Trade and World Peace -- Economic Nationalism Leads to War
President Trump is a strong economic nationalist. He believes that this country should source everything domestically - its products and its labor - and any labor or resources that are coming from other countries should either be stopped by a wall or heavily taxed.
Economists and I will spend a lot of time over the next four years trying to explain to our economically-ignorant administration why global trade and the global division of labor increase domestic incomes and production rather than decreasing them. But I do not want to lose sight of another important benefit of open trade in the global economy - peace.
We often miss the fact because our news is dominated by stories of violence and terror, but we live in times of unprecedented peace around the world. It is no coincidence that this is occurring at the same time that global trade is at a historic peak. People and governments can obtain just about anything they want, inexpensively, through voluntary trade. This has seldom been the case through history -- and when people could not get what they wanted through free trade, they tried to take it by force.
Think about the corollary of Trump's economic nationalism, particularly if everyone followed this same approach. If one skews all the rules and taxes and prohibitions so everything must be sourced domestically, then if a country does not have some particular resource or skill domestically, it is out of luck. No domestic rare earth metals? Sorry.
But governments and powerful people seldom calmly accept that something they critically need is not available. They will be tempted to go and take it. The worst, most violent empire building of the last 100-150 years has occurred when countries have pursued economic nationalism. Think of the colonialism of the late 19th century. Today we happily trade with South Africa and other countries for valuable resources, but in that time of economic nationalism, if a country wanted access to these resources, it felt it had to control the land and the people. Hitler in the 1930's wanted to make Germany self-sufficient in agricultural goods and certain other resources, and the only way to do that was to go and grab other people's land and resources.
The best example of all of this phenomenon is, I think, Japan in the 1930's. Japan felt that it was resource poor and under Trump's theory of economic nationalism, it felt it had to control oil and other resources it did not have domestically. So it plotted to go take it. When the US instituted a trade embargo in these very goods to punish Japan's aggressiveness in China, it just accelerated Japan's thinking in this area, convincing it for good it had to control these resources, and it was soon invading the oil-rich islands of what is now Indonesia. This example is all the more telling because Japan actually found true prosperity after the war when it traded peacefully for these resources. Unfortunately, it adopted economic nationalism, via MITI, of another form and helped manage themselves into a 20-year recession, but that is another trade-related story for another day.
Postscript: I have more to say on this when I get my thoughts better organized. Right now I am hurrying to a plane, for Regina, Canada, where I am speaking on global warming tomorrow. There is a related issue of what happens when strong protectionism on our part pushes China over into the crash they have been putting off for years -- suddenly a crash largely of their making becomes the fault of the US, with implications for a formation of a new cold war, but that again is another topic for another day.
That is a complete non sequitur. It doesn't make sense.
What you call an "emphasis on free trade and imports" is merely the notion we all instinctively understand and agree with, and that is that all of us are always better off buying the lowest priced good or service we can find. We all shop for the best deal we can get for any good or service. Don't you? And the more choices we have the better.
Even those folks who are unemployed and underemployed are better off with lower prices for the things they need.
Artificially raising prices through the imposition of tariffs and other price controls hurts those people most, who are least able to afford the higher prices.
No. Joshua and Ike were both under the impression that foreign people need dollars in order to invest in America. I am pointing out not having dollars is merely an inconvenience, one usually easily overcome because dollars are not capital goods- capital goods are capital goods. Now, this is beside the freaking point because our foreign investors already have freaking dollars, and they are already happily talking about investing- while Trump is president.
If necessary some could actually bring capital goods to the U.S., but again, we are going completely off the map, because all of this is unrelated to reality. Foreigners are investing- EASILY- in America. Right now. Stop trying to make this hard.
And cheaper sugar and sugar based ethanol are kept out (limited) by a tariffs on imports - the exact thing you appear to advocate above. You have just contradicted your entire argument in favor of imposing tariffs.
I support a strong military AND strong trade. They don't need to be exclusive.
You do understand that foreign investment in US assets - Which is a GOOD thing - is, by definition, an increase in the trade deficit, right?
BTW I don't need to remind, I hope, that it's not countries, but people and groups of people (companies) who buy and sell and invest,
A strange non sequitur.
Yes, but do we understand economics? All the hoped for reduced costs could be achieved without imposing new costs in the form of trade restrictions.
