18 ms·

> Free trade is great when applied evenly. Free trade is great even when applied unevenly.

Barrin92 8y ago
Surprised this was being downvoted because it is true. If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses. As Friedman used to point out, if Japan wants to subsidize its steel at the cost of their own taxpayers, just take the cheap steel and be thankful for it.
- Mirioron 8y ago
  VAT in the EU behaves in a similar manner as a tariff would. Yet we seem to be doing rather okay in that sense.
  - nroets 8y ago
    The VAT income of the state is the same regardless of where the product was manufactured. So it's not like a tariff at all.
  - ekianjo 8y ago
    with that kind of logic then you should increase VAT 3 or 4 fold and things would be even better for everyone?
- mrkstu 8y ago
  Which works fine until they own a monopoly to a business with high cost of entry and decide to raise prices again. Things like this are rarely simple.
  - drak0n1c 8y ago
    Precisely, if your subsidized monopoly can afford to take the hit for a decade or two - the international competition starts dying, their facilities and towns shutter, and locally accumulated institutional knowledge and its transfer disappears. African agriculture and industry suffered similarly in the 20th century due to decades of ham-fisted global charity (essentially subsidized commodity dumping). There are complex consequences, and the rebound when opportunities re-emerge isn't anywhere as rapid as the fall.
    - roenxi 8y ago
      Maybe, but that involves burning a lot of resources in a sort of crazy hope that nobody is going to try and compete when you start making money again. Africa is an interesting case in point - I don't know very much about the average case, but I remember Zimbabwe gutted themselves, going from the Bread Basket of Africa to famine in a very short period of time with no particular effort from outside forces. There is a strong case the Africa's economic problems are more attributable to their struggles to organise politically rather than charity and dumping from external economies (which probably hasn't helped or hindered in the big picture). Maybe we can peg the organisational issues on foreign countries; but it is going to be more complicated than that. Take China. Their protectionist policies probably have an impact, but most of their advantage is they are organised, politically stable, willing to work more for less pay and have a culture that believes in investment and education. Without government handicaps like Maoist Communism, that is a very formidable set of attributes in a competitor.
  - zeroname 8y ago
    That's basically the fallacy of predatory pricing. It doesn't work. Sure, you can raise prices after killing the competition, but only so far as to not revive the competition. Your price ends up as the fair market price. Cost of entry is irrelevant here, it's a cost like any other.
    - vertex-four 8y ago
      Sure, except that reviving the competition costs money in its own right many times - it's usually not a Bitcoin miner that can be turned off when it's unprofitable and turned on again with the flick of a switch when it becomes profitable to run. So your price ends up at fair market price... when averaged over many decades, maybe, but likely not for long at any particular point in time. And in the meantime workers get screwed over as industries and skillsets lose economic value.
      - zeroname 8y ago
        First of all, where's the evidence of these supposed high-entry monopolies? Seems more like a thought experiment to me. Secondly, you're only looking at the negative consequences for some workers. You're not looking at the benefit to all workers, who pay lower prices as result of cheaper labor from abroad. Suppose workers had been guaranteed their jobs for life because of protectionist policies. This is called mercantilism. Everybody pays more for everyone else's labor and nobody can benefit from comparative advantage. As a result, everyone is poorer. This has been known for centuries and it has been accepted by economists across the political spectrum. Yet politically, protectionism never ceases to lose appeal.
        kuschku 8y ago
        Have you tried producing and assembling electronics in the west? You don't have shops to buy parts anymore, you don't have assembly lines anymore, you don't have people trained in this anymore. If China decided tomorrow to increase the costs of the electronics they export, you'd have to accept that. Apple tried their best to move even some assembly back to the US, and couldn't even get the simplest custom screws made in the amounts they need. Only a single small company still had the tech to make them, and they couldn't produce enough, fast enough. It's not just a single monopoly, the problem is that entire industries are gone, and it'd take decades to train workers and regain the institutional knowledge. And this is just one example. And your argument has one more flaw: free trade reduces costs of products, and wages. But it won't affect cost of housing (except over a timespan of decades due to cheaper labor and materials, but it still won't solve cost of land). Nor will it affect cost of utilities. In our household, we're now spending 71% of our budget on rent and utilities. Under more protectionist policies, I might pay 20% more for products, but I'd also be making 20% more wages — and as result, I'd be better off (in fact, my disposable income after rent, utilities and food would almost triple)
- HillaryBriss 8y ago
  On the subject of Friedman, what was his take on how to address the deep personal losses suffered by tens of thousands of US based steel industry workers who lose their jobs? Many of these people become unemployed or underemployed for years. They seem to be taking a pretty big loss. Surely Friedman didn't expect them to just "take one for the team." I don't know. Maybe he did? Not sure.
  - Barrin92 8y ago
    Friedman's response to this was that there is always cost to some policy. The cost of protectionism just happens to fall on the majority of people which have no particular voice. Protecting the local steel industry might be good for the steel workers, but it raises prices for everyone else in the economy who consumes steel. Now certainly every time someone's job is disrupted by competition it is personally tragic, but why do the interests of one particular interest group weigh in larger than the well-being of everyone else?
