The public’s mixed views on free trade
The latest Lowy Institute poll on Australia and the world shows some now familiar patterns of belief on free trade. As I argued in Policy some years ago, while the Australian public remains protectionist, this does not mean they fail completely to understand the arguments for free trade.
For example, 72% of respondents to Lowy’s poll agreed that freer trade ‘leads to lower prices and more product choices for consumers’. 67% agreed that freer trade ‘helps to increase prosperity, both in Australia and other parts of the world’. 84% agree that it ‘enables Australian business to open new markets for Australian products’. On all these propositions, public and expert opinion is close. There is even majority support for the social and political benefits of free trade, with 64% agreeing that it ‘makes the world more stable by putting people from different countries in contact with each other’.
Yet when it comes to a specific question on a free trade agreement with China, only 38% say that on balance such an agreement would be good. Why? The answers to some of the other questions on free trade give us some clues. 68% of Lowy’s respondents believe that freer trade ‘puts Australia at a disadvantage because of our high labour and environmental standards’. 50% agree that freer trade ‘costs more Australian jobs than it creates’ and that it ‘leads to more economic and social inequality’. 42% think that freer trade ‘leads to lower quality jobs in Australia’.
People are more in favour (47%) of a free trade agreement with Japan than China. I think this parallels initial reasonably strong support for a US-Australia FTA – that Japan, like the US, is not seen a low-cost manufacturing competitor (these days ‘Made in Japan’ is a mark of quality; it used to mean what ‘Made in China’ means today, ie cheap). Support for FTAs, though short of majorities, is always well above questions that assume unilateral tariff cuts – the idea that Australia is getting something in return helps increase public support – which is probably why the largest favourable response in the Lowy survey is on opening markets for Australian business.
Many economists think that even unilateral tariff cuts are better than maintaining protection. But to carry public opinon, reducing protection through international agreements is the way to go.
September 2nd, 2007 11:59
Obliquely, it’s always amusing to watch the “cheap imports are costing aussie jobs and destroying local industries” stories on shows such as Today Tonight – the most recent story I saw had local swimwear manufacturers complaining about the cheaper chinese-made imports and saying how the local industries should be supported by aussies, and they hoped that part of their salvation would come through increased export opportunities (!). Cognitive dissonance or what?
More seriously, I’ve found that many people have a poor understanding of trade and international economics (not that I’m claiming I don’t) and that more often than not they complain about the challenges of competitive imports rather than thinking of ways to thrive in an international marketplace.
In relation to the opinion poll stats on a FTA with China, the “fair trade” vs “free trade” campaign may be colouring people’s responses – certainly this is an idea amongst some unionists and some people in the ALP, and no doubt the general population.
September 2nd, 2007 14:41
It would be interesting to ask people what products they think Australia and China actually compete on and how much difference they think that tariffs and other protectionist measures would actually make. It would also be interesting to look at people’s behavior on items where there is potential competition (like clothes).
I think a lot of people that are against free trade seem only too happy to buy the foregin products when given the oppurtunity (hypocrasy in action). There’s a funny example of this where I work in France — the kiwi lamb is about half the price of the European stuff. However, I have never actually ever seen it in stock — it evidentally sells out very quickly and I presume there are restrictions on the amount that can be imported. Given the general public debate, this is all very amusing, because it shows you that all the people telling you how important agricultural protection is evidentally don’t mind buying the cheaper stuff at all.
September 2nd, 2007 15:42
Conrad – I think this is a case in which revealed preference through purchases reveals more than public opinion. I think loss aversion psychology is probably important too – these days while we still see campaigns to ‘save’ existing jobs through higher tariffs, we almost never see any proposal to ‘create’ jobs by imposing tariffs to let an ‘infant industry’ grow. That would cause prices to increase, meaning that the consumer would see a new loss.
September 2nd, 2007 17:50
With respect Conrad, it doesn’t necessarily show any such thing… in an economy this size, you’d have to track individual opinions and purchasing behaviour to get any clear idea of whether people are being ‘hypocritical’.
I imagine many probably are. But observing a) lots of French people support agricultural protection, b) lots of French people buy NZ lamb, does not in any way lead to c) lots of people who think a) are hypocrites. That ain’t a chain of logic, it’s a conclusion looking for evidence.
