Clarifications on the Case for Free Trade

Ludwig von Mises Institute ^ | 4/12/04 | Paul Craig Roberts

[Toddsterpatriot]

What we need to do is develop a new computerized tarrif system which takes into account the actual cost of living in the country of manufacture. That way, if for example, the cost of living in a country is 50% of the cost in the US, the cost of the tariff would be 50%.

Getting tired of giving you math lessons, but here we go again.

If the cost of living in another country is 50% of the U.S. then I guess your point is their goods would cost 50% of our goods.

If you add a 50% tariff on a good that costs 50% you would only be adding 25%.

You meant to say a tariff of 100% would bring the price of their good up to the same level.

It's a good thing you're a chemistry and biology teacher and not a math teacher.

[XBob]

326 - "It's using a different method, but a legitimate one.
I didn't invent this. A CPA with a manufacturing firm invented it. As usual, they have 19 different ways to come up with the answer they want...
But if it's five steps at 15%/step, that seems to be 75% to me..."

LOL, you are right - but ToddsNoTrader hasn't seemed to figure it out. And he uses spurious data to generate his proof.

As you know, There's another rule of thumb, that the end user sale price at high retail is about 500% of the cost of manufacture. And this is also accounts for the labor at each level. So, if you see something advertized for sale for $100, you can generally figure that it cost $20 to make. That's a total of 500% increase.

But look at toddsNoTrader's numbers, he has just one step adding $15 labor to a $100 item, and then being valued at $1000, that's a thousand percent increase, at one level only. ROTFL. He must be an Arab, Chinese or Indian trader.

And he can't seem to figure out that there is no way that is going to happen normally, at that level (4).

[XBob]

326 - "It's using a different method, but a legitimate one.
I didn't invent this. A CPA with a manufacturing firm invented it. As usual, they have 19 different ways to come up with the answer they want...
But if it's five steps at 15%/step, that seems to be 75% to me..."

LOL, you are right - but ToddsNoTrader hasn't seemed to figure it out. And he uses spurious data to generate his proof.

As you know, There's another rule of thumb, that the end user sale price at high retail is about 500% of the cost of manufacture. And this is also accounts for the labor at each level. So, if you see something advertized for sale for $100, you can generally figure that it cost $20 to make. That's a total of 500% increase.

But look at toddsNoTrader's numbers, he has just one step adding $15 labor to a $100 item, and then being valued at $1000, that's a thousand percent increase, at one level only. ROTFL. He must be an Arab, Chinese or Indian trader.

And he can't seem to figure out that there is no way that is going to happen normally, at that level (4).

[XBob]

Well, ToddsNoMathWiz got me for a few minutes there, because of his screwed up premesis, and methods using dollars and prices to figure labor percentages.

So, here's your chart based on labor hours incremented at 15% per stage:

100
115
132.25
152.0875
174.900625

[XBob]

380 - And ToddsNoTrader, while he doesn't understand trade, can't even figure out what 'for example' means.

Ninenot, Since you are interested in trade:

It really gripes me, these people, who don't understand about trade, and disparage our opinions. I know things have changed a bit since I went to international trade school, and spent about 5 of my years as international Traffic Manager, building those petro-chem plants around the world. I shipped millions of tons of cargo, charterd ships, negotiated tariffs, wrangled with customs around the globe for years. It was very interesting.

The school was located in the World Trade Center in NYC, and got blown away in the massacre, but they are back in business. World Trade Centers around the world offer some courses, though this is one of the best, and it is now on the internet.

Check out some of the professional courses - you may be interested:

http://www.wti.pace.edu/SITC/course_descriptions.html

World Trade Institute, School of International Trade & Commerce

http://www.panynj.gov/pr/88-97.html
NEWS
World Trade Center
88-97: FOR IMMEDIATE RELEASE , July 1, 1997
The World Trade Institute, one of the nation’s leading schools specializing in international trade, transportation, taxes and language studies, has been purchased by Pace University.
The Institute will continue operating on the 55th floor of One World Trade Center in New York, where the Port Authority first opened it in 1970.