    - HillaryBriss 8y ago
      > why do the interests of one particular interest group weigh in larger than the well-being of everyone else? then, if I interpret this correctly, Friedman's idea truly was that laid-off steelworkers "take one for the team"
  - zeroname 8y ago
    What about the "deep personal losses" suffered in the garment industry, in electronics, in agriculture? What about all the people that lost their jobs as a result of technological progress? What of those poor ice pickers, who lost their livelihood to the invention of the refrigerator?
    - HillaryBriss 8y ago
      right. more examples of the same. economic gains are unevenly distributed and some workers experience a deep net loss. so, what regulatory or governmental policies and programs did Friedman think could actually help people once they arrive in that state? what can an economist say about policy for workers whose livelihood disappeared?
- rodgerd 8y ago
  > If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses. That must be why economies such as China, Japan, and South Korea stayed economic basket cases in the late 20th century. Because of their protectionism.
  - ekianjo 8y ago
    Japan is definitely harming its own citizens since they have to pay high price for about everything compared to the standards of about every other country out there. When something is too expensive you dont buy it anymore and it reduces internal growth.
- defertoreptar 8y ago
  I know what Friedman thinks of tariffs in general, but I like to think that he'd be at least somewhat understanding of the scenario we are currently in, where the endgame is to have lower tariffs on both sides.
- jayalpha 8y ago
  "Surprised this was being downvoted because it is true. If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses." This worked quite well for countries building up their own industries (Brazil, Korea, Japan, possible China). "As Friedman used to point out, if Japan wants to subsidize its steel at the cost of their own taxpayers, just take the cheap steel and be thankful for it." It becomes a problem if a country like China with state capitalism uses this to systematically destroy other industries.
monetus 8y ago
This 'great' only applies to society as a super-organism. Are you really suggesting uneven trade has no casualties on the individual level?
- zeroname 8y ago
  Of course not. One could give any number of examples where a benefit for society takes precedence over that of the individual.
  - monetus 8y ago
    You seem like an awfully reasonable person. I figure that I should say what prompted my response was having read about agrarian suicides blamed on subsidized goods, India in particular. A quick search makes it seem pretty common.
FabHK 8y ago
Here's one thing I find funny though about this argument (Econ 101, yet correct, yet complicated): The argument for free trade is an efficiency argument (comparative advantage, Ricardo, Hecksher-Ohlin yada yada) that it's unambiguously better, but it's predicated on redistribution: The reason that free trade is unambiguously better is that you can compensate all the "losers" of free trade so that they're as well off as before, and you still have extra income left (to distribute, in theory, as desired politically). Economics mostly shies away from inter-personal utility comparisons (they're hard to grapple with) and prefers the notion of "pareto improvements" (where at least someone is better off without anyone being worse of). Trade theory uses this device of redistribution to show that a free trade is a pareto improvement. But then, in the real world, many advocates of free trade suddenly forget about this part of the argument, and when some sectors of society profit handsomely and many (often workers) end up on the street, they suddenly remember their free-market credentials and argue that no, one cannot redistribute, the free market is optimal and fair and pays everyone their marginal product and yada yada yada. Funny, that amnesia in the middle.
- hexane360 8y ago
  This is because the strongest advocates of free trade don't treat economics as a useful model, they treat it as doctrine.
- nroets 8y ago
  Taxing and social services aren't the only way that redistribution occurs. When people are rich enough, they become lazy tourists. Then they travel to poor countries and spend money in restaurants, hotels etc. Similarly, hard working immigrants travel from poor countries to rich countries to do menial work that rich people can't be bothered with. They often send some money back home. If the US can sell their excess maize in poor countries, it lowers the cost of food for the poor people in those countries. (Especially true when the local harvest is poor)
- zeroname 8y ago
  I don't know where you got this idea, but the argument for comparative advantage has nothing to do with the redistribution of income, nor is there a claim of "fairness" towards each and every individual or interest group. To understand why comparative advantage is an advantage, you must consider the alternative: Economic protectionism. It results in inefficient allocation of labor, because everyone's job is protected. Everyone pays more for everyone else's labor, everyone is less productive. This affects the poor the most, because they spent the biggest share of their income on basic goods and services. Of course there are economic winners and losers, but by attempting to fully protect everyone, everyone becomes a loser, as evidenced by the countless failed attempts at socialism.
jayalpha 8y ago
"Free trade is great even when applied unevenly." Is it? Lets assume a real FTA with the EU and Mercosul. Result? EU agriculture will nearly collapse, and Brasilian industry will nearly collapse. Sure, prices of electronics, cars and consumer goods will be lower in Brazil and food prices will be lower in the EU. Trade barriers helped countries like Brazil, Korea, Japan and likely China to build up their own industries before agreeing to FTA. I am in favor of FTA but I am not sure that they are a solution to every problem.
artomultiplo 8y ago
It's not exactly like that. But I think I share your point of view

