Tuesday, December 28, 2010

Fair Trade vs. Free Trade

"Last summer, I purchased a 2010 LS 460 Lexus, through a U.S. intermediary, from a Japanese producer for $70,000. Here's my question to you: Was that a fair trade?

I was free to keep my $70,000 or purchase the car. The Japanese producer was free to keep his Lexus or sell me the car.  As it turned out, I gave up my $70,000 and took possession of the car, and the Japanese producer gave up possession of the car and took possession of my money.

The exchange occurred because I saw myself as being better off and so did the Japanese producer. I think it was both free and fair trade, and I'd like an American mercantilist to explain to me how it wasn't.

Mercantilists have absolutely no argument when we recognize that trade is mostly between individuals.  Mercantilists pretend that trade occurs between nations, such as the U.S. trading with England or Japan, to appeal to our jingoism.

First, does the U.S. actually trade with Japan and England? In other words, is it members of the U.S. Congress trading with their counterparts in the Japanese Diet or the English Parliament?  That's nonsense. Trade occurs between individuals in one country, through intermediaries, with individuals in another country.

Who might protest that my trade with the Lexus manufacturer was unfair?  If you said an American car manufacturer and their union workers, go to the head of the class.

They would like Congress to restrict foreign trade so they can sell their cars at a pleasing price and their workers earn a pleasing wage.  As a matter of fact, it's never American consumers who complain about cheaper prices.  It's always American producers and their unions who do the complaining. That ought to tell us something."


61 Comments:

At 12/29/2010 12:15 PM, Blogger Buddy R Pacifico said...

From Walter Williams statement:

" Trade occurs between individuals in one country, through intermediaries, with individuals in another country."

" It's always American producers and their unions who do the complaining. That ought to tell us something."

Okay Mr. Williams, let us suppose a Korean individual buys a GM Volt.
What are the chances that the Korean gov't will audit this individual now as compared before the transaction? The chances are quite high that this non-tariff barrier will be triggered.

The U.S.-Korean Free Trade agreement proposes to eliminate almost all tariffs and address non-tariff barriers. Successful negociations to eliminate non-tarriff barriers will result in Free and Fair Trade. A couple more examples are:

U.S. citrus growers will be able to sell more fruit to S. Korea because Carib-fly restrictions will come down. Carib-flys can't survive in un-tropical Korea but that did not matter.

U.S. pharmaceutical makers will sell more drugs in S. Korea. Disregard of patents through generic copying will no longer be allowed in Korea.

Mr. Williams rants against producers should be viewed as parasitic indulgence if the producers are seeking Free and Fair Trade.

 
At 12/29/2010 12:38 PM, Blogger Benjamin said...

Yes, Williams seems to never have heard of the fascist-mercantile state of China, and their approach to free trade.

Or OPEC, and their version of free trade.

Oddly enough, I cannot name a single nation that rose to global prominence practising free trade, including Great Britian and the USA. Almost all nations go through a long stage of protecting domestic industries. It seems to work.

And OPEC seems to work on behalf of the oil thug states.

 
At 12/29/2010 1:08 PM, Blogger Paul said...

Benji's sore about trade because the Chinese eat his lunch in the furniture business. He'd gladly like us all to pay more, he's no different than those farmers he's always complaining about.

"Oddly enough, I cannot name a single nation that rose to global prominence practising free trade, including Great Britian and the USA."

Yeah, because it's pretty tough to name ANY nation that practiced an uninterrupted policy of pure free trade. OPEC "works" because it has an abundance of a valuable commodity like nobody else.

 
At 12/29/2010 1:18 PM, Blogger morganovich said...

buddy-

i think you are interpreting his argument the wrong way.

it does not matter what korea does regarding our products. we benefit from allowing theirs into the us freely anyway. it keeps our prices low and our selection high.

if they want to impoverish their own consumers, then they are the ones who will pay for it.

sure, both they and we would be better off if they opened their markets, but that says nothing about the benefits to us of opening our own market.

erecting tariffs to imports harms a country far more than it helps. one industry benefits, but the whole nation pays in terms of higher prices and lessened choice. to protect a few corn growers, we all pay much higher prices for sugar. i have never seen a tariff where there is not a big net loss to the one imposing it.

 
At 12/29/2010 1:26 PM, Blogger morganovich said...

paul-

you hit the nail on the head with benji.

he rants constantly about farm subsidies, but fails to see that tariffs are the exact same thing.

a furniture tariff taxes all US furniture buyers through higher prices to benefit a few local producers.

it's just another kind of hand out.

 
At 12/29/2010 1:38 PM, Blogger Buddy R Pacifico said...

morganovich, if you were a producer then it would matter greatly that your goods or services were blocked in other markets. I am not arguing for tariffs or non-tariff barriers but rather against them.

Let us assume that you suddenly became a producer and the product was popcorn. If you tried to export to S. Korea then your product would have to be completely re-packaged there. This unfortunate non-tariff barrier would probably mean the end of your Korean popcorn efforts like all others.

The U.S. Korean Free (and Fair) Trade Agreement will put pressure on other export oriented countries because so much more trade will result. Join the producers for more free and fair trade and consumers will greatly benefit.

 
At 12/29/2010 1:50 PM, Blogger Benjamin said...

Paul/Morgan-

Please, I am such a small furniture maker, I do not compete against imports.

That said, something "seems to work" about protecting domestic industries, as seen in the developmental stages of the US and Great Britian, and now in Korea, China and who nows how many other growth nations.

