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Let's say we transfer ownership of Ford and GM factories in Mexico to a new Mexican auto manufacturer controlled by Mexican banks, for example. If this manufac

Let's say we transfer ownership of Ford and GM factories in Mexico to a new Mexican auto manufacturer controlled by Mexican banks, for example. If this manufacturer sold a similar car to American buyers at a lower price (due to low labor costs) than GM or Ford could, without violating IP, that would be the Ricardo Competitive Advantage concept. The US govt could slap import tariffs on those imported autos (as it does with imported Chinese solar panels) to flatten price differentials. However, the Mexican government could also apply export tariffs (even bans) in order to keep domestic auto prices down. (Notably the US banned crude oil exports from 1970-2015). Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals?

JumpCrisscross 5y ago
> Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals? Except it’s not a form of capital control. It’s a trade tariff. You want tariffs, which are typically what’s reduced in trade deals. Capital control or not, without tariffs the offshoring you describe would make sense. (You just wouldn’t repatriate the profits from Mexico in a world without free movement of capital.) Also, why would Mexico implement an export tariff in this example? To decrease the domestic price of cars? More realistic: the U.S. would implement an import tariff. Capital controls on either side would, again, do nothing.