David Foster over at Chicago Boyz has a discussion of tariffs with both some standard reminders and some less-common arguments.
From Point 2:
Imagine Massachusetts enacting a tariff on oranges to protect an industry of heated orange groves and Florida a tariff to support air-conditioned cranberry bogs. State politicians could trumpet creating a new industry, but OJ would be $25 a glass in Boston and cranberry sauce would be $10 a scoop in Miami. Tariffs amount to a “beggar thyself” policy. The Constitution’s framers recognized this and crafted the Commerce Clause to forbid restriction of trade by states. The same principle applies to trade between nations. (WSJ)
Trade based on relative efficiency of production, as for the orange/cranberry example, is a classic example of the advantages of trade. But a high proportion of trade today is not of this nature: it is simply labor arbitrage, based on differentials in wages. The primary reason why products made in China have been so much lower cost than those made in the US is because Chinese people would work for lower wages than US people. There was nothing inherent in Chinese geography or climate, or Chinese skill sets, that made assembly of iPhone more efficient in China than in Iowa.
From a link at Point 4:
Since Clinton implemented NAFTA, and the US-China Trade Agreement of 2000, 12 million manufacturing jobs have disappeared, replaced with a combination of health care, education, leisure & hospitality and warehouse jobs. According to the US Census Bureau, the manufacturing jobs lost pay an average annual salary of $61K and change. The weighted average of the jobs that replaced them is $43K plus a bit. The average household size in the US is 3.13 people. This means that over 37 million people – about 11% of the US population – has been whacked from the middle class to paycheck-to-paycheck level. No wonder young people are coming to believe capitalism doesn’t work, and there is increasing concern for the ’wealth gap’.
4 comments:
This rhymes with your "Twins reared apart" post in that the usual argument against this observation is that we're really Lake Woebegone and all those people who used to have production jobs are capable of being trained to be white collar content creators.
A couple of days ago I ran across a report on American Reindustrialization from a major brokerage firm. The analyst challenges the commonly-made assertion that the tariffs in the previous Trump administration didn't have any beneficial effect: he cites data that there was a 5.5% uplift in the US share of foreign direct investment and also a shift of US imports from China-sourced to broader Asia. Also saw some data (not sure if it was that report or somewhere else) that many Chinese firms did in fact reduce prices and accept lower margins in consequence of the tariffs rather than losing the revenue from the US (and the customer relationships, in some cases)
We often overlook strategic implications of trade based on relative efficiency of production, and even with the various shocks over the past decade, it seems to still be ignored.
We've had chip shortages affecting auto production, the inability to get PPE at short notice when the rest-of-the world was also wanting it, and both Ever-Given and Houthi blockades of the Suez Canal. If we were to find ourselves in a war with China, we'd be getting no chips at all from Taiwan and probably would lose use in the short term of the Panama Canal also.
OTOH, the protectionist Jones Act was supposed to ensure that there were lots of US ships, US shipbuilding, and US shipping companies, and seems on net to have done the exact opposite.
Vox Day writes that free trade necessitates mass immigration. We see this in the U.S. due to the commerce clause. Most Americans don't live near extended family and many don't even have nuclear families which is another cost/burden on our people. We are poorer as a nation and don't even have extended family to rely on.
Vox Day wrote a whole book and did at least one written or transcribed debate with an economist that you might find interesting. He points out the half dozen presuppositions of Ricardo's free trade theory don't even exist in the real world.
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