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Economics keeps confusing me. Is this not the very goal of international trade? If someone else is better or cheaper at producing specific goods or services, th

Economics keeps confusing me. Is this not the very goal of international trade? If someone else is better or cheaper at producing specific goods or services, then you import them, let your industry die, and move the people to a different industry. At least unless the other country is just trying to kill your industry with subsidies or something along that line only the gain market dominance and raise prices later.

cobookman 9y ago
What if a country has more buying power than others but is not the most efficient at manufacturing. Should that country simply ship off all jobs?
- danbruc 9y ago
  Is this actually possible and sustainable? Where would the money come from to buy everything if you are not producing anything at a price that others would be willing to pay?
  - deleted 9y ago
    [deleted]
- simonh 9y ago
  All jobs are in manufacturing? Really? What is it that you manufacture?
- apoorvkumar 9y ago
  I believe that's how free trade works. US has dominated in technology due to the same effect. But the most important part is when a country chooses to not specialize in something, they have the ability to specialize in something else. US has to decide whether the opportunity cost of getting manufacturing back is worth it, given it won't be a very employable area with all the automation.
- Broken_Hippo 9y ago
  How did they get the buying power in the first place? Jobs of some sort. Teachers, construction workers, health care workers, programmers. Farmers, utility workers, electricians and craftsmen of different sorts. Case workers for the country's child protection agency. Folks that speak the local language who work in call centers. Sure, some of these are low-paying jobs, but lets face it: so are some factory jobs (i've worked in one and had friend that worked in others, which pay a little above minimum wage). Simply put, you aren't going to ship off all the jobs. So they aren't the best at manufacturing? So what? Obviously, if they have buying power, the country has some other strengths. They simply wouldn't show up when looking at manufacturing only.
  - Arizhel 9y ago
    Most of the jobs you're talking about are absolutely useless to people in foreign nations. People in China don't care about your child protection case workers, health care workers, utility workers, construction workers, and teachers, because they have zero effect on their economy. What incentive is there for people in China to manufacture stuff and send it to your country if you have absolutely nothing to offer in return for trade? International trade only works when you have stuff to trade; you can't run an economy based on consumption only, and have the rest of the world working hard to provide you stuff to consume. That "buying power" comes from your nation exporting something, whether it's manufactured goods, specialized services, etc. Otherwise, it's eventually going to fall apart. What does the US export?
- CWuestefeld 9y ago
  This is pretty well understood, viz the Law of Comparative Advantage [1]. This doesn't tell us that you have to be the cheapest in the world, only that you should specialize in whatever you can do most efficiently. If your trade partners do the same, everyone wins. If they don't do the same, then they are causing themselves to lose out. [1] https://en.wikipedia.org/wiki/Comparative_advantage https://en.wikipedia.org/wiki/Comparative_advantage
  - danbruc 9y ago
    But if you are unable to or stop being able to produce anything appealing to the world market, then you are loosing and opening your market is a really a bad idea.
    - CWuestefeld 9y ago
      No, that's not the case. Imagine a simple world with two countries (1 and 2) and two commodities (A and B). It might be that country 1 has something that allows them to produce both A and B with greater efficiency than can 2. But even when that's the case, they (and the whole world) do better when they continue to concentrate on producing the one for which they have the greatest advantage (say, A). Even if 1 can also produce B more efficiently than can 2, it works out better if they ignore that, leaving it to 2, and just concentrate on producing all the A they can. That solution doesn't change if there are more countries and more commodities. It might make the big picture more complicated, but it remains a better solution for both 2 and for the entire world if 2 concentrates on producing whatever it's best at. (Note that this is purely based on economics of commodities, and not national security. When some of those commodities are things like "missiles", it may well be that a country things they need to have a guaranteed secure supply, should one of their trading partners decide not to be friends anymore.)
      - danbruc 9y ago
        I don't think that is true, at least not generally. In the extrem case, if 1 can produce A and B at zero costs, why would it be better if 2 produced anything assuming that the costs are non-zero for A and B? And I see no obvious reason why that would change if we go from zero to small non-zero costs. It might be true if there is an unlimited demand for at least one of the goods and we simply fully utilize the production capacities of 1 and 2 but that is not a realistic scenario in general. And even then I don't think it would be true in general. What if 2 could not satisfy the demand for B?
matt4077 9y ago
Yes and no. The specific provision is meant to allow governments to ease sudden shifts. As an example, say the weather in some country Y was extraordinarily great for growing tulips this year. As a result, they're exporting enormous amounts of tulips, at really cheap prices. Nobody is buying durch tulips this year, because they're more expensive. All dutch tulip farmer ("tulipers"?) will go bankrupt, because np business can survive a full year with no revenue and full costs. When next year comes around, the weather in country Y is back to normal, but the dutch tulip industry has been shattered.
- danbruc 9y ago
  Which raises the question which unforeseen temporary changes are supposed to be at play here.
  - Spivak 9y ago
    They're not unforeseen, China is giving subsidies for solar panel manufacturers. Not many people object to using subsidies for domestic industries or R&D but using them for exports is just state level predatory pricing.
- mowenz 9y ago
  That's a pretty aggressive stance government intervention. I'm all for government intervention when it is needed, but honestly your example ignores the fact that: farmers actually solved this problem ages ago, and yes on the free market, by using futures contracts and other financial insurance to manage their finances.
- padobson 9y ago
  This leads me to two questions: Has there ever been a situation where temporary conditions in some country (like Country Y) led them to satisfying worldwide demand? It seems that even in a year where foreign competition was strong, domestic producers would be able to find SOME revenue for their goods. What would stop the industry from rebuilding the following year? Supplies have dropped as foreign production decreased, and the demand (presumably) has remained the same. The human and natural resources and infrastructure couldn't have changed all that much in the course of the year. It seems to me that a few enterprising tulip producers would be able to recognize the 1-year aberration, find a way to weather the storm, and expand their market share the following year against reduced domestic competition.
DarkKomunalec 9y ago
1) You might run out of industries to move people to, and shutting down old industries and setting up new ones is expensive. 2) You become dependent on the countries you're importing from. See Russia's fear of Intel chips, various embargoes, etc.
jplayer01 9y ago
There's value in maintaining a manufacturing base at home, because there's often a lot of high tech expertise and knowledge of processes that are otherwise lost. If the Chinese suddenly decide to stop subsidizing their solar industry and they can pump up prices because every other country has decided to let the Chinese manufacture all the panels...Well, it won't be pleasant.
mikepurvis 9y ago
Sure, that's the globalization ideal. But in the real world, there are a bunch of other non-market factors at play, which these kinds of policies attempt to account for: - The low-cost remote industry may not be sustainable. It would be unwise to allow upheaval locally for what could turn out to be a short term gain (for example selling your city buses and firing the drivers because Uber is a thing). - The industry may not be able to scale particularly well. This is why milk production is heavily regulated in Ontario—it keeps the price steady and avoids boom and bust cycles which would hurt both the consumer and producer. - There's a non-zero cost to having the local industry fold; specialized machinery is written down and sold for scrap, entities (and sometime individuals) go bankrupt, people are out of work, etc. - There can be sovereignty issues with being overly dependent on a foreign power for some critical resource, for example oil, food, energy. - The cost of shipping is an unknown in the long term. Flying in produce from far away makes sense when airplanes and fossil fuel are cheap, but do we want to build our society on an assumption that that will be true indefinitely?

