
Nah, the lower income people hurt by free trade are white. So it's ok for liberals to use reasoned arguments to support it, unlike ending affirmative action or welfare.
"Comparative Advantage theory should have starring role in the sequel to Stuff White People Like."
You overestimate the sophistication of the Stuff White People Like crowd. At least around here, they're more into buying fair trade coffee and saying stuff like "I think communism COULD work." Maybe if there was a website called "What Beltway Elitist White People Like" that would be a different story.
Steve Sailor ought to think a little harder about this. Japanese auto manufacturers based much of their production for the US market because it was cheaper than to do it in Japan. Think " real yen appreciation " and " higher relative wages " (due to labour shortage). It's the same thing with BMW.
Economist Herman Daly argues that Ricardo's comparative advantage theorem is irrelevant because it assumes no transfer of capital. And probably no transfer of people.
Instead of using our profits/capital to build higher productivity in the US, our companies build factories overseas.
So understanding the theorem is irrelevant; but, as you suggest, it is used to shut people up.
Since the theorem is no guidance, everything must be judged on its own merit. Very difficult.
Anti-free trade arguments are usually not arguments at all, just assertions. Therefore they can be demolished merely by enquiring "Would you also favor trade restrictions between U.S. states?" as anonymous reminded us. "It stands to reason" and "it's common sense" are not arguments. Nor is "I don't like it".
There seems to be a big focus on cars when talking about trade and imports. A person may spend $20000 or $30000 on an imported car every few years but during the same time frame will still spend as much or more on lots of other imported items like electronics, clothes, fruits, tools etc.. All of these purchases still puts Americans out of work.
International free trade in the nineteenth century wasn't particularly important since the volume of goods movable was minute compared to the current era of industrialised container shipping. Free trade [i]within[/i] nation-states was. Adam Smith's Wealth Of Nations was mostly written to argue against internal tariffs. Britain in the eighteenth and nineteenth centuries had high tariffs on foreign goods but none on domestically-produced ones. France had moderate tariffs on foreign goods and a confusing regime of high internal tariffs that generated a lot of corruption. Consquently, Britain's economic growth outpaced France's for most of that period. Prussia abolished all internal tariffs in 1818.
The logistics of international shipping have now become vastly more capable of shifting large volumes than in 1846.
"This strike me, and, I would guess, most Americans, as a reasonable outcome -- at the cost of 13 years of protectionism, Americans wound up with a long-run solution in which American consumers now get quality cars at reasonable prices built primarily by American workers,"
I wonder how many American consumers would have been happy to buy a Japanese Camry if they could get $1-3k off the sticker price, and spend the savings on other goods\services. Why in particular would American auto-workers deserve a disguised subsidy from the rest of the working population?
Alpha:
"consumer's well being. All manner of products from low-end to high-end would be far more expensive if we raised tariffs or impulsively impeded trade with China."
Yeah, consumer's well-being is greatly enhance with such Chinese products as children's toys painted with lead paint, "UL listed" "circuit-breaker protected" power strips that are incorrectly wired and thus start fires, and poisoned foods.
You say the products are less expensive. What do the subsequent medical bills add up to?
Steve,
Whiterpeople certainly do not like free trade. The problem is free trade is a fashionable ideology among lesser white people. You know, the evil ones? That like sweatshops?
Now, nice, managed trade? Lots of good government jobs for whiter technocrats, people who know better? Now you're talking!
As for why free trade is popular... it is? Coulda fooled me. Neither major party supports it, for example. Rather it is trotted out only selectively, and selective freedom is not really freedom: when something is a privilege it is not a liberty.
As for why free trade is popular among a tiny minority of libertarians and our fellow travelers, it's because free trade makes everyone better off, on average. And yes, this a truth of economics. Doubting it is at the same level of stupidity as doubting that all races have evolved with significant differences. In both cases, the fundamental theory (microeconomics, evolution) entail certain things.
Of course, when we are talking about international free trade, that "everyone" that free trade helps includes non-Americans. And that "help" is only on average. And thus I see no reason why a "citizenist" should support free trade as an ideology. Because it is quite possible for a foreigner to be better off, while an American is worse off; on net the world is better off, but why should someone like you care about the world? Screw them! Citizens first, citizens only!
Britain's traditional free trade policy
To round out the case, one must acknowledge that Britain rose to power while practicing free trade -- and that its descent into socialism in the 20th century has coincided with its fall.
One must also note that the countries that America is supposed to emulate -- Europe by the left, China by the paleo right -- all have lower GDPs and standards of living than the US.
