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Free Trader for Tariffs

By: Tavern Keeper (Diary)  |  April 19th, 2011 at 01:42 AM  | 

RESIZE: AAA

I am a free trader. I firmly believe in free market principles, and with limited (very limited) regulation to guard against anti-competitive practices, the free market, be it local, regional, or international, works just about right. From Wealth of Nations to Milton Friedman, I think the jury is basically decided that Keynesian notions of central stimulus pale in comparison to the wealth actually created from private investment into, wait for it . . . RISKY ventures.  Macroeconomics, the Laffler Curve, Marxist doctrine, and “too big to fail” all set aside, if there were no nations and no regulations (dang I’m sounding like a college Democrat), it seems most fair to let commerce occur without any added state burden on such.  Simply put, if I have something to sell, and someone else, regardless of their geography, has a need to buy it, it stands to reason that I should be able to make a transaction at whatever the buyer is will to part with to make the sale happen.  One entity selling something of value to another entity, with the buyer setting said value.  As long as everything is legal, there is no deception, trickery, or outside manipulation, this is Capitalism in its best form.  And it works (see last 200 years of U.S.A.).

So that’s “Free Trade.”  Goods and services bartered, sold, and exchanged according to the terms reached by the buyers and sellers.  And that, at heart, is why I am a free-trader.  In the contemporary Conservative sphere, there are elements, SIGNIFICANT elements, that do not, at least under current conditions, share this point of view.  Populists, protectionists, agrarians, and even some big business types rail on the “outsourcing of our jobs” and how we need “fair trade, not free trade.”  In the end, this road leads of course to one place – tariffs.  And a pure free trader vehemently oppose such.  Tariffs cause trade wars, drive up prices, suppress production, and stifle capital infusion, right?

True enough, trade among peoples and nations has caused more than its share of conflicts. History buffs will remember that while Helen was claimed to have the face that “launched a thousand ships,” the Greeks were much more interested in overtaking the trade routes in the east Mediterranean which were currently dominated by who history has come to know as the Trojans.  Nice story about estranged love, a noble prince and pursuit of his heart, but the real deal was all about tin, bronze, copper, iron, and probably some olives and wine.  In the best instances trade amongst peoples is freely set upon, recognizing a symbiotic need.  In many instances, it is a more powerful nation wanting to open new markets, to sell their goods and services to a population that has been “deprived” of such.  And we’re not innocent in this.  Nixon may have went to China in the 1970′s, but it was Commodore Perry that, through military threat, first “opened” the vast populations of the far east to trade with North American interests.  Yes, then millions and millions of Asians could purchase foodstuffs, manufactured items, and other services from American companies.  Ironically, less than two hundred years later these same Asians could sell Americans back their own goods and services at the expense of American jobs.  But your keeper digresses a bit.  Back to the matter at hand – Free Trade.

Free Trade really is a two-way street.  You can’t have a Tahoe (or Prius, depending on the administration), roaring down one way ally only to be stalled by the newest V8 Rickshaw out there. Semantically speaking, I suppose we have free trade with the Chinese.  For the most part, we don’t slap down the tariff on them, and they don’t slap back the tariff on us.  We’ve got 4 billion up-an-coming Chinese to sell stuff to, and they’re got the richest market in the world to sell to.  Seems like a great opportunity for “free trade,” right?  Problem is – advance apologies to those to take offense, this is not a racist or bigoted remark – you can’t trust a godless authoritarian Communist. The Chinese communist party in China can make claims all day long about being “free trade” partners (which if you think about it, isn’t even possible for a real communist regime anyway), but the fact is, they have taken deliberate steps to make sure that this “free” and “fair” trade was much-much-mo fair in their direction. What have we all heard – cheap labor, cheap labor, squawk squawk whatever.  Why is their labor so relatively cheap . . . THAT relatively cheap.  As we all know, it is because of China’s central monetary policy.  They tie the value of their currency directly to a basket of other global currencies (guess which one is predominant . . .) and reset its value on a daily basis.  THUS, the Chinese currency is never allowed to “float” on the free market (um, a prerequisite of free trade, BTW), and is consequently always keep undervalued relative to other major international monies.  WOW.  What a scheme!  No wonder slick street agitators from Chicago admire the system so much! “You can buy this much for a dollar in my store, but I need to get about twice that for the same dollar in your store.  That cool?”