I recognize William's rant, but it avoids the macroeconomic picture of GDP=C+I+G+X-M).

In the real world, selective protectionism seems to work. The "institutional imperfections in the marketplace dwarf the free market realities.

It is not a clear piucture. For example, ask any Red Stater, and they will tell you we have the best and most productive farmers in the world. They also thrive behind a wall of tarfiffs and subsidies. This is reality.


Yet our manufacturing base is in tatters, and the best cars, electronic goods etc are made overseas. We still make airplanes, but that is highly subsidized through the Defense Department.

Free trade is a wonderful theory--but most economies seem to thrive by practising something else--especially rural America.

 
At 12/29/2010 2:00 PM, Blogger Paul said...

"It is not a clear piucture. For example, ask any Red Stater, and they will tell you we have the best and most productive farmers in the world. They also thrive behind a wall of tarfiffs and subsidies. This is reality."

You'd have to prove the tarriffs and subsidies create those thriving farms in the first place. I doubt you believe this since you're always rattling on about their handouts.
Besides, not all "thriving" farm products are subsidized, like citrus, for example.

 
At 12/29/2010 2:11 PM, Blogger Benjamin said...

Paul-

You appear to be correct, that US citrus farmers largely make it without subsidies--and they bitterly complain they are kept out of Asian markets.

"GENERAL OVERVIEW
The U.S. fresh citrus industry faces a number of pressing trade-related disadvantages that are impairing its competitiveness in the global and U.S. marketplace.

Large Tariff Inequities

The current average nominal tariff for fresh citrus entering the United States is 2.7%. The average tariff for U.S. fresh citrus attempting to enter foreign markets is 56.9%. Sunkist growers continue to ask why a Japanese farmer can sell his oranges in the United States at less than a 2% duty, but Sunkist must sell its oranges to Japan at a 32% duty, costing our growers millions of dollars each year. Similarly in Korea, U.S. fresh oranges face a 50% duty, while Korean Unshu oranges enter the U.S. virtually duty free (1.4%). The U.S. citrus industry is in urgent need of bilateral and multilateral tariff reductions to correct this imbalance."

In this case, Japanese citrus farmers are thriving, improving their crops, and making a living. Japanese consumers pay a little more for citrus (although their citrus is gorgeous, I have seen it).

For Japan, this seems to work. Their industry is strengthened.

PS Want to talk about sugar? How about ethanol? Wheat? Corn? Tobacco?

 
At 12/29/2010 2:13 PM, Blogger Benjamin said...

Moreover, the position of Walt Williams is that we should be facedown, splay-legged and prone, and accept Japanese tariffs, and not limit their exports to America in any way.

Does Wililams face-down, splay-lagged and prone position really make sense?

 
At 12/29/2010 2:20 PM, Blogger The Bitter Guy said...

China intends to rule electricity generating wind turbine research, design, production and sales.

Foreign makers selling in China (like GE) must source 75 percent local parts and assemble turbines in-country.

Local municipalities must purchase 100 percent China made small turbines to supply 30 percent new electric energy consumption.

Chinese manufacturers receive 0 percent loans and 10 percent end of year subsidies (sorry, tax rebates) on exported machines.

After 5 years of this policy there are 3 large turbine and 250 small turbine manufacturers (plus component builders) from China for American individuals to choose to purchase from.

However, all is not rosy, Americans who make things are complaining, impeding the invisible hand of the marketplace.

Unions et alia, are futilely concerned with their pensions and coincidently, American Industrial Might.

Don't they realize the high speed train has already left the station?

Mercantilist Luddites.

 
At 12/29/2010 2:32 PM, Blogger morganovich said...

buddy-

i'm not arguing that a producer here would be better off if they could sell tariff free to korea, my point is that such a benefit has nothing at all to to with the benefits to us of opening our own markets.

we are better off with no tariffs of our own than the reciprocal tariffs that we threaten to get korea to drop theirs. even the popcorn co is better off with no US tariffs as their input costs will be lower and so will the costs faced by the business and all the employees for everyhting they buy.

my point is that we do not need a reciprocal agreement with korea to make it to our benefit to eliminate our own barriers and that linking the dropping of ours to the dropping of theirs makes no sense economically, only to ignorant populist/nepotistic politicians.

 
At 12/29/2010 2:39 PM, Blogger morganovich said...

benji-

no. in the real world selective protectionism does not work, never has, never will. it may help an individual industry, but it impoverishes the entire nation by a greater amount.

you talk about the japanese orange industry being strengthened, but you fail to ask "at whose expense?".

it's at the consumer's expense. they pay more and have less selection. this also means that for any given level of orange consumption, they have less money to spend on everyhting else. so everyone but the orange growers is hurt to benefit a special interest.

this is even a worse result than the farm subsidies you rail against. at least the farm subsidies lead to lower prices for us consumers.

i fail to see how you can claim that farm subsidies are counterproductive but claim that tariffs work.

they are even worse.

 
At 12/29/2010 2:47 PM, Blogger morganovich said...

oh, and how is it face down etc to follow a policy that clearly benefits our consumers? you think in zero sun mercantilist terms that have never, ever been true.

if we cut our tariffs, we get lower prices and better selection. it makes no difference at all what they do. we would be better off still if they cut their tariffs, but erecting tariffs in response to those of others makes us worse off.

just because someone else does something stupid does not mean we ought to emulate them.

why punish US consumers to punish japan? only a few orange growers in the US suffer (and very mildly) from lack of access to the Japanese market. but if we tax produce coming into the US in retaliation, all US consumers suffer to get at a tiny number of japanese growers.

it's a stupid policy.

go read up on smoot hawley to get a sense of how well retaliatory tariffs work.

