Category Archives: Trade

Elizabeth C. Economy – The Third Revolution: Xi Jinping and the New Chinese State

Elizabeth C. Economy – The Third Revolution: Xi Jinping and the New Chinese State

A very useful guide to China’s economy and political culture. It is especially credible because it lacks the exaggerated, hyper-emotional tone that many China analysts have taken in the Trump era. Economy’s general take is that China’s reach exceeds its grasp. After five years in office, President Xi Jinping has established that he is no liberalizer. He is re-centralizing economic and political power and undoing some, though not all, of the limited 1990s and 2000s-era reforms.

This is bad for China’s future. But it is no reason for other countries to be scared. Centrally run economies tend not to perform well, to put it mildly. Economy gives example after example of grand central plans for Chinese education, manufacturing, technology, and urban planning that sounded scary, but turned to be pretty crappy in practice. Such plans also consume billions of dollars of resources that could have been better used elsewhere, doubly foiling China’s geopolitical ambitions.

in short, as long as China remains illiberal, it will have limited growth prospects. It will fall further behind its more liberal neighbors and potential adversaries.

This is a shame because China’s 1.3 billion people have both human rights and enormous potential. Their government’s policies have left the country without a vibrant economic or political culture—there is a reason China has few homegrown international brands besides Alibaba and Lenovo. The Great Firewall around China’s internet and its political repression might make the current regime feel more secure, but they prevent the Chinese people from engaging with and profiting from the rest of the world.

The rest of the world needs to continue to put pressure on China’s government to reform its human rights abuses and act in economic good faith. The Trans-Pacific Partnership that Trump pulled out of is a natural venue. Eleven other countries are still party to it, and U.S. participation could only make it stronger. The WTO’s dispute resolution process, which Trump wants to pull out of is another option.

Some of Economy’s other policy recommendations, such as expanded use of the Export-Import Bank, are prone to the same problems as their Chinese analogues, and should be avoided. But overall, this is a smart and sober take in a political climate that badly needs it.

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Leland Yeager – Free Trade: America’s Opportunity

Leland Yeager – Free Trade: America’s Opportunity

Short, but packed with useful and principled arguments in favor of free trade, along with plenty of laugh-out-loud examples of actual tariffs. Much of what Yeager wrote in 1954 still applies to today’s trade battles. Yeager passed away in 2018, and the spontaneous outpouring of admiration from his former students and colleagues was truly impressive. Yeager was not as famous as Hayek or Friedman, but he certainly left his mark on the profession both in trade and monetary theory.

Martin Wolf – Why Globalization Works

Martin Wolf – Why Globalization Works

Of all the books in the early- and mid-2000s boomlet of popular-level books on trade and globalization, this is probably the one written at the highest level. Wolf is a longtime writer for the Financial Times, and before that was an academic and a think tanker. He offers some deep insights into the economics of trade, devastating critiques of anti-globalization activists, and a qualified defense of the current international trading system, which, as of this writing, is still governed by the WTO’s dispute resolution process and a number of bi- and multi-lateral trade agreements around the world. This system is imperfect and overly complicated, but it is a world better than what trade’s enemies had in mind back then and still do today.

Bas van der Vossen and Jason Brennan – In Defense of Openness: Why Global Freedom Is the Humane Solution to Global Poverty

Bas van der Vossen and Jason Brennan – In Defense of Openness: Why Global Freedom Is the Humane Solution to Global Poverty

Argued from a philosopher’s point of view, though both authors are economically literate. They argue that the most effective poverty-relief policies involve positive-sum interactions. A more open approach to trade, immigration, and entrepreneurship are the most important positive-sum policies, and they back them with strong moral and consequentialist arguments.

People have the right to make deals with each other, or to move somewhere else if they like. For a third party to get in the way and forcibly stop them requires a very strong reason. The burden of proof is on that third party.

Conservatives and nationalists offer few strong justifications for their force-happy trade and immigration policies. Progressives also come off poorly for preferring zero-sum redistribution policies even when positive-sum policies are readily available. Both authors argue instead for a more permissive, open, and liberal approach–liberal in its original, correct sense.

Delaying Further China Tariffs “Nice” but Fails to Undo Harm “Being Done Right Now”

This is a CEI press release. See the original at cei.org here.

In a notice put out this morning, the Trump Administration announced a delay in tariffs against China “until further notice.”

CEI fellow Ryan Young said:

“Trade talks with Beijing have resulted in the Trump administration delaying ‘until further notice’ its threat to raise the current 10 percent tariff on $200 billion of Chinese goods to 25 percent. This is good news, but it is important to remember the difference between abstaining from harm and actively doing good.

