If protection against imports from country C (say, China) by the state of country A (say, the United States) is good, then an embargo by the government of C on exports to A must be good too. Anybody in A, or at least its government, should cheer. Something similar may happen regarding Chinese exports of some equipment used to manufacture solar panel components. The Wall Street Journal reports (“New China Rule Threatens to Disrupt U.S. Solar Ambitions,” January 31, 2022):
China’s Ministry of Commerce and Ministry of Science and Technology are considering adding advanced technology used in the production of ingots and wafers, some of the building blocks of solar panels, to a list of technologies that are subject to export controls.
Such a ban would cause an increase in the world prices of these high-tech machines and of solar panels. No surprise that American producers of solar panels, who can’t compete with Chinese producers at current prices, are thrilled:
“China’s proposed export restraints are Exhibit A on the need to rapidly scale American solar manufacturing,” said Abigail Ross Hopper, president and CEO of the U.S. business lobby Solar Energy Industries Association.
This must imply that, should the French government decree an embargo on the exportation of wine, it would be Exhibit A on the need for the UK government to rapidly scale up domestic wine production.
Adam Smith already explained in The Wealth of Nations:
By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries.
Criticizing the 1908 protectionist platform of the Republican party, Frank Taussig wrote in his The Tariff History of the United States (I quote from the 1914 sixth edition):
Anything in the world can be made within a country if the producer is assured of “cost of production with reasonable profits.” … very good pineapples can be grown in Maine, if only a duty be imposed sufficient to equalize the cost of production between the growers in Maine and those in more favored climes.
The benefit of trade, whether domestic or foreign trade, is that buyers can get their products (and services) from the least costly source. I leave it as an exercise for my reader (especially if he is an economics student) to persuade himself that imports are more important than exports. Interestingly, this belief should be more prevalent among protectionist conservatives, who should not want “our national resources” to be used to produce goods and services for foreigners instead of for “us.” But protectionists are not known for their logic; you may want to have a look at my Regulation article “Logic, Economics, and Protectionist Nationalism.”
Why do protectionist forces typically beg their government to ban imports, not exports? Because protectionism is mainly a way for special interests, both corporate and trade-union, to steal from their fellow citizens.
Except if the goal of life is to fight members of neighboring tribes and control one’s own tribe, national defense does not normally provide a sufficient reason to block trade (although, in extreme cases, it may); see my EconLog post “Fearing Leviathans With Feet of Clay.”
READER COMMENTS
Jon Murphy
Feb 7 2023 at 11:25am
If I may, I’d like to add a little to this sentence to bring forth what is left unsaid:
Buyers can get their products (and services) from the least costly source, which consequently frees up resources for other productive uses.
I think the clause I added is important because it is the key to economic growth in a dynamic fashion. Trade allows us to consume beyond the PPF in the short term, but it also allows the PPF to grow in the longer term. Contrary to the claims of protectionists and economic nationalists, trade does not “destroy factors better than any missle” (as I heard it put once), but rather helps build new factories or opportunities. Trade is not zero-sum, but positive (and increasing) sum.
Pierre Lemieux
Feb 7 2023 at 2:32pm
Good points, Jon!
Jose Pablo
Feb 7 2023 at 12:05pm
“The benefit of trade, whether domestic or foreign trade”
I am always puzzled by people that believes that just foreign trade is “bad”, but “domestic” one is “good”. So, if you live in, let’s say, Maine, imports from China are bad but importing goods from Florida is “good”?
How come?
And if you live/produce in Los Angeles county, importing goods from San Bernardino is “bad”?
Following this reasoning you end up producing your own food, shelter and clothes. Sure you are going to be pretty busy, but I very much doubt you are going to feel richer.
Pierre Lemieux
Feb 7 2023 at 2:41pm
José: You are right. Even our recent–19th century–forebears had to work very hard from dawn to dusk on their farms and still were not self-sufficient. If they were not just to barely survive, they still had to go to town to buy a metal plow share and little Christmas gifts for the children; see Little House on the Prairie.