September 2nd, 2007 20:36
Sacha, I’m sure it’s great fun to mock working class concerns about jobs.
Yet, as an academic mathematician, you lobby for greater government protection of academic mathematics jobs. Personally, I think mathematics and IT need a good examination.
Note I am commenting here on your hypocrisy, not the wider issues.
September 2nd, 2007 21:42
Tony, I am not an academic mathematician. I work for a private company. There are, to my knowledge, no protectionist elements protecting my job. Indeed, one of the current challenges facing the small number of people doing jobs similar to mine is that there is no intrinsic reason it couldn’t be done overseas, other than greater quality control over locally done work. It would be entirely possible that a large part of my job could be outsourced overseas, and if that happened, well, I would have to do something else. This is life.
I do not mock people’s concerns over their jobs and I do not see why one cannot draw attention to absurd stories on “current affairs” shows.
In relation to my support for the report you link to, I acknowledge that mathematics departments have had problems in the last 15-odd years marketing themselves to potential students and apparently internally in universities. Many academic mathematicians think that their discipline automatically deserves support for what they see as intrinsic reasons. A principal of Data Analysis Australia, a private firm in Perth, recently wrote in the Gazette of the Australian Mathematical Society about how instead of moaning about the sky falling in, mathematics departments should market themselves properly, which all private companies have to do. I have sympathy with his view.
I am not going to discuss the “intrinsic” arguments because the arguments are difficult and I am very suspicious of them. I think (and have observed) that the quality of mathematical components of university education in the last 15-odd years has declined, in a large part due to what looks like an incorrect funding formula that doesn’t take into account the capital requirements of mathematics teaching (e.g. for computers) and in which the mathematics skills and knowledge of many students entering university in which mathematics is a (effective) pre-requisite have declined.
A large part of the argument is that the mathematics standards in some tertiary courses are less than they should be – possibly due to prerequisites being removed and/or other departments taking over the teaching of mathematics in their courses. As I understand it, the concern is with the mathematical knowledge and skills of graduates, which is sought to be addressed by more rigorous work. The concern is not unlike that concerned with high school teachers teaching subjects they are not trained in.
September 2nd, 2007 21:49
BTW, the job market for academic mathematical jobs is international and always seen to be such. To my knowledge, there are no “tariff” barriers attempting to prevent overseas people being employed at the expense of Australians. This, of course, makes every position highly competitive and extremely difficult to get, even for very good people.
Even if governments “created” a number of academic mathematics jobs, this would be an increase in the worldwide total number of such jobs, which would offer marginal benefits to Australian jobseekers.
September 3rd, 2007 06:26
Andrew, I think your analysis is exactly right. But I wouldn’t conflate FTA support with free trade support. My informal straw polling suggests that most Australian academic economists support free trade, and oppose discriminatory FTAs (as distinct from the rare non-discriminatory FTAs in which you lower barriers for every country in the world).
September 3rd, 2007 06:52
Leopold. I don’t get your logic (excluding those that believe in free trade — who surely are not the only ones buying the products). I could point out many other examples from places in Europe (clothes for example). The fact of the matter is that lots of these people screaming and about the need for protection and how good it is are buying non-protected products whevenever possible. This includes products with no particular intrinsic cultural value which are not start-up industries that do not employ many people (e.g., cheap clothes). Why is this not hypocritical (you should be buying great expensive French products, even though I don’t?). If they loved French jobs and industries so much, they wouldn’t buy these products. Instead, they try and force everyone not to, yet buy them themselves.
Sacha — most of your comments could apply to almost any subject area. I tend to think the main thing making the difference is really only the high school system, which has made maths/science unattractive to many people (or perhaps society in general), and these students have swapped into other courses. Most courses, for example, have gone down in quality, which is surely one of the reasons for degree inflation. Its also quite possible now to get a degree in many areas and learn almost nothing. You should look at it on the bright side — the less people that get trained well, the more you will be worth.
September 3rd, 2007 06:55
Andrew – While economists often regard FTAs as trade distorting, and in practice like the US FTA there are lots of exceptions to ‘free trade’, I’m not sure that much of the general public is aware of this so in reading public opinion I think we probably can compare Lowy’s questions about ‘freer trade’ with their questions about FTAs.
