So ,our auto manufacturers are in rough shape,therefore we should put auto tariffs on. That would protect our industry. Works for me.
That’s great if you ignore the cost involved in the transition from an industrial to an agrarian society. And that’s a major issue. The car plant plant won’t be changed into a spaceship plant and the 50 yo worker there into a rocket scientist instantly and at no cost.
Not always. As shown, once again, by the economical success of Asian countries who implemented stringent protectionist policies that proved beneficial in the long term.
Just protecting will necessarily be detrimental eventually. It only makes sense if you do that with another goal in mind : either a smoother transition towards another activity or a modernization of the non-competitive industry.
It seems to me quite obvious that the exact opposite is true. The benefits of globalization–for those who see them as benefits–are immediately obvious. Anyone who goes to the mall sees loads of cheap crap that’s made in China, or Vietnam, Bangladesh, Indonesia, etc… That’s very clear and visible, no denying it. The costs of globalization are what is indirect and difficult to measure. You cannot see precisely the portion of downward pressure on wages that is due to foreign competition. You cannot see the fears about job security. You cannot see exactly the effects on local communities or human dignity.
That was a simplified example. If you want to get more specific about it, let’s assume that the country was already making all the grain it needed. So now you’d take the 100 people making cars, and assign only 50 of them to making grain. The other 50 are free to seek out completely new forms of labor and create products the economy never even had before.
To make it even more accurate, now that there are 150 people making grain, the additional economies of scale might result in producing enough grain to bring back an extra half car, so wealth improves even more.
Actually, most Asian countries saw their economies take off AFTER they dropped their protectionist policies. Singapore, for example, once had a very protectionist economy, and high unemployment and poor standards of living. Singapore began to embrace free trade in the early 1960’s, helped create the Asian Free Trade Zone, and today has very few tariffs at all. If you plot Singapore’s GDP growth, you’ll see that it takes a spike upwards after free trade was implemented, growing at 10% per year throughout the 1960’s and most of the 1970’s. In 1960, Singapore had a per-capita GDP of $477. Singapore now has a per-capita GDP higher than the United States.
The same is true for countries throughout the world. The lowering of trade barriers has been followed by large expansions in the economy, in proportion to how much external trade the country takes part in.
How? I suppose I should have written my points better. They were basically questions, asking how the playing field is slanted in favor of others.
Of course. Local products are inherently cheaper, since transportation isn’t free.
You are proposing subsidising local industries in order for them to compete with more efficient companies. You say this is because the playing field is not level. Given that laws, restrictions, and taxes, are things that affect the playing field, discussing them is very much relevant. If the playing field is not level because, say, your country has overly onerous laws on pesticide usage, then the solution is to change those laws, not add a subsidy to your mistake.
I think identifying why local businesses are not viable (in some cases, obviously they’re just fine in plenty of cases), is more productive than simply throwing money at them.
If you think Obama is a protectionist I suspect you will be rather disappointed.
I don’t really want to get into a discussion of whether “the people” should be making decisions on complex issues, it’s an interesting issue, but also a hijack. Probably best to take it to another thread if you wish.
Yes, well, a separate problem that.
By you I was referring to your country’s economy as a whole. Obviously I know nothing about you, I haven’t a clue if subsidies are beneficial to you personally.
Yes, I am aware you don’t like swearing. It isn’t going anywhere though, so I’d suggest getting used to it.
The subsidies adopted by most developing nations have no logic behind them, and should be abandoned. So should the subsidies of the West. So the West is right and hypocritical.
The downward pressures on Western wages, you mean. That’s competition for you. You would also ease downward pressures on your wages if, say, you prevented black people from working in decent jobs. Or women. Oh wait, you tried that already.
Suck it up, your abilities aren’t worth that much when a billion other people can do it too. Sucks and all, but on the upside you get to buy cheaper stuff.
And I don’t think the Chinese or Indians are complaining about the upward pressures on their wages. Or the fact that they actually have a job.
Sorry for the triple posting.
Continued…
If you look at Japan, Korea, and Taiwan, the same pattern emerges. Some people have said that Japan and Korea’s protectionism ‘kick-started’ their economies, and only after they had protected their industries and let them establish themselves was free trade useful. But lots of economists have studied these claims and found them wanting. It’s true that Japan and South Korea had protectionist policies and high growth in the immediate post-war years, but that high growth turns out to be mainly the frenzy of activity required to rebuild infrastructures devastated by war. As soon as those countries had built their economies back up to pre-war levels, growth slowed dramatically until they adopted free trade policies, at which point growth took off again.
In 1960, South Korea’s exports were only 5% of the economy. Then South Korea began liberalizing trade, and both the number of exports and the standard of living began to rise dramatically. In 15 years, South Korea’s net exports went from 5% of GDP to 33%. And the nature of the exports changed as well - at first, it was low value items like textiles and cheap products. As foreign money flowed into the country, and the infrastructure improved and the populace became more educated, the imports began to change in nature to higher-value items like steel, cars, electronics, ships, and complex machinery. South Korea is now a first-world nation.
Taiwan had exactly the same experience. It had a ‘managed’ economy and protectionist government up until 1962. As a result, it recovered from WWII at a slower pace than some other Asian countries, and by 1962 was still primarily a low-income country with an economy fixed mostly around agriculture. The government then began a process of trade liberalization and greater market freedom at home, and Taiwan’s economy began to take off. by 1986, industrial production in Taiwan was 47% of GDP. Today, Taiwan has low barriers to trade, free markets, and a high standard of living.
Do you have any statistics for China, Sam? My feeling is that the current Chinese prosperity is in spite of protectionist policies rather than because of them, but I don’t have any data at my fingertips.
