Saturday, September 18, 2010

Free Trade Is Not America's Problem

In a recent article in Human (h/t Glenda McGee) Pat Buchanan gives an incisive analysis of the faltering neo-conservative, "Rockefeller Republican" movement within the Republican Party. He lyrically depicts professional Republicans' attitudes toward the Tea Party movement as those of plantation owners toward their field hands.  I appreciate Buchanan's Populist writing, but Populism is part of the problem, not the solution. 

In particular, Buchanan does not offer a coherent model of trade.  He couples his attack on the neo-conservatives with an attack on free trade, or at least what seems to be an attack on free trade. He does not articulate a rational position. If his position is protectionist, he is suicidal. If he is in favor of a laissez faire, zero tariff trade policy as preferable to the various treaties he mentions I'm all for it. Also, I wouldn't mind eliminating NAFTA which just creates a different kind of trade barrier. WTO (the later name for GATT) is another story. It has pushed the world toward lower tariffs all around. This ought to stimulate the world's economic health. Americans should be able to generate new jobs through entrepreneurship and imagination. That they haven't isn't the fault of reducing trade barriers; it is the fault of a fascist economy that inhibits creativity and entrepreneurship. If Buchanan is in favor of dismantling the blockages: the income tax, the Fed, government regulation and the like then I am with him. But I don't agree that trade is the source of our problems.  Creating trade barriers is just another way to subsidize sclerotic industries and unproductive work.


Doug Plumb said...

I cannot understand why it is more efficient to make a pair of shoes in China and ship them over here than it is to make them here.

This is not about efficiency and any kind of free trade is a way of moving freedom from the common worker into the hands of the very wealthy.

The value that people add to society is only loosely correlated with their income, in many cases there is a reverse correlation such as in the case of nihilistic socialism.

I know lots of people who make very little money who add more to society than any maker of trinkets ever will. Free trade reduces the value of this non monetary contribution.

Isolationism leads to strength and independence. Isolationism is good. I am an isolationist.

Anonymous said...

How can you deal with the mercantilism of, for example, the Chinese? Don't they deliberately keep their exchanges rates low so that their goods are cheaper in the world markets.

Mitchell Langbert said...

The efficiency of a given plant depends on factors like labor costs. It is easy to conceive of a situation where it is cheaper to produce something in China and ship it here if shipping costs have been driven down due to improvements in shipping and labor costs in China are low.

The very wealthy are far from the only beneficiaries of lower priced products. Every American who purchases a low priced product benefits. The large benefit per consumer outweighs the losses to employees due to plants moving overseas.

Free trade does not reduce the value of anything. The basic argument for free trade is David Ricardo's theory, comparative advantage. If factors of production in each country are allocated to their most productive uses the entire world becomes better off.

You cannot provide evidence that free trade reduces any non monetary contribution. That is not so.

Isolationism in the political sense has zero, nothing to do with trade. Autarky, the absence of trade, was characteristic of communist countries in eastern Europe and the Soviet Union. They were poor as a result.

The mass death of the Irish during the 1840s was caused by trade barriers. Trade blockages lead to poverty. The poorest countries in the world today, such as North Korea, do not trade. The wealthiest ones, such as Sweden, are wealthy because of trade.

Trade works both ways. Consumers are made better off because of cheaper products. Sellers are better off because they can sell overseas.

The idea that trade makes us poorer is economic illiteracy. It is unfortunate that a portion of hte public is unfamiliar with Ricardo and the theory of comparative advantage.

As far as the mercantilism of the Chinese, the best way to benefit from it is to play along with it. By subsidizing their currency they subsidize American consumers and make their own people poorer at our expense. Ultimately, the Chinese people will grow weary of their leadership's stupidity and will force them to change. This may inconvenience US manufacturers in the short run. But the alternative is much worse. Higher prices due to tariffs make everyone poorer.

Anonymous said...

You want the free market to deal with China's mercantilism. Are you waiting for the people to rise up. Are you nuts. What world do you live in. Remember Tiananmen Square. We are still waiting for the Chinese to rise up.
If I slap you once, are you going to wait for the free market to deal with the issue. In the meantime I shall keep on slapping you over and over again. That is what the Chinese are doing.

Mitchell Langbert said...

I'm not nuts, I've been to China and know people who do extensive business there. You haven't been to China and don't know people who do business there. But you consider me to be nuts.

The fact is that there are already serious labor shortages there and manufacturing firms are leaving large numbers of jobs unfilled.

When I was in China seven years ago the resentment concerning their wages was palpable and was discussed openly in the classroom. It has gotten worse. There doesn't need to be an armed insurrection. Nor does there need to be another Tiananmen Square demonstration. Rather, people will make choices that subvert the foolish strategies of the economic planners, just as people here do with respect to the Federal Reserve Bank. The plans will backfire as labor disappears.

What is nuts, worse than nuts, suicidal, would be to tax low priced merchandise that the Chinese government is subsidizing for our consumption.

Your view of being slapped in the face is to have someone pay for your merchandise, which is what the Chinese are doing. I'll have to remember never to buy you dinner. According to your "theory" if I buy your dinner I have done you a grievous harm, have slapped you in the face, and you need to retaliate by never doing business with me again.

We should appreciate the fact that we are receiving low priced merchandise from China. The surplus should be used to invest in new products and markets. That is not happening because of the same kind of self-destructive government policies that tariffs would be.

Pretty nutty.