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I don't advocate tariffs. My point is what is "free trade".
Absolutely. I too support strong trade or free trade and trying to deal with other nations and cultures honestly and fairly . I wasn't disagreeing so much as reinforcing the need to stay strong and vigilant.
No one is losing ownership. A US owner is voluntarily selling an asset they own to someone who lives in china. They are exchanging it for something they value more - perhaps another asset that they will build using the proceeds of the sale. The total capital stock in the US is increased by the amount of the investment from the Chinese buyer.
It doesn't matter who owns things, but if it's any comfort, the total capital stock in the US is increasing at a much higher rate each year than the amount of the trade deficit (capital surplus) with China.
I'm confused. I was not referring to sugar-based U.S. ethanol, rather corn-based, which is the primary source at present.
If the U.S. can produce and export to the world market more than twice the amount of ethanol from corn as Brazil can produce and export to the world market ethanol made from sugar, how do you get to "someone overpaying"? I'm not disputing, just not following your logic....
Also, although it doesn't appear to be a competitive source currently, sugar beet-based ethanol production is being looked into. Also, I found this, which indicates that cane sugar production is pursued in multiple states, and that both it and the sugar beet industry are growing.
https://www.ers.usda.gov/topics/crops/sugar-sweeteners/background.aspx
And that impression is correct. Owners of assets in the US will almost always want US dollars in exchange for them, as you, yourself, explained in your overly complicated story about bitcoins and Rolex watches. You traded all those things for US dollars in order to buy something from a US owner, who unfortunately, didn't want diamonds or Bitcoins or Rolex watches, but maybe DID want to build a new office building, for which he needed dollars.
"Now,
this is beside the freaking point because our foreign investors already
have freaking dollars ...
Exactly. And where did they get them?
Go read my original comment. This is the weeds, dude.
No. it is not correct, or the colonists would needed Native American currency to come over here and set up shop.
Free trade is the ability of a person or group of people (a company) to voluntarily choose to trade with anyone else in the world, who is willing and able to trade with them for mutual benefit. In other words it is freedom of association, which includes freedom to NOT associate.
Governments can only limit trade - but can't enhance it. Therefore any government involvement in trade must be, by definition, harmful to free trade. Tariffs always cause harm to consumers in the country that imposes them, and there is absolutely no advantage to "keeping production and taxes" in the US.
I have read both your original comment on this thread and your original reply to Joshua, and I have responded to both. I understand what you are saying, but I'm not sure you do. Basic trade is relatively simple, and you are making it complicated by making incorrect assertions about currencies, and assuming things about political borders that are irrelevant. Your Rolex story is a good example of that.
"We are at war.
We also suffer costs of taxes and regulation.
We have a new President. He doesn't want war. He wants fewer taxes and regulation. He wants to impose a cost of American companies employing Americans. He also seem somewhat friendly to foreign companies willing to invest here.
It is highly possible we will see a net positive situation, from a cost perspective. It is also possible we may see more growth, since there will be more people working, and work is occasionally productive.
Yes, there's all kinds of potential for downfall, but the biggest downfall right now has be self-inflicted pundit-cide."
THAT IS MY ORIGINAL COMMENT!!!! Not a damn thing about dollars in it. Why would that be? Could be that you are in the weeds? Can you reiterate my actual freaking point vis-a-vis the costs of doing business under Trump possibly being lower than under Obama? And that we are already at war, and we damn well seemed headed for more war, so PERHAPS calming down until we've got some real laws to analyze might be order, because- hey, you know, we might actually end up being alright?
Another non sequitur! The role of money seems to elude you. The colonists mostly intended to be self sufficient in the New World. Trading with Native Americans was a bonus, and as luck would have it, the colonists had what Native Americans wanted in trade, so trade by barter became a thing. This is still true today - that goods and services are traded for goods and services - except it's virtually impossible to have exactly the goods to barter that a trading partner might want, so we use a medium of exchange called "money". That money has the magical property of being whatever you want it to be. Your employer sees money as your labor and skills which you trade to him, and you see the money as those things you value more than the labor, but which your employer doesn't have to trade. Things like food, shelter, clothing, transportation, etc. But in every case it's just money.