 
At 12/29/2010 2:49 PM, Blogger Buddy R Pacifico said...

Morganovich, then the U.S. is no better off by having S. Korea drop their tariffs and non-tariff barriers? No, the U.S. is way better off because incomes for consumers will rise. When one country unilaterally opens their markets then all kinds of market mischief by the mercantilist follows.

Remember, the promise of Free Trade is increased prosperity for all participants -- not unilateral increased mercantilist income and bullion.

 
At 12/29/2010 2:50 PM, Blogger morganovich said...

"Please, I am such a small furniture maker, I do not compete against imports. "

this could not be more wrong. of course you do. imports help set the overall price and quality level of the market that you serve. therefore, you are directly affected by them. an influx of cheap goods makes it more difficult for you to command a high price and gives consumers other choices to consider instead of your offering.

 
At 12/29/2010 3:07 PM, Blogger Paul said...

Benji,

"Please, I am such a small furniture maker, I do not compete against imports. "

You are now contradicting yourself. I only know you are a furniture maker because awhile ago you were bemoaning how the Chinese were kicking your ass. However, unlike those darned farmers, nobody was giving you a handout.

 
At 12/29/2010 3:13 PM, Blogger morganovich said...

buddy-

you are still missing my point.

of course the US is better off if korea drops tariff barriers, but if korea is going to keep them, we are still better off dropping ours unilaterally.

the two are totally independent issues. linking them as a bargaining tool is foolish as we are making ourselves worse off in order to "punish" them.

a threat to punch yourself in the face to get others to do as you say is stupid and counter productive.

every time you hear a politician say "we need this tariff to protect our X industry", what they are really saying is that "we want to cause all US consumers to pay a higher price to protect a few special interests and maybe punish a few guys overseas."

it's a net loss for us every time we do it, it's just easy to hide because the narrow benefit is easy to point to and the widespread costs are difficult to see.

if i proposed a tax of $50 a year on every american to prop up our orange growers, you'd call that cronyism and a waste of your money.

how is a tariff that accomplishes the same thing by increasing prices any different?

 
At 12/29/2010 3:15 PM, Blogger Paul said...

Benji/Morganovich,

"why punish US consumers to punish japan? only a few orange growers in the US suffer (and very mildly) from lack of access to the Japanese market. but if we tax produce coming into the US in retaliation, all US consumers suffer to get at a tiny number of japanese growers."

Exactly. This is Milton Friedman 101. Oh, that reminds me: Benji, when will you be lecturing us next about our Friedman holy writ heresies?

 
At 12/29/2010 3:35 PM, Blogger morganovich said...

paul-

i was thinking more of "ricardo 101", but your point holds.

if trade is good and removing our tariffs increases trade, well, then that's a pretty simple equation, no?

 
At 12/29/2010 4:05 PM, Blogger Benjamin said...

MF does believe in free trade, and so do I.

Yet, the real world record shows that Japan, followed by Korea and China, vauted into prosperity and did not practice free trade, let alone free markets.

China, mysteriously worshipped in right-wing circles, practices a fascist-mercantilist mix, and it seems to be working. Has any nation ever developed as quickly? Do the huge export surpluses allow big investment in infrastructure, plant and equipment? Duh.

Then, there is the nagging reality of GDP=C+I+G+(X-M). If you run a trade deficit, your economy shrinks.

As to China hurting my business; yes imports crushed furniture making in L.A. There used to be 40,000 people employed in LA County in furniture making (early 1980s), now there less than 5,000.

I came a little later, and now make tables for sports bars, see sportsbartables.com, and some other work. This is not really an importable product. The good news is that buyers of furniture from China report they have to buy larger lots. China (we can hope) is going to go the way of Japan.

In time, they will become a higher-cost manufacturing platform. I think this will take another 10-20 years.

Long run, I sense manufacturing will migrate back to America. The last great low-cost platform was China, but that won't last forever. Other platforms, such as India or Mexico, are besset with regs and corruption. Transportation costs may rise.

I understand Morgan's arguments from the micro perspective.
On the macro level, the picture is cloudy.

 
At 12/29/2010 4:48 PM, Blogger Paul said...

"MF does believe in free trade, and so do I."

HUH? You spent the thread telling us why free trade only works in theory.

"Yet, the real world record shows that Japan, followed by Korea and China, vauted into prosperity and did not practice free trade, let alone free markets."

To this I quote: "A fourth argument, one that was made by Alexander Hamilton and continues to be repeated down to the present, is that free trade would be fine if all other countries practiced free trade but that, so long as they do not, the United States cannot afford to. This argument has no validity whatsoever, either in principle or in practice. Other countries that impose restrictions on international trade do hurt us. But they also hurt themselves. Aside from the three cases just considered, if we impose restrictions in turn, we simply add to the harm to ourselves and also harm them as well. Competition in masochism and sadism is hardly a prescription for sensible international economic policy! Far from leading to a reduction in restrictions by other countries, this kind of retaliatory action simply leads to further restrictions."

~Milton Friedman




"China, mysteriously worshipped in right-wing circles.."