Craig
Feb 8 2023 at 9:41am
But this fact pattern is actually quite the reverse, its the situation of an export restriction of an input into a domestic industry.
“China’s proposed export restraints are Exhibit A on the need to rapidly scale American solar manufacturing,” said Abigail Ross Hopper, president and CEO of the U.S. business lobby Solar Energy Industries Association.
This must imply that, should the French government decree an embargo on the exportation of wine, it would be Exhibit A on the need for the UK government to rapidly scale up domestic wine production.
The wine is a finished product. First off I think your example isn’t the best because it is a situation relying on a genuine geographic advantage. But let’s tweak the example a bit. Forget the geography, let’s assume England is just fine to grow grapes and make wine (apparently wine was made in England during the Medieval Warming Period) but that it requires ‘wine fermenting machines’ which at the moment come exclusively from France and France is going to ban the export, not of wine, but of wine fermenting machines to try to cause the English industry to atrophy.
So then one might say, “We need to scale of English wine manufacturing” to thwart the intent of the unnatural embargo.
However even if we don’t tweak it, with respect to England or Maine, in the face of a wine embargo or a pineapple embargo, maybe they’d scale up beer and apple production?
Craig
Feb 8 2023 at 9:59am
I am always puzzled by people that believes that just foreign trade is “bad”, but “domestic” one is “good”. So, if you live in, let’s say, Maine, imports from China are bad but importing goods from Florida is “good”?
How come?
I’d suggest this is more about reliance. China is going to invade Taiwan, right?
Pretty sure Florida isn’t going to invade Cuba, the Bahamas, Georgia or Alabama any time soon.
Jon Murphy
Feb 8 2023 at 10:23am
The “reliance” argument doesn’t make sense for several reasons:
First: it’s incorrect. Trade does not foster reliance in the foreign market any more than domestic (which is to say, no reliance). Trade fosters competition, which reduces reliance.
Second: “Reliance” is just a modern excuse. It’s the latest in a parade of increasingly spurious justifications for a policy of tariffs.
Third: as discussed below, protectionism weakens domestic industries, not enhances them. If the fear is of reliance and thus military weakness, then protectionism serves only to make the problem worse.
Pierre Lemieux
Feb 8 2023 at 11:01am
Jon: I just saw your rejoinder to Craig’s reliability issue. Our posts must have crossed. As we rednecks say, great minds think alike! (Not that Craig is not a great mind too…)
Craig
Feb 8 2023 at 2:54pm
You know last February I remember thinking to myself that there was no way Putin would invade the Ukraine. Sadly, I was proven wrong by subsequent events. To be honest if you asked me the same RE: Taiwan I’d have thought the same. Right now though looking at the situation and bolstered by the fact that China is slowly liquidating treasuries: https://ticdata.treasury.gov/Publish/mfh.txt
When that number gets to 0, I believe they’re coming.
I hope I’m wrong and I hope the invasion I didn’t think was coming in Ukraine simply made me jaded.
Jon Murphy
Feb 8 2023 at 3:54pm
The invision is actually proof positive of my point that “reliance” is not a concern
Pierre Lemieux
Feb 8 2023 at 10:40am
Craig: Two points on the reliability issue. (1) Suppliers’ reliability is a matter of degrees. As you know, some Americans favor “national divorce,” and who knows when Florida will secede and perhaps even wage wage a civil war against Maine? So should the government of Maine slowly build up a local pineapple industry, just in case (and to give jobs to politicians’ friends)? (2) If you don’t like my example, ask yourself the question: Is reliability of supply and uncertainty more efficiently managed by a large number of entrepreneurial individual and firms competing against each other, or by a heavy central planner (and its subsidies, price controls, mandates, bans, bureaucracy, and politicians’ rationality)?