Calling in Lucifer’s Lawyer, we should ask – “So, we get cheap stuff at WalMart.”  Yes, yes you do.  But you also pay a higher tax rate to make up for the individuals that are unemployed or underemployed because of the currency manipulation.  Chances are, you could pocket more dollars, and still get non-lead-paint-coated goods for close to what you’re paying now.

To borrow a phrase from our bold young president, “Let me be clear,” I’m not trying to stick-it to the Chinese worker.  Chinese citizens have had it stuck to them enough.  They’ve been making goods that are consumed by the richest society in the world, but their payscale hasn’t quite risen to match.  Sure, we all hear about the Nouveau Riche in China, but really what percentage of the population is benefiting to the degree that Americans did in the 1940s, 50s, and 60s?  They are merely pawn players in the government’s overall goal to achieve pre-eminent superpower status, damn the populace’s needs.

So back to the title of my post- I’m now a Free Trader willing to engage in tariffs concerning Chinese goods.  Hopefully this will lead to a real movement to bundling of their currency. Worse case it doesn’t and we still get some jobs back here in the US of A.  In this instance when an act of protectionism may help promote real free trade, perhaps protectionism is the path to get there.  I never thought I would write these words, but so be it.  This is where we are.  If the Chinese won’t aggressively work toward letting their currency float, then we should take action to adjusting it de facto through the tariff.

Oh, wait . . . seems like somebody else is saying something somewhat similar to this . . . can’t place my finger on it . . .

Here’s hoping for Free Trade.  REAL free trade.  Maybe a pipe dream, but like so many aspects of this great nation of ours, worth fighting for.

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  • Menlo

    You can’t have “free trade” with slave labor and uninformed consumers (in areas such as expectations of safety).

    Then of course there are the double standards. In terms of brutal dictatorships, there really are none worse than China’s except maybe North Korea. Unless motivated by personal greed, one cannot support a different policy for Libya, Cuba, Iran or anywhere else.

    If Donald Trump were serious, he’d run for Congress where such decisions are actually made. The senate is (and long has been) almost unanimously pro-China.

    • Diogenes314

      [i]You can

      • Menlo

        There are several justifications for government intervention into free markets, imperfect information and imperfect competition being among them.

        People are not what I would consider “free to choose” with regard to the fluoride poisoning their municipal water supply or the tainted chemicals in the medicines they may need.

        I guess we know whose side you would have taken in the debate over the thirteenth amendment.

        As I said though, one individual in government cannot make that decision. If Trump were serious, he’d set his sights on Congress.

  • Diogenes314

    Nice try though.

    Okay, not really.

    • http://theminorityreportblog.com Repair_Man_Jack

      I was told that the last time I attended a John Birch Society retreat.

    • Menlo

      Its use is unethical enough regardless of where it’s made. Now though, most of it is imported from one country.

      The point is that people have no choices in a natural monopoly.

      • Diogenes314

        …is an oxymoron.

        So you favor putative tariffs to control the amount of fluoride in the water?

        Makes about as much sense as the rest of Trump’s platform.

        • Diogenes314

          I miss the edit function.

        • Menlo

          I want the executives and business owners who choose China sent on a slow boat there. Maybe they can then work in China’s slave labor camps. That includes the people responsible for initiating those decisions for companies that sell fluoride to cities.

          Regardless, there needs to be a federal ban on fluoridating water; and if the FDA and EPA were doing their jobs, they would have instituted one long ago.

          • Diogenes314

            I want the executives and business owners who choose China sent on a slow boat there. Maybe they can then work in China

          • Menlo

            They could go to prison for endangering the public and using slaves.

            You aren’t aware that Obama loves China? Besides, he has to look out for that half brother of his who is among the culprits who have chosen them.

          • Diogenes314

            You’ll definitely need to do away with that pesky Constitution.

          • Menlo
  • Tavern Keeper

    I’d be interested to hear ideas from others regarding policies that could lead to an unbundling of the Chinese currency?
    Thoughts?