“The existing 10 percent tariff reduced GDP by more than $14 billion in 2018, causing direct harm to the U.S. economy. Because China has responded in kind to President Trump’s tariffs, soybean exports to China are down 99.7 percent from a year ago, and other industries such as automobiles are also having difficulties in China. The administration’s decision to hold off on doing further harm is nice, but it doesn’t change the harm already being done right now.”

Read more:

Jean-Baptiste Say – A Treatise on Political Economy

Jean-Baptiste Say – A Treatise on Political Economy

Say was an early 19th century French economist, most famous for what we now call Say’s Law. It is often cynically misunderstood as meaning “supply creates its own demand.” A more accurate statement is that “abundance makes more abundance possible.”

Think of it this way: if you produce more value, have more you can trade to others in exchange for other things you value. If everyone does this, the result is a virtuous circle of growing prosperity. Even if people just act in their own self interest, other benefit. The more people who do this, the more people benefit, and to a greater degree.

Say’s Law is a very deep concept to which this short review cannot do justice; suffice it to say that when it clicked in my head, it gave me a major “eureka!” moment I have only experienced a few times in my life.

Say also roundly refutes the labor theory of value that John Locke, Adam Smith, and later, Karl Marx all used. But Say stops short of the subjective theory of value that Walras, Jevons, and Menger independently developed in the 1870s, and that nearly all economists use today.

In that respect, Say is an important bridge figure in economic history. He also displays much common sense on trade barriers, rent-seeking, and political corruption, and dispels common romance about preserving obsolete industries and jobs. On those issues, he remains pertinent reading nearly two centuries after his death.

Say’s book is also long overdue for a new English language edition–a perfect project for the good people at Liberty Fund. The old-timey edition linked to above (courtesy of Liberty Fund, naturally) has distracting and uninformed editorializing in endless footnotes by the translator and editor. They are less than helpful and beyond irksome–and date from 1830.

Say’s name is not obscure, but his Treatise is surprisingly hard to find. The link above might save interested readers some time. In the meantime, let us hope a new edition will come out sometime soon. Say still has much to teach us.

Say No to Trump’s Proposed Auto Tariffs

President Trump is mulling a tariff on automobiles. Joining a long list of people urging him against it is the Japanese auto industry. That opposition is obviously self-interested, but has merit. Japanese automakers directly employ 92,000 U.S. workers. Counting in dealerships, parts suppliers, and others, they support over 1.5 million jobs, at least by their own estimate. An auto tariff would also antagonize the Japanese government, a needed ally for President Trump’s China reform efforts.

Trump would enact the tariffs on national security grounds. Japanese Automobile Manufacturers Association Chairman Akio Toyoda responds to that point in a statement:

Imported vehicles create new market demand, including demand for new vehicle technologies, thereby expanding and diversifying the choices available to our U.S. customers. As such, these vehicles clearly do not threaten United States national security.

In short, importing cars means importing new technologies, some of which could increase U.S. security.

The same arguments apply to European carmakers, especially in Germany. Many of the cars are assembled in the U.S. by American employees, and support related jobs. Trump will have a hard time pursuing his China policies without the EU’s cooperation, and auto tariffs hurt that cause. And European cars, especially high-end ones, contain new technologies with potential security benefits.

There is also an old saying among economists that during war, the first thing a country does is blockade its enemy from foreign trade. Protectionists seek to blockade their own countries, even during peacetime. That President Trump is proposing such blockades on national security grounds only adds to the irony. I previously dealt with other national security arguments for tariffs here.

It’s also not just Japan and Europe who oppose Trump’s proposed auto tariff:

  • Congress doesn’t want it since it would hurt their constituents.
  • Consumers don’t want it. Cars and car parts would become more expensive.
  • Domestic auto companies might benefit from being able to raise prices without being undercut by competitors. But higher prices would hurt sales, and many of their parts costs would increase. From their perspective, it’s at best a mixed bag, and existing tariffs have already led to billion-dollar losses and more than 14,000 layoffs at GM alone.
  • Even Trump’s campaign staff is probably wondering what he is thinking. An auto tariff would hurt auto workers in Trump-friendly states where many foreign car companies have production plants.
  • Investors don’t want it. A new study estimates the S&P 500 would be 11 percent higher today if not for Trump’s trade policies. An auto tariff would not reduce that number, though it would reduce Americans’ retirement savings.

If you don’t think of Hondas or Audis as national security threats, you’re not alone. Now would be an excellent time for Congress to vote on the Bicameral Congressional Trade Authority Act. This would reduce the President’s Section 232 authority, which is what enables him to unilaterally raise tariffs if he cites national security. Not only would this improve economic growth, it would make for a healthier balance of powers between legislature and executive.

For more on trade policy, see my Web Memo, “Common Myths and Facts about Trade: Clarifying the Trade Debate Is Crucial to Ensure the Prosperity of America and the World” and my 2018 study, with Iain Murray, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade.”