Jose Pablo
Feb 10 2023 at 5:49pm
perhaps even wage wage a civil war against Maine?
It would not be the first time, by the way.
nobody.really
Feb 8 2023 at 5:24pm
Eh. Google “Florida man.” I wouldn’t bet much money about predicting what Floridians might do.
Craig
Feb 8 2023 at 6:11pm
I am #floridaman 😉
nobody.really
Feb 10 2023 at 5:27pm
YOU? Wow.
So like … do you get tights and a cape, or something?
Pierre Lemieux
Feb 8 2023 at 10:58am
Craig: Just a few points, rapidly. (1) Subsidizing an input or limiting its export amounts to the same as protecting (say, with tariffs) the good it serves to produce. (2) It was done by the British government when, in the earl 19th century, it forbade the immigration of skilled workers who could bring to foreign countries the secrets of textile manufacturing (see my post “Export Protectionism: Back to the Future?“). This is not a recipe for prosperity. (3) Wine is also a crucial input in domestic restaurant services, which confirms that central-planning protectionism is not efficient. (4) In another answer to one of your comments, I made the point that relying on protectionism for the reliable supplies is a mirage. If it were not, the USSR then and North Korea now would have the most reliable supplies and the happiest consumers.
Jose Pablo
Feb 7 2023 at 12:16pm
“Because protectionism is mainly a way for special interests, both corporate and trade-union, to steal from their fellow citizens.”
I think you overvalue special interest influence here. They could never pull out this trick without the active (I would even say) enthusiastic help of their “fellow voters”.
What happen is that this very same voters that suffer this steal, also suffer from a make-work bias: “the tendency to underestimate the economic benefits from conserving labor“(Caplan) coupled with an anti-foreign bias (both well documented).
The (sad) corollary would be: given these biases, in democracy, foreign trade is going always to be a hard sell … even (particularly, I would say) to the people benefiting the most from foreign trade.
No need for the “special interests” to be particularly cunning. Just ridding the wave.
Pierre Lemieux
Feb 7 2023 at 2:51pm
José: You are not wrong, but special interests are necessary to coordinate effective collective action. Without special interests, it would be difficult if not impossible to organize collective action, for “Maine” to “steal on lumber,” etc., as congressman Samuel Cox (D-NY) explained about tariffs:
Jose Pablo
Feb 7 2023 at 3:09pm
The “effective collective action” only needs Public Choice Theory at work.
Obviously, every help helps, but politicians are eager to play to the biases of their voters. They win elections by doing so!
“Democracy”, when “actual” (as opposed to “ideal”) voters vote, is a very effective way of “organizing” the special interest opposing foreign trade.
Monte
Feb 7 2023 at 8:55pm
I agree that international trade is beneficial for most countries in the long run, but there are a host of distributional effects that need to be mitigated against in order to balance the benefits with the costs (ie. job loss, wage stagnation, and cultural homogenization). And although the vast majority of economists maintain that tariffs are counter-productive, many administrations rely on them to:
Protect domestic industries from foreign competition
Promote the development of domestic industries
Raise government revenue
Address trade imbalances
Respond to unfair trade practices
Just for kicks, I queried ChatGPT about the impacts of the Trump-imposed tariffs on the U.S. economy:
Further:
Jon Murphy
Feb 8 2023 at 8:15am
Of course, the irony here is that tariffs are counter productive because they fail to accomplish the goals administrations want (with the exception of raising revenue, but even that is qualified). In some cases, tariffs even work against the goals. Rather than developing domestic industries, tariffs tend to dramatically weaken domestic industries (for example, the Jones Act has all but destroyed American capacity to build ships).
The distributional issue you raise is an important and interesting one. But one has to wonder why distributional issues from foreign trade requires more attention than distributional issues from domestic trade. In theor, policies like Unemployment Insurance and educational subsidies are meant to address the distributional issues. Why is protectionism, which in and of itself doesn’t address distributional issues but rather introduces its own set, necessary?