It's hard to say exactly why the dogma of free trade has triumphed so completely
Perhaps because Communist countries saw their economies collapse due to heavy regulation? And perhaps because India and China suddenly became much more wealthy after opening up their economy?
Every Communist/leftist country has tried some form of "self reliance". In India it was swadeshi, in North Korea it was juche, in China it was the backyard blast furnaces of Mao. In every case it led to deprivation of the people.
Pat Buchanan likewise doesn't like "those shiny things at the mall", by which he means the American standard of living. He's right that preserving that standard of living means preserving the IQ and culture of the majority population. But he's dead wrong about the supposed prosperity enhancing effects of tariffs and subsidies.
Buchanan's big problem was identified by Bastiat long ago.
http://www.econlib.org/library/Bastiat/basEss1.html
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
Buchanan sees the auto workers out of jobs, but he does not see the cost to taxpayers of artificially keeping Ford afloat -- both by taxing other productive workers to subsidize the big three and by keeping Tesla and Toyota from serving consumers better.
Bottom line is that a high IQ country under capitalism is unlikely to be poor (in fact, I can't think of a single counterexample). Doesn't matter about resources -- Hong Kong and Singapore show that IQ + capitalism = wealth, even on an island.
However, if you lack either IQ or capitalism, you've got problems. Communism/socialism can impoverish you and low IQ can kill you. Buchanan realizes that low IQ is a problem, but doesn't fully understand that protecting one uncompetitive working man from losing his job means taxing N productive men.
No one perceives Chinese products as better quality (usually the opposite), just a whole lot cheaper.
Big mistake to think this is still the case. Reminds me of the scene in Back to the Future I when "Japanese" is still synonymous with low quality.
Perception hasn't yet caught up with reality. Today, a huge fraction of electronic components in high end consumer devices (such as the iPhone) are sourced from and assembled in China. They are rapidly moving up the value chain and are already at the level of Taiwan, Korea, and Japan in key areas.
http://www.allroadsleadtochina.com/index.php/2007/08/15/iphone-made-in-shenzhen/
What I found most interesting was how far Foxconn reached into the Supply chain. Not only do they supply a number of the critical components, but they are also the final assembler.
That’s right… the iPhone is Made in China .. Shenzhen to be exact.
When I was researching on contract an article on the free trade controversy for Harpers Magazine back in the early 1990's, I briefly enjoyed access to many of the world's leading economists.
In our discussions, my point of departure was usually Samuelson's famous paper on Protectionism and Real Wages, which showed that US wages would definitely suffer under the terms of Nafta and Gatt: the "comparative advantage" of countries like Mexico and China lies precisely in their relative abundance of one of the factors of production, namely, low-wage labor. This is standard neo-classical textbook trade theory, but almost none of these distinguished economists wanted to talk about it. A lot of them seemed genuinely unaware, not being specialists in trade theory.
There was one guy at UCLA whose first initial is L. who was willing to talk; but he spoke in an almost conspiratorial whisper, insisting that everything he said be off the record.
Paul Krugman, on the other hand, when I mentioned the classic teaching text, World Trade and Payments, countered by suggesting I buy his new textbook instead. He was serious, for purely financial reasons. A real self-promoter.
Milton Friedman, to give him credit, was the only economist who was genuinely open-minded on the issue and its implications for the welfare of American workers. In fact we exchanged absurdly long letters on the subject -- three rounds in all -- in which I gradually backed him into a corner, forcing him to virtually deny the laws of supply and demand when it came to labor.
I didn't have the heart to point out that in that case there could be no general equilibrium in the economy, which of course is at the heart of the Adam Smithian worldview, which was also Friedman's. He was already an old man, so I let it lay.
The piece eventually came out in Challenge Magazine, even though I did get a kill fee from Harper's (plus all that wonderful access). Lapham said the argument was over the heads of his audience -- literally asked me to dumb it down -- and was unhappy that the political implications were not sufficiently immediate, being measured in decades rather than months or years. I am sure a better writer could have accomodated him, but that wasn't me.
Anyway, you can find the article -- Gatt Justice: Who Gets the Gains of Trade -- on the web. It was unique at the time, though now its theoretical gist and primary conclusions are starting to be acknowledged by mainstream trade economists, including Krugman. Not that they didn't know all along.
So protectionism is good because our lifestyle is acceptable today? Free trade is bad because nations that practiced protectionism have managed to develop?
Heck, we could have a 1920s lifestyle if we had practiced autarky since the birth of the republic and we'd think that was great because we never knew any better lifestyle.
