As you can imagine, there have been a lot of attempts to make sense of what Mr Trump is trying to do about tariffs. As of the time of my writing this, the dollar is coming under pressure, Mr Trump appears to be ratcheting up the tariff war with China to even higher levels, and there are signs that a few of his allies are getting nervous (seriously, how on earth can he have people working in his government such as Elon Musk and Peter Navarro who talk to each other in this way?)
One way to think about the the US/rest of world imbalances is that this is about production and consumption. In various ways, countries such as Germany, Japan and China produce a lot, and tend to be careful on how much they consume; on the flipside, the US loves to consume. As Joseph Sternberg in the Wall Street Journal puts it:
The core of Intellectual Trumpism runs as follows: The global economy is characterized by large, policy-induced imbalances in both trade and capital flows. These are caused at root by the decisions of some large economies—Germany, Japan and especially China are the usual suspects—to subsidize production by suppressing consumption in their domestic economies. This creates “surplus” output that they foist on the U.S.
This view isn’t wrong, so far as it goes. Those economies and others historically deployed a range of policy tools to boost exports. In China, the most egregious manifestations are direct subsidies for exporting companies. Less visible to foreign eyes is the financial repression: the deliberate suppression of domestic interest rates and political control of credit to subsidize businesses (which benefit from cheap borrowing) at the expense of consumers (who receive less income from their saving and investment). Such policies can take many forms. In Germany, extensive subsidies shield large companies—meaning exporters—from the worst energy-price consequences of Berlin’s dumb net-zero climate policies. Households pay full freight for electricity.
This is an interesting point about the control of credit and yes, Net Zero, intersecting in ways that suppress consumption and encourage production, much of which has to go overseas – to places like the US.
Sternberg continues:
Because other economies under-consume, the argument runs, they accumulate excess savings. They recycle these savings into the U.S., where we transform foreign claims (in the form of equity investments or purchases of American debt) into consumption of the foreign country’s excess production. Hey presto, a trade deficit.
An oddity of this argument is how little agency the U.S. is said to exercise. Once Washington had made the first mistake of opening our economy via tariff reductions and the free flow of capital, it was off to the races.
The truth is much more complex, and politically challenging: While some other economies suppress domestic consumption and subsidize export production, Americans choose to do almost exactly the opposite. Through political choices such as suppressing energy production and distribution, or permitting red tape and the like, or any number of other policy foibles, we make it much harder than it otherwise would be to produce things in the U.S. Meanwhile, you can’t take a step in America without tripping over a consumption subsidy.
So what has the US been doing to encourage consumption?
To cite a few: Fannie Mae and Freddie Mac stimulate overconsumption of housing. Subsidized student loans stimulate overconsumption of higher education (which, given the poor lifetime earnings prospects of many degrees, should indeed be understood as consumption rather than as an investment in human capital). The earned-income tax credit creates complex distortions that at the margin subsidize consumption while discouraging additional productive work.
Most glaring, though, are our entitlements. Social Security, Medicare and Medicaid, not to mention a raft of other benefit programs, funnel vast quantities of money into consumption. The trick here is that we’re able to finance these via chronic fiscal deficits funded by foreign investors, meaning at the margin Americans borrow from the rest of the world at ultralow interest rates and funnel the cash into consumption at home.
And as the writer says, the “root-cause” solution to the trade deficit issue, to the extent that it is a problem that governments should address, is to rebalance – get rid of consumption subsidies and stop penalising production. That means, for instance, rolling back regulations, zoning laws, etc. (To the limited extent that this is being done by Trump, that is a mark in his favour.)
Some elements of such an agenda can be popular, as Mr. Trump is discovering with his deregulation and cheaper-energy drives. But the entitlement half is a minefield. Republicans are reluctant even about dialing back Medicaid benefits for able-bodied working-age people. The last time anyone tried to reform Social Security, President George W. Bush backed allowing a portion of payroll tax payments to flow into individual investment accounts. The existing system creates a consumption subsidy by transforming tax payments into transfers to recipients; the reform would have created a form of investment subsidy. That bit of good sense degenerated into a traumatic political fiasco for the GOP.
This the key. Social Security and other big entitlement programmes in the US are, as they are in the UK and much of the West, popular with ordinary voters; and the voters who switched from the Democrats to Republicans in 2016 and 2024 aren’t going to be happy to see these programmes reformed or reduced. It is therefore easy to see why tariffs are a tempting technique – it is easier to go on about those naughty, over-producing Asians and Germans as being at fault, rather than because incentives are structured as they are.
Sternberg concludes:
Note that the end result [of tariffs] is in one way the same as entitlement reform: less U.S. consumption, only via the demand suppression of higher import prices. But beyond that, the two policies diverge—and not to Intellectual Trumpism’s advantage. Among many other problems, protectionism risks depressing domestic production, a warning emerging from industries across America whose supply chains are imperiled by tariffs. It certainly doesn’t help domestic productivity. Entitlement reform, by contrast, tends to be an enormous supply-side spur to future economic growth that benefits households as inflation-adjusted wages rise.
