Here’s my favorite quotation today from the blogosphere. It’s by Lynne Kiesling at Knowledge Problem:
So what if Someone Who Thinks He Is In Charge (or should be in charge)
thinks that we import too many finished goods from China? Isn’t
merchantilism hopelessly obsolete, so much so that we should find it
quaint instead of bothersome?
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Indeed. I made essentially the same point on my blog a while back. If economists seem like dumpy old blowhards, and protectionism seems like some fresh new idea that turns the world on its head, the debate must be framed wrong. The unfortunate fact is, protectionists have not significantly advanced their theoretical proposition in about 200 years. Ricardo's simplistic model is still a perfectly effective critique.
I agree with the basic premise, but "quaint" implies that mercantilism is harmless, and can be ingored.
If this were only true. Mercantilism "makes sense" to many people for the same reason that populism works, and so it will most likely always be a threat.
Protection and reciprocity, in trade policies, was what built our great nation in the first place… And has contributed to the growth of the economies of newly-developing countries, which are threatening to overtake ours.
Promoting free markets is vital, but there is a difference between that, and supporting unfettered global free trade. The real world does not exist in a vaccuum, and there is a reason that our country's Constitution states that it is the duty of our government to regulate commerce, by enhancing American industry through the use of tariffs and duties.
Our Founding Fathers recognized the importance of both free markets and fair trade, and even Adam Smith acknowledged this as well, in advocating measures to protect the British economy, even if it contradicted the "free trade" philosophy that he espoused. The same is true with President Ronald Reagan, who sometimes supported free trade, but recognized that sovereignty, independence, national pride, and the welfare of our citizenry are more important.
It is time for our national leaders to realize that as well.
I've never heard someone say that tariffs were a Constitutional duty. That's very interesting. . .
Anyway, that last post does point out the problem with so much of the public's misunderstanding on things economic.
What made the country great was our unfettered markets. Period. In as much that regulation was needed, yes, there needs to be a legal infrastructure to protect property rights, and to protect the individual from force and fraud.
But to make the jump from that to what constitutes regulation in today's terms is absurd. Nothing personal, but it also shows a very shoddy reading of history.
And the actual facts of economic history aside, that many of our most popular politicians caved in to economic populism doesn't make it right, it only makes them politicians.
Is reciprocity a deal-breaker? I only ask because if you were to want something and the best value on that something — when all satisfaction producing things are considered, such as final price, quality, and terms — is found through importation, why does it matter to you, for this particular deal's sake, if the importing country (and its central planners) isn't interested what your fellow American has to sell?
Now, let me ask you; is it, in turn, FAIR to kill an arrangement — through domestic legislation — like the one above just because of the lack of reciprocity? I happen to believe that it is immoral to take away one's purchasing options. Obviously, though, some important distictions must be made to protect intellectual property and to prevent certain unconventional weapons from being transacted.
Aakash: "contributed to the growth of the economies of newly-developing countries, which are threatening to overtake ours."
Sorry, but I don't understand the threat. Do you mean that China will have a greater GDP than the U.S.? Shouldn't that be expected, since China has four times as many workers as the U.S.? Or do you mean that their quality of output, in addition to quantity of output, will surpass the U.S.?
If the median Chinese household eventually achieves a standard of living that matches that of the median U.S. household, isn't that a good thing? for the entire world as well as for the Chinese?
"Protection and reciprocity, in trade policies, was what built our great nation in the first place"
They can't both be good, Aakash. That makes no sense! If reciprocity is good because it encourages foreign markets to be open, then protection must be bad. And if protection is good because it protects American consumers from competition, then the threat of reciprocity keeping protectionism at bay must be bad.
Anyway, wrong on both counts. It's property rights & the rule of law, sound money and economic freedom that built America – and built it despite protectionism, not because of it. Protectionism is less harmful to America because America is so large. The damaged caused by protectionism by forcing American consumers to pay inflated prices is, therefore, less than it would be in a smaller economy. That’s because in a large economy the next best (domestic) alternative to the best (imported) good is likely to be better than it would be in a smaller economy. Why? 1) Simple laws of probability – you’re more likely to get something exceptional from a bigger population. 2) Free competition between a greater number of players (without ‘protection’) drives up quality.
“Promoting free markets is vital, but there is a difference between that, and supporting unfettered global free trade.”
There is no difference. Fetters are chains, restrictions. Something can’t be both restricted and free, Aakash. Free is unfettered.
It is only in freedom that people can fulfil their potential. I cannot maximise my quality of life if you ban me from buying from foreigners and force me to buy instead from second rate domestic alternatives.
It’s that simple.
Rory,
Your fundamental mistake is presuming that all domestic manufacturers are, indeed, "second rate". That particularly specious bit of illogic constantly undermines arguments like yours – and this one is no exception. It's that simple.
"Your fundamental mistake is presuming that all domestic manufacturers are, indeed, ;second rate'."
He did no such thing. If the advantage favors domestic production, little or no importation of a product will occur. Why would you hamper importation of goods when the advantages of importation out way those of domestic production?
"Protection and reciprocity, in trade policies, was what built our great nation in the first place"
I would be willing to make concessions on the trade issue in exchange for repeal of corporate and personal income taxes.
nunyabidness,
Wrong. I said "if you ban me from buying from foreigners and force me to buy instead from second rate domestic alternatives." When I choose a foreign import, the domestic alternative is by definition second rate. I always buy what is best for me, in my judgement at the time. Sometimes that means buying foreign imports. In all cases, what I didn't buy is second-rate (because it wasn't best for me). When I buy a foreign import, therefore, the domestic alternative I chose not to buy is second-rate. Capiche?
I'm currently in China (my family runs a plant in Suzhou), so I find this line of discussion interesting. Especially since a very large slice of the world's population (US too) will not always buy the 'best' thing if the 'second-rate' thing is far, far cheaper. Certainly many manufactured items in the US are of superior quality, however many people will trade that qualification when the price is slashed but, oh, 1/8 (as in China). Some might say that constitutes as 'best for the buyer' by Dirty Mac's standards. However, as long as the RMB is pegged to the dollar, China will have a nmassive trade advantage.
Shelley, 'best' here is a product of quality and price.
Most consumers can identify (conciously or otherwise) that the present value of a $1 chinese trinket that breaks in three years is much higher than one which is sold for $8 and will last twenty.