Scott Sumner  

What do "experts" say about trade?

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Imagine an article on the "carried interest" tax loophole, entitled as follows:

"Carried Interest tax treatment should not be changed, experts agree"
And suppose that all of the experts were hedge fund billionaires.

CNBC has a new article discussing "expert" opinion on Chinese steel exports. Here's the headline:

China has conducted a 'war' - not trade - with steel, experts say.

The article cites two experts:

China's low-cost metal producers have been widely cited as the main culprit for the glut. In particular, the world's second largest economy has been accused of "dumping" cheap steel on to global markets, due to a slowdown in domestic demand, in a bid to gain market share. However Beijing has denied any wrongdoing and has said that its costs are lower than other producers.

Lourenço Gonçalves, chairman, president and chief executive of mining and natural resources company Cliffs Natural Resources, told CNBC on Thursday that China had been acting unfairly. . . .

"Just based on the numbers, China is by far the largest problem," Gonçalves said, accusing China of not abiding by the rules of international trade. "You can't call yourself competitive if your competitiveness is based on cheating the international rules of trade. Trade without fairness is not trade, it's war."


And here's the other expert:

James Bouchard, founder, chairman and chief executive of steel services group Esmark, agreed that there was "no doubt about it" that China was dumping steel and said that the impact had been "devastating" for businesses.
We now live in a world where actual experts are ignored, and the press merely repeats the claims of special interest groups on one side of the issue. Trump would be proud.

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CATEGORIES: International Trade




COMMENTS (16 to date)
LD Bottorff writes:

I guess this sort of thing never happens with issues like minimum wage or immigration.

Brian P. Moore writes:

I also liked how 150 million tons of a valuable manufacturing resource is considered "devastating." In the crazy world where I come from, having more stuff that we can use to build nice things is considered "good."

Michael writes:

It isnt fair to increase sales to foreigners when you have an inventory buildup due in part to a domestic demand slump?

mico writes:

What does Trump have to do with this? I'm not American, so maybe I don't get a lot of the relevant information, but I don't remember him citing special interests.

Richard A. writes:
We now live in a world where actual experts are ignored, and the press merely repeats the claims of special interest groups on one side of the issue.

This is nothing new. Much of the reporting about Japan in the late 70s and 80s was awful. The American press came close to pushing this country into a dumb trade war with Japan. A good book from a couple of decades ago that goes into the hypocrisy of our trade policy back then is James Bovard's, "The Fair Trade Fraud".

Mark writes:

China giving us free stuff is bad because it hurts the businesses that sell that stuff for money?

While we're at it, why not outlaw charity, gift-giving, and taxpayer-funded public services for the exact same reason.

Those accursed soup kitchens, taking money right out of the pocket of hard-working American fast-food employees!

ThaomasH writes:

Same with macro media and monetary policy. :(

Scott Sumner writes:

Michael, Yes, if the foreigners want to buy the stuff voluntarily.

Mico, Trump is well known for being contemptuous of expert opinion, at least on economic and political matters.

Richard, I remember that.

Thaomas, Check out my moneyillusion post.

mico writes:

Scott, I seem to recall a whole lot of Trump statements along the lines of, "I'll call in the best guys to fix this.". My impression of this was pretty negative, because what he is really saying is that he reserves the right to adopt any policy he wants at a later date, but it is rather at odds with your description. Again, my recollection of the debate may be highly incomplete or totally wrong!

Obviously Trump has contempt for our political elite, but so do I, and I'm not sure I'd put most of them in the category of experts in anything.

Scott Sumner writes:

Mico, One reason Trump has had so many gaffes is that he does not rely on expert option. If he had, they would have told him his ideas were crazy. But he has chosen to go with his hunches.

I don't think Trump's IQ is lower than other candidates, but they don't say all these crazy things, like proposing that we default on part of the national debt, or that we will pay off the national debt in 8 years. So Trump goes with his own opinion, whereas other candidates rely on experts, and avoid most of the verbal gaffes that Trump falls into.

