The ideology of "Free trade" is Killing America's Economy

Monopolistic competition refers to product heterogeneity such that, due to product loyalty, there will be price making power. Its quite distinct from monopoly

 

Capitalism will not work across world boundaries (countries) because one country has no concern for the good of mankind or the environment while the other does. The unconcerned countries allow children and poor people to work endless hours with no protections. Should this be rewarded? Until all countries abide by the same principles, the most caring will be defeated by the uncaring due to the money they save by treating human beings as cattle and the environment as a trash dump. Unless all contries abide by the same standards, only tariffs will level the playing field so the most responsible and caring will recieve the greater benefit instead of the worst. Tariffs will be a cost (tax) incurred by the uncaring for not caring.

 

I think we need import and export taxes on goods AND SERVICES (IE Foreign outsourcing)

 

totally agree, and this has to apply to both goods and services

 

And that would be an irrational result. How did Smoot-Hawley go?

 

You realise this is just a myth? Most historians and serious economists do not think the Smoor-Hawley act had any significant effect. The USA is a big geographically diverse country. Comparative advantage would not have offered much benefit at the time, especially in light of wages being so low, not to mention the high unemployment rate.

This is exactly what I have been trying to say throughout this thread. Unfortunately politicians - both the conservative and progressive ones - have been duped by the leading academic economists and business lobby into believing tariffs are all bad (for the most part at least). The Economist, a popular magazine among upper middle class professionals and the business elite, even continually warns over and over again about "the dangers of protectionism".

But we have to be careful. It would not be helpful for every import to have tariffs. For example, it is just not practical to grow cocunuts in our northern climates. Putting a tariff on coconuts is not going to save any jobs or help raise wages. And smaller countries lacking a particular type of natural resource or industry should also be selective about how they apply tariffs. For example, Denmark is just too small of a country to have developed an efficient automotive industry. It should allow in cars from Germany, even though Germany is undercutting wages by employing mostly Turkish minority workers in its factories.

 

Wrong again! The debate is whether Smoot-Hawley was in fact a substantial increase in tariffs. That such tariffs have a drastically negative effect is a matter of fact.

Try Irwin (2009, The Smoot-Hawley Tariff: A Quantitative Assessment, Review of Economics & Statistics, Vol. 80, pp. 326-334):

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e.,, Smoot-Hawley plus deflation)

This is nonsense. Comparative advantage only needs differences in opportunity costs. Diversity would only magnify those differences.

 

Let me ask the OP one simple question: Is it harmful to allow Californians to trade with Texans?

 

It can be harmful to treat domestic trade in isolation of regional policy. We shouldn't underestimate the consequences of market failure

 

I have studied smoot-hawley and it's effects. I have read a lot of your analysis over the last year and I believe you are intentionally being decieving with your representation of smoot-hawley. Prior to Smoot-Hawley the country was allready in an economic free fall and it is pure speculation to try to determine exactly how much of an economic effect Smoot-Hawley had. I think you know this but are baiting other posters with your comments in an attempt to derail the conversation regarding free trade in general and tariffs specifically.

 

You've replied with nothing. As I've stated, the real question mark over Smoot-Hawley is its effect on actual protectionism levels (e.g. Hayford and Pasurka, 1991, Effective rates of protection and the Fordney-McCumber and Smoot-Hawley Tariff Acts, Applied Economics, Vol. 23 Issue 8, pp. 1385-1393). Despite that, given how much empirical investigation its received, it should be possible for these economic nationalists to refer to Smoot-Hawley and the positive gains generated. Your "it is pure speculation to try to determine exactly how much of an economic effect Smoot-Hawley had" is nonsense. It is an empirical question that can be easily tested. One just has to control for the size of the foreign trade sector and other powerful contractionary forces. Perhaps you haven't read as much as you say?

 

I don't think Smoot-Hawley had many positive effects and I wasn't claiming it did. My claim is that it is impossible to determine just how much of an impact it actually had and any report or person that says otherwise is being dishonest. You can not isolate the Smoot-Hawley act from the other factors that were going on in the late 1920's. The wheels were allready in motion for the start of the great depression. The Smoot-Hawley act may have sped up the economic problems in some sectors and slowed the economic problems in others. My argument is that you know this, and are using Smoot-Hawley to try to prove a point that can not be proven with just the comment, "explain Smoot-Hawley."

Clyde Prestowitz explains how the Smoot-Hawley act has been misrepresented in "The Betrayal of American Prosperity".

 

Very long read that explains almost everything

 

As I said, you're not said anything. These fellows, given their views on protectionism, should be able to show that Smoot-Hawley had positive effects. No such evidence exists.

And this is garbage. It merely requires empirical testing (although economic historians will focus more on qualitative material on, for example, how it impacted on retaliation) where the tariff(s) effects are isolated. That isn't a particularly onerous task. It would be a waste of time though! There is only one aspect where protectionism has been shown to provide significantly positive effects: the infant industry hypothesis. That is of course irrelevant in this case and we're left with bobbins such as the 'optimal tariff' stuff where country size leads to market power consequences for the 'terms of trade'. That stuff is bobbins as we're just into the realm of retaliation and the standard 'prisoner's dilemma' misery.