September 3rd, 2007 08:42
Andrew, agreed. That’s what I meant in my opening line, saying your analysis was on the money.
September 3rd, 2007 10:01
conrad – “most of your comments could apply to almost any subject area” – quite possibly! I’m not a warrior for any particular thing and will quite happily change my mind if presented with the relevant information.
September 3rd, 2007 10:19
Sacha, tarriffs are only for mugs. You guys go straight to the source and ask for more jobs directly paid by the government.
Also, protectionism isn’t confined to national interests. It’s also a feature of many international groups. The fact that mathematicians travel doesn’t negate the value of more jobs created in Australia. What’s more, the group of job applicants, although larger than the number of openings, is constrained, enhancing the value of additional jobs.
September 3rd, 2007 10:38
Tony, go ask the people who wrote the report why they wrote what they wrote. I put my name to it not because I supported every detail in it, but because I thought it might be useful as a way of putting forward the idea that the mathematical content of tertiary courses is less rigorous than it should be.
As I mentioned, I support the contention of the Director of Data Analysis Australia that the mathematical profession needs to market itself moreso, like every other business in a competitive market rather than just asking for more money from government. I wrote to the Australian Mathematical Society saying this.
No doubt, elements of “the intrinsic need for people to work on this area” lay behind part of the report, but I have no doubt that there is also a genuine concern with educational outcomes. I support better educational outcomes – the ways to achieve this are up for debate of course.
Certainly the group of job applicants is constrained, but relative to the number of jobs, is enormous.
September 3rd, 2007 10:55
Tony, I haven’t read the report, only the open letter to which you provided a link. But I am not clear what you are saying – are you saying that supporting free trade while seeking additional government spending on something is hypocritical? Even assuming Sacha signed the letter because he is a rent-seeker rather than because he believes more funding would promote efficiency, I would hate to think that supporting free trade while lobbying for some sort of benefit makes one a hypocrite. Is it hypocritical for me to support free trade while lobbying for more spending on cancer drugs (from which I may benefit), or foreign aid (which may bring me utility) or a local road project (on which I may drive)?
September 3rd, 2007 11:49
Conrad – if I were in France couldn’t I buy Kiwi lamb and Chinese clothes and not be a hypocrit – if the amount of lamb let in still allowed for a viable local industry (which is what I wanted), and if there were not readily available locally made socks, t-shirts etc. In Australia I might want to buy those kind of cheap clothes from local manufacturers, but there aren’t any.
September 3rd, 2007 13:36
Russell, there’s a large and very inefficient industry in lamb in Europe — I believe the average sheep probably has a better lifestyle than the average African in terms of money and medical facilities, and the average cow certainly does.
Also, you are missing the logic of protectionism for clothes in Europe. If you protect the local industries enough, you won’t be able to buy the cheap clothes at all (since the local industry doesn’t make them, and the cheap imported clothes will become expensive). You will therefore either have to buy expensive clothes made in Europe, cheap clothes priced expensively made in Asia (unless there are outright quotas — which there are on some products), or just pay more, when the clothes you want are not made in Europe despite the protection (like running shoes).
September 3rd, 2007 15:29
Conrad – large and inefficient isn’t the point. I wouldn’t be a hypocrit if I wanted as much cheap Kiwi lamb as would still allow a local industry. I might value local more than price if it came to closing down local production.
Re clothes – people don’t always see the consequences of what they do: buying cheaper socks from China means all socks are now from China. Now we read about chemicals in the fabrics etc and may decide we want to buy local, but there aren’t any available. I think hypocrit is too easy a label to describe how people balance and shift their views on these subjects. I’ve no doubt that one way or another we’ll have Sunday trading in Perth and when it happens people will flock to the shops – will you call them hypocrits because two thirds of them voted against it in a referendum?
September 3rd, 2007 18:27
Yes, I will.
September 3rd, 2007 18:31
Myths about FTA’S,
! They are not about FREE TRADE, they are about preference trade.
2 Since the introduction Oz/US FTA our debt to US has acutually increased. Check out the ABS website and USA BS website (I don’t know what its called can’t be bothered looking) they have different figures but still an increase. In some years the level of trade has decreased.