Bringing Chinese factories to the US is not a viable solution, since the only reason why people buy Chinese products is their low price, due to ultra low Chinese salaries. That's one difference with the Japan situation in the 1980s.
I thought the Japanese built plants on the East Coast to save on shipping expenses.
The "voluntary export restraint" was in effect a US government enforced cartel arrangement for Japanese manufacturers. Should domestic manufacturers also be allowed to enter into a cartel?
Back in the 1980s, when the Reagan administration imposed protectionism on Jap exports to the USA, the US dollar was sky high versus the Yen, which made Jap cars very cheap. And back then Jap wages were still lower than US wages, without even taking healthcare costs into consideration.
And btw, without the protectionism of the Reagan administration, Intel corp. likely wouldn’t have survived as Jap companies were dumping cheap memory chips into the US market.
The movement of Jap auto plants into the USA had little and likely nothing to do with the cheap US dollar which at the time was still relatively high. One reason the US dollar is dropping like a rock is the massive “free trade” deficits the US is running.
I agree that one reason that Free Trade is so popular with the elite is that it is bad for the white working and middle class. In fact, unless “free trade” is abandoned soon, the elites will be the only economic class left standing. As Ralph Nader says, when the elites control the economy without any counter power in the middle and working classes, then only the political views of the elite will matter. We have already reached that point, as the foreign policy practiced by President Obama will make clear soon enough.
You may appreciate the work of Cambridge economist Ha-Joon Chang:
"In his book Kicking Away the Ladder (which won the 2003 Gunnar Myrdal Prize), Chang argued that all major developed countries used interventionist economic policies in order to get rich and then tried to forbid other countries from doing similarly. The WTO, World Bank and IMF come in for strong criticism for this kind of ladder-kicking which is, according to Chang, the fundamental obstacle to poverty alleviation in the developing world. This and other work led to his being awarded the 2005 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought from the Global Development and Environment Institute (previous prize-winners include Amartya Sen, John Kenneth Galbraith and Herman Daly).[1][2]
Following up on the ideas of Kicking Away the Ladder, Chang published Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World in December 2007.[10]. Chang argues that unregulated international trade (free markets) has very rarely succeeded in producing economic development, and has a far worse record compared to interventionist policies. He cites evidence that GDP growth in developing countries was higher prior to external pressures recommending deregulation and extends his analysis of the failures of free trade to induce growth through privatisation and anti-inflationary policies."
It's always interesting when an economist looks at the evidence rather than theorizing away the real world.
"There's also the quality issue. Trade with Japan felt threatening because their manufacturing quality is better than ours. No one perceives Chinese products as better quality (usually the opposite), just a whole lot cheaper."
This is true, but we initially had the same reaction to Japanese goods (cheap, but not high quality).
If the dollar stays at current levels, you will see more foreign manufacturers set up shop here.
- Fred
Free trade just works so beautifully on paper that it's a hard idea to resist in practice. Plus, industry substitution has failed in Africa and Latin America.
Eventually, free trade or not, it seems capitalist economies still converge on the expected level of per capita GDP adjusted for national IQ and resource levels.
Free trade makes the most sense when you're talking about countries at similar levels of economic development. What would be the point of trade barriers between the Netherlands, Scandinavia and Germany?
Free trade makes less sense when you have countries at very different levels encourages a race to the bottom in terms of working conditions and pay and creates confusion between purchases and wealth.
"Ha-Joon Chang"
There's another economist from the early? mid? 20th? century who said much the same things; the best way for a country to get rich is a protectionist international approach while encouraging vigorous competition within the country - basically what Japan and Korea did.
Human beings, even intelligent ones, are not constructed to think clearly on economic issues. It is not in our genes. As evidence, just look at the lack of consensus on this thread.
Free trade is a powerful argument but in the case of China so is that of strong geopolitical concern. Do we really want to be helping to build up their economy and all that flows from it of such a nation? Interesting article recently on China and Africa: http://www.fastcompany.com/magazine/126/special-report-china-in-africa.html
Free traders also operate with a whole series of implied assumptions, many of which should not be accepted.
They claim cheap products are always better.
They claim that greater efficiency is always better.
They privilege the concept of consumers over that of producers.
They ignore the need for a balanced domestic economy, capable of providing for a multiplicity of demands in favor of more narrow specialization. They ignore the fact that greater specialization on a national level increases the risks of failure.
