Republican aggresors grow skeptical of free trade

[DAVOUT]

Originally posted by Kataphraktoi






No,wealth is the ability to generate goods and services. As cheap industrial goods shift to china, more of the population can go into other, possibly higher paying occupations.

Importers for instance.

[Adam Smith]

There are many points that could be made about this thread, but in the interest of brevity I will focus on just three.

Originally posted by Vanguard
Since these things are true, the only alternative is that we are trading debt for goods, a type of trade that has no overall economic benefit.

When other countries use their surplus to buy our debt instead of our goods, they make our interest rates lower than they otherwise would be. This reduces the cost for anybody who takes out a loan.
So if you are modernizing a factory, you benefit from trade.
If you have a mortgage, you benefit from trade.
If you have a student loan, you benefit from trade.
If you have a car loan, you benefit from trade.
I wish our politicians would keep these facts in mind when voting on trade agreements.

Speaking of trade agreements, many in Congress have said that they are not against trade, but they want it to be "fair" trade, including environmental and labor protections that most developed nations regard as standard. Recently the Korean trade agreement came up for a vote in Congress. Both the Washington Post and the New York Times editorial pages noted that this agreement had all the environmental and labor protections one could reasonably expect. Yet Congress, mostly Democrats, voted it down. One therefore suspects that those who voted against it are, in fact, protectionist, and that the “fair” trade argument, at least in this case, is a smokescreen.

Lastly, there is a deal to be made here if people are smart enough to see it and willing to work hard to make it come about. Trade results in net gains for both countries, but the gains are unevenly distributed within each country. People who make products for export earn more as a result of trade (since they produce more products at a higher price than before) and people who make products subject to import competition earn less as a result of trade (since they produce fewer products at a lower price than before). There’s enough money on the table for winners to compensate losers, and still make everybody better off. (What economists call Pareto Improving.) How to do this? The US should continue to expand trade agreements, while at the same time making the tax system more progressive. The winners from trade make more money and pay more taxes. The proceeds can be used to fund universal health care, thus making the losers from trade better off too. Everybody wins. But if we continue to limit or rescind trade agreements, then we don’t have the gains or the health care. Everybody loses.

[DAVOUT]

Under the same rational, before other countries use their surplus to buy your debt instead of your goods, making your interest rates lower, you have emitted this debt making instantly interest rates higher. Consequently, American households have not benefited at all from the trade through interest rates.

Your perfect free trade theory does not look liberal at all : I imagine a socialist politician telling to workers loosing their jobs “ Everybody wins : you will get healthcare in exchange of your job; you have no reason to complain.”

[Adam Smith]

Originally posted by DAVOUT
Under the same rational, before other countries use their surplus to buy your debt instead of your goods, making your interest rates lower, you have emitted this debt making instantly interest rates higher. Consequently, American households have not benefited at all from the trade through interest rates.

??? When someone buys our debt, the price goes up and the interest rate goes down. That's how bonds work.

Originally posted by DAVOUT
Your perfect free trade theory does not look liberal at all : I imagine a socialist politician telling to workers loosing their jobs “ Everybody wins : you will get healthcare in exchange of your job; you have no reason to complain.”

You get a job in some other sector of the economy (maybe an export industry) PLUS health care.

[DAVOUT]

Originally posted by Adam Smith
??? When someone buys our debt, the price goes up and the interest rate goes down. That's how bonds work.

So, you can issue any amount of bonds without any effect on the rate, but when bonds are bought the rate goes down. Strange mechanic

[Vanguard]

Originally posted by Adam Smith
There are many points that could be made about this thread, but in the interest of brevity I will focus on just three.


When other countries use their surplus to buy our debt instead of our goods, they make our interest rates lower than they otherwise would be. This reduces the cost for anybody who takes out a loan.

Yes, it may keep interest rates lower----- but foreigners get the interest instead of Americans. Exchanging one form of debt (dollars) for another (bonds) doesn't make all that much difference.

And, sure, debt is great----- up until the point where foreigners stop buying our debt and start using their dollars to bid against us for resources. At which point we are screwed. We no longer have a manufacturing base and can no longer buy imports with dollars.

In fact, everyone is screwed. Since trading dollars for goods does not reward comparative advantage, the overall efficiency of manufacturing decreases, which gradually reduces everyone's wealth.

But this is a price countries like China are willing to pay for geopolitical power. Especially since it doesn't really cost them very much. Theoretically, the Chinese people would probably be slightly better off if they were going into debt to buy our efficiently made Western goods. But that would allow more power to the middle class than the Chinese government is unwilling to allow.

