Posted on 10/16/2017 12:07:04 PM PDT by TBP
The economic argument for free international trade is basically that people produce in order to consume, not the other way around, so the economic system should be geared to the benefit of the consumer, not the producer. In the economic sense, producers include workers and owners of capital or land, who often join in associations called "firms." There are more consumers than producers, as everybody is a consumer but not everybody is a producer; some live off the production of parents, donors, or taxpayers. So there are more consumers than producers; but this is not the important point.
Free Trade Helps More Than Hinders
The important point is that free trade benefits consumers more than its competitive pressure harms producers. Economic theory provides a nice geometric demonstration of the proposition that the total cost of protectionism for consumers is higher than its total benefits to producers. The demonstration can be (imperfectly) rendered in plain English: if free trade harmed producers more than it benefits consumers, the former could outcompete their foreign competitors by bribing domestic consumers with better prices and still gain compared to ceding the market to foreign producers - and protectionism would not be necessary. When domestic producers are unable to compensate consumers for not patronizing foreign suppliers, it means that free trade benefits consumers more than it harms producers.
That free trade would have net benefits is not surprising in light of the theory of comparative advantage, due to 19th-century economist David Ricardo. If two countries - that is, all producers in the two countries - produce what they are most efficient at, the total volume of goods available for exchange and consumption will be larger.
A popular objection to these economic arguments is that a consumer cannot benefit from lower prices if he does not have a job. Since free trade destroys jobs, it cannot be said to help consumers in general. You can't consume if you lose your job - or you have to consume less by getting a lower paying job or relying on transfers, public (unemployment insurance, social welfare, and such) or private (help from family or charity). Let me call this the "populist" objection to free trade.
A first reply is that availability of jobs is a symptom, not the cause, of prosperity. If jobs were the cause of prosperity, banning agricultural technology would generate much prosperity by dramatically increasing employment in that sector. Nearly 12 million Americans worked in agriculture in 1910 (the year when agricultural employment reached its peak) while they number less than 2.5 million today (for a population three times as large). In the meantime, the total number of jobs in the American economy increased from 37 to 151 million. We should beware of the obsession of job creation, especially by government edict.
Even assuming that the number of jobs is a good indication of welfare, the populist objection is not valid. Although some workers can, like other producers, be harmed by competition, free trade does not destroy net jobs. At least as many new jobs appear as old ones disappear.
Job Creation and Job Destruction
Consider the example of manufacturing. The number of jobs in American manufacturing dropped from its peak of 19 million in 1979 to 12 million today. Most recent job losses in manufacturing come more from the impact of technological progress than from import competition; economists Michael J. Hicks and Srikant Devaraj estimate that international trade accounts for only 13% of these losses. And - this is the important point - while manufacturing employment was decreasing, total employment in the economy increased from 99 to 151 million between 1979 and today, for a net creation of 52 million jobs. In the meantime, and this is the really important point, GDP per capita (the most comprehensive measure of the standard of living) increased by 79%.
Another way to approach the populist objection that free trade destroys jobs is to observe that the main factor in employment is population growth. Employment naturally grows in line with population. Every new worker who arrives on the labor market creates his own job in the very real sense that he spends as much as he earns (or the rest is invested, creating jobs too); indeed, it is precisely in order to spend an equivalent amount that he starts working and earning an income (a reflection of Say's law, recently featured in The Economist). The new worker creates his own job by creating another one elsewhere in the economy through his own consumption.
The figure below illustrates the general point by showing the level of civilian employment in relation to the American working-age population (15 to 64 years of age) over the past half-century. Each dot on the chart represents one year. Observe how closely employment growth tracks population growth. A simple regression analysis confirms the visual impression: the coefficient of correlation is 0.992 and is highly statistically significant (at a level of significance much lower than 1%). Because the working population increases with time, the horizontal axis nearly coincides with the chronological order. The drop in the employment towards the end of the curve corresponds to the 2008-2009 recession and the slow recovery that followed.
We thus have both a straightforward economic argument and empirical evidence to the effect that economic freedom in general and foreign trade, in particular, do not destroy net jobs in the economy. The number of jobs moves with the number of people who want to work, barring regulatory obstacles created by government.
Free trade, as an ideal, only exists when all sides are playing by the same rules. But that literally never happens.
The tariff enacted was a REVENUE tariff not a protectionist tariff. Recall the Nullification crisis when a real protectionist tariff was enacted.
Free trade would have clearly benefited the slave owners since it the products they imported were the ones affected most by the tariff. This had been the case from the beginning but the government had to have revenue.
