Posted on 05/14/2003 9:11:27 AM PDT by fight_truth_decay
Maytag recently announced that it's moving its Galesburg, Ill., production facility to Mexico. A group called Americans Against NAFTA has protested Maytag's decision.
Spokesman Russ Anderson said, "We want to spread the word of what we believe Maytag is doing and the destructive effects it will have on Galesburg and the surrounding area. We want to tell everyone that we don't think it's right to put 1,600-plus people out of work for the sake of corporate greed."
This is a typical plea against more liberalized international trade agreements, and if we followed it our nation would have less wealth. Let's demonstrate this with a simplified example that demonstrates the foolhardiness of trade restrictions.
Suppose a U.S. worker's productivity is such that one worker can produce 10 computer chips each day or one bushel of tomatoes. In Mexico, a worker can produce one computer chip or one bushel of tomatoes each day. One might think there's no basis for specialization and trade, since the U.S. worker outproduces the Mexican worker in chips and is equally productive in tomatoes, but that's where you'd be wrong. The Mexican worker can produce tomatoes far more cheaply than the American worker, but to see this you must take opportunity cost into account.
In the United States, the opportunity cost of a worker producing tomatoes is the number of computer chips that could have been produced had he been producing chips instead. Thus, the opportunity cost of a bushel of tomatoes is 10 computer chips. In Mexico, the opportunity cost of a bushel of tomatoes is the one computer chip that must be sacrificed.
Given these cost differences, it's cheaper for the United States to specialize in computer chips and Mexico in tomatoes -- or, said another way, the United States has a comparative advantage in computer chips and Mexico in tomatoes.
Let's look at the outcome if both countries specialize -- and, to keep the numbers simple, assume each country has two workers. The two U.S. workers would specialize by producing 20 computer chips per day and no tomatoes, and the two Mexican workers would specialize and produce two bushels of tomatoes and no computer chips.
Mexican workers might trade one bushel of tomatoes with the U.S. workers for five computer chips. As a result of specialization and trade, both U.S. and Mexican workers are richer. The U.S. workers now have 15 computer chips and one bushel of tomatoes. The Mexican workers have 5 computer chips and one bushel of tomatoes. If international trade is denied, there'd be no reason to specialize and, hence, both countries would be poorer.
International -- and, for that matter, any kind of trade -- makes people better off than being self-sufficient. Unequal endowments, whether they're in the forms of natural resources, labor or capital, make for comparative advantages in production.
For example, Alaskan citizens can produce oranges just as Floridians can produce king crab legs. It's simple. Alaskans could build greenhouses that simulate Florida's weather conditions and Floridians could build aquariums that simulate Alaska's water conditions. Both would be self-sufficient in both products, but Alaskans would pay through the nose for oranges and Floridians for king crab.
Probably most of us would agree that preventing trade between Floridians and Alaskans would be stupid and costly. That conclusion would change not one iota if Alaska happened to be another country, instead of another state.
Preventing international trade does benefit some people. In my Mexico/U.S. example, Mexican computer chip manufacturers and U.S. tomato producers would benefit from outlawing trade. It would enable Mexican computer chip manufacturers and U.S. tomato producers to charge their customers higher prices, thereby making for higher profits and wages.
Trade barriers are an excellent means to higher wealth for the few but lower wealth for the many.
Trade barriers are an excellent means to higher wealth for the few but lower wealth for the many.Hear, hear. Willie Green, call your office.
My only comment is to warn that trade agreements lead to economic unity, which leads to political unity. Just look at the Common Market of the 50's and the EU today.
There are people who hope to accomplish the same end in the Americas. Free trade is great as long as we put in place leaders who appreciate and protect our sovereignty. The FTAA is one such agreement that needs to be carefully watched.
The Marshallians, notably Francis Y. Edgeworth (1894) and Jacob Viner (1932, 1937) took exception to the assertion that all cost was opportunity cost. What they noted was in fact, quite simple: if to acquire anything, one must "give up" something else, then we are effectively implying that there is ultimately a "fixed" amount of everything. But this, the Marshallians noted, is not necessarily true. Resources, they argued, can be regarded as fixed "in the short-run". But in the "longer run", more resources can be made available. For instance, capital may be built; labor can be increased..
U.S. Trade Deficit 2nd Highest on Record
In the new "global economy", economic stimulus via tax cuts is negated by trade policies and the growing trade deficit. The "trickle down" ripple effect is redirected offshore, and Amercian taxpayers are merely saddled with additional government debt.
Instead of trickling-down, rippling through the domestic economy and generating federal revenues through economic growth, Dubya's tax cuts flow overseas in the form of trade deficits and increased overseas investments. Since he doesn't propose federal budget reductions to accompany his tax cuts, the result will be continued deficit spending and increased National Debt.
It's glaringly evident that Dubya's "stimulus package" is severely flawed.
A shift in tax and trade policy back towards that originally favored by our Founding Fathers would be beneficial.The Road to Productive Wealth
The only true key to wealth lies in production. While you can increase your own wealth at the expense of others, we all become wealthier when productive resources are increased. Greater wealth for our economy lies in increasing the quantity or quality of productive resources -- labor, capital, and natural resources. This is done by investing in education, capital goods, research and development, and technology.
As proposed in The First Federal Revenue Law, Congress should enact a relatively low flat-rate, across-the-board "revenue tariff" of 10~15% to be levied on ALL imported goods without exception. The ineffective and damaging influence of protectionist "targetted tariffs" advocated by special interests should be banned.
In conjunction with the revenues raised by such a revenue tariff, an offsetting reduction in other forms of domestic taxation will result in the desired "trickle down" ripple effect stimulating our domestic economy. Any reduction of the bloated, burdensome federal regulatory bureaucracy would also be welcome.
Mr. Williams completely ignores the oppressive burden placed on American production by a federal regulatory bureaucracy that essentially places competitive utilization of our natural resources off limits.
Mr. Williams is an ignorant man.
So long as it's cheaper to do that overseas than here, then we don't benefit. Cheaper goods don't help someone who has no income to pay for them. It's hard to stretch zero dollars.
"The high wage begins down in the shop. If it is not created there it cannot get into pay envelopes. There will never be a system invented which will do away with the necessity for work."-- Henry Ford
There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.
-- Henry Ford
True..but the shareholders (who own the company) may earn more. The 'tea company' may be based in China; but the company headquarters are based in the U.S.. Manufacturing goes to China. ( in response to what this has to do with the price of tea in China?.) Ex-workers may still be shareholders..but lose a 9-5 job providing a 'fixed income' to the ousted worker.
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