Craig
Feb 8 2023 at 9:26am
The only thing the Jones Act really reserves for Jones Act compliant shipping are the cabotage routes, ie NY to Miami. Nothing stopped US producers from making non-Jones Act compliant ships and sailing NY to Amsterdam or selling them to foreigners. They lost that trade to subsidized foreign producers and the cabotage routes didn’t provide a refuge because trucking was subsidized too.
Jon Murphy
Feb 8 2023 at 10:16am
True but irrelevant to the point. The Jones Act failed to even protect US shippers for cabotage routes.
Craig
Feb 8 2023 at 10:49am
Because they made trucking cheaper.
The point you made is this: “the Jones Act has all but destroyed American capacity to build ships”
I’m sorry but I don’t believe that to be true. General rule is that floating things on water really should be cheaper, generally of course. So, and this is pre-pandemic pricing I found, from NJ to Nassau, Bahamas which is NOT going to be protected by Jones Act, the stuff I brought to FL would’ve cost $2,430 to get from Port Newark to the port in Nassau and I still would’ve been stuck paying ‘first mile’ / ‘last mile’
Shipping it DOOR TO DOOR by TRUCK, $1,800.
So if I am a shipping company going from NY to Amsterdam or wherever and I am buying a vessel, I’d likely buy the subsidized foreign vessel. The US shipbuilder was NOT protected by the Jones Act and still could’ve tried to compete. If I am a domestic shipping company like Old Dominion or whatever and I’m moving things from NY to Miami. I can’t buy the foreign non-Jones Act compliant vessel for that route, true, that is NOT an option, but I wouldn’t anyway because trucking carries a cheaper price tag (even though it isn’t ACTUALLY cheaper). Now this is why the Jones Act articles I read tend to always bring up Puerto Rico because obviously trucks can’t get to Puerto Rico.
[Post-pandemic completely different ballgame, obviously prices got warped by inflation and everything, so this might not CURRENTLY be the case.]
Jon Murphy
Feb 8 2023 at 12:27pm
The neat thing about facts is they do not rely on beliefs; they are not fairies or old gods.
We have very few Jones Act capable ships. Most that we do have are not seaworthy. In fact, we have so few that the last time we needed to do a major shipping expedition for the military, we had to borrow ships from the Soviets.
Protectionism is a failed policy even from the perspective of its “protected” industries. We have seen that time and time again: whenever the market shifts, protected firms are least capable to adjust
Craig
Feb 8 2023 at 12:39pm
Does Ford and Chevy benefit from the chicken tax? Last I checked the F-150 and Silverado are the two best selling vehicles in the US. So obviously Ford and GM benefit from that to at least some extent.
If I turned around and gave Ram a $25k per vehicle subsidy, Ford and Chevy wouldn’t be making nearly as many F-150s or Silveradoes and the fact that they floundered wouldn’t be BECAUSE of the protectionist chicken tax, it’d be because of the domestically supplied subsidy.
The government is BOTH protecting them AND undermining them.
Jon Murphy
Feb 8 2023 at 3:56pm
As evidenced by 2008 and the fact they represent less than a 3rd of the domestic market.
Monte
Feb 8 2023 at 1:43pm
This, I agree, is the long-term view for which the empirical evidence is clear. In the near term, however, temporary tariffs have proven beneficial to the industries they were designed to protect. For example, in 2002, the U.S. government imposed tariffs on steel imports, which helped to reduce the influx of cheaper foreign steel and allowed domestic producers to increase prices and regain profitability. This allowed the U.S. steel industry to restructure, invest in new technology, and become more competitive in the global market. A more recent example is the U.S. solar industry, where the government imposed tariffs on imported solar panels in 2018, again providing temporary relief to U.S. manufacturers and helping the industry to regain its competitiveness. The tariffs helped to increase prices for imported solar panels and allowed domestic producers to increase production and invest in new technology.
