Joe Perez

iTrader: (8)

If all you're going to do is keep re-hashing the same material, rather than actually take the time to compose a post which responds to the specific question which I asked, then I really can't be bothered to take any of this seriously.

Hazlitt's arguments are simply not relevant anymore, as he ignores one very important factor in the import / export relationship. I shall quote just a small segment of his book, and then explain (in my own words) why it serves as an example of the invalidity of his position:
Imports must equal exports? Nothing could be more false. Hazlett doesn't seem to understand the concept of deficit spending.

(One must, of course, consider the fact that Hazlett wrote the book you keep linking to in 1946, when the US was still a net exporter of goods, and the idea of deficit spending hadn't really been invented yet. It really is quite obsolete as an economic textbook.)

When one nation imports more goods from another nation than it exports to that nation, a trade deficit exists. This inconsistency (which Hazlett seems not to comprehend) can be "solved" simply by borrowing. If this imbalance continues, then over time, the size of this deficit will increase.

Nowhere in Hazlett's book does the phrase "current account balance" appear, and yet this is specifically the term used by Economists to describe and measure this very phenomenon. Current account balance describes the net flow of wealth into or out of a country, consisting of the balance of trade (exports - imports) plus any other income (or expenses) such as interest payments and what-have-you.

According to the CIA's World Factbook (which is based on IMF data), China's 2010 current account balance was $272,500,000,000. For the same year, the US's current account balance was $-561,000,000,000.

So that positive $272 billion for China, and negative $561 billion for the US. That's for one year.

Is this sustainable? Hazlett seems to think not. But look at the Cumulative current account balance for the period of 1980 to 2008. China is at positive $1.5 trillion, and the US is at negative $7.3 trillion. That's $-7,300,000,000,000. (Granted, we don't owe all of that to China. Much of it is owed to Japan as well as to petroleum-exporting nations.)

Here's a nice, pretty map that shows the data in graphical form. Note how China, Japan, and the petroleum-exporting nations are all very green.




So, once again, I ask you the following question:




If you can't answer me this one simple question, then I'm afraid I'm going to have to post a picture of a cat in a humorous pose, with the caption "Your argument is invalid."

Braineack

iTrader: (62)

It's obvious who does know a thing or two about it

Scrappy Jack

iTrader: (2)

So one of the things the trade imbalances seems to... under-appreciate (if that's the right phrasing) is the effect of foreign investment, which I believe the US typically runs as a surplus. I think a better measure might be the balance of payments account.

Or, put another way, "in 2010, a total of just under $4 trillion flowed out of the United States to buy goods, services, and assets abroad, and just under $4 trillion flowed into the United States to buy goods, services, and assets offered here."

Again, even that is likely an oversimplification.

I think this is an excellent question and another example of how things in concept may not be the same in application. That is, comparing a "free trade" environment on one end but a "protectionist" environment on the other. Granted, in this case, you are talking about a tariff vs non-tariff barriers to entry... A good one to mull over.

Joe Perez

iTrader: (8)

Be careful with the terminology here. The Balance of Trade is only one figure in the Current Account Balance, which is the more important number, and the one which I illustrated above.

The Current Account Balance captures all exchanges of money (or value, or whatever) between nations which are related to "something getting done." True, it is only one element of the larger Balance of Payments, however it is an excellent barometer for the subject which is under discussion in this thread, which has to do with trade, manufacturing, and business as a whole.

A quick Googling produced many different results on the subject. One of the more thorough comes from this Investopedia article from which I will excerpt that the Current Account is comprised of the following:

• Goods - These are movable and physical in nature, and in order for a transaction to be recorded under "goods", a change of ownership from/to a resident (of the local country) to/from a non-resident (in a foreign country) has to take place. Movable goods include general merchandise, goods used for processing other goods, and non-monetary gold. An export is marked as a credit (money coming in) and an import is noted as a debit (money going out).
• Services - These transactions result from an intangible action such as transportation, business services, tourism, royalties or licensing. If money is being paid for a service it is recorded like an import (a debit), and if money is received it is recorded like an export (credit).
• Income - Income is money going in (credit) or out (debit) of a country from salaries, portfolio investments (in the form of dividends, for example), direct investments or any other type of investment. Together, goods, services and income provide an economy with fuel to function. This means that items under these categories are actual resources that are transferred to and from a country for economic production.
• Current Transfers - Current transfers are unilateral transfers with nothing received in return. These include workers' remittances, donations, aids and grants, official assistance and pensions. Due to their nature, current transfers are not considered real resources that affect economic production.

It is the most important measure of the total delta-wealth of a nation, it just includes a lot of factors that I didn't want to cloud this discussion with. But unfortunately, the total BOP numbers aren't very good either.



Yes, Jason was the one who brought up Tariffs specifically, I presume because he has that book citation all ready to go as evidence that they are evil.