The problem, however, is that entitlement reform is very hard to do, politically. There are some things that will also be politically tough: not everyone likes deregulation, given how occupational licensing and so on often shields vested interests. (Think of how the London mayor tried to hit Uber, at the urging of the traditional taxi sector, a few years ago.) Zoning laws are a problem but they are also supported by people who want to protect the value of their properties, as they see them, and so on. In certain countries, the planning system is so convoluted that it is a major brake on production. Fixing all this takes political will and the risk of antagonising vested interests.
This is a good post and I agree generally
After looking at my Social Security payments since 1974 (just my contributions, ignoring those of my employers) I find that I have put something on the order of $250,000 into that enormous Ponzi scheme.
Had I been allowed to keep my money rather than having it taken at gunpoint by the Fed-dot-Gov and invested it that stolen money would have earned interest and grown. A 40-year average return on the S&P 500 would have brought something on the order of 9.83% annual return.
Source:
https://carry.com/learn/average-stock-market-returns#:~:text=Looking%20further%20back%2C%20the%20averages,annual%20return%20has%20been%208.00%25.
I set up a small spreadsheet using decadal average ROI’s for each decade (70’s, 80’s, 90’s, 00’s and 20-teens) and applied different ROI’s to each decade. Even using a simple 8% ROI for every decade (which is insanely low, a decent index fund would have returned more than that) I find that the net present value of that would have been something on the close order of $550,000. When I retired I was offered an insured annuity with full survivor benefits (much like a SocSec payout for my wife) where $150,000 of a cash-balance pension would bring $1,000 a month. Proportionally, a $550,000 fund would bring a monthly benefit of around $3,666.
I’m currently receiving just under $2,000 a month from SocSec, or about 55% of what I could have made on my own.
I will NEVER, no matter how long my wife and I live, get back more than a fraction of what we paid into the system.
For any middle-income earner, Social Security is NOT, repeat, NOT an entitlement. It is at best a partial return of money stolen from us by our benevolent government.
And I will not let anybody tell me, “Oh, you’d have spent it at the time rather than saved it.” For my entire working career I put in the maximum-allowed amounts into, at first “defined-benefit” pensions, then a cash-balance pension, as well as into a 401(k). Those monies which are now taxed as income form the major part of my retirement plan, since we couldn’t count on SocSec to not simply go broke given that the government has thoroughly plundered the “fund” supposed to pay for it.
Blackwing1, even that is a pointless argument. Because even if you had spent rather than saved you’d have spent on things you wanted.
” the “root-cause” solution to the trade deficit issue, to the extent that it is a problem that governments should address, is to rebalance – get rid of consumption subsidies and stop penalising production. That means, for instance, rolling back regulations, zoning laws, etc.”
Hence my point that globalisation (the ability to get the stuff a population needs to survive cheaply and easily from abroad) facilitates governments in the West to penalise production there. Because food can come from elsewhere, a Western government can pay farmers to grow weeds instead of food (as occurs in the UK today) in a show of environmental virtue signalling. Because gas can be shipped in from elsewhere, Western governments can play games such as Net Zero etc, and ban fossil fuel energy production in their countries. Because goods can be manufactured abroad and imported, Western governments can regulate employment and production to their hearts content. If they tried to do all those things when the alternative of imports was not there, they would precipitate a rapid revolution.
Basically globalisation allows Western electorates to vote for Leftists but not suffer the consequences. Or at least not suffer the consequences YET…….in a less international trade era they would suffer the consequences very quickly.
How right WE Gladstone was…
‘(money should) fructify in the pockets of the people’
Leaving aside the absurdity of Fiat Money and Credit Bubble (lending out “money” that does not exist before it is lent out) banking – the “Dollar” is still absurdly overvalued.
Even if one accepts Fiat Money and Credit Bubble finance, the “Dollar” exchange rate is absurdly inflated, it has been, in effect, sucking in Consumption imports and undermining American industries.
The solution would seem obvious – end the nonsense that the American “Dollar” is the “world reserve currency” and the markets would move to a more realistic exchange rates against other fiat currencies, but there is a major problem with such a solution.
It would mean accepting that American living standards are not justified by the actual production of the American economy – and have to FALL, and “vote for me – I will make you poorer” is not a popular election slogan.
American living standards have, in reality, been falling for 50-60 years – although the deceptive “GDP per capita” nonsense masks this, “Americans have never been better off” say the establishment shills – as if people are so stupid that they can not work out that they are worse off (not better off) than their parents or even grandparents were at their age – but American living standards are still much higher than would be justified by the actual real production of the American economy.
In the end “The Gods of the Copybook Headings”, as Kipling described reality, always win – reality bites back and it is brutal.
The economies of vast cities such as New York and Chicago were built on productive industry – productive industry that, largely, no longer exists in these places – these cities will fall, indeed it is astonishing that did not collapse years ago.
And American living standards are, in spite of the real decline (masked by “GDP per capita” bovine excrement) over decades, are going to fall a lot further.
Richard Cantillon and David Hume would (three centuries ago) have understood this terrible mess – and that, at this stage, only a limited amount President Trump can do about it.
“Only a limited amount” does not mean “nothing” – truly radical reductions in GOVERNMENT SPENDING could prevent some (some) of the collapse in living standards. As they would restore some sanity to the American economy.
The late Lord Keynes (J.M. Keynes) got things exactly WRONG – government spending does not really “stimulate the economy”, on the contrary it undermines the economy – the real economy.
