29 ms·

"Normal economic theory says protectionism makes the pie smaller for everyone" If A protects, and B and C are open, A can get way further ahead by strategic in

"Normal economic theory says protectionism makes the pie smaller for everyone" If A protects, and B and C are open, A can get way further ahead by strategic investments, dumping, etc.. 'Free Trade' only work if A, B and C work. If A doesn't open their markets, then B and C should close theirs to A as well.

sonnyblarney 8y ago
To my downvoters: This 'strategy game' type dilemma is why 'Free Trade' negotiations actually exist in the first place. If 'open markets' benefitted both parties irrespective of what the other party was doing, then most nations would simply 'open the kimono' as wide as possible to everyone, essentially reaping the benefit, waiting for the 'full benefit' to be yielded when the other parties eventually open up. Negotiations wouldn't really be needed. But it doesn't work that way. During the establishment of free trade, there's considerable negotiation around tit-for-tats on protected industries like telecoms, agriculture etc.. Also, there's a lot of rules in such agreements about how governments are allowed to subsidize specific industries. If the Canadian gov. is giving massive loans to the lumber industry below market rates, enabling Canadian lumber makers to sell very cheaply and therefore wipe out their American counterparts, and then of course acquire them for pennies on the dollar ... well, this would be considered a 'subsidy' and you can see the problem aka 'strategic dumping'. (FYI this is almost a kind of problem right now - Canada leases 'Crown Land' (i.e. government land) on the cheap to forestry corps. and US believes that's a subsidy) Hence 'Free Trade' only works if the parties play by an agreed upon set of rules. Without such agreements, and assurances that counterparties are playing by a set of rules, then a degree of protectionism is warranted. If one side cheats, they can win in a much bigger way. All of that even when parties are ballpark in the same sized economies, at similar levels of development, i.e. France-Germany. But with US-Venezuela for example, it's another ballgame as unprotected access to undeveloped markets can possibly lead to a total takeover of the economy, rendering one state a commercial vassal of the other. In reality there are no perfect, textbook scenarios for fully bilateral and open trade agreements which is why there are always special cases and things to be negotiated. Canada's banks and telecoms for example, are not up for sale in NAFTA/USMCA.

sonnyblarney 8y ago

To my downvoters: This 'strategy game' type dilemma is why 'Free Trade' negotiations actually exist in the first place. If 'open markets' benefitted both parties irrespective of what the other party was doing, then most nations would simply 'open the kimono' as wide as possible to everyone, essentially reaping the benefit, waiting for the 'full benefit' to be yielded when the other parties eventually open up. Negotiations wouldn't really be needed. But it doesn't work that way. During the establishment of free trade, there's considerable negotiation around tit-for-tats on protected industries like telecoms, agriculture etc.. Also, there's a lot of rules in such agreements about how governments are allowed to subsidize specific industries. If the Canadian gov. is giving massive loans to the lumber industry below market rates, enabling Canadian lumber makers to sell very cheaply and therefore wipe out their American counterparts, and then of course acquire them for pennies on the dollar ... well, this would be considered a 'subsidy' and you can see the problem aka 'strategic dumping'. (FYI this is almost a kind of problem right now - Canada leases 'Crown Land' (i.e. government land) on the cheap to forestry corps. and US believes that's a subsidy) Hence 'Free Trade' only works if the parties play by an agreed upon set of rules. Without such agreements, and assurances that counterparties are playing by a set of rules, then a degree of protectionism is warranted. If one side cheats, they can win in a much bigger way. All of that even when parties are ballpark in the same sized economies, at similar levels of development, i.e. France-Germany. But with US-Venezuela for example, it's another ballgame as unprotected access to undeveloped markets can possibly lead to a total takeover of the economy, rendering one state a commercial vassal of the other. In reality there are no perfect, textbook scenarios for fully bilateral and open trade agreements which is why there are always special cases and things to be negotiated. Canada's banks and telecoms for example, are not up for sale in NAFTA/USMCA.