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>>>They simply are not a bad thing. Not being antagonistic hear - but your sentence reads like you meant it in absolute terms, as if they are never a good thin

by gxs 8y ago

>>>They simply are not a bad thing. Not being antagonistic hear - but your sentence reads like you meant it in absolute terms, as if they are never a good thing. That's quite a claim - can you elaborate on it? Your post gives a trivial example, would be great to hear your actual reasoning.

resters 8y ago
The "trade deficit" is simply a number that measures the value of exports minus the value of imports. It has no relationship with the health of the economy whatsoever. Firms within an economy have their choice of whether to import inputs from domestic providers or foreign providers, and they choose the option that offers the best value. Let's use the example of a company that is considering opening a 50K square foot call center for customer service. The company will decide whether it makes sense to open that call center in an expensive place like downtown San Francisco, but it may also consider opening it in a place that would be more affordable. If you focus only on the call center workers in downtown San Francisco, it will look like perhaps a tariff should be created by the city of SF to prevent firms from opening call centers in Iowa. After all, where will those call center workers find jobs? But think about the rest of the firm. Maybe with the money it saves by opening the call center in Iowa, it can open an R&D office in downtown SF instead. Maybe in a few years the R&D pays off and now the firm can hire 1000 more workers in SF for other jobs. But if we rewind and consider the situation with tariffs. The firm still decides to open the call center in Iowa but now must pay a tariff, which reduces the profitability of the decision. Now it can't afford to open the R&D office and ends up a few years later going out of business. Or, suppose that the tariff is high enough that the firm does open the call center in SF. Due to the costs there is still no money to open the R&D office and so the company still fails. The counter-intuitive thing about economics is reasoning about counter-factual scenarios... all the things that might have happened if things had gone differently. In the above example, SF loses the higher skilled R&D jobs due to the tariff and also loses the 1000 new jobs a few years later. But it's easy to ignore those since they are counter-factual. The politicians can point to the SF call center employees and say "See, the tariffs got these people jobs, look how we're helping the economy!" But the truth is quite the opposite, the tariff prevented the company from having the capital to invest in R&D, cost the Iowa call center jobs AND the SF R&D jobs AND the 1000 other jobs that would have happened due to growth. In a nutshell, the mindset that makes people think tariffs are a good idea is anchored on the idea that the economy is static and that someone is winning only at the expense of someone else losing. In the tariff supporter scenario, Iowa would have "won" if SF had not instituted those tariffs to keep the jobs at home. I use SF and Iowa as an example here just to make the concept more simple and to remove the confounding ideology of nations being adversarial to one another. Trade makes otherwise adversarial nations into partners and allies, so you could substitute SF and Iowa for the US and Canada respectively.

by gxs 8y ago

resters 8y ago

The "trade deficit" is simply a number that measures the value of exports minus the value of imports. It has no relationship with the health of the economy whatsoever. Firms within an economy have their choice of whether to import inputs from domestic providers or foreign providers, and they choose the option that offers the best value. Let's use the example of a company that is considering opening a 50K square foot call center for customer service. The company will decide whether it makes sense to open that call center in an expensive place like downtown San Francisco, but it may also consider opening it in a place that would be more affordable. If you focus only on the call center workers in downtown San Francisco, it will look like perhaps a tariff should be created by the city of SF to prevent firms from opening call centers in Iowa. After all, where will those call center workers find jobs? But think about the rest of the firm. Maybe with the money it saves by opening the call center in Iowa, it can open an R&D office in downtown SF instead. Maybe in a few years the R&D pays off and now the firm can hire 1000 more workers in SF for other jobs. But if we rewind and consider the situation with tariffs. The firm still decides to open the call center in Iowa but now must pay a tariff, which reduces the profitability of the decision. Now it can't afford to open the R&D office and ends up a few years later going out of business. Or, suppose that the tariff is high enough that the firm does open the call center in SF. Due to the costs there is still no money to open the R&D office and so the company still fails. The counter-intuitive thing about economics is reasoning about counter-factual scenarios... all the things that might have happened if things had gone differently. In the above example, SF loses the higher skilled R&D jobs due to the tariff and also loses the 1000 new jobs a few years later. But it's easy to ignore those since they are counter-factual. The politicians can point to the SF call center employees and say "See, the tariffs got these people jobs, look how we're helping the economy!" But the truth is quite the opposite, the tariff prevented the company from having the capital to invest in R&D, cost the Iowa call center jobs AND the SF R&D jobs AND the 1000 other jobs that would have happened due to growth. In a nutshell, the mindset that makes people think tariffs are a good idea is anchored on the idea that the economy is static and that someone is winning only at the expense of someone else losing. In the tariff supporter scenario, Iowa would have "won" if SF had not instituted those tariffs to keep the jobs at home. I use SF and Iowa as an example here just to make the concept more simple and to remove the confounding ideology of nations being adversarial to one another. Trade makes otherwise adversarial nations into partners and allies, so you could substitute SF and Iowa for the US and Canada respectively.