Unfortunately it's all about the short term, i.e. votes... thanks to turdblossom (the actual nickname Bush assigns to Karl Rove when he screws up) for being a poker player at heart. Election logic says that it makes sense to throw a bone to the whiners. Since a Gephardt or a Dean or a Kerry would be far more protectionist than any republican, the free trade vote is considered 'safe' for Bush and does not need to be fought for. Thus a Bush sop to the heavily contested steel mill and rust belt states is considered a savvy bet. Or was at the time, anyway. I'm actually glad to see the EU calling turdblossom's bluff here, and hope that republicans will look more to the long term and give up the tactical flipflops. A lot of these short term 'strategic gains' are prone to backfiring and having consequences down the road. This instance aside, though, liberals have a much bigger problem resisting destructive opportunism impulses than conservatives do.
EU has threatened to slap $2.2 billion of sanctions on U.S. goods unless the Bush administration withdraws steel duties that the WTO has declared illegal. Now, China may retaliate. This is getting messy ...... :eek: :eek: :eek: ============================================= Thu November 20, 2003 04:55 AM ET By Scott Hillis BEIJING (Reuters) - China will raise tariffs on some American imports, the Commerce Ministry said on Thursday, in a step that comes just days after a fresh trade spat sparked by a U.S. move to cap imports of selected Chinese textiles. "The Chinese side will raise import tariffs on some commodities imported from the United States and we are currently studying relevant plans," Vice Commerce Minister Ma Xiuhong told the official Xinhua news agency. Putting some distance between the announcement and the U.S. move on textiles, Ma said the new tariffs were in response to U.S. duties on steel imports enacted a year and a half ago -- duties that the World Trade Organization (WTO) has recently ruled illegal. She did not elaborate and a ministry spokesman said details of the new duties were still being worked out. Simmering tensions between the world's biggest and fifth biggest trade nations flared on Tuesday when Washington said it would cap imports of Chinese knit fabrics, bras and gowns. http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=3859618
The Business Community's Suicidal Impulse by Milton Friedman [Nobel Prize and Advocate of "REAL" free market] Thereâs a common misconception that people who are in favor of a free market are also in favor of everything that big business does. Nothing could be further from the truth. Milton Friedman: âI have gradually come to the conclusion that antitrust laws do far more harm than good.â As a believer in the pursuit of self-interest in a competitive capitalist system, I canât blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I canât blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it. I do blame businessmen when, in their political activities, individual businessmen and their organizations take positions that are not in their own self-interest and that have the effect of undermining support for free private enterprise. In that respect, businessmen tend to be schizophrenic. When it comes to their own businesses, they look a long time ahead, thinking of what the business is going to be like 5 to 10 years from now. But when they get into the public sphere and start going into the problems of politics, they tend to be very shortsighted. The most obvious example is protectionism. Can you name any major American industry that has really benefited from tariffs and protection? Alexander Hamilton, in his famous report on manufactures, praised Adam Smith to the sky while at the same time arguing that the United States was a special case in that it had infant industries that needed to be protected, including steel. Steel is still being protected 200 years later. Commercial banking is another example. At the end of World War II commercial banking accounted for roughly half of the capital market. Today it accounts for about one-fifth. Why has it deteriorated? Why is the international financial market in London, not in New York? The answer is the long-term effect of the of the banking industryâs insistence on special government favors. In the early days, under what was known as Regulation Q, the government set a limit on the interest rates that banks could pay, including a rate of zero on demand deposits. The government-imposed interest rate of zero on demand deposits encouraged the emergence of money market funds and the growth of substitutes for and alternatives to banks. The banking industry consistently supported fixed exchange rates. When the dollar got into trouble, President Johnson introduced restrictions on foreign lending and an interest-equalization tax. The result was to drive the commercial banking industry to London. Both of those measures reduced the commercial banking industry from the predominant supplier of credit to a minor player. Again, a policy that was very shortsighted. The easiest shot of all is the way in which corporations make contributions. The oil industry contributes to conservation organizations that are trying to sharply reduce the use of oil. The nuclear industry contributes to organizations that support nonnuclear energy. Recently, Capital Research Center analyzed grants from major corporations to public policy organizations and found that the major corporations made $3 in grants to the nonprofit left for every dollar they gave to the nonprofit right. Why hasnât the corporate world followed the excellent example that was set by Warren Buffett? From his earliest days, in sending a dividend check to his stockholders, he said, âWe are prepared to distribute X dollars on your behalf for each share of stock to charity, to some organization. Let us know to whom you would like it sent, and we will send it on your behalf.â Why should corporations decide the charitable purposes that should be supported by the income of their stockholders? Why shouldnât each stockholder decide that? And why is the business community in general so insistent on supporting its own enemies?
