Why would anyone want free trade?

[ranskaldan]

Originally posted by Azazel
the "eat dirt" argument is silly. There is more food needed and still, we destroy a lot of it, while millions starve.

It's a matter of distribution of resources.

Of course, we could also gather up the world's population and take a vote: who wants to redistribute all wealth and resources equally? Who wants instant communism?

There probably would be a landslide win. But then, what happens after?
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There's no simple step to more equitable income in the world. In the meantime what we can do is encourage free trade, which introduces ideas and expertise into poorer countries, allowing them to shortcut quickly through the "Industrial" over into the "post-Industrial" phase. Discouraging free trade through whatever means is hardly going to help.

[Az]

actually, most of the places with "free-market"ized economies, became complete ****holes. just look at the ex-SU republics.

China is faring better, but I wonder for how long.

[ranskaldan]

Originally posted by Azazel
actually, most of the places with "free-market"ized economies, became complete ****holes. just look at the ex-SU republics.

That's because such countries had far more isolationist economic policies - policies that rendered them inefficient and stagnant. Opening up abruptly led to shocks to their economies.

China is faring better, but I wonder for how long.

China is faring better. There are of course factors that could bring China down; but the risk would have been far greater had China decided instead to keep its doors closed.

Another example is India - leaps and bounds in the last couple of years.

[Az]

Of course it is faring better. By exploiting its' own people. Don't you feel bad about your brothers and sisters getting a bad deal?

[Shi Huangdi]

Originally posted by Boddington's
"I'm generally pro, as long as working conditions and enviromental regulations remain the same."

For example..

What if by refusing to accept footballs made in Indonesia by 12 year olds being paid 10 cents an hour, you are stopping that family obtaining enough food to eat?

Boddingtons has hit on the right point here. In the third world, populations are skyrocketing, increasing much faster then the county will nessecarily need to provide for them. In order for these countries to try to hold them together, they will need more sweatshop jobs so those people don't starve. Sweatshops are good for providing the most jobs possible by minimizing the cost of labor, which maximizes the amount of labor that will be demanded.

[ranskaldan]

Originally posted by Azazel
Of course it is faring better. By exploiting its' own people. Don't you feel bad about your brothers and sisters getting a bad deal?

Yes I do. But then, they could have been getting a deal that is even worse. The hundreds of millions of people who are right now working in factories could have been plowing up sand in distant, overworked farmland (or worse, fighting each other in some post-collapse, anarchic Civil War). The current route could eventually lead to wealth and prosperity, the other route cannot.

[Sandman]

China's liberalization has been a great benefit to the Chinese people, although gains in life expectancy and reductions in infant mortality have been pretty sluggish in the post-reform period. The free-market is not a bed of roses.

India has lagged behind China in literacy, life expectancy and infant mortality, although they were making steady gains. I personally think it's a too early for them to jump enter the world market just yet. They should have concentrated on social projects, especially land reform, before making the transition.

[DrSpike]

Re: Why would anyone want free trade?

Originally posted by Albert Speer
What are the benefits of a global economy?

By setting up tariff walls and what not in the United States, not only would we be improving American industry and keeping money in the US but more American jobs will be created instead of the Chinese taking American jobs... so why are both parties generally in favour of globalization?


thanks

As an academic economist I get this a lot. Funnily enough there is a famous (potentially apocryphal) anecdote about Lincoln, where when organising public sector production he is reported to have said something like (paraphrasing) "if we use American companies we have both the goods and the money, but if we use (cheaper) foreign companies we just have the goods".

Most people instinctively know this is wrong, like most people here instinctively (or from casual empiricism) know protectionism is bad, but surprisingly few can hit precisely why. The reason, of course, is that the benefit to importing the goods is that it frees up domestic productive capacity to produce whatever it is best at.

Now as AS alluded to, there are some arguments one can use to justify protectionism (all resting on so-called second best arguments - i.e in the face of something else that isn't optimal it may be optimal to use protectionism) but they aren't convincing. The empirical case is overwhelmingly in favour of free trade.

So why do we observe tariffs and import quotas all around the world, and why do we need the WTO to try and promote free trade?

Well protectionism damages both foreign countries and domestic consumers (who don't have as much access to goods produced by countries that can produce them cheaper than the domestic country), but there is a big beneficiary nonetheless - the domestic company that is protected!