You have to be kidding. Lefty Thomas Friedman writes virtually every other column about the wonders of the Chinese. Your boyfriend commented, "Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are vastly the superior to us now, which means if you are a corporation deciding where to do business, you’re starting to think, ‘Beijing looks like a pretty good option.’”

I grabbed the quote from National Review, one of those right-wing groups, in a post mocking Obama for his stupid comment.

 
At 12/29/2010 5:14 PM, Blogger Jet Beagle said...

benjamin: "Yet our manufacturing base is in tatters"

Why do you believe this? What is the basis for your assertion?

The short term global recession has put pressure on manufacturing in the U.S. and everywhere else. But the U.S. still leads the world in manufacturing output (value-added manufacturing GDP).

Factories all over this nation produce automobiles, aircraft, medical equipment, gasoline, chemicals, beverages, food products, paper, pharmaceuticals, leather goods, and much more.

 
At 12/29/2010 5:25 PM, Blogger Jet Beagle said...

Benjamin: "If you run a trade deficit, your economy shrinks."

Benjamin, the facts say otherwise. The U.S. has "run a trade deficit" for at least three decades. Yet the nation's output has continued to rise over that entire period. Real, inflation-adjusted U.S. GDP was at all time highs in both 2007 and 2008. Despite the global recession, real, inflation-adjusted GDP in 2009 was the fourth highest year ever.

 
At 12/29/2010 5:37 PM, Blogger Benjamin said...

JB-

Some goods are made in America, though they are hard to find. Food (perishable) and some goods too bulky to ship relative to their value (styrofoam cups and mattresses). Maybe ashpalt too.

I can't find US-made electronics, clothes, household goods, without making an effort. Even baseballs and mitts are made offshore. Metal softball bats used to come from Los Angeles, but they went offshore. Computers, phones fugetaboutit.

Cars are mixed, and also protected and now subsidized. Japan didn't put factoires in the US because it wanted to. We made them. I think Ford is really coming on, though. Airplanes yes, but again cross-subsidized by government.

Yes, our economy has grown, the q. is could it have grown faster with a good trade policy?

In sum, China is growing explosively while following none of the advise espoused by Western economists, free trade or free markets.

I am just saying do not let theories enrapture you. The reality may be different.

 
At 12/29/2010 5:43 PM, Blogger Paul said...

Shorter Benji: "Damn those welfare farmers and their unfair sweetheart deals and subsidies that made American agriculture great."

 
At 12/29/2010 6:30 PM, Blogger Jet Beagle said...

Benjamin,

So what if you cannot find baseball bats and electronic goods which were made in the U.S.? Who cares? As I pointed out with many examples, U.S. manufacturing is hardly "in tatters".

China is growing explosively because it's population of 1.3 billion is finally being allowed to come into the real world.

As far as I know, there haven't been import quotas for automobiles for about two decades. Yet European and Asian car manufacturers have continued to open plants in the U.S. We didn't "make them" continue doing so.

 
At 12/29/2010 7:04 PM, Blogger morganovich said...

benji-

the macro picture is made up of micro participants.

you cannot have the two disagree.

countries with freer trade perform better and their populace gets richer and have more goods to consume.

china would have grown like mad no matter what. their progress has nothing to do with free trade and everyhting to do with emerging from a failed communist system. when resources have been that misallocated for so long, freeing them up will cause massive growth IN SPITE OF bad trade policy. their mercantilist attitude is slowing them down and harming their consumers, it's just overwhelmed by the other macro trend.

the same is true of all the other examples you cite as well. no one gets wealthier by cloistering their home market. they can grow in spite of a bad policy, but you are assuming causality where none exists. it is not bad mercantilist policy that drives growth, but emerging economies that are powerful enough to grow in spite of policy that harms them.

you can win a marathon while being a smoker too, but that doesn't mean that the smoking helped.

you are leaving something important out of your equation, and that is price level. banning imports increases prices and inflation, which retards real GDP growth.

you are thinking in nominal terms, but that is not how we live.

 
At 12/29/2010 7:38 PM, Blogger Benjamin said...

Okay, we disagree, but I hope you all have a prosperous New Year.

I thikn we see good property and equity rallies in 2011, if we can avoid Japan-itis.

 
At 12/29/2010 8:13 PM, Blogger Jason said...

Jet, your point regarding high-value manufacturing is a good one. But it reminds me of a situation not too long ago regarding American auto manufacturers and their focus on higher margin SUVs and trucks. They gave up low margin small cars and it came back to make a difference.

We should be more concerned about the flight of low margin manufacturing from America. If for no other reason than it provides a good place to hire the millions of unskilled laborers we seem to have accumulated.

 
At 12/29/2010 10:32 PM, Blogger sethstorm said...

What this guy forgot to include is the background behind the decision. Since that would ruin his argument, he forgets about it.

That, and Mr. Williams wants to forget about the many other US citizens who raise their complaints about the issue. That too, would break his point.

What Mr. Williams leaves out is very telling. He forgets about the background information about the decision and forgets about the other people who complain about the effects.

Either he has a case of forgetfulness, or he willfully omits things that harm his argument.

Besides, there are still cheaper, and more US-friendly, ways to get the same power out of a car. Problem is that some companies based in southeastern Michigan are behind the efforts of those cars.



We should be more concerned about the flight of low margin manufacturing from America. If for no other reason than it provides a good place to hire the millions of unskilled laborers we seem to have accumulated.