Surprised this was being downvoted because it is true. If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses. As Friedman used to point out, if Japan wants to subsidize its steel at the cost of their own taxpayers, just take the cheap steel and be thankful for it.

Mirioron 8y ago
VAT in the EU behaves in a similar manner as a tariff would. Yet we seem to be doing rather okay in that sense.
- nroets 8y ago
  The VAT income of the state is the same regardless of where the product was manufactured. So it's not like a tariff at all.
- ekianjo 8y ago
  with that kind of logic then you should increase VAT 3 or 4 fold and things would be even better for everyone?
mrkstu 8y ago
Which works fine until they own a monopoly to a business with high cost of entry and decide to raise prices again. Things like this are rarely simple.
- drak0n1c 8y ago
  Precisely, if your subsidized monopoly can afford to take the hit for a decade or two - the international competition starts dying, their facilities and towns shutter, and locally accumulated institutional knowledge and its transfer disappears. African agriculture and industry suffered similarly in the 20th century due to decades of ham-fisted global charity (essentially subsidized commodity dumping). There are complex consequences, and the rebound when opportunities re-emerge isn't anywhere as rapid as the fall.
  - roenxi 8y ago
    Maybe, but that involves burning a lot of resources in a sort of crazy hope that nobody is going to try and compete when you start making money again. Africa is an interesting case in point - I don't know very much about the average case, but I remember Zimbabwe gutted themselves, going from the Bread Basket of Africa to famine in a very short period of time with no particular effort from outside forces. There is a strong case the Africa's economic problems are more attributable to their struggles to organise politically rather than charity and dumping from external economies (which probably hasn't helped or hindered in the big picture). Maybe we can peg the organisational issues on foreign countries; but it is going to be more complicated than that. Take China. Their protectionist policies probably have an impact, but most of their advantage is they are organised, politically stable, willing to work more for less pay and have a culture that believes in investment and education. Without government handicaps like Maoist Communism, that is a very formidable set of attributes in a competitor.
- zeroname 8y ago
  That's basically the fallacy of predatory pricing. It doesn't work. Sure, you can raise prices after killing the competition, but only so far as to not revive the competition. Your price ends up as the fair market price. Cost of entry is irrelevant here, it's a cost like any other.
  - vertex-four 8y ago
    Sure, except that reviving the competition costs money in its own right many times - it's usually not a Bitcoin miner that can be turned off when it's unprofitable and turned on again with the flick of a switch when it becomes profitable to run. So your price ends up at fair market price... when averaged over many decades, maybe, but likely not for long at any particular point in time. And in the meantime workers get screwed over as industries and skillsets lose economic value.
    - zeroname 8y ago
      First of all, where's the evidence of these supposed high-entry monopolies? Seems more like a thought experiment to me. Secondly, you're only looking at the negative consequences for some workers. You're not looking at the benefit to all workers, who pay lower prices as result of cheaper labor from abroad. Suppose workers had been guaranteed their jobs for life because of protectionist policies. This is called mercantilism. Everybody pays more for everyone else's labor and nobody can benefit from comparative advantage. As a result, everyone is poorer. This has been known for centuries and it has been accepted by economists across the political spectrum. Yet politically, protectionism never ceases to lose appeal.
      - kuschku 8y ago
