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A completely open market will favor the introduction of single-source monopolies - such as making all electronics in China. It is ostensibly more efficient to d
by chipsy 16y ago
A completely open market will favor the introduction of single-source monopolies - such as making all electronics in China. It is ostensibly more efficient to do things this way, but there is a massive downside. It's fragile, it's over-optimized to specific environmental conditions.
For an example of a shock that exposes these problems in the U.S./China trade, if oil prices rise, everyone loses. The producers will have to absorb higher export costs by raising prices. Subsequently, sales fall. Recession on both sides.
Trade barriers are a way to encourage local production, which will not only diversify the economy, but insulate against resource shocks. The problem isn't in raising them, but in lowering them later on when the market needs more efficiency; at that point, the fat incumbents will lobby hard to keep their protection.
- jacques_chester 16y agoAll well and good, but this approach implies that "someone" is better at predicting the future than the market. The historical record on this is pretty clear: nobody is very good at predicting the future, but out of central planners and markets, markets are far better at adjusting to change. See, for the classic example, Japan's MITI. An uninterrupted story of the brightest men and women in Japan making incorrect guess after faulty prediciton, leavened with a dose of no-better-than-random-chance blockbuster industrial picks.