I admit to being perplexed by these trade arguments. I understand the issues, but I just don't see a good resolution. Most of the country no doubt benefits from free trade, at least for now. But is it really a good idea to just export all our manufacturing and heavy industries to China, Mexico, etc? What happens to those who supported a family working in a textile mill or steel plant? I suppose we can spend billions retraining them all to be IT workers. Oops, those jobs have all been exported too. How about pizza delivery drivers? Lot of value-added there. I fully recognize that a lot of this has been brought on by the very people screaming the loudest, namely politicians who catered to unions and environmentalists. Certainly we shouldn't look to them for answers. But it is not totally the workers fault either. They are facing competitors who enjoy massive government subsidies, some financed by our own taxes through various international development banks, etc. Can anyone doubt the extent of the subsidies the EU has poured into Airbus, yet they somehow are able to haul us in front of the WTO for some arcane tax rebate. I am beginning to question the benefit to the US of the entire WTO framework. I know it keeps a lot of trade lawyers and economists gainfully employed, but what are we getting in return for the enormous amount of sovereignty we've ceded to it? I tend to agree with harrytrader. Globalism leads to global government. We clearly have the most to lose from such a devlopment, unless you like the idea of Koffi Annan and French civil servants deciding what kind of car you can drive. The US has the world's largest market. Access to our market is critical to all developed and developing countries. Why isn't our interest better served by negotiating such access on a bilateral basis? Are we really afraid that China and Mexico would deny us access to their markets? That would really hurt us, since we have about a 150 billion dollar deficit with them. Would the Germans really be putting the screws to us over steel if we could slap a 50% tariff on their auto exports? The bottom line is the US can get along very well without trade. In theory at least, we would all be better off with free trade, but our relative position versus the rest of the world would be higher without free trade. In other words, they are getting more out of it than we are. This state of affairs may have been accpeted when our economy was smoking along with 3% unemployment. Let it get up to 8 or 9% and suddenly things will not be so easy to brush off with the talismatic phrase "free trade."
Interesting points AAA, have to strongly disagree with your conclusion here though. The problem with "negotiating access on a bilateral basis" is that the silent majority will always be trumped by the vocal minority when it comes to trade. Those who benefit most from free trade have no lobbying groups or war chests, whereas those who benefit from protectionism are extremely vocal, organized and well financed. In a situation like this, politicians can't be trusted because bad influence squeezes out good . If you refuse to pander to the vocal minority and refuse to stack the deck, your opponent will- and take your seat at the next election. Removing corruption starts with defeating temptation- by fair means at the ballot box, of course. In terms of the plight of steel workers who have lost their jobs, I agree that it's callous to say 'let them eat cake' and ignore the problem. However a more important question to ask, in my opinion, is what good does protectionism do, and does it actually do anything to solve the problem? Does it stem the tide, or does it only cause more harm than good in the long run? Countries at the top of the economic food chain have to 'step up' in a microevolution sense- they have no choice. Fighting this is like trying to fight a glacier. We can either maintain our high standard of living by moving up the ladder, or we can distribute our gains to other developed countries who catch up to us and are thus able to compete with us, forcing us to tighten our belts and give up our profligate ways. There's no other option, and the future holds a bit of ladder climbing AND belt tightening for the developed world. I also think there's something morally wrong with the notion that Americans deserve to keep their job by fair means or foul simply because of geographical boundary lines. The flip side of not beleiving in handouts is not believing in holding others down, either- even if they are of a different nationality. If someone in another country is willing to do the same job for less pay, what moral right do I have to call that unfair? Not hiring someone because of their skin color is racist; why is it so different to discriminate based on nationality? Obviously there are exceptions: slave labor, child labor and forced labor cannot be condoned. But between free economies, there is something inherently amiss in restricting competition on nationalistic grounds. I also disagree that global trade leads to global government. If anything true global trade will ultimately lead to less government because