FTA’s are smoke and mirrors some gain some lose, overall OZ has been the loser as Blind Freddy could have foretold and as I did in a letter to Alann Kohler, he didn’t believe me but i have been proved right.
Never put your faith in bean counters human beans don’t work that way.
September 3rd, 2007 19:59
Alan
Could you impart some of your excellent knowledge a little further.
Tell us please:
How do you connect an increase in debt with the US on the FTA. A debt increase could in itself actually mean we are buying more off them. Why is this bad? If Australians demand more US goods isn’t that a good thing. Doesn’t that mean Australian wants are being satisfied?
It may mean that you have somehow found the pitfalls in free trade in which case you ought to be published.
September 3rd, 2007 20:04
Russell
Don’t be a scaredy cat. I promise you Chinese socks won’t kill you.
If you exercise, don’t smpke and leave the piss alone, you should be all accounts live a long life… that is even by wearing chinese made socks.
I see the green muppets have got to you and made you scared. Don’t be.
Cheap Chinese socks are well made. in fact I git a few pairs of Chinese made Hugo Boss socks and wearing a nice dark pair right now. I’m still alive! Fancy that.
September 3rd, 2007 20:07
Russell says:
“……- will you call them hypocrits because two thirds of them voted against it in a referendum”
Well they are really aren’t they? Just because it is impossible to call them that doesn’t mean they aren’t.
———–
Correction
In fact I GOT a few pairs of Chinese made Hugo Boss socks for Father’s day…………….
September 3rd, 2007 20:39
“got” is such an ugly word. “received” or “bought” are much nicer.
September 3rd, 2007 22:09
Darn right Sacha.
You’ve have (not got) me thinking the same about that word now . I will never use it again. It doesn sound horrible, you’re right.
September 3rd, 2007 22:43
Neither the coarse skin nor the impoverished principles of the penny pinchers will be irritated by Chinese socks, but for those of us whose feet are on the ground but heads are in the clouds Chinese socks are an abomination of style and betrayal of our potential to produce a chemically unadulterated and morally superior sock.
September 3rd, 2007 23:04
morally superior?
September 3rd, 2007 23:23
JC
US companies manufacrure cheap goods in Mexico import them to US sell them to OZ as made in USA, undercutting locals and creating unemployment in USA and OZ. Just one little rort there are probaly thousands more.
September 3rd, 2007 23:25
Put a sock in it Russell. Maybe you’re just a cheap dude who doesn’t want to spend more than a few bucks on a decent pair of socks.
Dude, I’ve worn these hugo’s all day and heven’t felt faint or like I was bout to callapse dead.
Maybe you ought to spend a few bucks and get yourself a better pair of Chinese made socks that will make you feel like you’re the green party’s Warren Buffet.
Stop being a miserble cheapskate and spend it up a little, pal.
Dude, there’s global waming going on and the world is gunno end on march 16 2213. Why are you worrying about socks?
September 3rd, 2007 23:39
With due respect Alan, don’t be so bloody silly.
The US unemployment rate is lower than ours and ours is at 30 year lows. Our wages grwoth has never been better. while the US wage rate has been a little stymied from the 11 million illegals that have crossed the border and placed pressure on the lower quintile of the US work force. That s separate issue. However US wages has grown in all sectors of the US.
Free trade between the US and Mexico has been a good thing. In fact it’s been a great thing. American have been able to purchase cheaper goods while the Mexican standard of living has now reached first wrold standards… around $10,000 per cap. Everyone has been a winner with the FTA.
Before the FTA US tariffs on imported Mexican goods was around 5% while Mexican traiffs were around 30%. Both sides won with AFTA.
If you’re that preoccupied with cheap labor you may want to explain why people in Mali aren’t fully employed by international firms as their rate is about 5 bucks a week or so.
It’s not cheap labor that makes a difference, it the ratio of capital to labor that raises living standards. This argument was settled 200 years ago and you want to bring it up now. Pleaaazzze. It’s about as settled as it could be. Free trade works as it improves the living standards of all participants no matter what worry warts like you and Mr Cheap Socks think.
September 3rd, 2007 23:40
That’s right – just like the morally superior FairTrade chocolate. I can recommend it Sacha, for lazy people it’s an easy way to exercise good morals. I exercise mine a lot with Coccolo – organic, FairTrade … (didn’t I advertise Coccolo here already?)