Some free traders have stated that a greater concern for the well being of fellow citizens of one nation-state over the well being of foreign nation-states is immoral and/or fascist. This is the case even if the nation-state that one favors practices free trade (i.e., the USA) and the alien nation-state that one wishes not to favor as much as one’s own doesn’t (e.g., China, Japan etc.). So, free traders end up holding that to favor free trade nation states is immoral if to do so would disfavor non-free trading nation states, at least as long as the later are sufficiently alien and hostile to the legitimate self interest of one’s own nation state.
Japan's been going backwards or sideways since the late 80s. Discouragement of competition from foreigners has left large swathes of their economy uncompetitive and mediocre. Now they're crapping themselves while China's FDI flows show no sign of slacking off. This isn't the nineteenth century. The global economy moves too fast and is too competitive for a country to opt out behind tariff barriers and hope it's corporate sector can keep pace.
" I agree that one reason that Free Trade is so popular with the elite is that it is bad for the white working and middle class."
Free trade primarily benefits the working and middle class. They're the ones who benefit most from access to cheap foreign goods. The elite doesn't need to shop at Wal-Mart.
Truth, you make some excellent arguments for ethno-nationalism and separation of the races. Thanks. Keep up the good work.
The 'protectionist' Reagan Administration you cite signed the FTA with Canada, and started the negotiations that lead to NAFTA.
“It’s much, much more profitable to produce cars in Japan and ship them all to the U.S. right now, if it wasn't for the political problems that might cause.” -unnamed Toyota senior executive as quoted in the Wall Street Journal
"Discouragement of competition from foreigners has left large swathes of their economy uncompetitive and mediocre"
It sure hasn't hurt their auto industry, has it? The "Big 3" are so dependent on components and advanced materials that they've outsourced to Japanese manufacturing that they can no longer even complain about Japanese protectionism without reprisals from Japan's corporate manufacturing establishment.
"
Free trade primarily benefits the working and middle class. They're the ones who benefit most from access to cheap foreign goods. The elite doesn't need to shop at Wal-Mart."
But working for MacDonalds or the colonel doesn't pay as well as working for Henry Ford did. Not all the discount poisoned dog food or lead covered toys in the world can change that.
Trade gets done when both sides benefit, never otherwise. There are no class interests there are only individual interests. Why should I care if the novel that entertains me is written by a white man or a black man, that the good car is made by Japanese or American workers? Our trade deficit is not caused by individual preferences but is caused by the US government - our capital account swells as the govt borrows endlessly from overseas and the current (trade)account mirrors in the opposite direction, negitive. Basic double entry bookeeping.
However I suspect my argument is too compressed for the layman. If Uncle Sam sells one T bond to china (and he sells plenty) the Chinese govt gets to send 10K us dollars to us (which are piling up because of their sales of stuff to us) our capital account goes up 10K their current account goes down 10K. Without Uncle Sam selling them T-bills they would not want any more dollars because they do not want to buy any imports from us.
Actually Reagan also acted to protect the semiconducter industry as well...by imposing a tarrif on Japanese memory chips, which are the bread and butter of the semiconductor industry.
As a result, Intel and AMD are the only manufacturers of CPUs.
Whether we are talking about state of the art Hardinge CNC machining equipment or Snap-On hand tools, people who use tools know that American made equipment will be as good or better as anything else that's available (and will put the Chinese stuff completely to shame). American made cars have improved massively in quality in the decades since the late 70's and 80's, to the extent that Ford took the top spot in the JD Powers initial quality survey in 5 different product segments last year. The bottom line is that we make/made excellent stuff by any standard and the failure of American industry was not due to it's being unable to compete globally in terms of product. Our leaders have decided that the country can get by without manufacturing, and I guess we'll now see whether America can be the first country ever to survive solely on a porn and video game based economy.
Those interested in the neo-protectionist viewpoint should probably read the most sophisticated modern proponent, Ha-Joon Chang, whose new book has received a lot of media attention.
http://www.washingtonpost.com/wp-srv/style/longterm/books/chap1/badsamaritans.htm
http://www.independent.co.uk/news/business/comment/hajoon-chang-protectionism-the-truth-is-on-a-10-bill-458396.html
http://www.prospect-magazine.co.uk/article_details.php?id=9653
http://blog.prospectblogs.com/2007/09/07/did-you-actually-read-the-book-4-bad-samaritans-by-ha-joon-chang/
Reviews:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/03/RVAGUAM9D.DTL&feed=rss.books
http://www.economist.com/books/PrinterFriendly.cfm?story_id=9719506
http://www.ft.com/cms/s/0/da491b56-34fd-11dc-bb16-0000779fd2ac.html?nclick_check=1
His debate with Martin Wolf is particularly interesting. When faced with Wolf's criticism that Africans and African governments can't be expected to nurture world competitive technological industries with a little protectionism, like East Asian nations did, because, well, Africans aren't East Asians, Chang Punts with the equalitarian argument.
http://www.ft.com/cms/s/0/da491b56-34fd-11dc-bb16-0000779fd2ac.html?nclick_check=1
"One must also note that the countries that America is supposed to emulate -- Europe by the left, China by the paleo right -- all have lower GDPs and standards of living than the US."