But you're quite right in that there are many different methods to adjust the balance of trade, of which barriers to entry are one, and of those barriers, import tariffs are one example.


I am still hoping that Jason chimes in with an actual self-composed answer to the question that I keep asking him. I'm not sure whether that's a realistic expectation or not...

JasonC SBB

Joe, I already explained how it is good for the USA to NOT have tariffs, even though our trading partners may put tariffs on our exporst.



As for your point about deficit spending:
It is silly to assume that Hazlitt didn't understand deficit spending.
In any case:

The only reason the USA can even do deficit spending is because it enjoys having the reserve currency of the world.
So China sells goods to us which we pay with soon-to-be-worthless IOUs. Who's the bigger idiot?
Again, the Chinese worker and consumer is subsidizing the US consumer.


When you make your arguments, substitute "Texas" for "USA", and "California" for "China". Explain how "it's different" if we're dealing with people that happen to be across an international border.


As for the sustainability of the deficit spending, no it is not, and that's a whole 'nother topic. It does NOT preclude the desirability of free trade.

JasonC SBB

No, it's the flow of *money*. Wealth is a more abstract concept.

JasonC SBB

Tariff-free importation does NOT "limit our ability to export goods to them in return".

If say China puts tariffs on our exports, the resulting economic distortion will as you know tends make the deficit tilt towards their accumulation of USD or IOUs. WTF will they do with it, if not buy more goods from us, in the long run?

Joe Perez

iTrader: (8)

It's quite simple, really. I will break the explanation up into three parts, to ensure clarity:

• It is the job of the US Federal Government to protect and enhance the economic well-being of Texas.
  
• It is the job of the US Federal Government to protect and enhance the economic well-being of California.
  
• It is not the job of the US Federal Government to protect and enhance the economic well-being of China.

Thus:

JasonC SBB

This is what I meant. When you argue "bla bla China bla bla USA must have tariffs bla bla", substitute CA and TX. IOW why should there be no tariffs between CA and TX but tariffs with China?

sixshooter

iTrader: (12)

This is precisely why economics is commonly referred to as "the dismal science."

Do we count the billions of dollars annually being extorted from our country as "foreign aid" (obviously a current transfer in the above categories) in our computations regarding the exodus of capital from America or should that number be heaped on top of those already presented?

Joe Perez

iTrader: (8)

Foreign aid is included in the computation of the Current Account, so it's included in the numbers I posted earlier.

At the end of the day, a lot of this just comes down to us being far too nice as a country.

If you look at those industrialized nations who have a strongly positive balance of trade, you will find that, as a matter of generalization, their economic policies tend to discourage the outsourcing of labor (of any kind, be it manufacturing, service, intellectual, etc.) to other countries. They also tend to utilize various barriers-to-entry.

Tariffs are one example of this, as Jason has pointed out. (I will point out that the word Tariff appears 87 times in this thread prior to this post. 81 of those instances (including the first dozen or two) are in Jason's posts or quotations of Jason's posts, and I have thus far used the work only to ask why Jason thinks they are a universally bad idea, a question which still remains unanswered.)

Other barriers, such as the example I posted in which the Chinese require that we manufacture a certain percentage of our products in their country in order for us to sell these products to them, are perhaps even more ingenious (and from what I can tell, more modern) examples.

One thing is clear, however. I can find no example of a country (except, perhaps, one with a single-commodity economy such as petroleum or diamond exportation) which has a strongly positive balance of trade, and yet permits the importation of foreign goods without any sort of restraint of the types described above, while also doing export business with countries that do utilize such restraints.


If we were to act "in kind" with certain of our trade partners, then it would be a very different economic landscape.

"Sure, you want to sell your LCD TV sets here in the US? No problem. Just refurbish one of these old factories we're not using, and hire our workers to injection-mold the cases and do all the final assembly."

sixshooter

iTrader: (12)

Joe,

The ChiComs only want you to build your consoles there so they can steal your methods and technology to build those products without you. Americans are so gullible. Remember BEGi trying to get their manifolds built over there and how that turned out?

Scrappy Jack

iTrader: (2)

One might argue that you are getting too hung up on trade imbalances. Again, I would reference the balance of payments. At the risk of getting lambasted for quoting and not summarizing, consider the data on page 9 of 16 of this white paper which shows the weighted averages of real GDP and manufacturing during times of contracting and expanding trade deficits.

Joe Perez

iTrader: (8)

I honestly don't think that this is the case. They've reverse-engineered our transmitters before, but they always just purchased them outright (through a third party) to do that.

This situation, incidentally, is not at all unique to us.

Take General Motors, for example. Kind of a big company. Been in the news a lot, recently. They sell a pretty large number of cars in China. 876,000 in 2006, for instance.