This topic has just afforded me a pleasant moment of Googled nostalgia – I was thinking of my grandfather who wouldn’t buy anything Japanese (hence everything ‘Asian’), because of the prisoners of war in WW 2. He traded in his old Ford for a Simca (I’ve been looking at SIMCA pictures), which came to me after he had a stroke. I felt quite smart in that Simca – definitely the only one in the UWA carpark. I was able to take that car to be serviced at my parents’ mechanic because he, who had been a prisoner of war on the Burma railway, wouldn’t service Japanese cars. None of those kind of barriers to free trade now – what a different world it was.
September 3rd, 2007 23:41
Alan
The US GDP was about US$8 trillion when the AFTA was introduced. It is now US$13 trillion.
September 3rd, 2007 23:43
Russell
Promise me you’ll go out and buy some expensive Chinese made socks tomorrow. Do it for the kids sake.
September 3rd, 2007 23:52
JC – that is a low blow. I do have cheap socks (not so cheap actually because they soon go hard and shapeless, and one of each pair disappears in the washing machine, so you have to keep buying the wretched things) but not for want of looking. The only socks I have seen that come from a good home were some French socks – I didn’t care about the price, but they were made from mercerised cotton and I don’t approve of shiny socks (European sophistication, I suppose).
September 4th, 2007 00:07
Take Alan with you on your buying spree. You’re getting the socks and maybe you could find him a Mexican sombrero for the summer. Both of you could in fact.
http://www.franciscancaring.org/6_sombero_ladies.jpg
September 4th, 2007 00:09
You lot obvisously can’t check a website have a lookat the stats our exports to the US have fallen and our debt increased since the intro of the FTA.
September 4th, 2007 00:47
Alan
for gawds sake…..
Has our living standards risen since that time?
Yes.
Have our exports and imports risen during that time
Yes
Have people’s wants been satisfied during that time.
Yes, as some have made the choice to buy US goods.
What exactly is your problem?
As our imports have risen from the US, China has now become our largest trading partner (not because of socks).
It silly to look at our trading with one nation and panic. There could be numerous reasons why there has been capital inflow from the US.
I dare one reason could be that the US has a huge advantage when in come to private equity firms which means they are buying up our firms at a premium and making Australian shareholders wealthier.
Stop worrying enjoy the spring and worry about othr things…
If we were so badly off you may then what to explain why the exchange rate is now 82 cents while before the FTA it was langusihing at around 50 cents.
Our very own real estate firms have been buying up lot’s of US commerical real estate too, you know, which may not be a good thing in the not too distant future.
just stop worrying and look at the aggregates.
September 4th, 2007 07:24
“You lot obvisously can’t check a website have a lookat the stats our exports to the US have fallen and our debt increased since the intro of the FTA.”
Alan, you’re committing the ‘fallacy of asserting the consequent’.
Just because two things have happened at the same time (eg, rising imports from the US and the US-Australia FTA) doesn’t mean that the one caused the other. The cause could be a third factor of which you’re not aware.
For example:
A more likely explanation for the change in the balance of trade with the US is the rise in the Australian dollar against the US over the last few years. I expect that, even with the FTA, when (if?) the Aussie depreciates the balance of trade will begin to move the other way.
The same goes for the debt numbers. As I remember it, our debt has been rising for twenty years, whereas the FTA was only introduced around three years ago. This suggests a cause other than the FTA.
As for our not being able to check a website: maybe, like you (comment #20) we just ‘can’t be bothered’.
September 4th, 2007 09:51
Rajat, I was saying that Sacha is hypocritical in mocking one group of workers for seeking government assistance to keep jobs, while doing the very same thing, dressed up in different social trappings.
I was not commenting on “supporting free trade,” but on Sacha mocking concerns about the effect on workers. I pointed that out in my initial comment.
September 4th, 2007 10:01
Tony, as I mentioned, in my job, which is not as an academic mathematician, I am completely subject to being outsourced overseas. I am not seeking any protection.
September 4th, 2007 10:10
And Tony, I think it’s perfectly reasonable to point out the apparently contradiction in people wanting to obtain export markets but complaining about imports. What do you think about this?