  • Diogenes314

    On why to oppose the Trumpster. Who cares about the “birther” nonsense, the last thing we need is fuzzy headed neo-mercantilists proclaiming I’m into free trade except when I’m not.

    BTW, if you’re into free trade except when you prefer tariffs, then you’re just a protectionist without the courage of his convictions.

  • aesthete

    in that it fundamentally makes no sense to block our own harbors simply because those of other countries are rocky. It’s a gamble to start a trade war with one of our primary trade partners: it hurts the consumer in the US, the laborer in China, and could end in real war. At the very least, it would end in high tensions, and that seems like a bad move for a country exhausted by two wars and in the middle of a recession. There is no guarantee that China will move towards a free trade regimen if we embark on the course of a trade war — do you want to risk a war or high tensions in the Far East for the sake of China liberalizing its markets?

    The truth is that the Chinese are hurting themselves just as much (if not more than) they’re hurting us: their decision not to float the yuan is one reason that they haven’t been able to develop domestic demand, and will lead to some serious problems for the Chinese in the future. Either the problem gets resolved by the ChiComs… or the ChiComs will have it resolved for them in the most unpleasant way possible. This is true of many of the CCP’s “genius” policies: their lack of IP protection and general lack of property rights protections make it very difficult for China to develop industries that innovate, instead of ones that poorly mass-produce consumer goods. (And they’ve desperately tried to home-grow computer, space, aircraft, and naval industries for decades now, to little effect.)

    Personally, I think that anyone who proposes tariffs in the middle of a recession is a grand and glorious fool: the insular markets of the 30s really stifled recovery, and increased tensions with other nations.

  • Diogenes314

    I think I’ll pass.

    BTW, great article on the subject by Ross Kaminsky of the Spectator.

    It’s about Trump and his beliefs. His positions, few of which are actually known, are great pandering sound bites to the economic illiterates who represent the majority of the nation (and essentially the entire Democratic Party). But particularly when it comes to foreign trade Trump is not just wrong but dangerously wrong.

    Regarding China, Trump says he’d aim to slap a 25% import tariff on their products if China doesn’t “shape up.” I had to laugh when he said “I’m for free trade” right afterwards, repeating “I’m all for free trade, but it has to be fair trade.” The term “fair trade” is code for unfree trade, period.

    Trump argues that a trade deficit with a country means that American trade with that country is bad for America, that the amount of a trade deficit represents the amount of damage to America. He says that America has “lost” the amount of the trade deficit.

    This characterization is wrong and, to put it plainly, idiotic.

    I have a trade deficit with Walmart, Target, Safeway, and Toys ‘R’ Us. Does that mean I should not be permitted to trade with them? And, just as with money going to a foreign country, dollars I spend in those stores must, either now or later, come back into to the U.S. economy in the form of physical or financial investment.

    When a Wall Street Journal interviewer suggested (at about 12:20 into the interview) that Trump’s view is “protectionism,” he said that if the other country has a trade surplus with the U.S. then “I want to be protected.” Think about what that means: It means that if China has a $275 billion trade surplus with the U.S., Trump would try to tax our imports from China by enough to recover that money, raising the prices of everything we buy that is made in China. If tariffs are placed on Chinese goods (or any other goods), all or nearly all of that tax will simply go to raise the price on the tag in the store. The idea that the Chinese will pay the tax is ridiculous; they’re already operating on small margins in low-value-added manufactured goods with prices squeezed to rock bottom by Walmart and others. No, it just means all our prices will go up.

    Therefore, either we will buy the same quantity of stuff and spend more money, leaving less money for education, health care, home improvement, travel, or whatever, or we’ll spend the same quantity of money and have fewer of the things we want (or some combination of both).

    By the way, based on 2010 data, in order to recover the complete value of the trade “deficit” with China, and assuming that massive price increases would not cause people to buy less, the tariff required to eliminated the trade deficit would be 75%, not 25%. In reality, there is no tariff level that would eliminate our trade deficit with China: as the tariff goes up, the price tags go up, so people will stop buying and the tax collected will drop precipitously. Furthermore, if we imposed any substantial tariff, the Chinese would respond by blocking American imports, thus eliminating much, most, or all of the “gain” from the tariffs.

