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Free trade

If you believe that protectionism and closing down free-trade pacts is only positive for the U.S., it’s time to rethink that position. Less choice of goods and higher prices are good possibilities, lost jobs in some industries owned by foreign firms and a general decline in international relations are probable. Putting greater stress on the economies of countries that are potential adversaries is also strategically short-sighted; check the history books.

20130629-092759.jpgSo, in the connected world in which we live protectionism may sound like a flag waving good cause, it may be appealing to individuals in jobs directly affected by international trade, but there are consequences. Do you believe that any action by the U.S. will not be countered with similar actions by other countries thereby harming U.S. companies and workers relying on exports?

Before you jump for joy at the anti-trade rhetoric you might want to investigate the unintended consequences. 

I rarely agree with Paul Krugman, really rarely, but after I wrote the above I read Krugman’s Op-Ed in the NYT 3-11-16

Here is an expert where he talks about international trade agreements. 

Why, then, did we ever pursue these agreements? A large part of the answer is foreign policy: Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on.

And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now. Are they saying that we should rip up America’s international agreements? Have they thought about what that would do to our credibility and standing in the world?

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3 replies »

  1. Sorry, where is Paul Krugman when you need him?!

    While he sprints away from his own findings on trade, Paul Krugman formulated a new theory that integrated international trade and economic geography, for which he was awarded the Nobel prize in economics in 2008. Krugman’s argues that goods can be produced more cheaply in long series, triggering economies of scale. While consumers demand variety, what you get is large-scale production for the world’s markets, trying to reach consumers who want that specific item – so, you have a situation, for example, where we build cars here, and import other cars as well.

    Traditional trade theory assumes that countries are different and explains why some countries export agricultural products whereas others export industrial goods. Krugman shows why trade is dominated by countries with similar conditions and products. Trade is specialized, yet by seeking out the entire world market, you can still have large-scale production, efficiency, economies of scale.

    Economies of scale combined with reduced transport costs also confirms why more people live in cities and why economic activity is concentrated in one location – lowering costs, allowing for higher real wages and meeting the demand for the diversity of goods.

    Politicians of both parties are economically illiterate when it comes to trade. The Donald knows less than nothing. For example, he wants to mandate Apple manufacture/assemble here is the US. So, for consumers to get the “benefit” of an iphone, we’ll have to spend dramatically more for the inefficiency and higher cost of building it here. And, of course, seems stupid to create such a mandate because only about 25% of the cost to manufacture the products remains with Chinese manufacturers/assemblers. And, much of the functionality that makes the iphone what it is, along with the component parts are manufactured elsewhere.

    Important to remember that real manufacturing output in the US peaked in 2008, fell back from the recession, and regained an ALL TIME HIGH in 2014. It is just that our costs in the US (energy, materials, and particularly labor) are much less to manufacture greater amounts of goods.

    Trump is an idiot. So are any who believe tariffs, a la Smoot Hawley would be good for America, let alone our trading partners. Let’s elect Trump, have him appoint Krugman as Secretary of the Treasury, or perhaps Chair of the Council of Economic Advisors, pursue his policies, trigger a global recession – and then we can all pat ourselves on the back because we eliminated income and wealth inequality, we’ll all be poorer.

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  2. There was a news article on USA Today that the Marriot Corporation was going to use Standard Textile USA made towel in all of its USA hotels. Somehow Standard Textile found a way to stop making them in Jordan and to make them in the USA. They plan to hire an additional 110 workers and still make money. Has the US wages finally come down to the rest of the world that it is cheaper to make something here than to ship it half way around the world? Free trade works both ways.

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    • You hit the nail on the head. Costs coming down to better equalize with the rest of the world. Out lifestyle must adjust which most people don’t understand.

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