September 4th, 2007 11:43
I think Alan’s comment highlights the underlying reason for the public’s stance on trade – mercantilism: exports are good, imports are bad. I remember hearing former(?) Age State Economics writer, David Walker, speak at Melb Uni over 10 years ago. He said that economists had been successful in persuading the public of the existence of scarcity – and hence the need to make choices and trade-offs – but had not been able to convince the public of the case for free trade. It’s just too counter-intuitive for the average carbon unit (my conclusion, not his). Perhaps one useful analogy could be that seeking higher exports and lower imports is like working without getting paid. Surely most people would prefer to get paid without working!
September 4th, 2007 12:53
Let’s not forget the economists who actually are like the deniers in AGW. These are the people who suggest that some tariff protection and industry policy is a good thing. These people are nothing more than enablers who pass on bad ideas to the public.
September 4th, 2007 13:30
Hi just snooping in from America. You might not be following our economy as closely as I am and so unaware that we heading towards a globalism implosion. Its all well and good to discuss free trade’s theoretical benefits. Don’t let the fact that every country that has tried it has crashed and burned discourage you. Japan is just now recovering from a 20 year recession. On my visit to China we went weeks without seeing the sky because of “Asian brown cloud” (see Wikipedia). While working in India I read about farmers commiting suicide in droves. South America so crashed and burned with this nonsense that they are now forming some sort of socialist union. The oil trade has left dictators in power all over Russia, the Middle East, Africa. And now finally even the US is teetering under the burden of debt caused by its trade deficit (indeed if Australia had anywhere near our level of percent GDP debt you’d all be sent to debtors prison).
Yes free trade in moderation is good which explains why some segments of some societies have seen some benefits. The mixed views are the result of the public not buying into globalisms crazy absolutist purist ivory tower nouveau riche religion.
September 4th, 2007 14:01
David
Japan- loose monetary policy caused the boom and then too tight monetary polcy compounded by some pretty big fiscal errors made it worse. Gloablisation probably saved them from depression.
China- lack of properly defined property rights and no vote is the cause of the plume in the same way that the environment was so degraded in Russia and Eastern Europe before the wall came down.
India- Dunno know about the suicide issue but I hardly think it’s because Indians can purhase more Sony TV’s.
South Am- Has always been a socialist dung hole.
Dictators is oil rich countries- not really our problem. The people there should do something about it.
US debt- Yes Ask Allan Greenspan why he left the o/n rate at 1% for 18 months. Again looose monetarry problems.
Australia has a bigger personal debt problem than the US.
Free trade is good. Globalization has nothing to do with the problems you presented.
September 4th, 2007 14:53
JC wrote:
Yes – they should tell us to stop mucking about in their politics, killing their elected leaders and hoisting our own sham, puppet governments so that our propped-up, cheap energy capitalism can continue it’s sputtering progress. I know we’re all supposed to believe in the economic miracle of free trade, but the whole lot is underpinned on oil, which in reality isn’t cheap at all if you include the horror inflicted on the countries who are infected with it. Every time we don’t pay full price for oil, one of those poor bastards pays for it in a missing limb or a dead relative. I’m ready for nuclear now – at least the horrors will be visited on us rather than them.
September 4th, 2007 15:41
David
Sorry to say but that’s about the most emotive nonsense filled missive I have read for a while.
Perhaps you too need to tell us why free trade doesn’t work and if so why haven’t you been published yet.
September 4th, 2007 16:59
jc, free trade does work. We haven’t got it.
September 4th, 2007 19:13
Then let’s keep trying David.
If you’re in Sydney the LDP is running a pro-free trade rally on Saturday. I’m sure you will attend, right?
September 4th, 2007 20:00
Going by David’s contribution (not David Rubie’s), it looks as though the “fallacy of asserting the consequent’ is in season.
I wonder where Alan has gone.
September 4th, 2007 21:52
Alan’s gone off to buy that sombrero he always wanted before it got too expensive because of the exchange rate.
Russell has been trying on and sniffing Chinese socks all day and got arrested in a clothes shop as a consequence.
September 4th, 2007 21:54
And Daivid Rubie is trying to get his piece published ……
The Disadvantages of comparative advantage.