The same with other sectors, especially those outside manufacturing. Without that honest entry point, only fraud exists. H1-b fraud covers the middle and top, illegals cover the bottom. Restore the honest point of entry, even if it does require force.

Temporary work does not count. It's just used as a dodge that is very unfavorable to the people who do the work. Especially when the ASA's defense against the worker and some other commenter here liking it for similar purposes.

--

Trade is between countries, unless you forget about the permissions required to have the goods or services cross.

 
At 12/29/2010 11:06 PM, Blogger sethstorm said...


china would have grown like mad no matter what. their progress has nothing to do with free trade and everyhting to do with emerging from a failed communist system

No, China just whitewashes their despotism by having it done by the private sector, or requested by the private sector. Same problem exists.

 
At 12/29/2010 11:10 PM, Blogger sethstorm said...


As far as I know, there haven't been import quotas for automobiles for about two decades. Yet European and Asian car manufacturers have continued to open plants in the U.S. We didn't "make them" continue doing so.

Until they start opening in the North or quit doing the whole "contract worker" dodge, they're just kinder, gentler versions of slave labor. That is, they'd do the same thing in the US as they do in China (or with Chinese immigrants) if not for the laws that do exist.

 
At 12/29/2010 11:12 PM, Blogger Ron H. said...

"If for no other reason than it provides a good place to hire the millions of unskilled laborers we seem to have accumulated."

Who, exactly, is "we" in this sentence, and why are "we" concerned about low skilled laborers?

 
At 12/29/2010 11:22 PM, Blogger sethstorm said...


Ron H. said...

Since you can't figure that out, it's the US, specifically our legal citizens.

That kind of indifference you show is part of why the nation has the problems it does with work.

 
At 12/30/2010 4:36 AM, Blogger Richard said...

A $70k lexus?

I think I will go study economics too!

 
At 12/30/2010 7:11 AM, Blogger Jason said...

Ron, not that I am the champion for the poor, tired and uneducated, but I am concerned that the American economy continues to sharpen the pencil, and seems to be excluding more and more people from the employment roles.

Obviously personal responsibility is primary, but there are a lot of people who don't have marketable skills. Ignoring the problem looks like a recipie for disaster to me.

 
At 12/30/2010 8:44 AM, Blogger Sonny said...

First, "Free Trade" is ONLY "Free Trade" when fairness and equality are combined with "balance". In other words, our foreign trade agreements and policies are unfair, unjust, and contain many restrictions. Mostly, our foreign trade agreements and policies are one-sided, and strongly favor those we trade with. Secondly, we have a much bigger market here in the U.S. than most of the countries we trade with. This produces an imbalance of trade, and allows American markets to be flooded with cheap foreign imports.

It is a well known fact that our standard of living does not allow us to compete with cheap foreign labor. Also, we have labor laws, EPA restrictions, OSHA requirements, and product safety laws, all of which restrict U.S. businesses from competing on a level playing field with cheap foreign imports. We don't use child labor working in sweat shops to produce our exports.

 
At 12/30/2010 9:59 AM, Blogger VangelV said...

Yes, Williams seems to never have heard of the fascist-mercantile state of China, and their approach to free trade.

Williams is right. Trade is between individuals. When governments intervene by making something more expensive they hurt the buyer who wanted to make the purchase. There is no way to justify the harm made to the purchaser, no matter how the protectionists want to spin the story.

 
At 12/30/2010 10:02 AM, Blogger VangelV said...

Okay Mr. Williams, let us suppose a Korean individual buys a GM Volt.
What are the chances that the Korean gov't will audit this individual now as compared before the transaction? The chances are quite high that this non-tariff barrier will be triggered.


The fact that the Korean government is harming its consumers by forcing them to pay more for products or force them to purchase products that they do not want to buy is no reason to argue that the American government should do the same to American consumers.

 
At 12/30/2010 10:23 AM, Blogger Jet Beagle said...

Sonny: "It is a well known fact that our standard of living does not allow us to compete with cheap foreign labor."

I disagree with your well known "fact". American companies compete successfully with companies across the globe. That's why U.S. exports have been at all time highs throughout most of the past decade. That's why U.S. GDP - the value added by workers and operations located in the U.S. - has been at all time highs for the past five years.

I think what you meant to write was that U.S. companies are at a disadvantage relative to firms in some other nations when they try to use low-skilled labor to assemble goods.

 
At 12/30/2010 11:24 AM, Blogger morganovich said...

sonny-

"First, "Free Trade" is ONLY "Free Trade" when fairness and equality are combined with "balance". In other words, our foreign trade agreements and policies are unfair, unjust, and contain many restrictions. Mostly, our foreign trade agreements and policies are one-sided, and strongly favor those we trade with. Secondly, we have a much bigger market here in the U.S. than most of the countries we trade with. This produces an imbalance of trade, and allows American markets to be flooded with cheap foreign imports."

this is wrong in so many ways it is difficult to know where to start.

first off, "us" is people, not a country. we benefit from "cheap imports" every time we shop. they are not a problem for most americans, they are a benefit.

you seem to have an "us versus them" mentality on a national level that causes you to seek to emulate their bad policies.

you are essentially arguing "stop screwing over your own consumers or we'll screw our over too". that's a foolish argument and a stupid threat.

the benefit to a US industry from tariffs is ALWAYS outweighed by the damage done to us consumers. you seem to see only the former because it is concentrated in on place while the later is spread out to all americans.

if you do something dumb, why on earth would it be "balanced" for me to do it too?

how is it "unjust" for american consumers to get the lowest possible prices and the highest selection? what is unjust is punishing all american consumers to protect a few producers and to engage in international tit for tat.

you seem to think that "trade balance" is more important than "consumer well being". that's just insane. our trade agreements are one sided. us consumers get more benefit from them that do most of our trading partners. you have this exactly backwards.

the US is better off with zero tariffs of any kind regardless of what the rest of the world does.

