Comments on: Free Trade, Unilateral

By: Jake S.

Jake S. — Sat, 19 Sep 2009 15:07:00 +0000

muirgeo, see Geoffrey Wood’s 2002 book “Economic Fallacies Exposed,” where (in the tradition of Bastiat) he takes on various economic fallacies (these are actually just a ‘best of’ collection from his regular column in Economic Affairs).Anyhow, on pg. 35 he takes on the fallacy that “Free Trade Should Be Fair.”The e-book can actually be downloaded for free from IEA’s website:http://www.iea.org.uk/record.jsp?type=book&ID=155(right under “buy now for £12.50,” there is a link to “download full publication”)

By: RedSt8r

RedSt8r — Fri, 18 Sep 2009 17:53:00 +0000

I submit the cost of retraining is reversed. True story: a relative was the plant manager for a small manufacturing company that employed dozens of machinists. Hearing about a training seminar that would vastly improve their productivity (and wages, a win – win) he approached the union rep. The request for the training was denied. Why? Because most of the machinists could not read! They used individual crib sheets to setup their machines and did their jobs well but that was their limit. A doctor, pilot etc. can actually retrain themselves. Not so with many of our working class.I am in hearty agreement that reducing barriers to new employment is the best choice for improving our national wellbeing. Kudos.

By: RedSt8r

RedSt8r — Fri, 18 Sep 2009 17:46:00 +0000

1) “… what are they going to do with the dollars you trade to them.” If it truly is trade they will use them (directly or by proxy) to purchase goods and services from me. However, China buys Treasury securities which provides little employment opportunities.
2) “… extend the same event …”. If I mow the lawn of my elderly neighbor I’m a good neighbor. If I’m retired, bored, love to mow lawns and start mowing all the lawns in the area I might put several lawn service guys out of a job. Aid to a neighbor in temporary distress is charitable. Writ large it becomes welfare and destroys communities and cultures.
3) “Free trade requires only that traders be left alone.” I appreicate the sentiment but there is no such beast. The issue is never “free” versus “non-free” but always “how regulated” or where to draw the regulatory line.
3-a) “… valid …”, yes I mean “mutually beneficial”. If trade is not mutually beneficial what is its purpose?
4) “Comparative advantage SHOWS how free trade can be mutually profitable. Comparative advantage can ALWAYS be found, unless you are trading with yourself.” I’m not sure I understand the point. Comparative advantage is necessary for trade to occur. Without it there is no point to trading.
4-a) “Comparative advantage means that *I* am more productive at doing A than *I* am at doing B, and and in a different ratio than you are. So the absolute cost of your labor has nothing to do with it. The relative cost of your labor doing one thing versus your labor doing something else has everything to do with it–so long as it differs from me.” Actually I think that makes my point. The “lowest cost in the world” worker is less productive than a US worker but their absolute cost is so much less that the lower productivity is acceptable. The end result is that the US worker is now competing against the “lowest cost in the world” worker on an absolute basis.
5) “all that is being traded is the living standard of our working class”. I believe this is literally what is happening. Sure a $15/hr US worker might not have to go down to $1/hr but to be cost competitive they might have to go down to say $7.50/hr. (These are made up numbers.) In effect the US worker’s standard of living is driven down towards that of the “lowest cost in the world” worker while theirs is simultaneously being driven up towards the US worker. That transition is extraordinarily painful, disastrous in fact for the US workers. [With a chuckle, thanks for being willing to tell me where I'm wrong.]
6) “is it really free trade when all we do is beggar our workers …”. Dropping the argument (a polite and respectful one to be sure) down to an individual level alters the point. On a larger scale, like a business, competing against the “lowest cost in the world” means laying off the higher cost worker in the US. That worker had no say in the matter. If I choose to change my employment (as I have multiple times) then your point is quite valid. When the choice is made irrespective of the individual then the example is no longer appropriate.
7) “What you are missing is that with free trade, as explained by comparative advantage, there is more productivity in the world (and for each trading party) to buy more things. That means demand for production increases.” In theory I am in complete agreement. I am a capitalist and believer in markets. However, in practice what I see happening today is that with the vast improvements in transportation and communication the ability to outsource production to the “lowest cost in the world” worker has far outstripped the ability of the displaced “higher cost” worker to adapt. The increased demand you speak of requires (or assumes) that those workers adapt (and secure other equivalent employment) and thus the demand for the increased production is fulfilled. I don’t see that happening as well as it might have decades ago.
“Free trade CAN ONLY make a nation wealthier, NEVER poorer.” I submit that this is the conventional wisdom. I am challenging that conventional wisdom and doing so from a capitalist, market oriented perspective.

By: RedSt8r

RedSt8r — Fri, 18 Sep 2009 17:07:00 +0000

1) “… comparitively overpaid labor …” begs the question of compared to what? Other US workers, Canadian workers or Chinese peasants? Of course I’m interested in my own wellbeing as are most people. My question is more suggestive of, “is my wellbeing dependent upon causing another to become unemployed?”. Is my wellbeing dependent upon a US worker competing not against other US workers (or workers of similar economic status) but against the lowest paid worker in the world?
2) “… move on to more productive work.” Easy to say and quite correct according to economic theory. But that “lowest cost in the world” worker can also build aircraft and race car engines and whatever else there is to make. Many professional software developers have found that their work, as well as that of North Carolina furniture makers (and many others) can be exported to that “lowest cost in the world” worker.
3) “I didn’t ask the buggy driver to do what he does for a living.” True enough nor do I suggest we outlaw cars to protect buggy drivers. I am far more interested in your much more reasoned suggestion to “Try to break barriers that prevent people from transferring skills …”. But suggesting the the buggy driver is at fault for failing to pick a better industry is both cold and disingenuous.
4) Consider that the BDTU (buggy drivers trade union) is now going to merge with the CMA (carriage makers amalgamated) along with the BWWU (buggy whip workers united) and they will all join with the AFSCME and UAW and Teamsters and will elect leaders who will pass laws and regulations that will make your car ownership very, very expensive. That, (with some sarcasm) more closely resembles the real world.
5) “… doesn’t entitle the citizen of X to special privileges.” Again, true enough. But why does it demand that such citizen be relegated to the living standard of the “lowest in the world” worker? We can have competition (e.g., “free trade”) amongst our citizens as well as with those of similar economic status.
6) I do not believe “lowest price” is the end all, be all of life. No one would suggest we outsource production of our nuclear submarines to China or India yet they would do it for far less cost.

By: Anonymous

Anonymous — Fri, 18 Sep 2009 08:42:00 +0000

The car industry.

The Japanese subsidised their car makers for many years allowing them to compete with the Europeans and Americans otherwise they would have gone out of business.

Once they were more efficient than American producers they could stop the subsidies and compete in the American market to the point we see now where the US manufacturers have not been able to react to a shifting market and had to go crawling to the government for help.

You do not need to aim for a monopoly to destroy domestic producers – any reduction in competitors increases profits for everyone who remains in the market.

Also, you do not have to jack up prices, if you have a capital intensive production process that leads to much lower unit costs at volume then you can set the price low and still be making serious profits – again the Japanese cars in the US are good examples of this.