September 5th, 2007 00:51
Sorry for the time difference. JC if you really don’t understand the connection between loose monetary policy and free trade then you have a lot of reading to do. With limited free trade one has maintain some semblance of self reliance. With crazy full blown no tariffs at all free trade you have the option of going way into debt as a nation and letting other countries bail you out. I know you’re going to say that’s the only way a China or Japan can get their factories going is by eating US over printed money. I doubt that. Maybe normal growth would have taken a bit longer but then we wouldn’t be on the brink of financial chaos.
September 5th, 2007 01:08
David,
Can you point to any research to back up your theory of “With crazy full blown no tariffs at all free trade you have the option of going way into debt as a nation and letting other countries bail you out”?
In comment #44 you talked about ‘free trade in moderation’. Can you tell us exactly what the difference is between ‘free trade in moderation’ and ‘crazy full blown no tariffs at all free trade’ – for example, what goods would you exclude from free trade under the ‘moderation’ regime?
September 5th, 2007 02:07
Jeremy you can see this Wikipedia entry and notice that the end of the tariff in America (see period 1980s to present) was also the, if you look at any chart of our trade deficit, the beginning of insane levels of foreign debt. The reason is simple – with commodities kept at some comparable level you have no incentive to take out a huge loan to pay for something from another country. I’m not going to bother Googling for research for you because the onus of proof is on the people who have decided tariffs no longer play ANY role. Its a bit like cutting the brake line on my car and then, after a great speed up that you approve of, asking me if I have any research that proves driving with brakes is safer.
Same thing on ‘free trade in moderation’ – this was the system for hundreds of years. Its up to you to explain how the absolutely no tariff system is supposed to work.
September 5th, 2007 02:17
David
Why is foreign debt such a big problem in of itself. I would say that the big problem doesn’t belong to the US, the problem resides with those owning the debt.
The US is essentially exporting dollars overseas in the form of securities. The US consumer receive all sorts of goodies in excahnge for their dollars. That’s agood deal as far as I’m concerned. If the foreigners want to sell their dollars, no problem.
———————–
“if you really don’t understand the connection between loose monetary policy and free trade then you have a lot of reading to do. ”
I do. But why is mutual exchange through free trade the blame for loose monetary policy. Go ask the Fed to stop printing too much money. Don’t blame free trade for the monetary mess that Uncle Al and Helicopter Ben are creating.
September 5th, 2007 02:19
David
It is not up to us to prove free trade works. It’s really up to you to show clearly why the points we have made are refutable and why tariffs are a good thing. There is 200 years of economic debate that makes it almost axiomatic.
September 5th, 2007 03:32
JC
These last two posts are just childish. Foreign debt is a problem for the same reason that any debt is a problem – your creditors may take action if you try to default ie monetize the debt. In this case the US absolutely no ability to pay back China and Japan for the masses of dollars they have accrued. Admittedly China and Japan don’t have many options available to them except, oh let’s see, take down the entire idiotic globalism financial system.
As for axiomatic I don’t think you understand what the word means. No amount of debate can make something axiomatic. If there is 200 years of debate about having NO tariffs AT ALL then it only proves that NO tariffs AT ALL is definitely not self-evident.
September 5th, 2007 09:11
JC: nice line on the sombreros!
David,
You are making the same mistake as Alan, I think: you are attributing to one cause an effect which can be better attributed to another cause.
Many commentators (such as the excellent Martin Wolf in the Financial Times) attribute the causes of the trade deficit and increasing US debt to East Asian mercantilism. By discouraging imports and encouraging exports (mostly through currency manipulation), these countries have caused the problems that you identify.
Your argument about the prices of commodities doesn’t really hold water: if tariffs are cut, the prices of commodities should fall, giving people more income to spend on other goods and thus discouraging borrowing, not encouraging it. N’est-ce pas?
I asked you for supporting research, not so much because I want to check the arguments, but because I want to see where you are getting your ideas from. I suspect that you are coming up with them yourself, and not subjecting them to critical analysis.
Maybe now you might want to tell us what the difference is between ‘crazy full blown no tariffs at all free trade’ and ‘moderate free trade’? What about banning trade in sombreros – would that make a difference?
September 5th, 2007 09:28
I’m sorry, I should have also mentioned that the East Asian countries cause increased debt in the US by recylcing the money from their trade surpluses into US investments.