Thanks,
Rob
Why do you deny the “human dignity” of China, Vietnam citizens to raise their standard of living? As writer Johan Norberg eloquently put it, you’re basically saying they’re “too poor” to trade with you.
These farmers in Asia willingly leave their farming life for the city for more $$ and a chance for a better life. Yes, the factories are often sweatshops but working in rural rice paddies is back-breaking work. Besides the labor, the family constantly fears having crops fail/flooded leaving them financially destroyed. Many families deliberately trade the unpredictable rural life for the urban factory (that happens to make cheap crap).
Why is your family’s job security more important than the Asian family’s financial security?
I’m not sure how this is actually a counterpoint. No one in this thread, that I noticed, has suggested that free trade was somehow intrinisically worse than protectionism, or that protectionism wasn’t a tradeoff. So, er. Yeah.
India is often cited as a demonstration of the deleterious effects of protectionism, insofar as it can foster the development of low-quality, uncompetitive industries. The poor quality of the Hindustan Ambassador automobile is the is the anecdote most often cited, but I expect that there are numerous other examples as well.
No one except ITR Champion.
Not really. We know you valued it at least as much as you paid for it. But–if the market is competitive!–you almost certainly valued it more, which means you are receiving a surplus, paying $3 for a cup of coffee you valued at $5, making you $2 richer. But this reasoning is suspicious if it is generalized. Why aren’t you arguing, for instance, that protectionism confers such an enormous value because of the growth that was given up? It’s like the economic form of the naturalistic fallacy: whatever is happening must be worth it. But we know there are many reasons why this might not be true, which is why we argue against protectionism, why we debate whether there are instances in which protectionism may be good for a short while, and blah blah blah.
This is not an example of understanding the issues, it is a degenerate description of what may not even be the case. Perhaps the people of France will decide that the costs are too great. Perhaps they will take Thursdays off, too, because it was so cheap.
Does this machine rebate an enormous amount of money to exporters and slap equally large taxes on imports? If not, then it’s not Japan. Consider this.
(cite)
The notion that Japanese cars and electronics have gained ground against American cars and electronics because of superior quality and price is a myth. The Japanese clobber us in these areas because of unfair trading practices. Most people are simply not aware of these trading practices, and so they assume that the Japanese must just be more productive than us. The truth is quite different.
The great experiment of the 20th century was communism which subsidized whatever they thought needed subsidies. They failed to observe that subsidies are always at the expense of the rest of the economy and you end up needing to subsidize more and more until … well, we all know how that ended.
Subsidies are a distortion of the free market which mask inefficiencies and so in fact create inefficiencies.
If protectionism is good why would it not be good at the state level? Shouldn’t Arkansas protect itself from the competition coming from out of state?
How about at the city level?
And if it is not good at the city or state level why is it good at the national level?
Why has the common market been so good for the EU?
Let us recall a bit of history. Spain had a shitty economy well protected from outside competition. Spanish consumers had the choice of buying Spanish made cars and other goods which were crap or buying imported goods with high tariffs. The inefficiency was exarcerbated by all the bureacracy.
A factory building TVs would often find a whole assembly line stopped because a 2 cent diode was missing. It could be ready in Germany but it had to go the import route which would take a couple weeks. The only sensible thing to do was to break the law and smuggle them in. Purchasing departments had apprentices traveling every week and smuggling things. Other ways had to be found to expedite parts and they usually involved bribes. Customs inspectors had to be bribed regularly and lavishly. As someone said: “the inspector expressed his desire for a new TV; send him two and hope someone else does not send him three”.
Spain developed a subsidized ship-building industry which became #1 in the world. It created thousands upon thousands of jobs. Except that the inefficiency was huge. They were building ships no one wanted and the banks in Spain ended being some of the largest ship owners in the world when they had to repossess the ships. The whole thing was a huge fiasco as Korea started competing. The Spanish government had to give up. Same thing with the steel industry. Trying to protect it with subsidies was an expensive exercise in futility.
With an economy which could not compete with foreign industry the general thinking in Spain was that it would be suicide to join the European common market.
In the meanwhile Germany and other richer countries were saying it would be suicide to let Spain with their lower wages compete with German workers.
And yet, against strong popular opinion, a few visionaries went ahead with European integration. In the following 20 years Spain saw development which was just phenomenal. The old, inefficient car factories were now modernized and started making decent products. Many other industries, like shipbuilding, were abandoned and the process was painful but on the whole the economy grew stronger. No Spaniard today would dream of saying integration was a bad thing.
European integration has worked out for the good of the richer and of the poorer countries. All have benefitted. Eastern European countries are lining up to join and they are gradually being admitted. One of the rules for joining is “no subsidies”. (Well, except for agricultural subsidies which are a shame and should GO.)
They do not need to be more productive, like the Chinese are not more productive; they need to be more competitive which they , obviously, are. It does not matter that they are making the cars in America, which they do; they are more competitive.
You’re not getting the point. “Japan” is a black box. All I need to know is that I can get Y outputs for X inputs. Why do I care if I get the cheaper goods because the Japanese government subsidizes their industry, or because they don’t have the same safety standards, or for any other reason? All I care about is that I can load a barge with grain or other goods, send it over the horizon, and get back a barge loaded with stuff that I value more than the things I sent.
All the complaints about dumping, and subsidies, and environmental laws and labor standards are irrelevant to the economic question. They are straw men set up to argue for protectionism because the prime economic argument has utterly failed.
Opening markets to Japan is to our benefit even if Japan slaps tariffs on our own exports. Mind you, we’d do even better if they didn’t do that, but in the end, all that matters is whether our goods get more value returned if we ship them abroad than if we don’t, and if the Japanese products represent better value than locally created products.