But the last dramatic reduction of American government spending was after World War II – compare government spending in 1944 or 1945 with government spending in 1946, 1947 and 1948.
But a return to the days of the “Do Nothing Congress” – the Republican Congress elected in 1946, seems unlikely, to say the least.
I hope I am proved wrong – and that, contrary to my fears, President Trump and the present Congress will dramatically reduce government spending – but I fear they will NOT.
The dramatic cuts to American government spending seen, for example, under President Warren Harding (the most unjustly smeared President in American history) and, unwillingly, under President Truman (unwillingly because he wanted to carry on with the wild World War II level spending – but was not allowed to) are, sadly, not likely to be repeated now.
This is a tragedy – as only truly dramatic reductions in government spending can save the American people.
Contrary to the lying establishment – President Herbert Hoover did not cut taxes and government spending, on the contrary Herbert “The Forgotten Progressive” Hoover allowed both to rise – indeed tax rates on “the rich” were increased to over 60%.
But the worst thing President Hoover did was to intervene in the Labour Market – to PREVENT reductions in wage rates, for the first time in American peace time history a President directly intervened (having industrialists visit him in the Whitehouse and telling them what to do) to PREVENT wages adjusting to a Credit Money bust – as they had done to every other Credit Money bust in American history from 1819 to 1921. After 1929 – wages, Real Wages, did not adjust properly to the Credit Money bust – for the first time in American history.
The result of President Hoover’s intervention, which was continued by Franklin Roosevelt (the “FDR” personality cult person) was obvious – anyone with a basic knowledge of economics could have predicted it.
Massive and prolonged UNEMPLOYMENT – for year after year, as long as wages (wages are prices – so are rents) are not allowed to adjust to supply and demand – mass UNEMPLOYMENT will continue.
President Hoover (like the “FDR” person) seems to have been in the grip of the “demand fallacy” – a sort of Keynesian before Keynes.
Even Alfred Landon, the supposed alternative to “FDR” in 1936, endorsed unions and “Collective Bargaining” – seemingly unaware that, by doing so, he was endorsing MASS UNEMPLOYMENT.
It was only with World War II where the government dishonestly pretended that that official prices (rather than the real prices – the so called “Black Market” prices) were the real prices, that wages were allowed to fall (real wages – not the official price level wages, the official prices being a tissue of lies – and the “Black Market” prices being the truth) and mass unemployment ended.
If President Trump, or anyone else, intervenes to try and keep up wage rates, or to support government backed “Collective Bargaining” (see W.H. Hutt the government backed “Strike Threat System” where employers are not allowed to dismiss employees who do not turn up for work – and not allowed to clear the entrances to the places of business of para military “picket lines”) then Unemployment, MASS Unemployment, will return.
Paul,
“The Simpsons”. Homer has a nice house, he and Marge have three kids and two cars. This is all on the basis of Homer’s very blue-collar job. Matt Groening based this set-up on his own family. Yes, he has a sister called Lisa. That was the America Groening grew-up in. By the time the show started it was a bit beyond believable. Now it is as fantastical as the works of Tolkien. Note here, also, Homer and Marge kinda inherited 742 Evergreen Terrace (which isn’t a terrace – it’s a detached house) from old Abe Simpson who actually owned it*. Total fantasy! Not even Tolkien but completely through Lewis Carroll’s Lokking Glass!
It is odd to think that President George H. W. Bush made a speech when he said he wanted, “American families to be more like the Waltons and less like the Simpsons” when you consider the set-up of “The Simpsons”, when Bush made that speech, was firmly rooted in the America of President Eisenhower.
The idea that “We’ve never had it so good!” is in many ways a lie but I tend to think all lies that have legs have to have (however twisted from reality) a kernal of some sort of truth. In this case we have affordable home computers and things like that BUT things like housing are shockingly more expensive.
*a personal beef of mine is the common use of the term “home-owner” applying to anyone with a mortgage.
Tariffs are a tax that the government imposes on it’s subjects that consume imported goods. Tariffs are not a sin anymore that income tax is. And, they make IMHO, even more sense than income tax.
The trouble is – taxes always ratchet up. If a tariff is imposed it is on top of all other taxes and not instead of them. That is bad, of course. Not worse than any other new tax.
The economic theory of “relative advantage” cited in opposition to tariffs is clearly not what drives imports from China of Vietnam. What drives the low prices in these countries is their poverty, the low social spending and low regulation in these countries. So – high paid American workers lose out to low paid Chinese and Vietnamese.
Whether you look at it this way, or you cite “incentives to consumption” like Joseph Sternberg – it’s the same thing in other words.
The point is – some correction is needed. Financing cheap imports form China by printing fiat money (dollars) is a scam, that cannot continue forever.
Precisely. The world Ricardo existed in did not have governments actively preventing its citizens from producing things, and paying them not to produce. And taxing the sh*t out of them if they happen to make a profit (or indeed even if they don’t, as many taxes in the West are payable as a cost of production, not purely on profits).
Why anyone thinks that an economic theory based on a world that hasn’t existed for at least a hundred years has any relevance to today is beyond me. One might as well base one’s economic theory on the fact the horse is a significant source of motive power in society.