cobookman 9y ago

What if a country has more buying power than others but is not the most efficient at manufacturing. Should that country simply ship off all jobs?

danbruc 9y ago
Is this actually possible and sustainable? Where would the money come from to buy everything if you are not producing anything at a price that others would be willing to pay?
- deleted 9y ago
  [deleted]
simonh 9y ago
All jobs are in manufacturing? Really? What is it that you manufacture?
apoorvkumar 9y ago
I believe that's how free trade works. US has dominated in technology due to the same effect. But the most important part is when a country chooses to not specialize in something, they have the ability to specialize in something else. US has to decide whether the opportunity cost of getting manufacturing back is worth it, given it won't be a very employable area with all the automation.
Broken_Hippo 9y ago
How did they get the buying power in the first place? Jobs of some sort. Teachers, construction workers, health care workers, programmers. Farmers, utility workers, electricians and craftsmen of different sorts. Case workers for the country's child protection agency. Folks that speak the local language who work in call centers. Sure, some of these are low-paying jobs, but lets face it: so are some factory jobs (i've worked in one and had friend that worked in others, which pay a little above minimum wage). Simply put, you aren't going to ship off all the jobs. So they aren't the best at manufacturing? So what? Obviously, if they have buying power, the country has some other strengths. They simply wouldn't show up when looking at manufacturing only.
- Arizhel 9y ago
  Most of the jobs you're talking about are absolutely useless to people in foreign nations. People in China don't care about your child protection case workers, health care workers, utility workers, construction workers, and teachers, because they have zero effect on their economy. What incentive is there for people in China to manufacture stuff and send it to your country if you have absolutely nothing to offer in return for trade? International trade only works when you have stuff to trade; you can't run an economy based on consumption only, and have the rest of the world working hard to provide you stuff to consume. That "buying power" comes from your nation exporting something, whether it's manufactured goods, specialized services, etc. Otherwise, it's eventually going to fall apart. What does the US export?
CWuestefeld 9y ago
This is pretty well understood, viz the Law of Comparative Advantage [1]. This doesn't tell us that you have to be the cheapest in the world, only that you should specialize in whatever you can do most efficiently. If your trade partners do the same, everyone wins. If they don't do the same, then they are causing themselves to lose out. [1] https://en.wikipedia.org/wiki/Comparative_advantage https://en.wikipedia.org/wiki/Comparative_advantage
- danbruc 9y ago
  But if you are unable to or stop being able to produce anything appealing to the world market, then you are loosing and opening your market is a really a bad idea.
  - CWuestefeld 9y ago
    No, that's not the case. Imagine a simple world with two countries (1 and 2) and two commodities (A and B). It might be that country 1 has something that allows them to produce both A and B with greater efficiency than can 2. But even when that's the case, they (and the whole world) do better when they continue to concentrate on producing the one for which they have the greatest advantage (say, A). Even if 1 can also produce B more efficiently than can 2, it works out better if they ignore that, leaving it to 2, and just concentrate on producing all the A they can. That solution doesn't change if there are more countries and more commodities. It might make the big picture more complicated, but it remains a better solution for both 2 and for the entire world if 2 concentrates on producing whatever it's best at. (Note that this is purely based on economics of commodities, and not national security. When some of those commodities are things like "missiles", it may well be that a country things they need to have a guaranteed secure supply, should one of their trading partners decide not to be friends anymore.)
    - danbruc 9y ago
      I don't think that is true, at least not generally. In the extrem case, if 1 can produce A and B at zero costs, why would it be better if 2 produced anything assuming that the costs are non-zero for A and B? And I see no obvious reason why that would change if we go from zero to small non-zero costs. It might be true if there is an unlimited demand for at least one of the goods and we simply fully utilize the production capacities of 1 and 2 but that is not a realistic scenario in general. And even then I don't think it would be true in general. What if 2 could not satisfy the demand for B?