This is I think, to put it charitably, crap. Germany or Switzerland has a lower standard of living than does the US? Per capita, maybe. Per capita doesn't mean much. The average of me and Bill Gates, would be a person who is not in any significant way poorer than Bill Gates, but IS vastly richer than me. There may be less wealth in Germany overall - there is also less variance in its distribution (I mean distribution here in the purely statistical sense, not in some pinko social-justice sense). I never noticed that Germans or Swiss were in any way poorer than Americans. In many non-monetary ways, they are much better off.
"Ali said...
Free trade primarily benefits the working and middle class. They're the ones who benefit most from access to cheap foreign goods. The elite doesn't need to shop at Wal-Mart."
Nonsense. The working and middle class are those whose jobs are most in jeopardy from Wal-Mart and other big-box stores - the merchants and middlemen whose stores and distributorships went under, and the workers whose factories shut down because they couldn't produce goods for what Wal-Mart was willing to pay for them. And for the most part, the upper-middle class and the rich don't give a damn about what's happened to those below them on the ladder.
I value a decent town to live in, where ordinary people can make a living, a lot more than I value paying the absolute rock-bottom price for a crappy lawn sprinkler or screw-driver set made in China.
"Horatio said...
So protectionism is good because our lifestyle is acceptable today? Free trade is bad because nations that practiced protectionism have managed to develop?
Heck, we could have a 1920s lifestyle if we had practiced autarky since the birth of the republic and we'd think that was great because we never knew any better lifestyle."
Not having free-trade is not the same thing as having autarky. Putting tarriffs in place does not make one Kim Il-Sung, nor does restricting work visas make one Enver Hoxa.
In Forbes Magazine, Steven Landsberg describes free trade as a moral imperative:
It's not just Kerry, of course. Both major parties (and most of the minor ones) are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant-and it is-then so is xenophobia, and for exactly the same reasons.
His argument follows directly from prevailing PC morality. and because the ostensible right now claims share this morality, it has no countergument.
Phil "nation of whiners" Gramm, likewise argues for free trade as a fundamental matter of morality. I found this quote in a VDARE.com article.
Another example: Senator Phil Gramm, dropping out of the New Hampshire primary, called protectionism "immoral… I cannot and will not support anyone who's a protectionist… It's a litmus-test issue for me… If I want to buy a shirt in China, who has the right to tell me as a free person that I can't do it?"
I have also heard this guy Gramm using "protectionist" as a perjorative, angrily denouncing opponents in congress as "dirty, rotten, protectionists".
The Navy department has long held that free trade requires the support of the military industrial complex.
Look at John McCain for an example of the nexus of the ideology of free trade and the ideology of a strong international military.
This is just one example of how there is big money behind the idea of free trade.
Look next at Wall Street and the giant commercial bank, and their global financial interests -- a lot of their money rides on the expansion of "globalization", in part via free trade.
Well, those are some starters.
Excellent article Steve, and one of the better ones you have written lately, IMO.
One factor that the knee-jerk Free Traders in this discussion seem to be ignoring is that the Asians, with whom our trade deficits are increasing the most, never have embraced open markets, no matter how prosperous they have become. This is confirmed by a recent World Bank study that showed that the U.S. is 275% more open to imports than Japan is.
Adam Smith made it clear that he never favored Free Trade with countries that do not reciprocate. That is economic unilateral disarmament. Under those circumstances, we are inevitably going to have rising trade deficits with these countries.
Of course, a common economic fallacy that the Free Trade fanatics claim is that "trade deficits don't matter". This is absolute nonsense, and just goes to show that those who believe in free trade are such zealots that they will lie to defend their dogma. (And for the record, economist Peter Morici has demonstrated that the U.S. loses 10,000 jobs for every $1 Billion in trade deficit annually.)
You can listen to Tyler Cowen debate Ha-Joon Chang.
I thought paleos had a negative view of Hamilton & Lincoln.
I looked up how liberal Switzerland's trade policy is at freetheworld.org and they had it near ours. So I don't know what headache is talking about.
"Would you also favor trade restrictions between U.S. states?"