No Jim, that *is* comparative advantage & Ricardo is as relevant today as he ever was. Vietnam has not yet made itself uncompetitive as a clothing manufacturer the way Western nations have, which is one perfectly legit form of comparative advantage. Korea has a competitive advantage in shipbuilding for altogether different reasons.
Jacob: Tariffs are a tax that the government imposes on it’s subjects that consume imported goods. Tariffs are not a sin anymore that income tax is.
It is true that there are no such things as good taxes, really.
I find it sad to see an American referring to the object of government taxes as “subjects”. Monarchy-language creeping in. Resist the urge.
What drives the low prices in these countries is their poverty, the low social spending and low regulation in these countries
As these countries get richer, and have used their previous sole main edge of low wages to the point where wages aren’t low, relatively, any more, then that problem, to the extent it is a “problem” requiring onerous tariffs (it doesn’t) goes away over time. As countries get richer, real wages rise; people move into more “value-add” jobs, specialisms, etc. The faster the process takes place, the better.
As an affluent Westerner, I benefit from decades, centuries in fact, of capital investment of my ancestors and many others, both of the physical and non-physical form, that has allowed the returns on my labour and endeavours to reap the rewards they do. Poor countries have no such accumulated capital, so they use their cheap labour as a way to earn the returns to get off the launchpad. The alternative is either to let these places rot, or give them aid, with all the dependency, entitlement mindset etc that this can bring in many cases.
Take a different example: If you go on vacation to a poor country, and spend a few dollars equivalent on your accommodation and food, are you taking money out of the supposedly more deserving domestic holiday resorts that charge far higher, because they have minimum wages set at X, and have regulations all over, and taxes, and expensive bank loans? Are you saying that people should be penalised for exercising the choice to spend their money as they wish by going on that low-cost holiday? There is a basic liberty issue: If I choose to buy something from a poor country, and that makes my money go further, it is none of the State’s damn business to thwart me. My fellow citizens don’t have an apriori claim on my wallet. (Which in a way is what the collectivist undertone of much protectionist thinking amounts to.)
The irony here, as I noted in a previous post, is that those who condemn importing goods and services from lower-cost nations, such as buying sneakers made in Vietnam or using call centres in Bangalore and Jakarta, is that these arguments are, apart from a few rhetorical changes, no different from those used by the Naomi Kleins etc on the anti-trade Left to condemn the supposed evils of cheap labour. The European Union and some of those who defend the customs union of the EU are, in my experience, well versed in this, using all manner of rationalisations for keeping out the supposed evils of cheap coffee, rice, or whatever, and at the same time, crying crocodile tears about the poverty of the “Global South”.
If poorer nations are to match the richer ones in the marginal value of labour, that is going to require decades of capital investment. That process is happening. All the while, there is a large and growing affluent middle class across Asia, with a growing taste for buying the good things in life, including what the West has to offer.
Protectionism is a false solution to a misunderstood problem.
Oh, and what Paul Marks said about the dollar and debt.
Under Bretton Woods, the dollar was backed by gold, and foreign creditors could, in theory, ask to be paid in gold rather than dollars. The problem was that when they did, America closed the gold window in 1971. Officially, it was only temporary.
It is much nicer to pay for things in a currency you control, dollars, than one you don’t, gold. The result is that America has an enormous trade deficit. One day people will turn their nose up at dollars, but not yet.
Another thing that has happened since 1971 is that there is more and more “money”, and it buys less and less. My parents bought their home in 1971 for £4000. The house next door has just sold for over £400,000. I can assure you the house has not got 100 times bigger since 1971. It is the same, the pounds got smaller.
The confusion of a free enterprise “laissez faire” policy with just “free trade”, seems to go back to Lord John Russell – the 19th century British politician.
In reality laissez faire was born in opposition to the statist policies of Louis XIV, the “Sun King”, his occupational licensing (then very much a French, not a British, thing), Compulsory Guilds (made universal in France in France by King Henry IV), and the massively high government spending and taxes of Louis XIV.
Somehow 19th century British thinkers got this general philosophy and reduced it, truncated it, to “Free Trade”.
Lord Russell supported (on the suggestion of the arch statist Lord Stanley – later the Earl of Derby) state education Ireland (1831) and, later, in England and Wales, and he supported the England and Wales local government measure (1835) that greatly increased local government spending and taxation – and he introduced the Poor Law into Ireland (1838) – which was a total disaster, helping to reduce the population of Ireland by about a quarter (1 in 4 – either by death of emigration) in about a decade – the last thing one should do in the face of something like the Potato Blight is push tax-and-spend policies that will destroy the rest of the economy, but that is exactly what happened in Ireland (and the taxpayers in Ireland had no real say in the matter – it was decided in London and by people sent to Ireland by London, worst of all Trevelyan – sent by Russell).
Yet all this endless statism is described as “laissez faire” in English language history books – because Lord Russell supported “Free Trade” – and it seems that nothing else matters.
Every city and town in the United States could be turned into a post industrial waste land – and the Economist magazine, and so on, would think it was wonderful, as long there was Free Trade.
So Economist magazine, and the rest of the establishment, why should anyone support a free market policy – if YOU define a free enterprise policy as the sort of policy that reduced the population of Ireland by about 1 in 4 people.