Your Rolex example creates an unnecessarily complicated story about the role of money and goods that you exchanged for money - in that case US dollars. You could have as easily said you had grown a lot of bananas and sold them to someone in exchange for dollars (US imports), which you then trades for capital goods in the US. That's the whole point. US imports are paid for in dollars that may be used in the US for goods and services (US exports) or to buy assets that exist in the US.
Exactly the same thing applies with trade between people living in US states and cities. Currency conversions and political boundaries are minor details.
It is true that protectionism such as Smoot-Hartley is very counter-productive to economic progress. However, the alternative to our current situation is not that protectionism. With tax and regulatory policies, we can make this nation a better place to produce products. Remember, The Great Depression did not end in 1942 when we entered WWII. Rather, it ended in 1939 when FDR told his cabinet that "we must stop treating business as our enemy." It would help if we had a better mentality toward production and savings/investment rather than being myopic on consumption.
Bluster and obfuscation can't stand in for an actual argument on the issues you originally raised. I can almost see the spittle flying from your lips.
Yes, that is your original comment to which I responded. I also responded to another of your comments in which you did finally mention dollars after a tortuous journey involving Rolex watches and diamonds. Apparently you don't understand the conversation you, yourself started.
Heh! Is that what you call "calming down"?
It's OK to just admit when you're wrong, you know. No need to continue embarrassing yourself.
BTW this:
- is wrong. Economic growth results from increases in productivity due to capital investment, not from more people working. But you probably understand that already since you like to make bold comments on economic issues.
Trump supporters who consistently take Trump literally will be disappointed, and Trump detractors who take him literally will look foolish.
The stock market can have over-reactions and herd mentality, but those miscues are typically short-lived. The current stock market does not see Trump as being protectionist and being bad for trade & business. I do not think the stock market is wrong, but rather that the stock market has paid closer attention to Trump's statements and intentions than Coyote has. For tariffs, Trump has emphasized a tariff on products that are imported into U.S. WHEN those same goods were previously made in the U.S. but companies shut down that production, shifted production overseas, AND will import the same product back to the U.S. While I do not think such a move is a good idea and I do not know whether such a tariff is practical from an implementation point of view, I do recognize that such goods are small portion of trade. Such tariffs would not harm the vast majority of trade. Furthermore, the likelihood of such tariffs is remote. It is far more likely that with reasonable changes in tax and regulatory policies, big companies will make sufficient commitments to domestic production that the Trump administration will view such tariffs unnecessary.
It is more likely that trade will flourish under Trump than not.
GoneWithTheWind, Trade likely reduces the likelihood of war; but to truly avoid war, you must be militarily stronger than your potential enemies.
An education campaign might just be telling people what they already know. In that case, the problem is how they weigh competing factors when making decisions.
People on the left organize politically to extract benefits and rents. If all Trump did is bring together a competing faction which has learned to exert its political power (through the ballot box), then the solution lies in addressing their grievances. Telling people in a depressed region which is losing jobs that they need to suck it up isn't an answer. Not everyone was born with aptitudes which give them a lot of options, or the innate characteristics of the people who consider themselves to be open-borders internationalist cosmopolitans. Some people want to live and work where they grew up. What will your answer be? The Democrats tried variations of the truth of the problem - "those jobs are gone", "those jobs are going away", "we'll make those jobs go away (eg. climate warming mitigation)" - but offered no solutions.
If you mean reducing or eliminating taxes and regulation, then I agree. Government can only reduce economic growth and prosperity, it can never enhance it with a tax or policy.
Unless you have to pay higher taxes because corporations move their profits offshore?
That does not follow. All taxes are ultimately paid by individuals, whether they are consumers, workers, or business owners. (stockholders). Any taxes paid by the corporate entity are merely income not passed through to the individual owners.
Any additional taxes I pay are increased thuggery on the part of government, and not due to the laudable actions of someone else who has managed to avoid handing over some of their money to the thief.
Are you assuming that current levels of government spending are legitimate and must be paid for by whoever is unable to avoid being mugged?
No, I am suggesting that the current levels of government spending are the current levels of government spending. Your opinion, or mine, of its (the spending) legitimacy does not change the total. The federal government spends trillions of dollars. I don't like it. You don't like it. Maybe Trump will garner some budget savings but in the end I doubt it.