Nonsense. Within economic analysis (given the available econometric methodologies) its not a difficult task.

You haven't got an argument. See previous comment!

 

Irwin was able to identify potential effects from Smoot-Hawley, far greater than expected, but even he avoids stating them as fact. Can you point to someone that performed this "not difficult" task?

There were many other factors interacting, the US branch banking regulations create huge bank failures (Canada without those regulations had none), the Fed read the tea leaves wrong, and moved in the opposite direction, the actions of government, etc.

 

What I constantly find amusing about these anti-trade liberalization threads is how they all seem to ignore the fact that a great deal of American prosperity can be derived from the fact that we have one of the largest free trade zones in the entire world.

 

That is a "fact" ? America was very prosperous before all the recent globalisation and free trade agreements. How much has America actually been exporting to these countries it has signed free trade agreements to? Because it may be that all the "trade-driven prosperity" in the last three decades has actually been fueled by trade decifits, or in other words just taking on more debt. If so, it is not sustainable.

Really good quote.

 

Empirical analysis into the area is nothing new: e.g. Crucini and Kahn (1996, Tariffs and aggregate economic activity: Lessons from the Great Depression, Journal of Monetary Economics, Vol. 38, pp. 427–467) concludes that U.S. GNP fell by as much as 2%. Dwarfed by the other issues at the time but, at other time period, "they could have brought about a recession all by themselves".

 

Most certainly! These United States is one of the largest free trade zones in the entire world, how can that even be disputed?

Well, thankfully for me, my comment didn't try to assert the converse.

Every single day, we're a collection of states that trade freely amongst each other (by law) -- that we can acknowledge the economic power we've derived from that, but ignore that the same results can be achieved on a grander scale is frankly a little silly. And no, not all the states were always on a level playing field regarding labor laws or wages.

 

The 'fair trade' argument is based on how trade liberalisation can disrupt economic development. To see nationalists trying to give their corrupt version is decidedly ugly

 

Although free trade can allow people in other countries to produce manufactured goods for America without all these people having to actually immigrate to America, free trade may be contributing to the flood of immigrants into America for different reasons.


"Some experts believe the immigration dilemma could be better understood — and perhaps resolved — if more attention was paid to the economic circumstances that bring people here.

According to analysts, millions of farmers like Cruz are the casualties of a tide of multinational circumstance: NAFTA, the U.S. Farm Bill and a dearth of effective economic initiatives in Mexico.

The combination, which allows for the consolidation of markets, has made it easier for large corporations and farm operations to expand their reach but almost impossible for small producers to survive. These subsistence farmers in turn have abandoned their land in search of better opportunities.

Critics point to NAFTA as the biggest example. The "free trade" agreement was promoted as a win-win for both Mexico and the United States, expected to spark an economic renaissance in Mexico and slow the migration of job-hungry Mexicans to the U.S.
Instead, according to the critics, NAFTA actually launched a new wave of immigration among undercapitalized farmers in Mexico's agrarian countryside who found it impossible to compete with subsidized U.S. products.

"What essentially happened was, as peasant farmers found it harder to make a living, ... more family members were sent off the farm to make money to support the family," said Timothy Wise, deputy director of the Global Development and Environmental Institute at Tufts University. "More of those family members headed for the United States because Mexico was not creating jobs at the rate NAFTA promised."

http://www.montereyherald.com/ci_7616170

 

NAFTA? "The mainstream forecasts during the NAFTA debate were basically correct: NAFTA has had relatively small positive effects on the U.S. economy and relatively large positive effects on Mexico" Burfisher et al (2001, The Impact of NAFTA on the United States, Journal of Economic Perspectives, Vol 15, pp 125-144)

 

2001 was before the full impact of Nafta came into force. Once it did 40million Mexican farmers lost their livelihoods due to US corn imports. Cafta had a similar effect across Central America, where US grain imports and a lifting of tariffs on beef exports to the US caused large landowners to dispossess the indigenous farmers to ranch cattle, not so different from The Clearances in England. The 12 million illegal immigrants from Mexico and Central America in the US are a direct consequence of US trade policy.

Changes in trade policy do not come without consequences, intended or not.

 

You didn't provide anything in support. Let's have an economic study of your choice!

 

In country trade allows products to be built in states where the cost of labor is cheaper.
In state trade allows towns to build product where the cost of labor is cheaper than the big city.
Where do you want to draw the line?

So, automation in the US farms (which had already taken "good" jobs from American's), even took jobs away from the far cheaper Mexican farmers. Those farmers could try growing something other than corn, like the manual labor intensive crops the US hires illegals to harvest?

How many Mexician's can afford more, because they can buy corn cheaper?