I don't see what's wrong with that. If the US is truly a Federal political system, states should have the right to protect their industries and workers as they please. The fact that this question is being used by free-traders as an antidote to protectionism means that free-traders have accepted the political landscape where state rights have been usurped as the norm, which is not. It is a state of political highjack. Only when states get their full rights back, can that question be asked, and then there would be many situations where the answer would be in the affirmative.
What would be the point of trade barriers between the Netherlands, Scandinavia and Germany?
Plenty. The Dutch have an aggressive sometimes dishonest business style which would be kept out of Germany. They also have the advantage of proximate harbours which would put German companies at a disadvantage. Scandinavian countries sit on huge oil and iron ore reserves so they can compete at an advantage vis-Ã -vis energy and raw material costs.
And anyway, why should we let foreigners meddle in our economy. This goes against the grain of sovereignty. You don't let all sorts of strange people into your house, do you?
"It sure hasn't hurt their auto industry, has it?"
Don't confuse Toyota and Honda with the whole Japanese auto industry. Nissan got taken over by the French, Mitsubishi needs cash infusions from its' parent company to keep going, Mazda spent the last six years making loss after loss.
And why does auto matter so much? Can you name any Japanese company that's a household name in financial services, IT consulting, pharma, energy or retail? Companies like Toyota, Sony and Nintendo are rarities.
The "Big 3" are so dependent on components and advanced materials that they've outsourced to Japanese manufacturing that they can no longer even complain about Japanese protectionism without reprisals from Japan's corporate manufacturing establishment."
Isn't that good for consumers who want high-quality, American-made cars?
"But working for MacDonalds or the colonel doesn't pay as well as working for Henry Ford did. Not all the discount poisoned dog food or lead covered toys in the world can change that"
True but that probably means Big 3 US auto-workers were substantially overpaid in the past. And again, the benefit to American consumers (one very large group) outweighs the pain inflicted on American auto-workers (much smaller group).
"Nonsense. The working and middle class are those whose jobs are most in jeopardy from Wal-Mart and other big-box stores - the merchants and middlemen whose stores and distributorships went under, and the workers whose factories shut down because they couldn't produce goods for what Wal-Mart was willing to pay for them."
Sure Wal-Mart's growth has sucked for their retail competitors. But they get 130 million customers every week. The number of people who benefit is far larger than the ones driven out of business.
"This is I think, to put it charitably, crap. Germany or Switzerland has a lower standard of living than does the US?"
I thought Switzerland, unlike France and Germany, is a very pro-free trade nation?
It's not mainly free trade that has reduced manufacturing jobs here but advances in technology and productivity. American manufacturing is booming, producing at record levels, and it includes world class companies such as Boeing and John Deere. It just doesn't take as many people to work on an assembly line, thanks to automation.
These advances have led to the growth of a lot of other jobs (e.g., the men who sell, design, service, and provide financing for all that automation, etc.), but these jobs aren't the sort that get handed to everyone who slept their way through high school.
The days when any knucklehead who blew off high school could get a high-paying manufacturing job because the rest of the world's factories were in post-WWII rubble are over, and it's not because of some conspiracy by the Jews or the elites. You have to hustle to earn a living, like pretty much everyone else in the world.
Steve,
"Fair trade" should be in the "Stuff White People Like" sequel. It's the white kids from the suburbs who buy fair trade coffee and rant about the evils of the WTO and the IMF.
Most of them wouldn't even know who David Ricardo was.
"Truth, you make some excellent arguments for ethno-nationalism and separation of the races. Thanks. Keep up the good work."
As do you kind sir: For pan-humanism and separation of the species!
I would be happy to begin construction on a special habitat for you out of plywood, right after work; what do your kind eat anyway?
It's hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can't be ruled out. Economists are terribly proud that Ricardo's Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker.
This is annoying, Steve. You have scooped me. I have a draft of an article ready to go that develops precisely this point, only I hadn't quite published it yet. Now I shall have to quote you in the article because you got to press first.
Another way of saying the same thing is: you're not the only one thinking that dogmatic belief in the infallibility of free-trade theory is more a social status symbol than a useful analytical tool. You are right.
anonymous: "It's not mainly free trade that has reduced manufacturing jobs here but advances in technology and productivity. ... The days when any knucklehead who blew off high school could get a high-paying manufacturing job ... are over, and it's not because of some conspiracy by the Jews or the elites. You have to hustle to earn a living, like pretty much everyone else in the world."
I guess thats the difference between me and anonymous. I favor American dumb folks making more money than what the Indian and Chinese dumb folks make.
