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A wrong turn on global trade

The next time you read someone denounce the United States as a haven of unfettered capitalism, read this story and similar ones like it. It is a reminder that the cause of free trade has been on the back foot in the United States for some time.

Regardless of one’s feelings about the dark side of China – its dreadful human rights record, for starters – to slap tariffs on the country’s imports to buy a few votes from special interests in the US will come at a high price for future global economic growth and at a cost to US consumers of products like paper, steel or electronics. Adam Smith wrote the Wealth of Nations over 230 years ago. One might hope that his lessons would have sunk in by now.

6 comments to A wrong turn on global trade

  • Midwesterner

    Johnathan,

    A cursory internet search turned up no role of the WTO (World Trade Organization) in this action so I join you in your condemnation of it. Like I found stated in a couple of China trade blogs, (and my search suggests they are right) if there was any evidence, they (US politicians) would have taken it to the WTO.

    I encourage you to keep in mind the role of WTO sanctioned trade actions in dismantling the protectionist barriers and production subsidies utilized by big brother governments. It (the WTO) is the only horse in the harness right now that is pulling our cart. I can think of no other institution or organization that has been achieving large scale successes that further our goal of shrinking government.

    Here is one recent example of how their carefully directed trade actions overlap strongly with our own goals. The method used is to trigger internal battles in the country that is market tampering. In the case of the internet gambling, WTO approved trade actions will have virtually every business that does business in the violated countries sending their lobbyers to Washington to throw some chairs around until the absurd (and utterly hypocritical in light of the number of actual units of government in the US that are engaged in running gambling syndicates) laws against internet gambling are stricken.

    Not all trade actions are bad.

  • James of England

    Midwesterner, for what it’s worth, this is linked with a WTO dispute. You can find some details of that here. It’s not the result, but it’s pretty clear that if China’s innocent of wrongdoing, the US is going to have these tariffs taken down.

    While I agree that it is sad that the tariffs are going up, these are not large tariffs. $10 million isn’t something that China will bat an eyelid at. There are increasing (and, to my mind, surprising) numbers of stories suggesting that the President will get Trade Promotion Authority again. If $10 million will buy even a significant portion of the votes needed for that, it seems like a good use of the $10 million. If they could buy a fraction of the support needed for the KORUS FTA, they’d be worth it.

    It’s true that the US occaisionally does bad things. It’s still the finest non-tiny country on earth in these matters. Looking at the figures in comparisons such as this(Link) should fill any European with shame, but also people from most other countries. The US sometimes makes bad decisions with speech, such as free speech zones, but it’s still freer there than elsewhere.

    I don’t know if you’re suggesting that Bush hasn’t been keenly pursuing trade, but if so the claim is deeply unfair. There’s been amazing progress in bilateral and regional trade agreements. He seems to be resurrecting Doha. Although I mostly focus my attention on FTAs, I was particularly happy to see that the US-EU Open Skies agreement comes into effect on my birthday.

    I was very depressed after the elections, particularly after the Vietnam trade normalisation bill failed its first attempt at passage, but I’m really coming to believe that this congress may pass some useful trade bills, although they’ll make a lot of ugly noises while they do it, and they’ll need an awful lot of bribes, like this one.

  • Midwesterner

    JofE,

    I stand corrected. I missed that WTO connection.

    I’m not sure if the rest of your remarks are aimed at me or Johnathan. My position is that actions taken with the clear and limited intent to eliminate another nations market tampering are good. Actions taken to protect fragile industries from free market competition are bad.

    Where Johnathan and I generally disagree is that he would see our companies destroyed by a foreign nation’s subsidies rather than let trade actions be used to attempt to stop the other nation’s subsidy. His opinion is not without its points and merits, we just disagree. I believe the WTO has as good a track record as anything else that has been tried. (Better, actually.)

    Regarding agricultural subsidies, I should add that each nation as a matter of self defense should be expected to maintain the minimum of subsistance food production for its population within its own borders. Any government that failed to do that is quilty of gross negligence.

  • James of England

    Midwesterner, I think that you and Jonathan were in agreement, so I was replying to both of you. Although I agree that in general it is wrong to protect special interests through tariffs (of which paper manufacturers are one of the classics, almost to the point of cliche: remember the exceptions to softwood lumber). On consequentialist grounds, however, if symbolic gestures such as this buy votes for practical measures such as TPA, the 3 pending FTAA agreements or KORUSFTA, I view them as totally worthwhile.

    I’m as big a fan of the WTO as anyone who is also a fan of bilateral/regional agreements. I’m not so big a fan that I feel that it has to be the exclusive way forward. I’m closer to Jonathan’s position on the question of throwing rocks into our own harbours.

    While I find food security hard to take seriously. What possible coalition of foreigners could embargo the US so swiftly that the US could not respond agriculturally, assuming that it was reduced to such a response? Or, if this is general, rather than specifically about the US, should Luxembourg really attempt to cleanse itself of residents in excess of those that can be fed farms in the suburbs? I was recently working in the Caymans, where they do ferociously fight to keep foreigners off the island, but they allow native populations to swell far beyond what could be supported by the half dozen cows; would a Chinese One-Child policy be appropriate?