        Have you tried producing and assembling electronics in the west? You don't have shops to buy parts anymore, you don't have assembly lines anymore, you don't have people trained in this anymore. If China decided tomorrow to increase the costs of the electronics they export, you'd have to accept that. Apple tried their best to move even some assembly back to the US, and couldn't even get the simplest custom screws made in the amounts they need. Only a single small company still had the tech to make them, and they couldn't produce enough, fast enough. It's not just a single monopoly, the problem is that entire industries are gone, and it'd take decades to train workers and regain the institutional knowledge. And this is just one example. And your argument has one more flaw: free trade reduces costs of products, and wages. But it won't affect cost of housing (except over a timespan of decades due to cheaper labor and materials, but it still won't solve cost of land). Nor will it affect cost of utilities. In our household, we're now spending 71% of our budget on rent and utilities. Under more protectionist policies, I might pay 20% more for products, but I'd also be making 20% more wages — and as result, I'd be better off (in fact, my disposable income after rent, utilities and food would almost triple)
HillaryBriss 8y ago
On the subject of Friedman, what was his take on how to address the deep personal losses suffered by tens of thousands of US based steel industry workers who lose their jobs? Many of these people become unemployed or underemployed for years. They seem to be taking a pretty big loss. Surely Friedman didn't expect them to just "take one for the team." I don't know. Maybe he did? Not sure.
- Barrin92 8y ago
  Friedman's response to this was that there is always cost to some policy. The cost of protectionism just happens to fall on the majority of people which have no particular voice. Protecting the local steel industry might be good for the steel workers, but it raises prices for everyone else in the economy who consumes steel. Now certainly every time someone's job is disrupted by competition it is personally tragic, but why do the interests of one particular interest group weigh in larger than the well-being of everyone else?
  - HillaryBriss 8y ago
    > why do the interests of one particular interest group weigh in larger than the well-being of everyone else? then, if I interpret this correctly, Friedman's idea truly was that laid-off steelworkers "take one for the team"
- zeroname 8y ago
  What about the "deep personal losses" suffered in the garment industry, in electronics, in agriculture? What about all the people that lost their jobs as a result of technological progress? What of those poor ice pickers, who lost their livelihood to the invention of the refrigerator?
  - HillaryBriss 8y ago
    right. more examples of the same. economic gains are unevenly distributed and some workers experience a deep net loss. so, what regulatory or governmental policies and programs did Friedman think could actually help people once they arrive in that state? what can an economist say about policy for workers whose livelihood disappeared?
rodgerd 8y ago
> If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses. That must be why economies such as China, Japan, and South Korea stayed economic basket cases in the late 20th century. Because of their protectionism.
- ekianjo 8y ago
  Japan is definitely harming its own citizens since they have to pay high price for about everything compared to the standards of about every other country out there. When something is too expensive you dont buy it anymore and it reduces internal growth.
defertoreptar 8y ago
I know what Friedman thinks of tariffs in general, but I like to think that he'd be at least somewhat understanding of the scenario we are currently in, where the endgame is to have lower tariffs on both sides.
jayalpha 8y ago
"Surprised this was being downvoted because it is true. If countries engage in protectionism unilaterally, they are predominantly harming their own consumers and undermining competition of their own businesses." This worked quite well for countries building up their own industries (Brazil, Korea, Japan, possible China). "As Friedman used to point out, if Japan wants to subsidize its steel at the cost of their own taxpayers, just take the cheap steel and be thankful for it." It becomes a problem if a country like China with state capitalism uses this to systematically destroy other industries.