What pro-globalists failed to anticipate, starting with the extreme liberalization of trade in the 90s (NAFTA, WTO, the Uruguay Round), was what Krugman has referred to as “hyper-globalization”, or “an intensification or acceleration of globalization processes and the increased interconnectedness of economies, societies, and cultures.” This, according to Krugman and Harvard University economist Dani Rodrik, resulted in “a huge economic and social upheaval, particularly of the industrial middle class in America.”
Binyamin Appelbaum, in his book, The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society, writes:
By no means am I endorsing tariffs as a trade policy to mitigate all economic dislocations that usually accompany globalization, but they can serve their purpose in the short term.
Jon Murphy
Feb 8 2023 at 3:57pm
Unfortunately, the opposite happened. They lost more ground and demanded more tariffs as the market shifted again (eg in 2016).
Craig
Feb 8 2023 at 6:09pm
The thing though with respect to steel is that freight really does matter, its not a labor intensive industry. You can have some niche examples where say steel from a port city in China might be cheaper to float over to a port city in CA like LA. But for instance, say, in Topeka, there’s no way an unsubsidized company from overseas should be able to compete there.
When I learned about protectionism the image of the bloated, uncompetitive industry prevails and I think that might typify some old school steel production like the large mill that is now a casino in Bethlehem. That sure sounds like some jobs for the lower middle class, doesn’t it?
But the steel industry did retrench and the industry is genuinely world class and that actually can be seen quite objectively in certain firms like revenue per employee and net income per employee which for $USX is really quite impressive. Their high was 881k per employee, low of $279k but averaging $468k and last year they were over $600k. Compare to AM which is: “ArcelorMittal revenue is $76.0B annually. After extensive research and analysis, Zippia’s data science team found the following key financial metrics. ArcelorMittal has 209,000 employees, and the revenue per employee ratio is $363,779″
So there’s a trade paradigm which rewards the B producer and the less efficient producer expands and the world class producer gets half as much business.
We have too much trade that just isn’t based on genuine competitive advantage.
That which is seen.
That which is unseen are people like me and some of my colleagues who import things rather than make them here cheaper. I do work for Big Law but my main income remains ecommerce and I used to manufacture leather products in NJ and I could’ve invested in Wilkes-Barre, PA (land/building cheaper than Tijuana, Mexico) and made steering wheel covers for less than what it costs to import them from China. As far as I know NOT subsidized by China at all. There’s no circumstance where I would remotely make that investment. Instead, I bring them in, I have them shipped to the Amazon fulfillment center just north of me here (TN at moment) in KY and I sell them as a third party on Amazon (itself subsidized and to be frank I’d be cheaper than them too at distributing WITHIN my 1 day UPS zone [that is an important qualification]). After all, all those warehouse workers busy scurrying around the warehouse up in Campbelsville, KY surely aren’t busy actually making decent money making steel, are they? No, they’re in the lower middle class or dying from fetanyl or shooting boomers for dinner. Life expectancy is decreasing. There’s even stray dogs everywhere.
How many manufacturers don’t start or don’t expand even knowing they are the ones with the competitive advantage? That which is unseen, nobody knows, but its happening. There are hundreds of billions of dollars of things where the item is capital intensive, not labor intensive or where the cost of higher labor in the US < the cost of freight from wherever its coming from. Those things SHOULD be made here.
Base it off competitive advantage, people would buy in more, based on what I see now? As long as there are going to be taxes, and there will be, I’ll trade income tax for tariffs all day long.
I kvetch about having paid 56% of every dollar I earned in NJ (local, state, federal and that includes property tax which obviously isn’t an income tax) while I was in business there (I sold, but obviously if certain foreign markets, China, were open to me I could’ve sold for more, right?). But based on free trade/competitive advantage, I’d offer up 75% of my income.