It may come as a surprise to those of us stateside (at least, the ones whose parents didn't meet at a family reunion), but Buick is actually considered a pretty upscale brand over there. Think of the image that we is the US had of, say, BMW in the 1980s. In 2007, GM sold more Buicks in China than they did in the US. More than twice as many, in fact. 332,000 of 'em.

Guess where they're made? If you said Shenyang, Liaoning Province, China, then you're correct.

Why is this? Well, maybe GM felt that the Japanese, German, Italian, French, British, Yugoslavian, and Korean automakers have had it wrong all these years, and that it's better to build your cars offshore in an environment in which intellectual property rights are worthless and you do not have even a semblance of authority over management, labor or quality control, than to build them in your own country and then load 'em onto a bit boat.

Or maybe the Chinese said "You no build car in America! Build in China, or no sell car!"

Yes, it was the latter.

You see, the Chinese aren't idiots. I mean, most of them are hillbilly subsistence farmers, and the government is comprised entirely of nervous, insecure ********, but stupid they are not. They know that GM would rather take a hit on margin and bear the brunt of some bad PR than to completely miss out on what would appear to be the poster-child growth market of the 21st century. So they build the plant, make the cars, and take what profit they can.

So now it's 2004, and GM (US) says "Hey, we've got this new Theta platform that we're going to call the Chevy Equinox and the Pontiac Torrent, and we need some engines. Well, heck, we've got this plant over in China that's cranking out 3.4 liter LNJ V6 engines, why not just crate those up and ship 'em to our plant in Ingersoll, Ontario? It's not like anybody will ever notice."

That's right. Do you own a base-model Torrent or Equinox?


Wanna know who is the Chief Business Partner of the new Chinese propaganda film "Birth of a Party" which was released this past month? I'll give you a hint. Their abbreviated name rhymes with BM.


Free trade, my ***. You name me one Chinese corporation that has any US presence larger than a marketing department.

JasonC SBB

I don't know why you keep saying the question is "unanswered". Here's yet another way to put it:

Selective tariffs are an economic distortion that punishes more efficient producers for the benefit of less efficient ones. Wealth comes from economic efficiency, division of labor, and specialization. Trade facilitates that, whether or not it's across international borders.

flounder

Aleister Crowley. Jimmy Pages hero.

Joe Perez

iTrader: (8)

So, basically you don't feel that the US Government has an obligation to protect & enhance the wealth of its own citizens, and of the country as a whole?

Or, to put it another way, you consider that the "perfection" of abstract economic theories should take precedence over the well-being of any one specific country?

I guess that's why we have such a disconnect. I've been looking at this from the perspective that the US Government should be implementing trade policies which favor the specific interests of the US. You seem to treat economics as a more ideological notion, in which we (all the people of Earth) are equal under one global law. Or perhaps that it's all just "survival of the fittest" and nothing else matters?


No point in my really continuing to discuss the topic, I suppose.

Braineack

iTrader: (62)

Here's a read:

Suppose a Toyota is priced at $15,000. A Chevrolet Impala, let us say, sells for the same price. You, as a consumer, decide that you like the quality of the Toyota better. You decide to buy the Toyota.

Since we now have Government Motors the U.S. government's goal is to force you to buy from GM. Union workers also chime in and claim if you buy a Toyota you will take thier jobs away. So the gov't does what it thinks is your best interest, they say "If you buy the Toyota, you pay $15,000 to Toyota and a $5,000 tariff (tax) to the U.S. government."

But if you buy the Chevrolet, your standard of living — from your perspective — is not as high as it could have been. If you buy the Toyota, the government has, in effect, legally stolen the sum of $5,000 from you; and her standard of living has dropped by $5,000.

The worst part of it is that the people who pay the biggest price for tariffs and import restrictions are the poor, because these taxes are regressive — that is, their weight falls disproportionately greater on poor people. In other words, the same government that professes to have such a big concern for the poor with its welfare state, impoverishes the poor through trade restrictions for the sake of wealthy special-interest groups.

Joe Perez

iTrader: (8)

I don't know why everyone is so hung-up on the idea that Tariffs are the only economic lever available. I gave the example of the Chinese requiring us to do in-country assembly, and then followed up with the further example of GM, for a reason.

Joe Perez

iTrader: (8)

Also, everyone here seems hung up on our immediate "standard of living" inasmuch as anything that increases the cost of any product (or decreases our ability to purchase as much as possible) is evil and will ruin us.

Well, ****. I've been doing it all wrong. I have a credit card here that I never use. All this time I've been depriving myself of all sorts of things that I could be using the credit card to purchase, so my standard of living is not as high as it could be.

Except that after a while, I will have maxed out the credit card. What then? If anything, my standard of living will fall to a lower level than what it was before I got it.


THAT is precisely what we (as a country) are doing right now.