please give simple explanation of how free trade is beneficial to both parties. specifically i need simple, real world type examples ( not theory) to rebut a statement made by a protectionist neo-con. basically he said that american's simply can not compete with the cheap labor in Asia - especially now that technology has shrunk the world so dramatically and allows them to provide intellectual services as well as manual labor.. while he is happy for the asian who will do better - his major concern is for his family/friends/himself...
Be responsible, ease suffering; spay or neuter your pets.
We must get them to understand that government solutions are the problem!
We make it illegal for him to buy any goods from China. He is now better of.
If trade isn't beneficial, then perhaps your friend should grow all of his own food, make his own clothing, shoes, furniture etc... Grow his own trees and mine his own minerals. Smelt his own metals and produce his own chemicals. Weld together his own car, and solder together a circuit board (by hand) to make his own PC. Then again, that's just on a rather low level of trade.
Perhaps he would be better asking how Americans are supposed to purchase the product of cheap Asian labour without actually producing anything? I don't care how cheaply they make a car/dishwasher/telephone, they aren't going to give it to Americans for free. Therefore, Americans will have to produce something to be able to buy something. If Americans couldn't compete with cheap Asian imports AND they didn't have to PAY for the imports, this wouldn't be a disaster for Americans, it would be FREE STUFF!
I can't quite remember whether it has a good section on this very issue, but try reading a copy of Economics in One Lesson. If one individual can better his situation by making one trade (IE I make you shoes, and you fix my roof), then many individuals can benefit their situation by making many trades (i.e. A Chinese factory makes your shoes, while you work for a firm that designs a new computer)
Mike:asically he said that american's simply can not compete with the cheap labor in Asia
The answer is we shouldn't be competing with Asia to attempt to produce the same things, then force people to buy our products at double the cost. We would be wasting resources in that regard. We should allow them to out produce us in things that they are better at, freeing up our own resources to become available in other domestic productive sectors.
It's called comparative advantage. I can't give you any concrete examples, perhaps because the biggest thing the US trades back to China is our dept, yet thats not a fault of free-trade.
i should have been more clear - he see's the benefit of trade - and I understand comparative advantage. i think it should have been presented as a fear of outsourcing. do the same arguments hold for outsourcing?? how does it benefit both parties - eventually cheap products don't matter to people who "can't" find a job.
What if the USG and mexico's government become one, would tariffs still be justified between here and there?
Mike,
I think it should have been presented as a fear of outsourcing. do the same arguments hold for outsourcing?? how does it benefit both parties - eventually cheap products don't matter to people who "can't" find a job.
There is a limitless demand for wealth and a fundamental scarcity of labor. Outsourcing contributes to rising standards of living in several ways.
The point is that given the limitless demand for wealth and the scarcity of labor, there will always be demand for labor, and so there is no real worry about unemployment caused by outsourcing. The only reason there would be mass unemployment from outsourcing is if there is some type of government-imposed handicap on the ability of the division of labor to extend, or productivity to rise (such as regulations and taxes).
Mike:do the same arguments hold for outsourcing?? how does it benefit both parties
I guess I don't understand the question. How is outsourcing different from free-trade? I personally outsource my dry-cleaning to a lady next to my work.
Mike:how does it benefit both parties - eventually cheap products don't matter to people who "can't" find a job.
Perhaps here is the error. Why is it assumed that there will be no job? It sounds like this guy is complaining that economics generally drives toward some form of progression, and that when things change, he gets upset. Individual man may be removed from his comfort zone if he no longer produces something that society considers of value. OR if someone else produces the same thing, more effeciently.
If you want some great anti-protectionist writings, read Bastiat's Economic Sophisms:
http://www.econlib.org/library/Bastiat/basSoph.html
He reaches criticial awesome when he starts talking about a "Negative Railroad".
I don't know how simple this could be considered but it's one of the best expositions explaining the gains accrued from trade I've yet to see.
Freedom of markets is positively correlated with the degree of evolution in any society...
i should have been more clear - he see's the benefit of trade - and I understand comparative advantage. i think it should have been presented as a fear of outsourcing. do the same arguments hold for outsourcing??
There isn't two sides to it. If he is better off with the option to buy Chineese then other Americans are better off with that option too. If he saves money by buying Chineese then his money goes further and he can employ more people to do things for him than before. Consumer wants are endless. If his neighbours save money by buying Chinese, then they have more money to spend on whatever crap or services he is selling.