Trump ran on cutting better deals. The prospect of a tariff would produce those deals. It is a tactic.
It was a REVENUE tariff.
Trade barriers reduce income and people’s economic well-being. There are no arguments that show trade barriers produce net positive economic results only political ones.
Tariffs are such a give-away to big government it is difficult to understand its popularity.
Do you really want the government to tell you what price you have to pay for a new car?
Delusional to the end, that is good to see.
“Trade barriers reduce income and people’s economic well-being. There are no arguments that show trade barriers produce net positive economic results only political ones.”
The United States became the worlds’ largest manufacturer by 1940. Certainly “trade barriers” with had insufficient subtraction to slow that, or were a net add.
China practices all forms of trade protection, from tariff to currency manipulation to outright embargo.
They have risen to, at least, the second largest economy in the world since 1950.
That’s two pretty good arguments if you ask to judge results.
“Do you really want the government to tell you what price you have to pay for a new car?”
You just mean “Do I want government to tell me what the tariff will be on a Mercedes or BMW or some other car not manufactured in the US”.
I EXPECT them to. It’s part of their job.
Not according to the Constitution, it’s not. There is nothing in the document which claims that Price Controls are a job for government.
Because of free trade the Mercedes and BMW are manufactured here. And Toyota, and Honda, and Hyundai, and Mazda. Maybe Rolls-Royces are not but it is hard to find a company which doesn’t have manufacturing operations here.
Also because of FT US companies have production operations in countries across the globe.
These are all beneficial to the entire economy.
Tariffs are a political instrument for revenue to fund the government, to protect critical industries (as politically determined) or to punish an offending nation with high trade barriers.
In 1940 the US and world economies were in a state of collapse one of the reasons for that collapse was the passing of the Smoot-Harley Law in 1930 which killed international trade. Our growth prior to that was military based from WW1 and the void left by the destruction of the British Empire in that war.
It is no news that China does not have free trade but restricts the freedom of its citizens and seizes the profits from international trade. Surely that is not what you want.
Tariffs can easily by turned into an instrument of oppression as in a totalitarian society like China.
http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/tariff-act-1789
Again, a duty of Congress to regulate trade with other nations.
Smoot-Hawley is a red herring. There is no serious scholarship which attributes the collapse of trade in the 1930s to Smoot-Hawley.
Germany saw an 80% reduction in both imports and exports and was nearly completely unaffected by the law. The same applies to most of Europe.
The US suffered a 50% loss, coincident with far greater losses of net trade worldwide.
Serious scholarship says Smoot-Hawley contributed to the deflation of the 30’s, but to contend that Smoot-Hawley precipitated that is not supported by any research that I am aware of.
The world economies were already collapsing in upon themselves when it was enacted.
Although free trade is a useful concept and I have no argument in regard that it is as a principle of economics that protectionism tends to hurt more than it helps in an ideal world where other nations are open to free trade....it is not a comprehensive enough principle to adequately deal with the realities of negotiated trades between nations that play dirty with trade....and not even necessarily to the benefit of their own citizens.
Gravity is a useful concept. And yet airplanes and baloons may defy it...because there is more going on.
I said ONE of the reasons for the collapse was Smoot-Hawley. It clearly did not help matters and made them worse.
Germany went into the 1930s in a state of collapse perhaps even worse than elsewhere. Hitler’s use of monetary controls crimped imports and his use of the Keynesian economic model saw huge state expenditures on infrastructure and the military. Hardly a desirable goal today.
It’s foolish to expect FReepers to be pro-American. Because they are NOT. This website has been suborned.
"Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise:"[1]
We got a Smoot Hawley lie propagator. LOL.
For anyone that isn't brainwashed Smoot Hawley had little or no impact on the Great Depression. Why? Trade was only 4% of the total GDP in 1930 so it couldn't have great impact.
The great Depression was a financial crises and a banking crises Smoot Hawley had nothing to do with it. It as passed the year AFTER the crash.
FREE TRADE is PROTECTIONISM.
PROTECTIONISM is FREE TRADE.
It is not Free Trade. It is Privileged trade, picking winners and losers is Protectionism.
Protection from bad foreign money, from foreign State monopolies; from rigged rules and bad laws; protection from evil brings liberty & abundance.
Foundation for Economic blah blah blah.
What is frustrating is that Free Traitors™ view trade a religion. Trade good, tariff bad. They are child like in their steadfast false assumptions. This website has indeed been suborned.
So all those people that have been laid off over the decades when a factory closes due to offshoring is an illusion?
If this website is going to continue to be taken seriously then the Free Traitors™ have to be fought on every thread, all the time.
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