You are right that he has said that he will rely on experts, but I view that as empty rhetoric. Why wouldn't he already be doing so? I think he'll rely on people who agree with him, and in many areas those are obviously not experts.

Robert Schadler writes:

Would be interested in how "experts" -- especially free trade economists -- view "dumping" or, more precisely, the strategy of a supplier "fixing" a price not based on clearing costs plus a profit but driving competitors out of business. Might argue that, over the longer term, prices will then reach a "normal" level. Or that it's like a loss leader in a grocery store. Or it's downside of letting every supplier offer goods for any price he/she chooses for any reason.

myb6 writes:

I share Schadler's concern about dumping as an oligopolization strategy. I'm additionally concerned because I'm fully convinced of the path-dependence of know-how (increasing returns). Which brings me to Mark's analogy; Mark, how long can you be another's charity case before it becomes a harmful dependence?

Cliff writes:

I agree with the last two comments that theoretically this could be a problem if the people on the other side were genius masterminds taking an extremely long view and things worked out for them just right. But is there any reason to believe such tactics could be successful in real life? Has there ever been a case of such a thing? My understanding is that even real oligarchs and monopolies (of the anti-trust variety, not the government-enforced kind) and cartels were mostly totally unsuccessful at leveraging market power to fix prices and drive competitors out of the market.

Matt Waters writes:

In most normal industries, a dumping-like strategy wouldn't work in the long run. You have exceptions like how De Beers enforced a cartel until recently. De Beers had warehouses of diamonds and it would flood the market to punish a supplier who tried to go around the cartel.

Most industries have too many players for such a strategy to be successful. A mundane example is competition from Japanese cars. While Detroit complained of unfair competition, Japan turned out to actually be better at making cars. UAW wages were also above-market, through their government-enforced monopoly.

A bigger worry than dumping is the amount of state subsidy exporters in China get. Milton Friedman waved away the state subsidy concern by saying state industries are always less efficient. I've never been wholly convinced. That may have been true in the 80's. But China has so much resources that they could overwhelm any inefficiencies.

MikeP writes:

But China has so much resources that they could overwhelm any inefficiencies.

Presuming that's true, then that's only better for American consumers in the even longer run.

The question is not: Does dumping hurt other producers? The question is: Does dumping hurt consumers? Unless the other producers are driven out and cannot return even after the dumpers start charging more than other producers could, then dumping is not a cost to the consuming economy.

A bigger worry than dumping is the amount of state subsidy exporters in China get.

This, however, is true. The actual individuals being wronged by state-subsidized dumping are Chinese consumers and taxpayers. We should be against dumping because it is a violation of their rights. American consumers' benefiting from dumping of Chinese products is essentially an immoral gain from the forced servitude of the Chinese population.

Fat chance that the anti-dumping crowd starts making that argument though.

mico writes:

"Mico, One reason Trump has had so many gaffes is that he does not rely on expert option. If he had, they would have told him his ideas were crazy. But he has chosen to go with his hunches.

"I don't think Trump's IQ is lower than other candidates, but they don't say all these crazy things, like proposing that we default on part of the national debt, or that we will pay off the national debt in 8 years. So Trump goes with his own opinion, whereas other candidates rely on experts, and avoid most of the verbal gaffes that Trump falls into.

"You are right that he has said that he will rely on experts, but I view that as empty rhetoric. Why wouldn't he already be doing so? I think he'll rely on people who agree with him, and in many areas those are obviously not experts."

Mmm. And who is Hillary Clinton going to rely on for education policy? Bryan Caplan, or human capital proponents?

Is she going to rely on the human capital proponents because, on balance, she finds them more convincing and more expert, or because they tell her what she wants to hear?

The difference between Trump and the rest of the field is only that Trump has a personal brand of ignorance rather than media-approved brand.

For this reason I actually find Trump's claim to rely on experts somewhat more plausible than the rest of the field (who, I note, rarely explicitly make this claim, but whatever). Trump is probably more aware of his intellectual weakness.

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