I’ll be going away for a few days, and so won’t be able to follow the debate, but will be interested to read the (any?) replies when I return.
September 5th, 2007 12:51
Foreign debt is a problem for the same reason that any debt is a problem
Oh sheer nonsense. Debt only becomes a problem if you can’t service it. The US is nowhere near that. In fact foreign debt is about 28% of GDP. It was much higher than that after WW2 when it was 45% of GDP.
—————-
- your creditors may take action if you try to default ie monetize the debt. In this case the US absolutely no ability to pay back China and Japan for the masses of dollars they have accrued. Admittedly China and Japan don’t have many options available to them except, oh let’s see, take down the entire idiotic globalism financial system.
What action would they take? Sell the securities they hold en masse. Well that would be fine and dandy as they would end up with 20 cens in the dollar.
For every selller there has to be a buyer. If they flooded the market with US debt they would crucify themselves.
Not only that, but their export machines would grind to a halt.
September 5th, 2007 15:07
Jeremy: You are vacillating between national debt and individual debt. I am consistently only referring to national debt. So when I say that cheaper than locally available commodities encourage debt I mean national debt. That is America sees the ridiculously cheap item in the Chinese store front window it nationally goes into debt to buy it. (Individual debt is the one that easier to squirm out of as long as all of the debt is held within the country.) As to the cause of the debt I did not specify. I only said that tariffs would have helped prevent this debt not that lack of them caused the debt. Lack of brakes on a car don’t cause the car to crash – that was a result of acceleration towards something immovable – but brakes do help prevent a crash. Saying that China caused the problem though is just silly. Its up to America to protect itself not rely on China to behave correctly.
As to my own research that’s just silly; like I invented the current world economic snafu. Here read any of the books that your Martin Wolf is reviewing – http://www.ft.com/cms/s/0/da491b56-34fd-11dc-bb16-0000779fd2ac.html and see if you can parse his response as anything more than back pedaling:
September 5th, 2007 15:30
JC,
Link.
When you say China won’t do anything to upset the current world order you maybe right for a time. After all currently the China is still able to spend some of those dollars it receives. If America would get off of oil and maybe even sell some oil to China perhaps some compromise is still possible. But without some change of course by the US the status quo is definitely not even short term, 5 years, sustainable.
September 5th, 2007 15:41
David
The US has been running a trade deficit for the past 27 years. It’s a brave man who argues about it being unsustainable. In fact the US has run a trade deficit for most of its life.
The other side of this equation is that those running a trade surplus are unable to maximize returns on investment and so have to look elsewhere where they can get a good return.
The only real problem we have over the next few years trying to entice China to get of the fixed rate and allow its currency to float.
However I would not be at all certain that China’s liberalization would mean an appreciation of the exchange rate. There could well be a sudden exodus of money leaving China thereby proving all the pundits wrong about the Yuan’s expected appreciation.
September 5th, 2007 15:44
ummmm
….is trying to entice China to get off………….
September 5th, 2007 17:02
The low to zero tariff regime in Sweden gave them a vibrant, export-oriented economy that created the wealth to support cradle to grave welfare, if you like that sort of thing.
Japan went into recession on account of economic irrationalism, not the reverse. People like Robert Manne thought we should have copied the “Japanese miracle” of state managed “industry policy” but they spoke on the eve of the recession and he has been less outspoken on that line lately.
September 5th, 2007 21:58
JC,
You are right that the US has had a long run of financial stability. And without such an absurd level of global interconnectivity the stability would have continued a long long time. But now the US and much of the world is entwined with China which is famously unstable. The typical end for Chinese regime creating this kind of inequality – is bloodshed. I would say it is the brave man that relies on Chinese stability for his world order… You maybe were thinking of Japan but I can assure you that China is no Japan.
September 6th, 2007 05:13
You are obviously right in your speech. Free trade achieves maximum economic efficiency and overall productivity gains It does not restrict its volunteers in their free will to advance their product It keep them out from taxes and other legislation, such as tariff and non-tariff trade barriers.
Armand Rousso
September 7th, 2007 13:39
David,
OK, I don’t think we’re communicating very well. I’ll call it quits from my side.