monetus 8y ago

This 'great' only applies to society as a super-organism. Are you really suggesting uneven trade has no casualties on the individual level?

zeroname 8y ago
Of course not. One could give any number of examples where a benefit for society takes precedence over that of the individual.
- monetus 8y ago
  You seem like an awfully reasonable person. I figure that I should say what prompted my response was having read about agrarian suicides blamed on subsidized goods, India in particular. A quick search makes it seem pretty common.

FabHK 8y ago

Here's one thing I find funny though about this argument (Econ 101, yet correct, yet complicated): The argument for free trade is an efficiency argument (comparative advantage, Ricardo, Hecksher-Ohlin yada yada) that it's unambiguously better, but it's predicated on redistribution: The reason that free trade is unambiguously better is that you can compensate all the "losers" of free trade so that they're as well off as before, and you still have extra income left (to distribute, in theory, as desired politically). Economics mostly shies away from inter-personal utility comparisons (they're hard to grapple with) and prefers the notion of "pareto improvements" (where at least someone is better off without anyone being worse of). Trade theory uses this device of redistribution to show that a free trade is a pareto improvement. But then, in the real world, many advocates of free trade suddenly forget about this part of the argument, and when some sectors of society profit handsomely and many (often workers) end up on the street, they suddenly remember their free-market credentials and argue that no, one cannot redistribute, the free market is optimal and fair and pays everyone their marginal product and yada yada yada. Funny, that amnesia in the middle.

hexane360 8y ago
This is because the strongest advocates of free trade don't treat economics as a useful model, they treat it as doctrine.
nroets 8y ago
Taxing and social services aren't the only way that redistribution occurs. When people are rich enough, they become lazy tourists. Then they travel to poor countries and spend money in restaurants, hotels etc. Similarly, hard working immigrants travel from poor countries to rich countries to do menial work that rich people can't be bothered with. They often send some money back home. If the US can sell their excess maize in poor countries, it lowers the cost of food for the poor people in those countries. (Especially true when the local harvest is poor)
zeroname 8y ago
I don't know where you got this idea, but the argument for comparative advantage has nothing to do with the redistribution of income, nor is there a claim of "fairness" towards each and every individual or interest group. To understand why comparative advantage is an advantage, you must consider the alternative: Economic protectionism. It results in inefficient allocation of labor, because everyone's job is protected. Everyone pays more for everyone else's labor, everyone is less productive. This affects the poor the most, because they spent the biggest share of their income on basic goods and services. Of course there are economic winners and losers, but by attempting to fully protect everyone, everyone becomes a loser, as evidenced by the countless failed attempts at socialism.

jayalpha 8y ago

"Free trade is great even when applied unevenly." Is it? Lets assume a real FTA with the EU and Mercosul. Result? EU agriculture will nearly collapse, and Brasilian industry will nearly collapse. Sure, prices of electronics, cars and consumer goods will be lower in Brazil and food prices will be lower in the EU. Trade barriers helped countries like Brazil, Korea, Japan and likely China to build up their own industries before agreeing to FTA. I am in favor of FTA but I am not sure that they are a solution to every problem.

artomultiplo 8y ago

It's not exactly like that. But I think I share your point of view