And as far as "Jews" and "Elites" are concerned, when Lubavitchers set up a factory in Postville, Iowa based on screwing the locals, polluting the water, and importing 13 year old illegal alien goyim to work 17 hour shifts because they are all goyim and therefore scum, I damn well will blame Jews, just like I blame black folks when they spout nonsense and attack me simply because of the color of my skin.
But all of them are my people, and all deserve a decent American wage no matter how dumb they are.
So call me "Mr. Inefficient".
They are my people. I owe them and they owe me.
Rather than renting an entire family of four for $200 a month (like Indians do) and patting myself on the back because of my efficient allocation of money, I would rather waste more money buying overpriced products made by dumb Americans.
I think they should get more money than abused Indian, African or Chinese peasants. That was the foundation my people laid when we established this nation.
My people also include the @sshole lazy @ss blacks who whine about "de blue-eyed devil white man". Even they deserve to get more money than the "efficient" wages that Chinese, Indians or Africans pay each other.
And they deserve that for nothing more than the fact that they are born Americans and their people and their clan and their tribe have sweated blood and suffered for this land for hundreds of years.
Do I favor trade restrictions between American states? Of course not. Being together in one economy, committed to each other is what has solidified us as a people. I am no more in favor of that than I am in favor of trade restrictions between me and my parents, my brothers and sisters, my wife and my children. If my brother gets the better end of a deal one day, it is still money in the family.
If our new automated factories can only make goods if we fire all Americans on the left half of the Bell curve then I neither need it nor want it in my land. Sorry, I guess a land of efficiency and maximized production just is not my dream world.
Everyone has to work, son, but we don't have to pay them Asian or African wages.
"Ali said...
Sure Wal-Mart's growth has sucked for their retail competitors. But they get 130 million customers every week. The number of people who benefit is far larger than the ones driven out of business."
No, Wal-Mart's consumers are not better off if they have been forced out of a high-paying job for a low-paying one, because of the actions of companies like.......Wal-Mart. They are not better off if they have become merely consumers inhabiting an economic zone rather than citizens or an actual nation. Wal-Mart is efficient at what it does. So was the SS. Efficiency is not the highest good. Only economists and managers are stupid enough to think that it is.
"El Jefe said...
I thought Switzerland, unlike France and Germany, is a very pro-free trade nation?"
My point was that, contrary to what Testing99 had stated, that Switzerland (nor Germany) does not have a lower standard of living than does the U.S. Not by any reasonable definition of standard-of-living, meaning quality of life. That kind of euro-bashing was popularized by the likes of Rush Limbaugh, who wanted to hoodwink some of his audience into believing that they were worse off than europeans.
Truth wins the funniest comment on the thread.
Hiram
Free trade good or bad? No idea. But it's quite clear from US economic performance of the last 40+ years - soaring trade deficit, soaring national debt, soaring consumer debt, soaring income gap, transfer from being the largest creditor nation to the largest debtor nation - that whatever it is we're doing is not the answer.
What's happened is that the federal government has come under the sway of the financial services and related industries, like homebuilding (all those mortgage loans); also, the legal profession. These are industries which specialize not in creating goods that can be sold to other nations but mostly in moving money around.
Just look at the recent mortgage crisis: the USA was convinced that we could juice our economy (and, presumably, dig ourselves out of debt) by building and selling homes to other Americans. Homes are necessary, of course, but they are not, mostly, a tradeable commodity.
Our political leaders have responded to our fiscal mess by listening to the people who they think can work magic by creating wealth out of thin air: the boys on Wall Street. Of course the financial industry's motives aren't pure: their ultimate goal is to suck us dry, after which they can move on and move away - to Zurich, to Tel Aviv, to Hong Kong - while leaving American schlubs to clean up the mess.
So free trade, yes or no? No idea. But let's at least stop allowing businesses to import employees for jobs they can't outsource. Let's focus on building an economy centered around America's natural competitive strengths, whatever those might be, and let's stop importing "workers" who distort the free market and/or who create more infrastructure costs than they pay for in taxes.
"No, Wal-Mart's consumers are not better off if they have been forced out of a high-paying job for a low-paying one, because of the actions of companies like.......Wal-Mart."
All 130 million of them?
Cast your mind back to last year.
Remember, if you will, that nasty little spat involving the USA and China over toy imports (of all things!), in which a trivial little incident of traces of 'lead paint' being found on a Barbie Doll (or whatever) lead to a huge escalation in which whole swathes of children's toys (from tiny 'stax'magnets, in which a 'swallowing hazard' was suddenly found after years of use)were banned from import using the 'safety' con-trick and the US Trade Dept. revelled in paroxyms of joy in banning this Chinese toy and then that one.