  • Tavern Keeper

    This is what kills me about conservatives today. I get called a “neo-merchantilist” (and not used in the correct context) for advocating a policy that would attempt to force a Communist government into a more level trading situation, and the reason to oppose this is that it would “hurt” too much.

    The same folks that are screaming for us to “stand up” to OPEC would gladly roll over and accept whatever terms the Chinese government sets for trade. I hear all the usual reasons – “It would hurt our economy” . . . “They own too much of our debt” . . . “Tariffs wouldn’t have a measureable net effect” . . .

    First of all, the point would not be to have immediate positive effect, it would be a principled stand against a trade bully that has the long term goal of forcing the government to unbundle their currency.

    And no, I do not believe this will happen naturally because it eventually “has to” due to the fact that the Chinese people are “suffering under it, too.” The Chinese government doesn’t give a you-know-what about their people. Their trade policy is benefiting the government and the collective, and the plight of the Chinese people is not exactly top priority. Remember these are the same folks that had no problem running down students with tanks.

    Secondly, the claim that it would “hurt too much” because they’re such a big partner, they own all our debt, etc – this sounds a little like “too big to fail” to me. I seriously doubt there’s not a whole cadre of nations that have the non-lead-based capacity to pick up the slack. And frankly, I don’t think it would spark a real trade war. Don’t buy into the media hype that this is the “Chinese Century.” This is a nation with a couple billion people that only has around 7% arable land. They have virtually no natural resources save cheap labor. Cheap labor is just that, cheap. There’s plenty of other nations out there that can supply cheap goods and services, but seriously, where would China makeup trading with us, especially in the current environment. Its just not going to happen.

    I am a free trader, but not free trade for the sake of free trade. What we have now with China is not free trade. The tariff is aimed at eventually achieving this end. No one is satisfied with the status quo, but it is up to us to change it. We cannot be afraid of the Chinese.

  • Diogenes314

    A) You can’t force China into anything but a price war that screws over American consumers.

    B) Stand up to OPEC? Nice strawman. I prefer opening up ANWR and making them irrelevant.

    C)

  • Tavern Keeper

    A) Its not all China or nothing. You can’t force China to do anything, correct, but you can implement policies that create an environment where the outcome you want is more likely. Like I said, there are plenty of nations that would pick up the slack, but the Chinese don’t have the luxury of having another trading partner anywhere close to this market.

    B) I agree, open ANWR and build nuclear plants. But my point was too many conservatives want us to “get tough” with other nations and groups but aren’t willing to do so with the Chinese.

    C) That’s not a point of refutation.

    D) I don’t want to get caught up in semantics. I believe in free trade to the point that goods and services should be exchanged with as little government interference as possible. That is not the current situation with China, on their side. Free trade must be a two-way street. I believe a tariff could help to bring this about. Its not free trade now.

    Let’s keep it civil.

  • Diogenes314

    A) Referring to the Kaminsky article below…

    Trump argues that a trade deficit with a country means that American trade with that country is bad for America, that the amount of a trade deficit represents the amount of damage to America. He says that America has

  • Tavern Keeper

    The point is not saying that we should have free trade until someone pisses us off. The point is that we don’t have free trade with China now, and never will until we have trade policies in place that make it advantageous for the Chinese government to move in their direction – primarily unbundling their currency.

    I agree in principle that raising tariffs in times of a recession generally not a good thing, but historically tariffs have been for protectionism reasons. This is not an act of protectionism, but a policy designed to guide the Chinese into more reasonable and level trading arrangements.

    Let me ask you this – what’s your opinion on increasing the debt ceiling? (that question is not meant for diversion).

  • Diogenes314

    Unless you are worried about protecting jobs that can be done by a third world serf with a grade school education. But that’s what unions are for.

    As far as the debt ceiling: yes, that is another distraction from what we should be focused on-creating jobs and growing the economy.

    But the vast majority of RS doesn’t seem to think that a priority.

    Since you asked.

  • Tavern Keeper

    for placing the tariff. It is not to “bring jobs back.” You are correct that most of the jobs that have been “outsourced” (although not all) were lower skilled assembly-type with which we do not need to be competing anyway. The purpose of the tariff is to encourage currency unbundling which will pave the way for a more true form of free trade.

