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The old counterexample to this claim (I got this from David Friedman, but I don't know if it's original to him) is that there are two ways to make cars in the U

The old counterexample to this claim (I got this from David Friedman, but I don't know if it's original to him) is that there are two ways to make cars in the US: build them in Detroit, or grow them in Iowa. The way the second technology works is: you plant wheat seeds, harvest wheat, put the wheat in ships, and sail them into the Pacific, and they return with Toyotas. The fact that there may be Japanese involved in the second process is irrelevant from the perspective of the US economy. If the exchange price of Toyotas in wheat is "unfairly" good because of government manipulation in Japan, so much the better for the Iowan car farmers. And if the government of Japan intends to reverse its manipulation in the future, there's no reason US markets can't take that into account in their capital allocation decisions, just like they would mines that might run out or climate that affects the wheat crop.

Chris2048 9y ago
Is "so much the better" for car farmers, also better for America? I'm not sure I understand that point. But in any case, how does the USG allocate capital - How does that relate to tariffs? Seems to me predicting a roughly global, nonsentient thing like climate, or internal, controllable nonsentient variable like mine depletion, is entirely different to prediction foreign, advisarial governments with similar prediction power.
- voidmain 9y ago
  If you view trade as just another production technology, it's pretty easy to see that foreign goods being cheaper is isomorphic to an improvement in technology, and therefore presumably good for overall welfare. Foreign governments could be harder to predict than "nonsentient variables", but if you think financial markets are better at prediction than governments (which is roughly the premise of the original comment) there's still no reason to think they aren't the best available solution to this difficult problem. Edit: maybe I missed your actual question. Viewed in this light, a tariff on steel is exactly an attempt to command that there shall be more steel made in Pittsburgh and less in Iowa or wherever. Domestic production is the only thing USG can command, unless they are going to send the Marines.
  - Chris2048 9y ago
    But technological advances are fairly static. If you lead in some kind of technology, that tech won't suddenly cut you out, or cut you off. Plus, government does tinker with its internal economy, protections etc. Another question is why goods are cheapet; cheap labour is often associated with poorer working conditions, and fewer consumer protections, relying on the "market" to deal with legal issues (e.g unsafe products) diesnt really cut it. Financial markets cherry pick their domains, heavily structured representations thereof - and they ate still known for being irrational and prone to panics etc. The point is "the wisdom of crowds" doesn't work against strategic trade attacks. Your answer to my question is based on your own metaphor of "steel produced in Iowa". There is no steel produced there, only a dependency on foreign steel. If an external country needs X that they would trade for steel, they still need X if they won't trade the steel; but maybe the US can use it's own steel.

Chris2048 9y ago

Is "so much the better" for car farmers, also better for America? I'm not sure I understand that point. But in any case, how does the USG allocate capital - How does that relate to tariffs? Seems to me predicting a roughly global, nonsentient thing like climate, or internal, controllable nonsentient variable like mine depletion, is entirely different to prediction foreign, advisarial governments with similar prediction power.

voidmain 9y ago
If you view trade as just another production technology, it's pretty easy to see that foreign goods being cheaper is isomorphic to an improvement in technology, and therefore presumably good for overall welfare. Foreign governments could be harder to predict than "nonsentient variables", but if you think financial markets are better at prediction than governments (which is roughly the premise of the original comment) there's still no reason to think they aren't the best available solution to this difficult problem. Edit: maybe I missed your actual question. Viewed in this light, a tariff on steel is exactly an attempt to command that there shall be more steel made in Pittsburgh and less in Iowa or wherever. Domestic production is the only thing USG can command, unless they are going to send the Marines.
- Chris2048 9y ago
  But technological advances are fairly static. If you lead in some kind of technology, that tech won't suddenly cut you out, or cut you off. Plus, government does tinker with its internal economy, protections etc. Another question is why goods are cheapet; cheap labour is often associated with poorer working conditions, and fewer consumer protections, relying on the "market" to deal with legal issues (e.g unsafe products) diesnt really cut it. Financial markets cherry pick their domains, heavily structured representations thereof - and they ate still known for being irrational and prone to panics etc. The point is "the wisdom of crowds" doesn't work against strategic trade attacks. Your answer to my question is based on your own metaphor of "steel produced in Iowa". There is no steel produced there, only a dependency on foreign steel. If an external country needs X that they would trade for steel, they still need X if they won't trade the steel; but maybe the US can use it's own steel.