 
At 12/30/2010 11:36 AM, Blogger morganovich said...

here's a simpler way to look at it:

tariffs are just a way of reducing consumer freedom and well being. they raise prices and reduce selection.

if another country limited free speech, you'd say it was insane to imitate them, and that it would be completely counterproductive as a threat.

so why do you think that threatening to reduce the freedom of our consumers is any different and how is "justice" or "fairness" served by reducing that freedom?

 
At 12/30/2010 12:04 PM, Blogger Jet Beagle said...

Sonny,

I agree that many national and local laws make it difficult for U.S.-based operations to compete with some foreign operations. Do you feel we should relax some of those laws?

Not sure if I agree with the implication that the use of child labor in other nations is wrong. I wouldn't want to buy shoes made by 6 year old kids. But 13 year olds are a different matter. I'm not sure we should try to impose on other nations our values about the proper role of teenagers.

I look forward to your comments, Sonny. It's nice to see a fellow "senior" commenting on this blog.

 
At 12/30/2010 12:45 PM, Blogger morganovich said...

jet-

to amplify you point on child labor, it's worth considering that the US, britain, and pretty much every other industrializing power used child labor early on too.

it seems to be something you grow out of as you get richer.

i'm all for protecting children, but it seems hypocritical to me to tell other nations that they cannot follow the same development path that we did.

 
At 12/30/2010 1:01 PM, Blogger Ron H. said...

To amplify Morganovich's amplification on child labor, it is worth considering that children working in sweatshops in other countries may be working at the best jobs they can get. Their next best opportunities may be digging through the local dump to find items to sell, or working in the sex trade. So, when we express outrage and refuse to buy products made by these children we may be throwing them out of work and relegating them to an even bleaker existence. Be careful what you wish for.

 
At 12/30/2010 2:42 PM, Blogger Ron H. said...

Jason,

Those who don't have marketable skills need to acquire marketable skills, or they will suffer.

When someone says "we" in the context of "we should do something." I instinctively clutch at my wallet, because I see a recommendation coming that means more money will be ripped out of it.

You might find this book to be interesting reading on how US social policy has had unintended consequences for the poor and "underprivileged" in this country.

 
At 12/30/2010 3:56 PM, Blogger Jet Beagle said...

Jason,

If the U.S. did not need low-skilled workers, 10 million illegal immigrants would not have made their way across the border over the past two decades.

As I see it, the potential number of low-skilled service jobs is huge. The key is that the workers need to accept the market-clearing wage for low-skilled labor.

 
At 12/30/2010 4:28 PM, Blogger VangelV said...

I agree that many national and local laws make it difficult for U.S.-based operations to compete with some foreign operations. Do you feel we should relax some of those laws?

No. They should be repealed. Nobody is forcing kids who are looking for on-the-job training to accept $5 an hour. If they choose to accept that pay so that they can get the skills and experience necessary to qualify for higher paying jobs why should the government violate their rights and prohibit their employment at that rate?

Why should the government force companies to track how many women, blacks, gays, Jews, Hispanics, Asians, homosexuals, transvestites, obese, anorexics, etc., etc., etc., work for them in management positions? Why should government be able to tell businesses that their patrons or employees can't smoke on their private premises? Why should government force people to buy health insurance or insurance companies to cover alcoholism, drug rehab, obesity, etc.? Why should the government regulate how much water my toilet's tank can use on each flush or how much water can flow through my shower?

Let people make their own decisions when they enter into voluntary social and economic transactions without meddling from any third party.

Not sure if I agree with the implication that the use of child labor in other nations is wrong. I wouldn't want to buy shoes made by 6 year old kids. But 13 year olds are a different matter. I'm not sure we should try to impose on other nations our values about the proper role of teenagers.

People who have choices do not send their kids to work making shoes. Would you rather that they sell their kids to prostitution rings? And I have not seen any little kids working in Nike or Columbia factories in Thailand or China. Have you?

The idea that making shoes or ski jackets is a low skilled job is laughable. If you buy an expensive piece you will find excellent stitching by operators that know exactly what they are doing. You go out and find ten ordinary Americans off the street and see how many of them would be capable of the same workmanship and productivity. Good operators are not that easy to find so the factories that get them try to keep them as happy as possible. That means above market wage rates and no little kids to screw things up. The farmers outside of Yanliang were not paying for those large homes that they were building by making money from growing vegetables. They paid for them out of wages that they were earning working for manufacturers that gave them good wages that they could otherwise not get in the countryside. Here is the other side to the debate that you don't hear too often in the Western press.

 
At 12/30/2010 4:31 PM, Blogger VangelV said...

As I see it, the potential number of low-skilled service jobs is huge. The key is that the workers need to accept the market-clearing wage for low-skilled labor.

That is not rational. They get more from welfare payments than they could from working. As such they are trapped in a perpetual dependency on a state that is heading towards bankruptcy at a very rapid clip.