Monte
Feb 8 2023 at 7:03pm
According to what I’ve read, the tariffs were imposed by the Bush administration in early 2002 and were removed 21 months later as a result of pressure being brought by the National Association of Manufacturers and the WTO. The Consuming Industries Trade Action Coalition did determine that 200,000 workers in U.S. manufacturing lost their jobs as a result of the tariffs, but 197,000 steel industry jobs were preserved in the process.
I agree that globalization has led to historical achievements in poverty reduction. At the same time, there has been a substantial increase in global income inequality. And we’ve witnessed major disruptive effects on the U.S. labor market because of globalization since the 1960s. I do believe that free trade is the primary engine of economic growth, but we cannot conclude based on the data that we should pursue a ‘hyper-globalized’ world economy in which there is completely free trade with no room for public policy and regulation.
Jon Murphy
Feb 9 2023 at 9:55am
Why not? No evidence has been given that free trade is worse than regulation; just the opposite, in fact.
ALso, I am unsure as to what “hyper-globalized” means.
Monte
Feb 9 2023 at 1:33pm
That’s surprising, given the media attention it has received since 2011, when the concept was first described by economist Dani Rodrik in his book, The Globalization Paradox. And I guess you missed the definition provided earlier in this string per Krugman:
In other words, cross-border trade and capital movements free from any regulatory or industrial policy restraints, or “globalization gone wild.” Many of globalization’s standard bearers now concede that it has produced lopsided benefits and contributed to global income inequality.
I don’t disagree, but unfettered free trade is analogous to an engine without a properly adjusted governor, which can shorten the engine’s life. And that has been the case with hyper-globalization. Some evidence against it has been mentioned already. To reiterate:
Jon Murphy
Feb 9 2023 at 5:25pm
As an empirical matter, that is flat out false. As you have pointed out, the poor have gotten wealthier.
Free trade does have a governor: the price system.
Jon Murphy
Feb 9 2023 at 7:56pm
I should also point out that global income inequality has plummeted as trade has expanded (see figure 2.3).
Pierre Lemieux
Feb 9 2023 at 8:44pm
Monte: The link provided by Jon is important. Global inequality (between countries) has not increased. Moreover, even if it had, THE story of the last three or four decades is the dramatic reduction of poverty in underdeveloped countries, thanks to trade. It is a source of wonder how bleeding-heart economists like Rodrik are only bleeding for the comparatively rich American poor (or middle-class).
Jon Murphy
Feb 10 2023 at 8:15am
To be fair to Rodrik (and Monte, for that matter), I think he does care about the poor of the world, but he fears a populist backlash against trade and the benefits thereof. I see the point of Monte’s metaphor of a regulator and Rodrik’s general research program as discussions on how to minimize that backlash so as to continue to receive the benefits of trade without populist disruptions like Trump and now Biden that will halt the greatest antipoverty program the world has ever seen.
I think their reasoning is incorrect, but they’re not just concerned about the Western middle class.
Economic nationalists, on the other hand, do have no sympathy of poorer folks in other countries. I’ve even seen it said that foreigners should not be included in the calculation at all, and if Americans are made better off at their expense, all the more better.
Monte
Feb 10 2023 at 1:19pm
To be sure, but inequality within most countries has increased. Stated somewhat differently from the same report:
You said “Free trade does have a governor: the price system.” Many would argue that the price system alone is a poor substitute for the regulatory restraints and trade policies that have helped keep hyper-globalization in check.
Without question. At the same time, the theory of free trade has proven to be much more beautiful than the truth.
Jon Murphy
Feb 10 2023 at 1:29pm
Yes, many do argue that. But they are incorrect. The price system is the superior restraint in terms of helping people accomplish their goals.
It is also worth pointing out that increasing income inequality is not the same as “the rich getting richer and the poor getting poorer.” In fact, the evidence shows the poor getting substantially wealthier. Various estimates find that the poorest households are better off from anywhere between $2k and $10k a year due to international trade.