So, instead of pretending that the governmetn does not spend this money, I live in the real world and know they do. When Microsoft or Google or Apple or Facebook, all socially liberal corporations, transfer the taxable profits earned in the United States to off-shore shell companies that means they do not pay their share of the taxes. This means my taxes must be higher as a result.
Tax reform that lowers the corporate tax rates will provide a supply side incentive for corporations to leave their profits in the United States subject to taxation rather than move them offshore.
When your statements are just fantasy, totally devoid of political reality, maybe you should just keep them to yourself.
You're welcome to just skip over my comments if you don't find them useful. No need to respond if you prefer not to.
Do you understand that all taxes are ultimately paid by individuals?
I too would like to see lower corp tax rates, but can you explain how lowering the corporate tax rate, resulting in lower tax revenue, is preferable to lower tax revenue resulting from corps moving taxable revenue offshore? If tax revenue decreases due to lower corp tax rates, (or remains at its current level) will you be forced to pay the difference to support current inevitable spending levels?
Alcohol is a product of sugar. Sugarcane contains more sugar than corn, therefore corn isn't the best choice for ethanol production since it pretty much has to involve more inputs of volume/weight/energy/work/pollution to realize the same output. Given this natural disadvantage it is unlikely that the US can be competitive here (especially when you consider the cost of transporting this heavy substance) without someone putting their thumb on the scale and, thus on someone else’s wallet.
Besides, it’s not obvious that ethanol pollutes less than say, natural gas after factoring in all the energy needed to produce the stuff so, what’s the point exactly?
THe comment about taxes and individuals is immaterial, particularly because these corporation move what should be paid (individual or otherwise) in taxes to shelters or off shore shell corporations.
There is absolutely no doubt in my mind that lower corporate tax rates will increase tax revenues. The 35% rate is much too high and creates tremendous incentives to avoid these taxes, and avoiding these taxes creates inefficiency. Moving the profits offshore to Ireland, Holland, and/or The Caymans creates huge inefficiency in that it limits where these profits can be reinvested.
At 15% corporations will not find economic gain in these tax avoidance schemes. The corporate income tax only generted $154 billion in 2014. With lower rates I believe taht the revenues would increase by at least 25%.
“If soldiers are not to cross international boundaries,
goods must do so. Unless the Shackles can be dropped from trade, bombs
will be dropped from the sky.”
Otto T Mallery (1881 - 1956) - 'Economic Union and Enduring Peace'
Sure buddy. You go win the presidency, without promising the people anything except abstract principles you don't appear capable of understanding yourself. Good luck with that.
There is a difference between capital and currency. It is inconvenient, but not impossible to invest in a country without first having access to the local currency.
You could, stock a ship full of machines, and perhaps food, go to a poor country, feed people in exchange for operating the machines. Once you were producing, you could get local money by selling your stuff to local people- then you could pay your employees in the local currency.
Of course the financial markets wants you to believe there is no difference. In fact, it is even worse, because they are now blurring the lines between capital and debt. But people know local production is not as fungible as currency.
So, since you apparently don't know, my examples do not require an explanation of money. They are examples of how someone would take their assets and buy (or move) capital goods to another country without first having access to that country's currency. All of this is besides the point because the foreign investors who are lining up to invest in Trump's America already have dollars.
You sir, are not only in the weeds, you have madly sought the weeds out.
Gee, you sure like pretending you know stuff, don't you? I say work is occasionally productive, because I know that not all work is productive, but you still have to make a comment on it.
You don't comment on it particularly well, but well, whatever.
I scrolled up. You have replied to my second comment. You misunderstand it, and start talking about money.
You did not reply to my first comment. Somewhere in this thread, you responded to me posting it a second time, and it seemed like maybe you got it, but you expressed a wish of impossibility, where we can convince American voters of pristine abstract principles.
Now, there is a possibility that Disqus is moving these comments around, thus confusing you. Probably confusing me too, but it doesn't matter as much since I was here first. It doesn't matter when you start lecturing me about money, because it just shows you don't know what I am taking about. Not that I am saying you are stupid. You may understand the difference between capital and currency quite well, but just have this incessant desire to go off into the weeds and hold forth on various economic subjects for no apparent reason.
personal experience (not in Thailand, tbh). The fee to change money is usually 3-5% plus a few dollars, import duties are usually 10-50% with a fixed minimum (and for some things, in some countries, can be over 100%).
Thanks for the chemistry/econ lesson. (I'm not being sarcastic, there...)
