At an economics convention I attended some time ago, one of the attendees attempted to convince me that the primary reason for the decline in the aggregate U.S. economy was a reduction in domestic manufacturing. We dont make anything anymore, he told me. This is a very common fallacy which seems to be enjoying a resurgence ever since the crash in 08. Truth be told, with exception to the slight decline since early 2008, the U.S. has enjoyed a larger manufacturing industry than ever before. But this begs the question, why do so many people believe the economy is in trouble because of manufacturing? Furthermore, why are so many people hostile to the idea of foreign goods? There has always been a push for protectionism to one degree or another but the opinion streams have been full of it lately. The only excuse for this thought process, of course, is due to a lack of understanding and/or education with regards to commerce and market operations. Take, for instance, the recently released song by country singer Toby Keith called Made in America. It becomes patently obvious that Mr. Keith has no economics education (or at the very best he has flawed training) when he spouts off such lines as, It breaks his heart seein foreign cars, filled with fuel that isnt ours, and wearin cotton we didnt grow. He aint prejudiced; hes just made in America. A full understanding of economics makes us realize that the division and specialization of labor creates wealth and more opportunities for everyone. Meanwhile, mainstream media outlets run stories which further popularize these fallacies. Just recently ABC published an article about an alleged economist turned builder who is showcasing the construction of a house made completely from products purchased within the U.S. Of course he acknowledges that using American products can be more expensive than foreign goods but insists it would only be 1 to 2-percent higher. I find this figure highly underrated but it makes little difference in the end. The self-proclaimed goal of protectionists is complete self-sufficiency (or at the very least, no dependency on foreign sourced goods). Is this possible? Is it even a good idea? To make this matter easier to understand let us begin at the individual level. I would be willing to bet every penny I own that not a single person on the face of the planet is completely self-sufficient. We import clothing from clothes stores, food from grocery stores, electricity from power plants, and money from employers. We are all dependent on foreign entities for our continual survival. Continuing on to the family level, then, we find much of the same thing. We import all of the items discussed previously. However, we do begin to find areas in which we have limited self-sufficiency. The labor for mowing the lawn can be performed domestically by the family members. Various household cleaning and maintenance jobs, performing vehicle maintenance, and other menial tasks are often performed by members of the family rather than outsourced. But in the end, they are very much dependent upon outside assistance. This same logic applies to the local neighborhood, city, and county levels. The only method available to define foreign versus domestic entities is based upon the arbitrary political boundaries assigned to the unit. Let us further investigate issues at the state level. Virtually every state within the United States imports at least a portion of its electrical power. Furniture, vehicles, food, electronics, and virtually every other good are all imported from foreign sources. Not a single state enjoys self-sufficiency but this never seems to be at issue for anyone. The fact that California must import water from surrounding states doesnt appear to cause anyone to picket the governors mansion with signs reading No dependence on foreign water. Does this concern no one? All of a sudden this becomes a grave issue on the national level. Cheap toys from China, electronics from Japan, clothing from India, and wood from Canada all spell disaster for the political entity collectively known as the United States simply because they were produced elsewhere. Why? The truth is, the division and specialization of labor allows free markets to naturally take advantage of cheaper goods from various parts of the world. Certain goods may be manufactured in specific locations around the world on a less costly basis due to specialization and the random placement of natural resources. It would be ludicrous to demand that all diamonds purchased in America be mined in American mines; already excessive prices would multiply many times over. By demanding that other goods such as oil only be produced domestically would only increase the cost of living for every person within the nation. Therefore, rather than demand that all goods be produced domestically, every individual who desires freedom and an increased standard of living should emphatically demand that all barriers to free trade be removed. Only with genuine free trade will Americans and every other member of the human race enjoy wealth and prosperity. Youre right Toby, hes not prejudiced; hes simply uninformed.
IMHO, when people complain about the lack of domestic manufacturing, they are really complaining that unskilled labor doesn't pay $20+/hour. Much of what the US manufacturers / exports is untouched by human hands, because automation is cheaper, and provides far higher quality.
This is where import tarriffs come into play. Make them pay for making it cheaper there than here- tarriffs equalize the playing field. America is the world's largest consumer of goods and services- what if we shut off the valves and made it all ourselves? China would collapse- no doubt. Regardless of the random dispensation of natural resources, I believe that 90% of what we consume should be manufactured domestically- imports should be rare, expensive things we don't see in our everyday life. Today, 90% of what we consume comes from abroad and this is an untenable situation. There comes a limit to how much we freely import cheaper- it's only logical. Raise the tarriffs on everything we import. We are the world's biggest consumer- we'll figure it out on our own.
If you are old enough to remember the quality of cars pre-Japan, you can see what you get when businesses have no real competition (even though there was 3, lazy, companies). The silly point is Japan's main advantage was quality standards developed in the US, which the US companies ignored.
Its the unholy alliance between the left and right which is worrying. Whilst the right will give their standard nationalistic grunt, the left will make short sighted claims about protecting workers (both domestic and foreign).
The tension between the parties that politicians have finley tuned with their vitriolic talking points, pushes both parties to do something, when they should do nothing. (That is why Keynesian economics is favored by politicians over Hayek). You can't have a government with power to do what you want, without them having the power to do what you don't want.
No, Keynesian economics is favoured because of its value in protecting capitalism. Hayek is a side issue (such as his input into the socialist calculation debate). Keynesianism, however, has been the only school that has provided an economic rationale for mercantilism
Reiver, you are the best educated on economics on the forum(IMO). Is there anyway you can break down an anti-protectionist argument in layman's terms?