The whole thing blew over without a trace - I suspect China referrred it to the WTO and won.
Anyway, the real point is this.Despite the guff expounded by the US Government about 'world trade' adding 'trillions' to the 'world's wealth', and the granting to the WTO of undemocratic, uncontestable powers of sovereign nations (it all enriches us you see, keep it out of the hands of 'populist' elected politicians), when the bureaucrats are actually confronted by the steady loss of billions of dollars of US exchange, their gut reaction is entirelly different to what it 'should' be.
"I guess thats the difference between me and anonymous. I favor American dumb folks making more money than what the Indian and Chinese dumb folks make."
Bill,
If you feel that way, start a business and pay "dumb American folks" as much as you want. If you don't have the money to start a business, shop around for investors. Here's the problem you'll run into: in order to overpay the dumb American folks who work for your business, you're going to have to overcharge the dumb American folks who are your customers. Are you willing to bet money that dumb American folks will willingly overpay for products so other dumb American folks can get paid for flunking high school? Good luck with that.
This is annoying, Steve. You have scooped me. I have a draft of an article ready to go that develops precisely this point, only I hadn't quite published it yet. Now I shall have to quote you in the article because you got to press first.
Here is the link to the article, now published. As promised, the final draft quotes Steve. It also quotes Mark's fitting words from this very comment thread.
Somehow I don't suspect that Steve will be as impressed that I surreptitiously read his work as that David Brooks surreptitiously reads it, for Steve is closer in fame to Malcolm Gladwell than I am to David Brooks. But, anyway, the link is there for Steve and others to follow if they wish.
Howard
Jesus Christ, the point is that thousands of people unable to get a decent paying job because of Wal-Mart is a crap trade for cheaper baked beans.
Not to the 130 million benefitting from lower grocery bills.
Firstly, through infinite cunning the indians have managed to slip in a clause into the recent trade negotiations that will allow for infinite indian immigration into the USA and Europe.
This clause cals for 'temporary immigration of skilled workers'. As we know, in immigration, 'temporary' always means 'permanent' and 'skilled' means whatever the framer wants it to mean.
The most shameful aspect of it all is that the clause was slipped in with no debate or discussion in the affected countries, over the electorates head - in nations where there is deep-rooted and profound anti-immigration sentiment (ie the UK).Trade and immigration are two totally separate and distinct issues WTO does NOT mean World Immigration Organisation.Immigration, of course, has profound implications for national sovereigny, ethnicity and citizenship.
Secondly, in the USA real wages have not grown at all in 40 years.Putting more dollars in the pocket of your avwerage Joe is the be all and end all of 'economiv policy', no ifs, buts or ands about it.Therefore the policy is a failure. 40 years a hell of a long time - 'In the long run we are all dead' J.M. Keynes.
Free trade theory dictates that the fast growing nation eg China at 10% per annum should be pulling up america by the same rate as it buys American goods - it simply ain't happening.
Thirdly, remember all the guff about China 'dumping' - (a meaningless word) stell and glossy paper on the USA.Dumping is supposed to be selling goods at less than cost price, it cannot be condemned under free-tade as it'enriches' the recepient even more - double bubble!
But the washington bureaucrats took umbrage.Those really in the know, who have to deal with the hemorraghe of currency on a massive scale every day can see through 'free-trade' for the bullsh*t that it is.
ali said
Not to the 130 million benefitting from lower grocery bills.
"Benefitting" in the short run at best. Say your branch of your employer's business closes (goes overseas) and you get a buy-out package. Few jobs available beyond retail. You have your buy-out and that home equity line of credit, then...? But - you'll save a few bucks on beans! A benefit!
Short-term thinking. Like Enron: We're looking GREAT this quarter. The long run? Meh, in the long run we'll all be dead.
Trade gets done when both sides benefit, never otherwise. There are no class interests there are only individual interests. Why should I care if the novel that entertains me is written by a white man or a black man, that the good car is made by Japanese or American workers?
Indeed. So your wife and daughters complain about their sore backs after you've whored them out all day. So what? Your individual interests are served, as evidenced by your fat wallet.
Who cares whether the guys you just sold those guns to said they'd be back to shoot you once they'd found a sucker to sell them ammo?
Collective interests exist, because collectives exist. They're important because collectives are stronger than individuals.
Do libertards ever think their "principled" mumbo-jumbo through? I was listening to a libertard radio show the other night, and the hosts kept throwing around the word "principled." I coined a new phrase: "show me a principled man and I'll show you a fool or a liar."
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