 
At 12/30/2010 6:03 PM, Blogger KauaiMark said...

I've always liked Walter...

 
At 12/30/2010 6:23 PM, Blogger Jason said...

Ron, don't misunderstand, I am not pining for more government intervention, as I am a believer the source of many of our present ills IS government. Nonetheless, loss of so many jobs is a cause for alarm. I advocate massive tax and regulation simplification. Oh and repeal of the Wagner Act while I'm dreaming,

Jet, completely on the same page with you about that. But unions and the government enablers would probably pass a law making that sort of thing outright illegal...if it isn't already.

 
At 12/30/2010 9:40 PM, Blogger VangelV said...

I think what you meant to write was that U.S. companies are at a disadvantage relative to firms in some other nations when they try to use low-skilled labor to assemble goods.

Of course they are. Low skill labour has been priced out of the American market by regulations. Those regulations make it difficult for some people to acquire the training they need to upgrade their skills and get better jobs because federal and state governments will not permit them to accept lower paying jobs than their prescribed minimum. Since consumers will not accept higher priced goods companies can't pay more than what people are worth.

 
At 12/31/2010 8:45 AM, Blogger sethstorm said...


That is not rational. They get more from welfare payments than they could from working. As such they are trapped in a perpetual dependency on a state that is heading towards bankruptcy at a very rapid clip.

Businesses don't want to compete to meet that rationality. The only thing they want is slave labor, and it shows through their preference of despotic countries willing to appease a multinational.

What you won't hear from your Chinese source is dissent. That's how you're getting those rosy pictures from the East.

Those houses? Overly expensive and shoddily built. If they last 10 years, you'll be dealing with someone with greater influence asking to demolish it.

The only thing Deng Xiaoping did was to whitewash their despotism. What was once done directly by the government is now done by the multinationals directly or requested by the multinationals.

 
At 12/31/2010 12:29 PM, Blogger VangelV said...

Businesses don't want to compete to meet that rationality. The only thing they want is slave labor, and it shows through their preference of despotic countries willing to appease a multinational.

I suggest that you buy a cheap dictionary because you do not know the meaning of the word slave. In a voluntary transaction nobody is forced to accept any offer made by the other party. Workers are not forced to accept $3 per hour if that is all is being offered. If they find that they prefer to exchange an hour of their time for $3 they are certainly not considered slaves because they chose the transaction willingly. To acquire marketable skills and establish reliability we all have to start somewhere. If all I can do is wash lettuce and make coleslaw then I can only be employed if I accept less than the minimum wage. If I do not the restaurants that need to serve coleslaw will get it from a producer who uses far more capital equipment and less labour. What you get are far less jobs as machines are used to do the job that a person used to previously. The machines would be operated by people who get paid the minimum wage or higher but the total hours worked and the total wage costs would be much lower. So what develops is an environment in which people can't get on the job training and can't establish the foundation that is the first step to acquiring a much higher paying job.

What you won't hear from your Chinese source is dissent. That's how you're getting those rosy pictures from the East.

I lived in China. The aircraft factory in which I worked had a strike. I see Chinese workers protest for higher wages all the time. And I hear a lot of dissent against bureaucrats who have screwed up projects, promised more than they can deliver, etc.

Those houses? Overly expensive and shoddily built. If they last 10 years, you'll be dealing with someone with greater influence asking to demolish it.

Have you seen them or been in them? I have. Many are far sturdier than many of the homes I see in Canada and are orders of magnitude better than the houses that the workers used to live in. The air conditioners, large flat screen TVs, magnetic inductance stove elements, and top of the line stereo equipment are something that would be considered unthinkable a generation ago. I remember having tea at a house just outside Yanliang with my driver and being shown the stereo equipment purchased for a son who was studying music with a friend of my wife's. While the speakers were OK the high end tube amps would have made my audiophile friends salivate. The company that was selling it was trying to break into the US markets and was pricing it aggressively at around $4,000 for the pair.

 
At 12/31/2010 12:29 PM, Blogger VangelV said...

The only thing Deng Xiaoping did was to whitewash their despotism. What was once done directly by the government is now done by the multinationals directly or requested by the multinationals.

You have no clue what you are talking about. People are living in ways that their parents could not dream of. My AA had a fully paid for apartment with a piano, two TVs, a great stereo system, a fully equipped kitchen, and custom made furniture made of expensive hardwoods that she designed to fit the home perfectly. She used to go and eat out with her family four or five times per week, got a foot and back massage every week and managed to go to the theatre a few times a month. Add to that the soccer and basketball games that she would attend and you are looking at a standard of living that most people here would envy. While she and her husband were smart their salaries were not spectacular yet they managed to live as very few Americans their age could afford to. The reasons were simple. While their salaries were not very high they kept what they earned. Their health care and most of their utilities were paid for by the employer. Daycare was paid for by the employer. And on many occasions so were lunches. Kids went to school while their parents were at work. In the summer the school shut down for two hours for lunch as did the factories and businesses in their town. There was no need to pay anyone for child care and the family could eat lunch together and take a nap for an hour or so afterwards. Work and school finished later in the summer. Most people would go and eat out at cheap restaurants that did not have to spend 30% of their revenue complying with regulations. Because the restaurants were run by people who wanted to stay in business they made certain that the food was fresh, made well, and affordable. A liter of great beer that would typically be exported cost around $0.50. I liked a local brew that was better that was half that cost. It was made the same way as the original German brewmasters made it 150 years ago when the breweries were first opened in China.