Free trade actually is a good idea (YES it is) – but it is a very small part of a free enterprise policy. Get the rest wrong, and the establishment do get the rest wrong (because they think free trade is all that matters), and you will end up with Mass Death.
And, I repeat, American cities such as Chicago and New York are finished – they were created by productive industry that is, mostly, no longer there.
Get out of places that have no real economic foundation – and get out NOW.
Sell up for whatever you can get – and get OUT.
They do not have mining, they do not have farming, they, increasingly, do not have enough manufacturing – there is no longer any real reason for these vast cities to exist. They can not exist on services alone – and tourism (and so on) to places like Chicago does not appeal anyway. Sorry but Chicago, and most other American cities, is not Prague – there is no reason to pay to visit the place.
And not just in the United States – if you are in a large city that no longer has any real economic foundation, get OUT and get out NOW.
If you are in an area of the United States, or anywhere else, with very high government spending and no real economic foundation of farming, mining, manufacturing…. then get out, and get out now.
“But Free Trade will save us” – no it will not. No more than fiat money and Credit Bubble finance will save you.
“There is a basic liberty issue: If I choose to buy something from a poor country, and that makes my money go further, it is none of the State’s damn business to thwart me. ”
So what about the liberty of the producer in the Western country to not be regulated by the State? If you are free to spend your £££ where and how you see fit, why am I not free to build my factory where I like in the UK, pay my employees what I like, give them whatever employment terms I consider fit, and generally do as I like without the State telling me what I can or can’t (more usually) do?
You absolutely should be free to do all of that, which is a very uncontroversial view on this blog 😀
“You absolutely should be free to do all of that, which is a very uncontroversial view on this blog”
It may be uncontroversial, but its not reality is it? So why should the consumer be free to spend their money where and how they like if I as a producer am not?
It comes back to what I said on another thread – globalisation enables western leftism. The fact the the consumer is free to buy his TV from a Chinese factory that employs slave labour and throws its waste into the nearest river allows the UK government to prevent TVs being made in the Uk by over regulating Uk based production. If the consumer faced a choice of uber-expensive TV’s produced under onerous UK rules or no TV at all then there would be a grass roots demand for regulation on UK production to be relaxed. But because he can buy the Chinese TV there never is any democratic demand for freedom. The Leftists are buying votes with cheap imports to allow them to continue controlling the UK economy.
That’s not unlike arguing “if I get raped, why shouldn’t you get raped?”
It is not clear to me what the difference is between your preferred repressive statism & “Leftism” is.
Somehow I doubt that would be the outcome of the state getting to decide everyone must “buy British”
“That’s not unlike arguing “if I get raped, why shouldn’t you get raped?””
No it isn’t. The freedom of the consumer to go abroad and buy cheap stuff facilitates the State to reduce the freedoms of the producer to produce in the home country. Its more akin to the concentration camp kapo who saves his own skin by joining in the persecution of the rest of the inmates. One person’s freedom is bought at the expense of another’s repression.
I’m arguing for freedom, but it should be freedom all around, not for one section of society, at the expense of another.
Its in Big State’s interests to allow the peasants to buy stuff abroad, because it enables them to tighten their grip (on everything, not just production) at home.
You get to buy a cheap TV set made in China, and the money you saved is taken from you by the government in taxes to pay unemployment benefits to out-of-job English TV producers…
It’s kind of complicated…
I mean – enjoying cheap products made in poor countries by cheap labor is fine… up to a point…
Jacob: You get to buy a cheap TV set made in China, and the money you saved is taken from you by the government in taxes to pay unemployment benefits to out-of-job English TV producers…
It’s kind of complicated…
I mean – enjoying cheap products made in poor countries by cheap labor is fine… up to a point…
It’s not complicated. I spend my money on what I choose. Sure, some of my money that I save by doing this is taxed; but if I am coerced into buying British stuff that is more expensive (and often, worse made), that seems like a dumb trade to me.
Of course, we want the overall burden of tax to go down. But the point still stands – I want to be in the driving seat of how my money gets spent, as much as possible. Tariffs are basically a big interference in that.
This is a bit optimistic:
If the consumer faced a choice of uber-expensive TV’s produced under onerous UK rules or no TV at all then there would be a grass roots demand for regulation on UK production to be relaxed.
The people who typically demand tariffs to hit cheap foreign stuff tend not to be so keen on deregulation. A lot of the sort who supported closed shop trade union restrictions, tariffs, nationalisation, etc, in the post-war UK period were not, as far as I could tell, all that keen on deregulation to deal with the less-than-steller quality of British manufactured goods at the time. In fact, it is often the competitive force exerted by foreign imports that galvanises improvement.
” In fact, it is often the competitive force exerted by foreign imports that galvanises improvement.”
If the productive environments are largely comparable. When they are utterly incomparable (say Vietnam to UK) then all it does is destroy the UK producer.
It is in my view hypocritical of consumers to want to buy products made in ways they would not countenance allowing at home. Just because its someone else’s environment that being trashed, and some other workforce thats being exploited does not make it right. If you are free to import products from places that make them in such a manner the producer in the UK should also be free to make them in a similar way.