Cyborg, I told you I lived in NYC several times, and went to the above school on one of them. Since you are interested in other countries and have some experience, you might wish to check out the links. This is an interesting career and can pay pretty well, and good freight forwaders made 100k plus 20 years ago.

[ninenot]

Show us those "facts" about the "trade surplus."

Maybe you'd like to tell us that the Services net outflow reported last month (first in history) is a GOOD thing, on top of the continuing merchandise trade DEFICIT.

[ninenot]

He demonstrated that running 15% 5 times is NOT the same as 75%.

Regardless, we can agree that the cost of ALL labor (whether direct or indirect, and fully-burdened) still makes up about 75% of the cost of merchandise, and approx. same of services.

[ninenot]

"Cost-of-Living" and "Gummint costs" are kind of a chicken/egg thing. One can easily argue that the cost of living is hyped by reg/tax costs--but that's only part of the story, as the labor cost for building apartments in Sudan is quite low, too.

However, we SHOULD agree that the West's understanding that the capital/labor equasion should be BALANCED is the nub of the argument here--IOW, that in a rightly-ordered society, neither Capital nor Labor should dominate, but that both should work together.

The offshoring phenomenon is Capital's revolt against the ideal.

[ninenot]

AHA!! I KNEW there was a missing step in the formula. Thanks!

[Toddsterpatriot]

So, here's your chart based on non-labor inputs at 85% per stage:

100
185
342.25
633.1525
1171.71350625

[Toddsterpatriot]

So, if you see something advertized for sale for $100, you can generally figure that it cost $20 to make. That's a total of 500% increase.

Wow, you really don't understand math.

If something cost $20 to make and you sell it for $100 the $80 increase is an increase of 400%, not 500%.

[Toddsterpatriot]

And he can't seem to figure out that there is no way that is going to happen normally, at that level (4).

The numbers at any point are examples in no way meant to represent real products.

Value added

1st step $10 , $1.50 labor.

2nd step $20 , $3.00 labor.

3rd step $50 , $7.50 labor.

4th step $100 , $15.00 labor.

5th step $100 , $15.00 labor.

Final cost $280 , $42 labor

Plug any numbers you want for value added, labor still totals 15%.

[Torie]

That's interesting. I will take your word for it. Protectionism will cause America to lose its edge. The planet cannot afford that. That is the primary reason I am so passionate on this issue, beyond the inevitable overall degradation in the standard of living of Americans vis a vis a protectionist regime. America has unfinished business to do on this planet.

[ninenot]

IMHO, protectionism will NOT cause US to 'lose the edge,' and you only have to survey the last 100 years of industrial/technical progress to determine that.

Virtually all the technological development in that timeframe was done here. Major exceptions: BASIC rocketry, by Nazi Germany (perfected here;) the diesel engine, Germany; --there are others.

But manufacturing prowess: all invented here (some exported to Japan, then re-imported under duress...); electronics smarts, guidance systems, software for manufacturing, all done HERE.

Reason: we compete internally, all the time. You developed a specialty practice and compete against Big Downtown firms...right?

And "protectionism" is one thing--but maintaining a standard of living is another thing entirely. That calls for judicious, flexible tariffs, not cut-offs or shut-offs, EXCEPT in the case of war.

Another thread: (run FR search on "Losing China" Again by title) contains a thread-head article which proposes that Red China is more than a little bellicose toward the USA, although they are masking it for the time being. I think it deserves some serious consideration.

BTW, the article simply goes into further detail on what some of us have been saying for quite a while--that PRChina is deliberately and carefully stealing our industrial base for purposes that have very little to do with "empowering the masses" in China.

Not by co-incidence, X42, who will be remembered as the highest-ranking traitor in US history, was the single most significant proponent of "make nice" to PRChina, after Kissinger, whose motivations were always doubtful--that is to say, never clearly patriotic.

[Torie]

Man, you seem to think government can direct a command centralized economic protectionist regime "intelligently." The US has been free trade since trade became a significant factor in its overall economy. If non competitive industries are cosseted, in time, particularly since protectionism is so hard to really enforce, the US would be eaten alive economically in rather short order. The US needs a Darwinian testing to retain its muscle tone.