Lastly, there is a deal to be made here if people are smart enough to see it and willing to work hard to make it come about. Trade results in net gains for both countries, but the gains are unevenly distributed within each country. People who make products for export earn more as a result of trade (since they produce more products at a higher price than before) and people who make products subject to import competition earn less as a result of trade (since they produce fewer products at a lower price than before). There’s enough money on the table for winners to compensate losers, and still make everybody better off. (What economists call Pareto Improving.) How to do this? The US should continue to expand trade agreements, while at the same time making the tax system more progressive. The winners from trade make more money and pay more taxes. The proceeds can be used to fund universal health care, thus making the losers from trade better off too. Everybody wins. But if we continue to limit or rescind trade agreements, then we don’t have the gains or the health care. Everybody loses.

I agree that, undertaken earlier, this would have prevented much of the problem. Unsustainable debt is what causes instability, not trade. Taxing winners prevents the accumulation of unsustainable debt.

The problem is that certain players (China in this case) have little interest in the stability of their trading partners.

[Kidlicious]

Originally posted by Kuciwalker

Well, what is the advantage then? It certainly isn't more efficient to make goods in China and ship them 8000 miles rather than making them here and shipping them 500 miles.

Yes it is. Proof: it's cheaper.

I don't know if you are joking or not, but this kind of claim is very common and misleading. People say things like "most economists say that free trade is more efficient" as if it were proof. It's not proof. Economics isn't a science. It's closer to simply being politics than it is a science.

The proof is in the pudding.

[Kidlicious]

Originally posted by Adam Smith
Lastly, there is a deal to be made here if people are smart enough to see it and willing to work hard to make it come about. Trade results in net gains for both countries, but the gains are unevenly distributed within each country. People who make products for export earn more as a result of trade (since they produce more products at a higher price than before) and people who make products subject to import competition earn less as a result of trade (since they produce fewer products at a lower price than before). There’s enough money on the table for winners to compensate losers, and still make everybody better off. (What economists call Pareto Improving.) How to do this? The US should continue to expand trade agreements, while at the same time making the tax system more progressive. The winners from trade make more money and pay more taxes. The proceeds can be used to fund universal health care, thus making the losers from trade better off too. Everybody wins. But if we continue to limit or rescind trade agreements, then we don’t have the gains or the health care. Everybody loses.

Or we can have fair trade and health care. I don't see any reason to deal.

I think that people don't like the idea of being a "loser" and being dependent on corporations.

[Kidlicious]

Originally posted by Victor Galis
Care to explain this one?

Lower paying jobs don't crowd out higher paying jobs. Higher paying jobs crowd out lower paying jobs.

I think that there was some incentive to educate yourself for a higher paying jobs as the manufacturing sector started to shrink. But binging back the manufacturing sector doesn't provide incentive to quit your high paying job.

[Kidlicious]

Originally posted by Kataphraktoi
No,wealth is the ability to generate goods and services. As cheap industrial goods shift to china, more of the population can go into other, possibly higher paying occupations. Maybe not the same people that lost jobs, but still.

They could have always gone into higher paying jobs.

[Kidlicious]

Victor,

"It gets cheaper in their currency terms. In dollar terms US exports don't get any cheaper. Heck... you can jack up the price in dollar terms and have them pay the same price."

I'm not sure what you mean. You know that exporters have to buy dollars with their foreign currency, right?

[Dauphin]

Originally posted by Kidicious
I'm not sure what you mean. You know that exporters have to buy dollars with their foreign currency, right?

I may have missed context but it depends on what the sales contract is denominated in.

If you export and you bill in your own currency then you never have any foreign currency. If you import and agree to pay in your own currency you never have any foreign currency. It comes down to bargaining power and the currency preference of the parties involved.

[DAVOUT]

Originally posted by Dauphin


I may have missed context but it depends on what the sales contract is denominated in.

If you export and you bill in your own currency then you never have any foreign currency. If you import and agree to pay in your own currency you never have any foreign currency. It comes down to bargaining power and the currency preference of the parties involved.

May I add that whatever is the currency billed, one of the parties has to convert either its own currency in the currency billed, or the currency billed in its own currency.

[Dauphin]

No, not always, and often not. It's why many companies have foreign currency accounts or otherwise match their foreign currency costs and receipts.

[Kidlicious]

Originally posted by Dauphin
I may have missed context but it depends on what the sales contract is denominated in.

If you export and you bill in your own currency then you never have any foreign currency. If you import and agree to pay in your own currency you never have any foreign currency. It comes down to bargaining power and the currency preference of the parties involved.

And if the bill is demominated in the exporter's currency then the currency risk falls to the importer. I think there is some cost to the exporter in that situation.

Anyway, what you said is true. I was thinking about direct sales, like Ford having a dealership in Japan and selling trucks directly there. I don't know if that is common.