Its a question of morality. Would it be acceptable to import products made with slave labour? And if you consider that wasn’t acceptable then rather like the description of the lady who would sleep with someone for a million pounds but not £1000, then all we are arguing about is a matter of degree, rather than principle.
If people prefer to buy something cheap from abroad that’s not necessarily hypocritical. I don’t support all manner of interventionist regulations that drive up the cost of doing business and buying things in the U.K.
It may be true that collectivists on the Right and Left are often inconsistent in their own actions. As I said in a previous comment, I guess it’s hypocritical to go in a budget holiday in a low-income country.
As a libertarian, I have no problem with doing business with people in all kinds of countries. The more that this happens without third parties shoving themselves into that interaction, the wealthier everyone will be.
There another point: people “vote” every day with their wallets. They have, in relative terms, far more control over their lives in that way than in voting once every few years in an election. That’s even more the case when you consider that many people vote against something rather than for it in elections.
When individuals buy a pair of shoes from Malaysia rather than a far more expensive pair from the U.K. etc m, that’s their revealed preference, rather than what they might tell an opinion pollster. There’s a lot of people who, I expect, will say that they support paternity leave, high minimum wages, environmental protections, bans on this and that. But given the chance, their actions speak louder.
We’re I to serve a chicken dinner to my Hutterite friends – of great Hutterite free-range chicken fame – and then try to explain to them that, no, I bypassed their product to buy the cheap Canadian chicken, it would be tense.
That’s the kind of impact that doesn’t make a dent in econ analysis, but makes for a less cohesive and friendly society.
We may spend more, but in doing so we’re building OUR society, and not some global vision that I don’t care two beans about.
The appears to be a lot of flip-flopping on whether items such as consumer electronics, such as iPhones, will be exempt from the China tariffs or not. No wonder that investors are increasingly demanding a higher risk premium to invest in the US as long as it appears to be run by a capricious fool who is, in my view, out of his depth and quite possibly, out of his mind. WSJ ($):
Far from draining a swamp, by imposing new taxes and then opening the suggestion that favoured groups can get carve-outs, he’s ensured a new, smellier swamp will be created. But then what did anyone realistically expect?
To quote the late P J O’Rourke (because I know Trump rationalisers and fans just love it when I quote the chap), he noted that when the price of everything is decided by legislators, the first thing to be bought are legislators.
You choosing to purchase a Hutterite chicken (which I assume is premium) is rather different to having the state tell you “these are your approved options for chicken purchases”
Jim: If the productive environments are largely comparable. When they are utterly incomparable (say Vietnam to UK) then all it does is destroy the UK producer.
Define “comparable”. That word is doing a lot of heavy lifting in that sentence of yours. At what point do you get to decide that a country is so different that we have to basically stop it from exporting, or force its citizens to be paid whatever you deem acceptable (hence killing its exports stone dead)?
And consider this point: If country X in Asia sells us training shoes and handbags at half what they’d cost if made in the UK, those who buy these things can spend what they’d otherwise have had to spend on them, on something else. And production of the “something else” will rise. In a way this is part of what makes an economy grow: people who produce cheaper-than-before stuff steer capital into other, newer areas. The pie gets bigger; real wages of shoemakers in Vietnam rise, and the shoemakers start to buy more stuff, and before you know it, they’re starting to have decent holidays, think of putting aside more money into a small savings fund, and the circle continues.
Its a question of morality. Would it be acceptable to import products made with slave labour
Are Vietnamese people who work in shoe factors lacking agency? Were they rounded up, herded into these places at gunpoint? (With China, I am sure there are issues with, say, prison labour, and the same goes with debt-bondage labour in places such as Qatar, so there are exceptions. But by and large, claiming that cheaper labour is coerced labour seems unjust.)
Since you raise morality, I’d retort by noting that there is nothing very moral in demanding that those who work in places that haven’t had the benefit of centuries of capital accumulation to have the same wages and working conditions as we Westerners, since it is calculated to ensure that said folk never reach that point because they lose one of the few advantages that get them an opportunity: plentiful labour. Okay, this is not great for workers in high-wage, high “employment rights” countries doing things that yield a low margin; but that is why the focus should always be to encourage economic growth and get people to move into higher-margin work. That’s how the pie expands.
There’s another point being missed: the leapfrog effect. As we see in places such as Africa where tribesmen have about six mobile phones each to do business on, they can go straight to modern comms tech without having to mimic the processes of the places that invented it; the catch-up process, so long as it is not impeded by protectionists etc, can be fast. And so it is proving. After the Americans and Communists fought over it half a century ago, Vietnam, to stick with that example, has come along leaps and bounds.
As for the environmental aspect, I doubt that tariffs and protectionism is very effective in curbing it. In contrast, countries that experience rapid growth are in a stronger position to absorb the costs of cutting pollution, for example, than those that are not. If you want a better world on social, environmental and other grounds, growth is what you want.
“And consider this point: If country X in Asia sells us training shoes and handbags at half what they’d cost if made in the UK, those who buy these things can spend what they’d otherwise have had to spend on them, on something else. And production of the “something else” will rise. ”
And the ‘something else’ will also be made halfway around the world. Or means money leaves the UK in other ways, for foreign holidays, netflix subscriptions etc etc. Or they are spent on services, which as they are notoriously difficult things to increase productivity in you end up with a flatlining economy that cannot get wealthier, because all that matters in the end is productivity. And once you get to a largely service economy, the positive influence of foreign competition goes away too, because by and large a service does not face foreign competition.