    Even if food security was a concern, the United States has such magnificent states in the middle…. You people who live in coastal cities may not appreciate how green the mid… OK, maybe that’s not the way forward. 😉 Seriously, without subsidies the agriculture sector would look different, but there’s simply no way that Iowan corn farming is going to stop on the basis of that kind of a cut; it’s just too productive. Farm subsidies in the US (and EU) aren’t needed even if you do have an aversion to Canadian canadian bacon. Some WA apple-farming might be replaced by something else, and other labour-intensive crops might decline, but those are aesthetic and social issues, not security.

    Anyway, you’re a serious thinker and your support for the concept will lead me to wait far longer before dismissing the next argument that I hear that incorporates the concept of food security. In the meantime, I think the numbers are somewhat off in this, but it still seemed like good news.

  • Midwesterner

    As long as those “bilateral/regional” agreements do not behave as, or turn into, cartels. It does seem to be a strong tendency. Example EU.

    I didn’t follow the politics, it appears you have. If by regional, you are refering to ideological rather than geographic regions, then, yes I think they are very important. I do believe we should have better trade relations with Australia than China. But if by regionalism, you mean geographic like NAFTA, then whle I supported it very strongly and was glad of it when Clinton ‘helped’ it through, it doesn’t appear to have brought about any beneficial change in Mexico’s political philosphies, and I don’t see any particular significance to the proximity of nations for trade agreement purposes.

    My ideal would be for nations to be all free market and without border restrictions. The dissagreements come when deciding how to reach that point. Sacrificing our domestic businesses on the point of another nations trade subsidies is asinine politically, strategically, and seldom never does anything to shake the other nation free from its tampering behavior. If anything, it encourages it. This is where my support for the WTO comes in. I guess I’m not really seeing the benefit of regionalism unless it is as a means to have an even stronger version of WTO styled actions working for free markets.

    What possible coalition of foreigners could embargo the US so swiftly …

    Actually, I was thinking of countries like Japan, SK, and Iceland. Countries where the population is at the upper limits of the lands ability to support them. My tolerance is for the idea that in cases where market pressure (and most efficient use) would take land out of agriculture, the government may be justified in preserving subsistence capabilities as a defense move. In a large scale war, it is easy to imagine ocean shipping being unsustainable for long periods of time. Especially in this age of satellites for detection and intercontinental bombers for destruction.

    My personal approach for the US would be to not subsidize agriculture, but rather to subsidize food storage and let the market work out how and where it is grown. I remember when Chernobyl, which was actually a very tiny incident, sent fall-out onto agricultural crops around the world. If we kept a rotating stock of basic survival food stockpiled in maybe ~5 year quantities, I am quite comfortable that in those five years simple market forces could repair or modify the food system. We might not like what we eat, but I think we will still be eating.

    BTW, more often lately, when I see numbers and trends that don’t make a lot of sense, I convert them into a commodity equivelents. These fiat currencies are concealing an awful lot of underlying trends.

  • James of England

    I’m sorry that this is so late. Off skiing, completely failed to anticipate I’d be going to an internet free town.
    By bilateral/regional deals, I mean trade agreements that don’t include the whole world (the WTO is really the only body that gets to claim “multilateral” in this context). For the US, that currently includes the NAFTA, CAFTA, Jordan, Chile, Singapore, Morocco, Australia, Oman and Bahrain. South Korea, Panama, Peru, and Colombia have all signed agreements, but these have not yet been ratified. If the American agreements go through, there will be a free trade zone from Alaska to the Tierra Del Fuego, Bush snr’s dream, and states like Uruguay look set to see the creeping gains sweep the vast bulk of the hemisphere. It’s a coalition of the willing approach that lets states that want to prosper do so, while also promoting the multilateral WTO approach that lifts all boats. It also includes deeper and richer protections than the WTO will see any time soon, including investor-state dispute resolution mechanisms to help protect property from indirect or direct expropriation.
    Australia’s FTA is the only one to offer serious immigration benefits, but they’re pretty good on the rest of the border-removing issues. Remember that the WTO only came into existence because the forming of APEC scared the EU into returning to the table. Now the EU is developing a bunch of trade agreements of its own, including with Mugabe (I’m sure you remember the hilarity of having “smart sanctions” that keep Mugabe, personally, out of the EU, and then seeing Tsvangirai being beaten up for trying to join Mugabe when Mugabe was going to the EU to negotiate said trade agreement). “Smart sanctions” mean that if he’s going to enjoy parisian hookers for more than a few months a year, he has to have them commute to him.

    I’m not sure that I can imagine a protracted conventional war happening now with a developed nation. The UK lived through two world wars without food security (only just, but I can’t see an equivalent length/ intensity embargo hitting anywhere anytime soon).

    I agree: credit default swaps terrify me.