technology is a decentralizing force that lowers communication barriers and decreases economy of scale. I also disagree because there is a significant difference between positive and negative rights, and the right to free trade is the latter. A positive right is something akin to an entitlement, such as a right to a free education. A negative right is akin to freedom from restriction or harm, such as the right to assembly (or the right to conduct business with your neighbor). The government bestows positive rights, but enforces negative rights. Positive rights lead to expansion of government because a) they require ever greater resources to maintain and b) they fuel an entitlement mentality. Negative rights generally do NOT lead to expansion of government because a) the pool of negative rights is limited and defined, and b) as technology and efficiency increases the government is able to better to carry out non-entitlement functions with proportionately smaller resources. (The military is an exception- the cost of protecting our freedom and security has increased dramatically- but all else being equal it's the exception that proves the rule). The key distinction here is that free trade issues are ultimately about negative rights: the right to trade with one's neighbor unfettered by artificial competition and unrestricted by handicaps. For free trade to flourish, the government doesn't have to get bigger: it just has to get out of the way as much as possible while still maintaining a basic rule of law framework that allows unfamiliar parties to trust each other. Think about how much more careful you would be in your regular business routines if you knew there was no recourse for theft or damages. Traders certainly wouldn't be sending hundreds of thousands of dollars to brokerages they've never set foot in, that's for sure. The same thing applies on a larger scale: while there's no need for a world government (and there will never be one), there is a need to create a mutually respected rule of law framework. With this understanding in mind, there's really not much danger of free trade organizations morphing into a monsters unless a shift is made from negative to positive rights. And that's not going to happen because the stronger capitalism gets, the more free capitalism becomes. Last but not least, I don't think the US would get along very well without trade- in fact I think the US would be screwed without trade. Right now we are utterly dependent on foreign direct investment to keep the engine humming. And even if we weren't dependent on FDI, our prospects for prosperity would be far reduced without trade. When we outsource stuff like basketballs and gameboys, we are able to spend more time developing higher level technology, which we then turn around and sell to the rest of the world. Without the ability to outsource globally and also sell our wares globally, America wouldn't be anywhere near the powerhouse it is now. And the more we expose ourselves to free trade, the more we benefit as a country. Yes it's painful to see those manufacturing jobs go, but it's going to happen sooner or later anyway- and we see the benefit come right back to us in the form of cheaper consumer goods and more cost efficient consumables. Free trade is great, long live free trade
darkhorse, Excellent points. Iam actually predisposed to the free trade/less government orientation. I guess two things worry me. One is the near total loss of manufacturing capability. Call me old school, but value-added has always meant manufacturing. Plus, there is a significant national defense element. Fabless chip companies may be great for the stock market, but how great are they in a national emergency? Two, we are not really in a situation where the classic David Ricardo theories of comparative advantage apply. Is it a comparative advantage that you have workers who will work for $1 a day? Or that you can disguise government subsidies in a way that the WTO will wink at? I hear what you say about the intensity of political influence, but it does seem to me that the free trade group has plenty of political stroke. There are powerful constituencies that depend on unfettered imports. I guess I find the loss of sovereignty argument more troubling than you do. We are in a position where unaccountable arbiters in the WTO control our tax and trade policy. The EU has already stated that they are targeting swing states important to our President's reelection. I find this profoundly troubling, particularly as I feel the EU is far more protectionist than the US. If we were reaping some huge benefits, I could see a reason to tolerate this but I just don;t see the payoff. We could achieve everything through bilaterals and control our own destiny. Why hand over this awesome power over our economy to strangers?
You know what drives me nuts about all this? Two things, first we have a President that is supposedly pro-taxcuts, but tariffs are essentially a tax on all consumers. Secondly, the US Brassiere production is pretty much zilch. The administration is taxing bras for no apparent reason (as far as I can tell).