And thus like the UK today, you reach a stagnant position where all real value is created abroad and imported, while we try to sell each other expensive cups of coffee, cut each others hair while selling each other ever increasingly expensive houses and imagine doing so makes us rich.
“But by and large, claiming that cheaper labour is coerced labour seems unjust”
I never claimed that at all. I was posing a hypothetical. I was making the point that if it is considered morally unacceptable to import goods that have been made by slave labour, then there is indeed a moral imperative at play regarding how imports are made, and whether we should accept them here. The argument is about where to draw the line, not whether anything is free to enter the UK.
So I ask the question again – if a country were using actual slave labour to produce goods (which may be happening in China) would you accept those goods being imported into the UK?
Jim: And the ‘something else’ will also be made halfway around the world.
Maybe, maybe not. That’s the thing about freedom: people do things that some don’t want them to do with their own money.
Or means money leaves the UK in other ways, for foreign holidays, netflix subscriptions etc etc.
When people book holidays etc, some of those booking platforms might be British. Some might be run by foreigners. Oh, the humanity.
Or they are spent on services, which as they are notoriously difficult things to increase productivity in you end up with a flatlining economy that cannot get wealthier, because all that matters in the end is productivity.
Depends what sort of services you mean. With AI and other tech, the productivity of some white collar service jobs (an area that seems to be overlooked, or regarded with a sort of burning resentment) can go up, quite a lot.
Services covers all manner of things, and not just butlers to the rich, providers of coffee or cleaners of hotels. Banking, insurance, medical services, education services, publishing, advertising, marketing, design, architecture.
In many ways, those who decry services as being not very important remind me of the Marxist fallacy about the labour theory of value. Just because you cannot hit something with a hammer, does not mean it is worthless.
No, but the most important things in life are the ones you can hit with a hammer. Everyone needs food, energy, housing, clothing (and by proxy the machines and commodities that make or produce those items), but no-one NEEDS advertising, marketing, design or architecture. And basing a society on the latter rather than the former is doomed to fail at some point. You can’t eat marketing, or keep warm with design.
It remains to be seen whether AI is the silver bullet for white collar productivity its proponents seem to think it is. All we know historically is that services have been pretty resistant to productivity increases. My solicitor costs a lot more than he did 30 years ago, but he doesn’t do any more work than he did then (its arguable that he does less now, as he is now a she, and she tends to be on holiday or work part time far more than the old school chap of 30 years ago did).
Jim, lest we end up talking past each other, I want to back up the truck a bit. All human economic activity is about, at root, humans thinking about how to solve problems and get what they want, and figuring out how to do this as efficiently as possible, and to choose between scarce resources. That is why services cannot be distinguished, in my mind, from producing physical objects, because even the production of stuff requires thought, not just action in three-dimensional space. Produce ideas that are valuable enough, and they can transform the stuff of the world into amazing value, if enough people want those things.
Entrepreneurship, for example, is frivolous, as is trade, according to the dismissal of the service model as being somehow non-essential. But combining factors of production, perceiving opportunities and values where no-one else has before, are qualities that explain the difference between a subsistence economy, beset by constant fears of famine and the rest, and what we have, more or less, today in modern economies.
Take things such as steel, computer chips and life-saving drugs. The issue is that we want to have access to them, and for them to be supplied in a free market economy. Second, we don’t want them to be controlled by a coercive government-backed monopoly of such size and concentration that we can be held to ransom. That is a reasonable case for, say, wanting to diversify supplies, just as an investor doesn’t put all his or her eggs into one basket.
That might mean we stockpile steel, as a metals trading firm, thinking about the oscillations of the market, might do, or maintain steelworks on standby in a country even if most of the steel industry is overseas; or we “onshore” or “friendshore” supplies of critical things in case supply chains are cut off. There might, therefore, be a case for having shipbuilding capacity – overseen perhaps by the Defense Dept – just in case there is an issue. Or we work with friendly countries to help produce the ships we want, and so on.
Small countries that lack lots of land have to form pacts with friendly nations to get supplies of food from diverse sources, and for obvious reasons.
You claim that no-one “needs” architecture, marketing or financial intermediation. On that line of thinking, no-one “needs” anything other than the most basic foods, or even a house, medical care beyond what we had in pre-historic times. In fact, no-one “needs” civilisation and an extended order of free, open-market relations based around specialisation. We should, according to this notion, be like Robinson Crusoe.
” That is why services cannot be distinguished, in my mind, from producing physical objects, because even the production of stuff requires thought, not just action in three-dimensional space. Produce ideas that are valuable enough, and they can transform the stuff of the world into amazing value, if enough people want those things.”