Laugh in their face and, if necessary, Glasgow greet them! In all seriousness, we just need to refer to two aspects. First, trade isn't a zero sum game. All benefit, in terms of: lower price, greater choice and innovation through competition. Second, even if protection looks desirable (e.g. a country as large as the US could manipulate terms of trade to its advantage) retaliation will mean all lose out
The economic problems in USA is really Americans own doing. The corrupt financial sector along with US gov't created economic bubbles that destroyed wealth for millions of Americans. American companies have no loyalty to the People of USA, looking only to maintain their bottom line. American citizens for the most part, like the gov't spends without any consideration for the future. Unlike the Chinese who save money to establish businesses and further the education of the young.
Great post. People tend to let their emotions get in the way. The U.S. is still the biggest manufacturing industry in the world (though China is catching up). 9 out of 10 people just assume that China is bigger and has been for years.
This doesn't address the differential benefits and burdens within each country, Reiver, which is an objective researched datum. The results are not totally clear, but the general consensus is, some income groups benefit from trade more than others, and some suffer more of the burdens. That's the real issue, not comparative advantage and the aggregate benefits of trade. If you are an unskilled worker in America you are worse off today because of trade with sweatshop nations. If you are an owner of capital, you are better off. But query whether we want to make trade policy that burdens our poorest members and benefits our richest. Now, there are other ways to deal with these differential burdens and benefits -- a more progressive tax system, retraining, tax credits for people who lose their jobs, etc. So tariffs aren't the sole or even the best answer. Nonetheless, our system has totally neglected the reality of this and focussed only on aggregates and that's the problem. Let me put it this way, if you're talking not in the abstract but to an unskilled worker in America, what argument can you make to convince him that trade with China is good policy. Frankly, I don't think you can make a cogent argument to him and his circumstances.
The results are clear: winners outweigh the losers. Trade protectionism becomes an excuse to hide from the real problem: an internal income inequality prone to greater problems because of right wing naivety. Socialism, for example, would have to go hand in hand with free trade. It ensure the terrors of domestic economic planning are at least reduced
Sure- and its the argument that worker uses almost everyday. Lets take clothes. Give the worker a choice to buy a pair of made in America jeans for $100.00 or made in China for $15.00. So, say you impose duties of $85.00 on the Chinese jeans so that they cost as much as American jeans- the American worker must now pay $100.00 for a pair of U.S. jeans. Americans- as good capitalists- like being able to buy products cheaper- regardless of where they are made. And if we impose it only against China, then manufacturers switch to Vietnam or Bangladesh or whatever. Meanwhile those countries impose higher duties on Caterpillar tractors and American wheat, reducing the competitiveness of those exports.
What organisation? Its objective empirical research Gangl (2005, Income Inequality, Permanent Incomes, and Income Dynamics: Comparing Europe to the United States, Work and Occupations, Vol. 32 No. 2, pp. 140-162): n most of Europe, real income growth was actually higher than in the United States, many European countries thus achieve not just less income inequality but are able to combine this with higher levels of income stability, better chances of upward mobility for the poor, and a higher protection of the incomes of older workers than common in the United States. Corak (2004, Do poor children become poor adults?, Lessons for public policy from a cross country comparison of generational earnings mobility): "The United Kingdom, the United States, and to a slightly lesser extent France, are the least mobile countries with 40 to 50% of the earnings advantage high income young adults have over their low income counterparts being associated with the fact that they were the children of higher earning parents." Blanden et al (Intergenerational Mobility in Europe and North America): "the extent of intergenerational mobility for sons is lowest in the UK and US, is at intermediate levels for West Germany and is highest for the Scandinavian countries"
Well, but the winners are already well off, so query whether we need to have a policy that not only benefits them, but burdens the poorest members of society. As to mitigating the effects of trade with sweatshop nations, sure -- but that's exactly what isn't happening. Indeed, the whole point of globalizing capital (virtually turning the Chinese system upside down to do it) was to give American capital access to naked labor, workers totally unprotected by unions or laws. So we were willing to enter into a very complex treaty with China, that completely changed their economic system, as far as capital flight is concerned, but we weren't willing to even make minor demands for worker protection. So, we return to the question: what can you tell the unskilled worker who used to be able to support his family but now can't because capital went to China (as a result of complex treaty negotiations) but nobody has done anything to retrain him or benefit him? I see no compelling argument to be had. Access to cheap pajamas is hardly going to convince him. He needs a job more than lots of cheap pajamas.
This shows a complete lack of understanding of how capital moves overseas. It doesn't go in suitcases. It goes via treaties involve complex demand by us on behalf of capital. For instance, China didn't protect private property until we required it. So we were willing to enter into very complex, very demanding negotiations to protect capital flight, but we weren't willing to make even minor demands as to worker and environmental protections, which if implemented would result in a more level playing field between the two economies. In short your example is simplistic, and in fact inaccurate. Capital doesn't just flow to Vietnam. It has to get there via complex treaties that we agree to or not. The issue is, why insist on globalizing capital, but not worker and environmental protection. Like I need to ask! Our current trade policy benefits the upper brackets and burdens the lower brackets. That's both immoral and self-defeating, ultimately, since wealth at the bottom keeps economies healthy. In any case, I'm not saying tariffs are necessarily the answer. But I insist that the simplistic views of trade policies be examined for differential outcomes.