Now the total drop in welfare from the introduction of protectionism far outweighs the benefit to the company, but no one person cares enough to argue. In contrast the company may have political links, and in any case is likely to be incredibly vocal about why it needs govt aid or protection.

That is world trade politics in a nutshell. Hope it helps.

[Az]

ranskaldan: I am not talking against freetrade, I am talking about the equalization of labor and enviromental regulations. That way, China, for example, has an unfair advantage against europe, for example.

[ranskaldan]

Originally posted by Azazel
ranskaldan: I am not talking against freetrade, I am talking about the equalization of labor and enviromental regulations. That way, China, for example, has an unfair advantage against europe, for example.

Some of these points could be improved, yes; but poorer countries start at a natural disadvantage. Too much equalization would totally kill off any incentive for corporations to enter poorer nations.

[Al B. Sure!]

Dr. Spike:

You're forgetting one thing though... if American companies benefit, then there'll be more jobs for American citizens. If, to use the television example, a tariff was placed on imports of Jap and Korean tvs, American companies will enter the television market, guarenteeing thousands of new jobs


thanks

[ranskaldan]

Originally posted by Albert Speer
Dr. Spike:

You're forgetting one thing though... if American companies benefit, then there'll be more jobs for American citizens. If, to use the television example, a tariff was placed on imports of Jap and Korean tvs, American companies will enter the television market, guarenteeing thousands of new jobs


thanks

And at the same time, the exact number of Japanese and Korean jobs are then lost.

From a holistic point of view, this is injustifiable because Japanese jobs aren't more or less worthy than American jobs.

From a purely patriotic and selfish point of view, this is shortsighted because America is killing off its present and future trading partners, markets, and political allies, which are its basis for continued world dominance.


Finally - although domestic companies do benefit, any company that has a toehold abroad does not. Consumers do not either. So even the immediate benefit to the nation is questionable.

[DrSpike]

Originally posted by Albert Speer
Dr. Spike:

You're forgetting one thing though... if American companies benefit, then there'll be more jobs for American citizens. If, to use the television example, a tariff was placed on imports of Jap and Korean tvs, American companies will enter the television market, guarenteeing thousands of new jobs

thanks

I forgot nothing........you simply have another misconception. Simply put the link between the level of unemployment and the foreign sector is broken by monetary policy. That is of course an oversimplification, there is much more to the academic debate that I won't go into. However I'd far rather you believed that the foreign sector has no effect on the aggregate level of unemployment than something very misguided like the quote above, because the former is far closer to the truth.

All your hypothetical tariff would do is redistribute jobs, and of course, impose a huge welfare burden on American citizens. The *only* beneficiary would be the companies producing televisions.

[Berzerker]

The issue is simple, why does one person have a right to punish others for making their own economic decisions? The protectionists claim they want what is best for "us", unless of course you're a consumer or a producer selling products abroad who will suffer the consequences of the tariffs when other countries retaliate against US tariffs. People in the USA pay more for sugar and milk than peoples in many other countries because of tariffs and trade barriers. And then the left claims to be for the little people? Don't do me any favors, please...

Agathon -

Sensible people want free trade in situations in which it generates efficiency gains.

Lunatics want absolute free trade because they are market fundamentalists.

In other words, sensible people want the Agathon's of the world making our economic decisions for us and lunatics don't.
Since when do tariffs - an artifical restraint on trade imposed by 3rd parties not even involved - increase efficiency? It sure doesn't increase the efficiency of the businesses protected by the tariffs.

[Ramo]

Well, there are a number of problems with protectionism.

1. These policies, particularly our non-tariffal trade barriers, hurt the people of less developed states immensely. Getting people in extreme poverty to subsidize your businesses by taking away their markets isn't exactly ok. This is the meat of imperialism, folks. This is the same sort of **** that the colonial powers have been doing for the past few centuries.

2. Competition is limited in domestic markets. This means that consumers have to pay higher prices for poorer goods. Furthermore, innovation in the long term is undermined among domestic firms, so they start to lose foreign markets (and therefore there are fewer domestic jobs).

3. Protection against foreign firms tends to trigger foreign states to protect their firms. Look at the Great Depression if you want to see a really extreme example. This also means fewer domestic jobs.