    As an offshoot, I do believe that it would have an ultimate job-creation effect stateside, though. An unbundled yuan means generally a growth in wages among the Chinese, which means more demand for American goods and services, creating new capacity here. This will help to slow and begin to reverse the transfer of wealth from West to East.

    And something else that I wasn’t clear about – this can’t happen in a vacuum. Real free trade with China is only a piece of the job-creation equation. A bigger piece would be attracting capital back to this country, and the most effective way to accomplish that would be a combination of deregulation, abolishing the corporate income tax, and abolishing or drastically cutting capital gains taxes. Mix all this together, you will have what is essentially a new market for American goods in China, coupled with a dramatic infusion of capital here at home. That’s a formula for job creation.

  • aesthete

    Our government currently has something close to free trade with China, but the converse is not true. (That is a correct statement, as far as it goes.) We should, therefore, use tools to pressure China into liberalizing their markets — including and not necessarily limited to a tariff. According to you, the reason that we have not done this so far is because Republicans are afraid to get tough with China and other independent nations.

    Let me preface this by thanking you for not indulging the Chinese Century fanatics by imagining China as a global competitor in the near- to mid-range future. They are a third-world country propped up by some coastal cities whose wildest successes are completely due to the free market (Hong Kong), and whose moderate successes are the result of economic liberalization. Western China, and basically everywhere not called Macao, Hong Kong, Beijing, Shanghai, and a few other big cities is impoverished and pathetic. So thank you for acknowledging that they are a regional competitor, and not the new USSR.

    The problem with your conjecture is the problem that a lot of people make when divining solutions for foreign policy problems worldwide — you assume that the US is, essentially, an all-powerful nation with almost limitless pull on other nations. While the US is strong, it is not even close to being the leader of the world, free or otherwise. Palestine and Israel, two tiny regions compared to the US, have been at it like cats and dogs despite intense US interest in the region. It took months and months of dickering and negotiations to get Europe, Turkey, and other traditional US allies to let us use their airbases for Iraq. We’ve been kicked out of several countries where our military was not wanted (particularly in Latin America). Anti-Americanism, far from being a position taken up with much fear and trembling, is practically a fashion accessory for every would-be tin pot tyrant interested in ruling nations that rake in ~$3 GDP. Heck, we haven’t been able to get rid of Al-Qaeda or the Taliban in Afghanistan.

    As much as I’d like to blame them, this isn’t the function of gutless politicians. It is a problem that results from the fact that we can’t be everywhere at once, given that we have scarce resources. Taking that into consideration, it is not immediately apparent that the China would react favorably to a tariff. It is, after all, still a nation run by oligarchs who will be insulated from the damage that escalating a trade war would do to their country. If a tariff were not quick and effective, the trade war that would result would have several bad effects:

    1) It would hurt American consumers drastically by dramatically increasing the cost of their consumer goods in the short term. Factories, laborers, capital, etc don’t spring out of holes in the ground (nor do lawyers to see what businesses can do in their new home country!), and relocating all low-cost labor to, say, Botswana or Mexico would be very costly.

    2) After the market adjusted, it would hurt Americans marginally through higher labor costs and potential costs from different regulation schemes.

    3) It would serve to isolate China and make it independent. A trade war would almost certainly either a) cause China to seek a drastic increase in investment from Europe + Israel, or b) make them drastically poorer. I doubt that “a” would happen, but both outcomes are bad. In the case of “a”, China becomes marginally poorer but independent: European nations don’t have anywhere near the level of interest in the region that we do. In the case of “b”, I don’t know what happens. War against its neighbors? Revolution? An attempt at autarky? A return to Maoism? I don’t know — and in a country as large as China, that could bode very badly for the world.

    4) It would hurt our relations with China. Anything that we wanted in the region (and there are several things on our wishlist that China could hold hostage) would be imperiled by a dramatic drop in our relations.

    5) Our regional partners would be confused and off-balance. We’ve pushed them to integrate and liberalize their markets (even with China), and some of them have come to the table kicking and screaming. Revisiting the idea of tariffs gives them an excuse to revisit the terms of their trade with us.

    All in all, it’s a move with little guarantee of success, moderate payoff, and a high cost if you lose.