US manufacturing jobs were lost to India, Malaysia, etc. first due to their cheap labor costs. Then, China beats them all. Putting quotas on Chinese products will not help the job situation, as more goods will be imported from India, Malaysia, ect. at higher prices. Hence, most retailers bands this as a political move at the expense of consumers. IT jobs and other high-paid jobs are undergoing the same transition, exported to India and then China. I hope that there is a easy fix for the US labor market. I just cannot see one. Just my two cents :eek: :eek: :eek: :eek: :eek: :eek:
THE CASE FOR FREE TRADE By Milton Friedman and Rose Friedman http://www-hoover.stanford.edu/publications/digest/974/friedman.html "One voice that is hardly ever raised is the consumer's. That voice is drowned out in the cacophony of the "interested sophistry of merchants and manufacturers" and their employees. The result is a serious distortion of the issue. For example, the supporters of tariffs treat it as self evident that the creation of jobs is a desirable end, in and of itself, regardless of what the persons employed do. That is clearly wrong. If all we want are jobs, we can create any number--for example, have people dig holes and then fill them up again or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs--jobs that will mean more goods and services to consume. Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports. The misleading terminology we use reflects these erroneous ideas. "Protection" really means exploiting the consumer. A "favorable balance of trade" really means exporting more than we import, sending abroad goods of greater total value than the goods we get from abroad. In your private household, you would surely prefer to pay less for more rather than the other way around, yet that would be termed an "unfavorable balance of payments" in foreign trade. The argument in favor of tariffs that has the greatest emotional appeal to the public at large is the alleged need to protect the high standard of living of American workers from the "unfair" competition of workers in Japan or Korea or Hong Kong who are willing to work for a much lower wage. What is wrong with this argument? Don't we want to protect the high standard of living of our people? The fallacy in this argument is the loose use of the terms "high" wage and "low" wage. What do high and low wages mean? American workers are paid in dollars; Japanese workers are paid in yen. How do we compare wages in dollars with wages in yen? How many yen equal a dollar? What determines the exchange rate? Consider an extreme case. Suppose that, to begin with, 360 yen equal a dollar. At this exchange rate, the actual rate of exchange for many years, suppose that the Japanese can produce and sell everything for fewer dollars than we can in the United States--TV sets, automobiles, steel, and even soybeans, wheat, milk, and ice cream. If we had free international trade, we would try to buy all our goods from Japan. This would seem to be the extreme horror story of the kind depicted by the defenders of tariffs--we would be flooded with Japanese goods and could sell them nothing. Before throwing up your hands in horror, carry the analysis one step further. How would we pay the Japanese? We would offer them dollar bills. What would they do with the dollar bills? We have assumed that at 360 yen to the dollar everything is cheaper in Japan, so there is nothing in the U.S. market that they would want to buy. If the Japanese exporters were willing to burn or bury the dollar bills, that would be wonderful for us. We would get all kinds of goods for green pieces of paper that we can produce in great abundance and very cheaply. We would have the most marvelous export industry conceivable. Of course, the Japanese would not in fact sell us useful goods in order to get useless pieces of paper to bury or burn. Like us, they want to get something real in return for their work. If all goods were cheaper in Japan than in the United States at 360 yen to the dollar, the exporters would try to get rid of their dollars, would try to sell them for 360 yen to the dollar in order to buy the cheaper Japanese goods. But who would be willing to buy the dollars? What is true for the Japanese exporter is true for everyone in Japan. No one will be willing to give 360 yen in exchange for one dollar if 360 yen will buy more of everything in Japan than one dollar will buy in the United States. The exporters, on discovering that no one will buy their dollars at 360 yen, will offer to take fewer yen for a dollar. The price of the dollar in terms of the yen will go down--to 300 yen for a dollar or 250 yen or 200 yen. Put the other way around, it will take more and more dollars to buy a given number of Japanese yen. Japanese goods are priced in yen, so their price in dollars will go up. Conversely, U.S. goods are priced in dollars, so the more dollars the Japanese get for a given number of yen, the cheaper U.S. goods become to the Japanese in terms of yen. The price of the dollar in terms of yen would fall, until, on the average, the dollar value of goods that the Japanese buy from the United States roughly equaled the dollar value of goods that the United States buys from Japan. At that price everybody who wanted to buy yen for dollars would find someone who was willing to sell him yen for dollars.