And I agree that there's no point. And there was no point from the beginning to mandate ethanol. I have no disagreement with the government setting a goal of x level of maximum carbon pollution*, but I'd simply let the industry figure out how to get there - it will find the most effective, least costly method.
I found this just now. the last several paras. seem to indicate that the markets for sugar-ethanol and corn-ethanol are different (although I'm sure there's overlap). The Brazilian sugar-ethanol is mainly going to California where the stricter emissions & biofuel standards are more easily satisfied by sugar-ethanol. It's complicated, eh?
http://www.eia.gov/todayinenergy/detail.php?id=25312
* I was living in Denver in the 70s, after all, & fully experienced the "brown cloud" that would smother the city when there was a temperature inversion. The air quality improvement is quite remarkable: one occasion when government's heavy hand actually has had a beneficial effect.
I enjoyed the conversation. Thanks!
mlhouse, nice to see somebody understanding how high tax rates impact the behavior of individuals and corporations -- often resulting in lower tax collections.
ColoComment, the brown cloud in the 70s for Denver was not "carbon pollution." I remember it as well.
how did you know i am in Regina ? !
Picky picky. ;-)
I was using the phrase as a catch-all for auto exhaust, wood-burning fireplace pollution, ground sand/dirt pollution, and all the rest of the sources of the particulates that created the "brown cloud".
You got a better way of condensing all of the brown cloud sources into a pithy phrase, go for it.
You called it "carbon pollution", which it was not. It's important to keep in mind that carbon and carbon dioxide are not pollutants, and when you use that term you are helping perpetuate the the ridiculous notion that people are destroying the Earth by burning fossil fuels.
That is not a response to my comment, and resembles the type of blustery gibberish people often throw out when they know they have lost a debate, or have no idea what they are talking about. Is that you?
Mea culpa. I promise to say three Hail Marys and never sin again. :-)
So what IS a good, accurate, pithy phrase that I should use to describe the composition of the Denver brown cloud?
Heh! This is like operating a puppet. You continue to show your ignorance of the role of money every time I respond to one of your comments. It's almost like you're proud of it.
Oh, yes! yes! Please quit writing that over and over. No one has said otherwise. Money is a medium of exchange, usually denominated in some type of currency for convenience.
"You could, stock a ship full of machines, and perhaps food, go to a poor
country, feed people in exchange for operating the machines ..."
Yes. You could do that. In that case the food you are offering in exchange for labor is acting as a form of money. Money is anything that is easily recognized and widely used, and may act as a medium of exchange when there is not a direct correspondence between the desires of trading partners. Please look up a definition of money. You are missing this big-time.
As I originally pointed out to you, your colorful and imaginative stories are exact descriptions of people in one country exporting to people in another country - who are importing. Sender = exporter, receiver = importer. When those importers pay for the goods that were exported to them, the exporters may choose to invest their earnings (I hesitate to use the word money) in productive assets in the importing country. This is well known and understood.
And of course your newest story about machines and food is a great example of offshoring production to a poor country with lower labor costs.
Please get a clue, and quit blathering nonsense.
Smog, photo-chemical smog, air pollution - anything but carbon polution.
Finally, you admit there is a difference between capital and currency. Thank you.
Actually, it is a response to your comment. You have finally, elsewhere, admitted that there is a difference between capital and currency. Of course, you still had to ramble on. When you said " All the hoped for reduced costs could be achieved without imposing new costs in the form of trade restrictions." it made me think that, possibly, you understand my original point- i.e. that business could be very good under Trump via less overall costs than we currently suffer under.
And of course, I did want to elucidate how non-viable you (and the libertarian party) are. You can't win. Even if you are right on all points, you can't win. Nobody wants to be lectured to on things that are completely beside the point. If you had sense, you'd figure out how to work with what is happening now. Trump seems very firm on some things- he certainly wants to fulfill his campaign promises- but very open on others.
That's never been in doubt. For some reason you have continually repeated that claim despite the fact that no one has one has said otherwise. How obtuse can you be?
The problem you have here, is that you don't appear to understand the function of money as a medium of exchange when direct barter isn't possible. If you're going to comment on economic subjects you might want to understand the subject before typing ignorant nonsense.
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Has there been a earthquake at this site? This blog is definitely showing a lean to the left.