matt4077 9y ago

Yes and no. The specific provision is meant to allow governments to ease sudden shifts. As an example, say the weather in some country Y was extraordinarily great for growing tulips this year. As a result, they're exporting enormous amounts of tulips, at really cheap prices. Nobody is buying durch tulips this year, because they're more expensive. All dutch tulip farmer ("tulipers"?) will go bankrupt, because np business can survive a full year with no revenue and full costs. When next year comes around, the weather in country Y is back to normal, but the dutch tulip industry has been shattered.

danbruc 9y ago
Which raises the question which unforeseen temporary changes are supposed to be at play here.
- Spivak 9y ago
  They're not unforeseen, China is giving subsidies for solar panel manufacturers. Not many people object to using subsidies for domestic industries or R&D but using them for exports is just state level predatory pricing.
mowenz 9y ago
That's a pretty aggressive stance government intervention. I'm all for government intervention when it is needed, but honestly your example ignores the fact that: farmers actually solved this problem ages ago, and yes on the free market, by using futures contracts and other financial insurance to manage their finances.
padobson 9y ago
This leads me to two questions: Has there ever been a situation where temporary conditions in some country (like Country Y) led them to satisfying worldwide demand? It seems that even in a year where foreign competition was strong, domestic producers would be able to find SOME revenue for their goods. What would stop the industry from rebuilding the following year? Supplies have dropped as foreign production decreased, and the demand (presumably) has remained the same. The human and natural resources and infrastructure couldn't have changed all that much in the course of the year. It seems to me that a few enterprising tulip producers would be able to recognize the 1-year aberration, find a way to weather the storm, and expand their market share the following year against reduced domestic competition.

DarkKomunalec 9y ago

1) You might run out of industries to move people to, and shutting down old industries and setting up new ones is expensive. 2) You become dependent on the countries you're importing from. See Russia's fear of Intel chips, various embargoes, etc.

jplayer01 9y ago

There's value in maintaining a manufacturing base at home, because there's often a lot of high tech expertise and knowledge of processes that are otherwise lost. If the Chinese suddenly decide to stop subsidizing their solar industry and they can pump up prices because every other country has decided to let the Chinese manufacture all the panels...Well, it won't be pleasant.

mikepurvis 9y ago

Sure, that's the globalization ideal. But in the real world, there are a bunch of other non-market factors at play, which these kinds of policies attempt to account for: - The low-cost remote industry may not be sustainable. It would be unwise to allow upheaval locally for what could turn out to be a short term gain (for example selling your city buses and firing the drivers because Uber is a thing). - The industry may not be able to scale particularly well. This is why milk production is heavily regulated in Ontario—it keeps the price steady and avoids boom and bust cycles which would hurt both the consumer and producer. - There's a non-zero cost to having the local industry fold; specialized machinery is written down and sold for scrap, entities (and sometime individuals) go bankrupt, people are out of work, etc. - There can be sovereignty issues with being overly dependent on a foreign power for some critical resource, for example oil, food, energy. - The cost of shipping is an unknown in the long term. Flying in produce from far away makes sense when airplanes and fossil fuel are cheap, but do we want to build our society on an assumption that that will be true indefinitely?