I don't worry much however about this issue. A serious protectionism regime will never be enacted in America, for any length of time. The negative consequences will so quickly manifest themselves, that the regime would collapse of its own weight. The debate is simply for public consumption during campaigns by those protectionist elements who think it might further their drive to power. That drive will fail too. I have confidence in the ultimate good judgment of the American voter on the basics.

[ninenot]

Man, you seem to think government can direct a command centralized economic protectionist regime "intelligently."

Not really. But a few years of "whoa--let's look at this.." won't hurt too much.

The US has been free trade since trade became a significant factor in its overall economy.

I think your history is erroneous. Recent history: Ron Reagan, a conservative as you recall, discovered that the Japs were dumping both cars AND motorcycles in the USA and stopped them, cold.

But hey, Harley-Davidson is just buggywhips, right? Junk, right? Fat lazy managers and union types, right?

Not-so-recent history: we have ALWAYS maintained tariffs, just as we have ALWAYS subsidized certain export industries (principally agricultural.)

Where do you get this "free trade" stuff?

[Torie]

Ya, and the US bailed out Chrysler, and that was a mistake too. The current regime of tariffs is a minor factor, and has been for a long time. Let's get a bit more recent here. How did the Bush steel protectionism measure work out? First, it hurt industries that consume steel, and put Ohio manufacturing in a slump, and Ohio in play in the election, and then it was found to be a violation of various treaties by the world court, and our major trading nations were about to slap on retaliatory tariffs, and then Bush ran with his tail between his legs, which was a most intelligent cutting of his losses over a very stupid and counterproductive policy.

And there you have it.

[ninenot]

Since I live in the Rust Belt and have a far more nuanced understanding of the steel tariff, please allow me:

I have no idea why GWB imposed the tariff--although I suspect it was for two reasons, both political: 1) to bail out the Big Steel boys who are a bit inefficient, although VERY necessary to the national defense (the mini-mills don't make steel from scratch--they only recycle..); and 2) the unions wanted Big Steel up and running to fund their pensions. (As you know, Bush also shoved through a defined-benefit pension rescue plan, altering the required contributions by re-indexing the actuarial numbers...)

Having said that,

The Administration F$%^&$d this up to a fare-thee-well, demonstrating (to your credit) that too many years at Harvard and Yale leave you educated FAR beyond your intelligence. Follow this carefully:

The Administration placed a tariff on raw steel, but NOT on fabricated steel. Thus, while US fabricators had to pay a gazillion dollars for raw materials, FOREIGN fabricators did not. Multi-nationals who operated both here and overseas merely moved their fab. operations to Canada, or Mexico, or wherever, and brought the steel in, free of US tariffs.

But small, or mid-sized US-only fabricators got screwed.

Had the Administration had an understanding of the real world, they would have slapped the tariff on ALL steel AND fabricated steel products, avoiding the dislocation.

(It had no noticeable effect on consumer product purchases, did it? You note that retail sales have hummed along quite well, regardless, do you not???)

In any case, the WTO boys railed and puffed, and GWB backed down. Had he some actual interest in the welfare of the citizens of THIS country, he could have told WTO to F%^^ themselves, cut side deals with our largest geopolitical ALLIES, and pissed on the WTO treaty as he shredded it for the cameras.

But no. He gave in. He's a wuss.

[Torie]

Ya a more comprehensive tariff would have made all US goods that used steel to be less competitive in the international market. It is good there was a workaround to limit the damage.

I must say that you are more knowledgeable than the normal Luddite protectionist. I enjoy chatting with you. You are worthy of my time. I mean that as a complement. Carry on.

[ninenot]

Thanks, I guess.

When all the rest is said and done, it's critical to remember that the US does have enemies, and they are not just a bunch of ragtags in the Middle East.

BTW, you'll be interested to know that the new slander against us "Luddites/demi-Luddites" is that we're aided and abetted by George Soros--and conversely, aiding and abetting him.

Watch for further development of THAT theme. Should be thrown at PJBuchanan any day now.