The numbers that you hear can be very wrong. They do not account for actual after tax purchasing power or the actual compensation cost. If your factory provides you with a place to stay, pays for your food and utilities, health care, and insurance and you get to keep all that you earn it is easy to save a great deal and to live quite well. That is China’s secret. Hard work. A favourable regulatory environment. High purchasing power. If you have a job it is easy to live well, even if you look at that job and consider it not very good.

 
At 1/01/2011 8:10 AM, Blogger sethstorm said...


if we cut our tariffs, we get lower prices and better selection

A greater lie has not been hold.

The vast amounts of junk out there stand as a monument to that.




I suggest that you buy a cheap dictionary because you do not know the meaning of the word slave. In a voluntary transaction nobody is forced to accept any offer made by the other party.


The problem is that when you have a country like that, voluntary doesn't really exist. Yes, they have a choice, but it is merely on who they want as a master. That is called force by practicality. That's how the $3/day/etc. becomes "acceptable" due to the lack of alternatives.

Applies to anywhere in existence, and also can be known as force by identical opportunity cost.



A favourable regulatory environment.

Only for the multinationals and/or the government. Not for the people. It's easy to start a business when the regulations will allow for the easy disappearance of people who object.

As for the protests that do happen, I have my doubts as to them being genuine. Not that there can't be a diamond in the rough, but people seem to disappear when other places would at worst be arrested.

--

While that country might get the changes I'm wanting to see, we'll both be long dead before that happens.

Sometimes very disharmonious things have to be allowed to happen.

 
At 1/06/2011 11:06 PM, Blogger VangelV said...

The vast amounts of junk out there stand as a monument to that.

People buy what they want. What is junk to me may be treasure to someone else. And to suggest that if stuff was made domestically it would be any better is pure nonsense. People might buy less but only because it was priced at a much higher level.

The problem is that when you have a country like that, voluntary doesn't really exist. Yes, they have a choice, but it is merely on who they want as a master. That is called force by practicality. That's how the $3/day/etc. becomes "acceptable" due to the lack of alternatives.

You are ignorant of reality. I worked with a state owned company that could not keep its managers because they were being hired by private companies who paid more and had better benefits. The $3/day myth ignores the fact that many companies pay a lot in bonuses, cover housing, health care, and housing expenses, cover some of the food costs, and pay utilities. That is why many jobs that you think are low paying get massive number of applicants.

 
At 1/06/2011 11:12 PM, Blogger VangelV said...

Only for the multinationals and/or the government. Not for the people. It's easy to start a business when the regulations will allow for the easy disappearance of people who object.

Nonsense. There were far more strikes and public protests in China last year than there were in the US, where people are much more compliant and deferential to authority. Go and take a look at a Chinese protest some time and then tell me how people are not allowed to object.

As for the protests that do happen, I have my doubts as to them being genuine. Not that there can't be a diamond in the rough, but people seem to disappear when other places would at worst be arrested.

Well, I don't know about many places but the ones I saw in China certainly were real.

While that country might get the changes I'm wanting to see, we'll both be long dead before that happens.

In many ways, 'that country' has more economic freedom than the US.

Sometimes very disharmonious things have to be allowed to happen.

Actually, while they may not like it even many high up in the Chinese government know that the system needs some hard knocks to improve its robustness. Many of the protests have done a great deal of good and have actually solved some problems because the idiots who ran the system had to react properly. I wonder how the US government reacts when some idiots begin to revolt and cause damage to property over the next few years.

 
At 1/14/2011 2:28 AM, Blogger OBloodyHell said...

> Yes, Williams seems to never have heard of the fascist-mercantile state of China, and their approach to free trade.

Yes, the former chairman of an economics department is more ignorant of economics than you.

I'm SURE that's the case.

Idiot.

There are a wide array of responses to your stupid reply, and if you bother to read back through WW's archives, you'd see he's covered that idiotic argument of yours on more than one occasion.

The most obvious is that, if the people of China allow their government to f*** their own citizens by subsidizing US consumers, then that is up to the people of China to do something about, not for the people of the USA to concern themselves with.

You cannot create "fair trade" by making it unfair -- and unfree -- to both sides instead of one of them.

If China doesn't allow its consumers to get the best value they can, if China doesn't allow its creators to get the best value they can, that is hardly harmful to -US- interests. The economic situation is too flexible, too variable, for anyone to really control a market for long.

The company with the best capacity for this is Microsoft, and they almost lost control with Netscape and the Internet, and now they are likely to actually lose real control via the SmartPhone market, which is going far more to Apple via the iPhone and/or Google via Android. Windows on the phone is a niche choice. How long before someone creates a "big box" personal computer running Android? Is there even a need for one, given the shift to tablet PCs and Netbooks? At best M$ can hope to hold onto a large share via the netbooks. But they won't have the power to dictate to the market as they have in the past 20 years.

Duh and Q.E.D.

 
At 1/14/2011 2:39 AM, Blogger OBloodyHell said...

Vangel, there is little point to arguing with Seth and expecting any change in his opinion.

Doesn't mean it isn't worthwhile, but don't expect it to change or affect HIS omniscient opinion. Think of is as a chance to expose others to your own observations and conclusions.

Regarding building quality, well, I found this amusing.

Mind you, I'm sure someone lost their head over that error. And it's intriguing that the building is largely intact if you think about the lateral stresses involved as it went down.

 

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