Many arguments against free trade rely on “just so” stories and gut feelings. The reality is that trade has been a massive boon worldwide for all people. The stylized “facts” of trade touted by protectionists are typically completely backward.
vince
Feb 10 2023 at 1:56pm
“The price system is the superior restraint in terms of helping people accomplish their goals.”
In the real world, the superiority of the pricing system depends on how the costs are placed. Cf market failure.
“It is also worth pointing out that increasing income inequality is not the same as “the rich getting richer and the poor getting poorer.”
But in a relative sense, it is the same–relative to the rich. That can be important. With wealth goes power.
Pierre Lemieux
Feb 10 2023 at 4:06pm
Jon and Monte: Steel has been protected off and on since the 19th century. Another, recent, example is household washing machines. I summarized the case in my Regulation article on Biden’s (Trump 2.0) protectionism:
Jon Murphy
Feb 13 2023 at 12:02pm
That’s not entirely correct (see Coase and many others) but it is irrelevant to the point.
No, in a relative sense the claim doesn’t make sense.
Monte
Feb 10 2023 at 2:17pm
Well then, let us boldly go where no trade has gone before, with the following proviso (excerpted from When Does Globalization Help the Poor?):
I’ve enjoyed this discussion and give you the last word, sir.
vince
Feb 7 2023 at 10:55pm
“China’s Ministry of Commerce and Ministry of Science and Technology are considering adding advanced technology used in the production of ingots and wafers, some of the building blocks of solar panels, to a list of technologies that are subject to export controls.”
Why would China’s do that?
Craig
Feb 8 2023 at 10:09am
Why? Because the work of the goldsmith quickly becomes the work of the tinsmith. Honestly not sure how difficult it would be to reverse engineer the technology in question, but I can say that historically China kept silk production a state secret. If you got caught trying to take silkworm eggs or mulberry seeds out of China you’d be executed! Just to give some sense for how lucrative the trade was, the Romans tried to ban silk because the Roman Senate sensed that gold was flowing out of the Empire because of silk imports over the silk road.
vince
Feb 8 2023 at 1:39pm
In other words, the policy is profitable for them, ceterus paribus.
Pierre Lemieux
Feb 9 2023 at 8:27pm
Vince: “Them” is the rulers and apparatchiks, not the workers who work in manufacturing the export-banned machines, nor most of the Chinese.
Craig
Feb 8 2023 at 8:41am
No surprise that subsidized American producers of solar panels, who can’t compete with subsidized Chinese producers at government manipulated prices, are thrilled”
Without digging further, I’d suspect this industry is epitomized by malinvestment. For sure, trade is great, but I am absolutely convinced that the wholesale intervention ensures that we may know many things, but we have absolutely no idea who the actual efficient producers are of solar panels or of whole swaths of goods.
Pierre Lemieux
Feb 8 2023 at 10:29am
Craig: You raise an interesting question, but consider the following. In an industry battered by government intervention, will a further intervention improve the situation? (Even just a small one, the last one?) After all, adding one government intervention to solve the problems raised by the previous one is one reason for the current mess. In fact, given all government interventions in the world, a wise and benevolent and constitutional government (whose agents have studied economics) would realize that the best for its subjects is to take this situation as granted, and itself not interfere with the subjects’ economic freedom so that they can adapt separately to this mess, each taking his own situation into consideration. See my post “Taking Comparative Advantage Seriously.”
Craig
Feb 8 2023 at 11:12am
You know, if I were to step back in time to 1930 without the benefit of knowledge of the future, but given my current political dispositions, if you were to ask me if the Soviet Union would survive, I’d say, “No, the incentives aren’t there, it WILL collapse” and I’ll say the same thing about Cuba and North Korea. And by 1945 I’d have said the same thing notwithstanding the Soviet Union sticking it to the Germans (Khruscchev as confident he’d bury the US). And I would’ve been right, eventually. I’m still waiting on North Korea and Cuba though.