I divide things into ‘must haves’ and ‘nice to haves’. The former are the boring stuff that allow us to do the later. Food, energy, housing clothing etc (and the systems and machinery that enable their production) are the building blocks of civilisation upon which all the other things can be built. You can’t have Call of Duty, TikTok and the Premier League without food and energy. Any society that neglects its ability to produce those building blocks in all circumstances, not just the ‘everything is working exactly as it should’ times, is creating a house of cards. For a society to be able to survive in the long term, it needs to be able to survive reasonable external shocks (there are obviously some shocks no society could withstand – nuclear war for example, or being hit by an asteroid). Western societies increasingly couldn’t survive a relatively minor serious shock, because they have neglected the basics at the expense of the ‘nice to haves’.
Jim:
I divide things into ‘must haves’ and ‘nice to haves’. The former are the boring stuff that allow us to do the later. Food, energy, housing clothing etc (and the systems and machinery that enable their production) are the building blocks of civilisation upon which all the other things can be built.
But as I said, without things like finance, and so on, then fields such as farming remain no more than subsistence, a pure hands-to-mouth existence. Take those much maligned speculators who “hoard” wheat, for example, in the expectation of a price rise. Without people willing to buy wheat up-front even before harvest-time, a farmer will not have an incentive to grow more of it if he fears the vagaries of weather and price. Result of this supposedly non-essential activity by financial intermediators is that more wheat than otherwise gets sowed and harvested. Repeat this for just about anything, including crude oil, iron ore, orange juice, etc.
And then there are all the other supposedly “nice to haves” of marketing, communications and the like. If people don’t know of the existence of specific things, they are less likely to use them, expand them, adjust and so on. Steel mills, car plants and pharma factories were built by people who had ideas, honed in labs, and the fruits of education – books, teachers, course, etc – the “service economy”. You keep assuming that there is this “bedrock” of real stuff that just came into existence somehow, and that services are a sort icing on a cake layer on the top. It is more of a two-way process.
(Side-note: the history of socialist/collectivist interference in farming has been uniformly terrible.)
Any society that neglects its ability to produce those building blocks in all circumstances, not just the ‘everything is working exactly as it should’ times, is creating a house of cards.
That is why an open, market-based order is better than a centrally planned one. If, to take just one example of high-grade steel, people in a country import all of it, how does it pay for it? Answer: exports. So if there is a risk of an interruption to supply, the price rises. If it remains very high, or fluctuates, then the obvious solution for a while at least is buy lots of that steel when it is cheap, and store it. And so on. Another option is spend some of your surplus wealth earned by those services/other on defence, such as to have a decent navy to protect shipping lanes; form alliances with friendly nations to ensure diverse supplies. (This was pretty much the UK model from about 1680 to 1939 and even a bit after that, more or less, before the US navy took the main burden of keeping the oceans free of trouble.)
This diversification is not just about being wary of foreign supply choke points. It applies to the dangers of relying overly on domestic supplies. For much of human history, people starved to death, regularly, because their nearby agriculture failed because of bad weather, wars, etc, and not because of reliance on long supply chains. It ought to be noteworthy that in today’s interconnected world, we now fret more about obesity than hunger in the West.
In the 1830s and 40s, the Irish relied dangerously on a few domestic crops such as potatoes, and the Corn Law protectionism of the time meant that emergency measures were needed to ship in wheat. The relief came too late. The famine in Ireland was one of the reasons why the Peel administration ended those tariffs.
Here is a book that repays study.
Well that just shows how little you know about farming. Yes farmers (I am one) can sell crops forward, and this is supposedly a great advantage to us, smoothing out volatility, the ability to lock in to a profit before harvest etc etc. Yet in practice it doesn’t work like that.
Lets say its May, and I think I’ll have 1000 tonnes of wheat come harvest (August), and the price for delivery in January is looking good. So I sell maybe 800 tonnes forward at this good price, leaving a margin in case the crop doesn’t yield as much as I think it should(or the weather is terrible and harvest losses are greater). Now two things can happen between May and January. The spot price can go up beyond the price I sold at or it can drop to a lower price below it. Then come January I start delivering my crop to the customer (a grain mill, a chicken farm, maybe a port, to go onto an export boat) and they test each load before its tipped to check it meets the spec of the original contract. Now guess what happens when the spot price is way below the contracted price? Yes, the rejections go through the roof. This load is too damp, that load has ergot, that one is too low in specific weight etc etc etc. But oddly enough they then say ‘But we’ll take it for a deduction off the contracted price’ And because the lorry is sat at their facility and it’ll cost me more money to bring it home you say Ok then. But funnily enough when the spot price is above the contract price, this never happens. The lorry loads sail through the tests and get tipped no questions at all.
So colour me sceptical that the ‘speculators’ gain me anything. In fact they steal money from me hand over fist, via sharp practice. All entirely legal mind, of course. Most farmers would happily knee cap the people who buy grain forward, they despise them with a passion. They steal from the producer via legalised theft.
Well that just shows how little you know about futures markets & their role in hedging & thus smoothing out price uncertainty. Speculators provide liquidity. Not enough speculators, no futures markets (or at best wildly erratic markets at all times rather than occasionally. I once arbitraged the Amsterdam & London potato markets for almost a week (back before everything was watched by algorithms) because not enough people were involved to react to market signals).
Moreover, it is a rare speculator who makes more than his broker (& I say that as a former commodity futures trader/broker in NY & London). About half my clients were either farmers or involved with some aspect of physical agribiz who used the markets for hedging as a matter of course.