Arnold Kling  

Trade Policy

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Drug Price Controls... AARP rent-seeking...

Who is setting trade policy in the Bush Administration? Certainly not Bruce Bartlett, who writes,


one of the new trade restrictions applies to brassieres. Yet there is no domestic manufacturer of this product...
The Bush administration has shown incredibly poor judgment in trade policy ever since taking office. Its steel tariffs backfired by costing more jobs in steel-using industries than were saved among producers, and its budget-busting agricultural subsidies doomed a multilateral trade agreement. From the point of view of trade, it is the worst administration since Herbert Hoover helped bring on the Great Depression by signing the Smoot-Hawley tariff in 1930.

Paul J. Gessig writes,

trade ­ whether it is reciprocal or not ­ is a boon to American taxpayers and consumers alike. Although trade negotiators often frame these agreements as one nation granting access to another nation’s imports in exchange for the “privilege” of exporting to that nation, this is not really the case at all.

Economic data clearly shows that taxpayers and consumers in the United States benefit from reduced tariffs or subsidies ­ whether other countries follow suit or not

For Discussion. What are the pros and cons of "unilateral disarmament" in trade wars--reducing our own tariffs, quotas, and subsidies without corresponding reductions by other countries?


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CATEGORIES: International Trade



COMMENTS (9 to date)
Kimon writes:

Pros: in most cases, unilateral disarmament is welfare-optimizing for us over the status quo. It's the "right thing to do", and it's a good instance of leading by example, if we really want to be a shining beacon for other countries. In trade with small, poor countries, this is a very effective way of giving them access to a big market and prod them towards export-oriented growth, which has a proven track record.

Cons: in some cases, we'll move away from a state close to an optimal tariff, which would not be welfare-optimizing for us. Other countries can exploit our goodwill, and be asymetrically better off than through MFN/bilateral agreements. In sectors with increasing returns, free trade may not be the optimal approach.

Steve writes:

-->Economic data clearly shows that taxpayers and consumers in the United States benefit from reduced tariffs or subsidies ­ whether other
countries follow suit or not

Lawrance George Lux writes:

Nations are raising Trade barriers against the United States, this is fact. Another fact is that the United States provides a vast open selling market for other Nations. The benefits of Trade can be very illusionary in the first place. Economists would be hard strained, to positively show how Free Trade actually brought a higher Standard of Living for the populations of Open Trade nations. Differences in Culture, Business Organization, Taxation,and Retailing often negate touted benefits of Trade.

Traditional tariffs, though, have been remarked horrors. A universal tariff tax of low percentage would promote domestic production, pay for Transportation and Government Costs in the United States, and raise domestic employment. It would shift current trade pattern from Finished Products to Raw Materials. Business fails to perceive the increased profits to be derived, by raising domestic production. Such concentration will lead to lower-percentage, but higher actual numbers, as there is greater Consumer participation in the Economy--as both Consumer and Producer. lgl

Steve writes:

Larry--

As soon as you started talking about anything that benefits the American worker, I could hear the collective clicking as Economists all hit the "back" button on their browsers.

THEY SIMPLY DON'T CARE! All they care about is being able to buy $1 t-shirts at Wal-Mart, not how the populus will make a living for the next 10 years.

Dave Sheridan writes:

Pros:
- Lower prices for consumers.
- Lower costs for domestic producers relying on imported intermediate goods or raw materials.
- Better long-term allocation of resources.
Cons:
- Can't get us to the best allocation of our resources because of the trade distortions introduced by other countries.
- Short-term dislocation of workers in formerly protected industries. Some of this dislocation will unfortunately be due to unfairly subsidized foreign production, which will now enter the country barrier-free.
- Loss of leverage in future trade negotiations. We have nothing positive to offer, no "carrot." We only have the threatened "stick" of imposing barriers.
- There may be some critical industries in the defense area that need protection for noneconomic reasons.

The Bush administration makes noises about helping, for example, manufacturing. Let's say for the sake of argument that this is a reasonable policy goal (I'm not convinced). The steel tariffs as an example of 'helping' a sector are probably costing us more jobs than it preserves. Why? We are a high-cost manufacturer, and anything that raises costs for manufacturers hurts them a lot at the margin. Steel is an intermediate good, and the tariff raises costs for all manufacturers using American steel, most of which are American.

I have to disagree with Lawrence on the optimal tariff being a uniform, albeit low one. These still preserve tremendous inefficiencies in some sectors and unneccessarily raise costs in others. Tariffs are a bad way to raise revenues.

Jim Glass writes:

What are the pros and cons of "unilateral disarmament"...
~~~~

Whoa right there, why use *that* description? "Unilateral disarmament" makes free trade sound like a weak policy for idealistic losers.

Try calling it "predatory free trade" -- to get the idea across that we'd be winning by taking advantage of those who stupidly pile rocks in their harbors. Which we would be.

"Predatory free trade" could be sold to tough, nationalist, America-firsters. And what predator would sink to protect the weeny brassier industry? Leave that to the left-loony anti-globalizers to make themselves even less credible.

"America First! Predatory Free Trade!
Lower Prices from Victoria's Secret!"

... or...

"Fight Foreign Brassiers!"

Which would you choose?

Ronnie Horesh writes:

Unilateral free trade would make a country better off - in aggregate. Economic theory shows that *everybody* could be better off if the losers are compensated from the country's gains. But are the losers - those made unemployed by cheaper imports - ever compensated? I believe the US has such a scheme, specifically to help those who lose jobs because of trade liberalisation, but I don't know how effective it is.

Steve writes:

Ron--

$250/week to compensate for losing $60K+/year job.

Yea, globalization!

Randall Parker writes:

Arnold, I think the amount of time people spend worrying about tariffs is far greater than the problem merits. We have far bigger economic problems that occasion less discussion such as our huge trade deficit, government deficit, aging population, low skilled immigrants, and entitlements programs.

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