I’d say the same thing about the current paradigm although it might not be as prone to a Soviet style collapse and it could be helped along by the tailwind of the ‘ascent of man’ and technological advances which might very well make the inefficiences such that the cost could be better absorbed, but I’d still say just like I would in 1930 that the system is set up to unravel at some point in the distant future because its causing malinvestment in so many industries.
Its cars, its steel, its wheat, its corn, its sugar, its Boeings, its Teslas, its solar, its lumber, its retail trade, its wholesale trade (the DCs get subsidies), semiconductors, and the list goes on. Who’s the most efficient auto maker right now? I’d likely say Toyota, but in a free market would they actually prevail? I’m not 100% convinced of that, though I concede the possibility they could do well in such an environment.
The world’s best entrepreneur, Elon Musk, fantastically impressive individual. Even he gets subsidies, right?
And so we wind up in a situation where we really don’t have an intuitive sense at who is really better and more efficient at doing things and unlike in a socialist system where you look at a Trabant v a VW Golf and the inefficiences are readily apparent you actually get companies like Walmart that absolutely have efficient operations but which also receive subsidies and its more stable than the Trabant because Walmart does have core competencies, but that doesn’t mean they should be doing all the things that they are currently doing.
vince
Feb 8 2023 at 1:48pm
“In an industry battered by government intervention, will a further intervention improve the situation?”
If it brings the parties to a negotiating table, yes.
Jon Murphy
Feb 8 2023 at 5:42pm
That’s a mighty big if. More often than not, we see the opposite: parties walk away from the table and start trade (and sometimes actual) wars.
vince
Feb 8 2023 at 1:42pm
“the system is set up to unravel at some point in the distant future because its causing malinvestment in so many industries.”
One example of malinvestment and imbalances is the huge and ever growing trade deficit in the United States. Trade deficits are supposed to have built in corrections mechanisms such as currency exchange rate adjustments. It’s not working. Why?
Jon Murphy
Feb 8 2023 at 3:58pm
That’s not evidence of malinvestment and imbalances.
vince
Feb 8 2023 at 4:59pm
Nonstop since 1976–that doesn’t even amount to evidence of imbalances?
Jon Murphy
Feb 8 2023 at 5:40pm
Not in the least.
nobody.really
Feb 8 2023 at 5:27pm
Henry George, Protection or Free Trade? (1886), chap. 6.
Pierre Lemieux
Feb 8 2023 at 8:42pm
Nobody: Indeed.
Monte
Feb 8 2023 at 10:19pm
Craig
Feb 9 2023 at 8:52am
Celente? Just saw Celente/Napolitano on youtube, also of note for the distinction between North Jersey and NYC accents.
Jon Murphy
Feb 9 2023 at 9:56am
I do not know who Celeste is, but that quote suggest he does not know how trade works.
Craig
Feb 10 2023 at 12:11pm
Give the Celente/Napolitano video on youtube a quick watch, for a chowderhead you might not be able to tolerate the accents, but what’s funny is being in TN I miss the banter at times.
He publishes ‘Trends’ (I think that is the name) and of late I would attribute the quote: “When all else fails, they take you to war” as he explains his objection to US intervention in Ukraine.
He will regularly appear on many youtubers broadcasts from Stansberry Research to Kitco, to his own channel, Adam Taggart, etc. You would mostly listen to him in the context of finance as opposed to economics of course. He’s a character for sure.
Jon Murphy
Feb 10 2023 at 1:15pm
Actually, I lied. I do know who he is. My comment stands; he doesn’t understand trade.
When I was a consultant, his company and my company used to get mixed up (we have very similar names). So, one day we did a little research on him. He’s the sort of guy who has called 10 of the last 3 recessions. He’s like those old sports scams: call both sides of an issue and then only promote the “right” calls.
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