Marko said "then they have more money to spend on whatever crap or services he is selling."
does it get to a point when he has no crap or services to sell because they can all be done by someone overseas cheaper and maybe better??? this is the crux of the question which I can not see myself, nor defend to the original guy who questioned me
government-imposed handicap on the ability of the division of labor to extend, or productivity to rise (such as regulations and taxes).
So, even with downward pressure on prices relative to inflation in America, that doesn't matter a whole lot because A) minimum wage laws prevent businesses from hiring more labor for less and B) taxation on the major consumer base limits consumer spending.
I recently had a discussion revolving around this with a liberal friend, who concluded in my opinion erroneously that tarriffs would save us. My response was that the cost of physical mobility in this country results in an adversity to social mobility. Because people lack resources to travel and find employment in areas were pockets of economic growth are present, which case in point a large swath of the United States could stand to pick up and move (Poor white appalachian welfare-recipients, anyone?) He said, well they wouldn't have to move if outsourcing hadn't taken place to begin with. But the concept of free trade is the mobility of resources, people and things, at the lowest cost possible. So the United States, in many respects, is not as Free Trade as it could be. And maybe if it were moreso, unemployment figures wouldn't be as high.
@OP: Your friend may very well be right that he is better off with protection than without it. Maybe his family members and friends are, too. But we can't all be better off as a result of protection. The net effect of protection measures is to transfer wealth from those who buy imported or domestic goods (all Americans) to the export industries who are the beneficiaries of protectionist tariffs. If you work at Acme Engine Parts that supplies GM, you will make a better wage as a result of protectionist tariffs on imported cars. But everyone else has to pay the higher price for those imported cars (which permits GM to charge a higher price for its cars, too) so you can have your higher wage. That's how you're making a higher wage... it's just (subtle) redistribution. There's no operative aspect to tariffs that makes domestic producers more competitive... quite the opposite, in fact. As greater protections are put in place, local producers can become less and less competitive because they are literally competing with fewer other producers of the same good or service.
Hope that helps.
Clayton -
So what exactly are the Chinese going to buy with all of your American Dollars, if not G/S from America?
Dollars can be exchanged for other currencies or any dollar-denominated asset whether sold from the United States or not. Those dollars can, potentially "flow back" into the US but it's a mistake to think that would be a good thing! It would simply be an indication that demand for dollars is decreasing which would spell inflation and decreased purchasing power for US citizens.
Clayton:ecreasing which would spell inflation and decreased purchasing power for US citizens.
Schiff makes the assertion that the dollar purchasing power has actually been decreasing since the Nixon Administration. I wonder where the natural price of dollars would be without a central bank tinkering around with it, assuming regional banks as an industry still used USD.
Mike:please give simple explanation of how free trade is beneficial to both parties.
Free trade: I want your orange. You want my apple. We trade. TWO happy people.
Non-free "trade": I want your orange. You want my apple. I hit you with a brick, take your orange and walk away. I'm happy. You're unhappy.
Z.
Neo-con arguments: But China is taking our manufacturing away and soon we will be only a service sector economy. Then when we are dependent on China for our basic manufactured goods, they will control us. They could stop selling us goods and sell their goods to themselves. Remember they are a communist dictatorship, they could cut off trade with us at any time; we need manufacturing jobs here in the USA. This is getting worse because China is getting more and more engineers and educated people. When China has all the manufacturing and engineering jobs, America will be screwed and we’ll be sorry we didn’t implement barriers to trade earlier.
GooPC: Neo-con arguments: But China is taking our manufacturing away Huh? What are they doing, sneaking in at night and stealing the machinery? Our manufacturing is being taken away by unions, taxes on businesses, and gov't regulations. The Chinese are just there to watch it all happening. and soon we will be only a service sector economy. Then when we are dependent on China for our basic manufactured goods, they will control us. They could stop selling us goods and sell their goods to themselves. Remember they are a communist dictatorship, they could cut off trade with us at any time; we need manufacturing jobs here in the USA. This is getting worse because China is getting more and more engineers and educated people. When China has all the manufacturing and engineering jobs, America will be screwed All that is 100% correct. and we’ll be sorry we didn’t implement barriers to trade earlier. Nope. Wrong conclusion. Trade barriers impoverish. We'll be sorry we shot ourselves in the foot and closed down our manufacturing because of govt interference in the economy.
Neo-con arguments: But China is taking our manufacturing away
Huh? What are they doing, sneaking in at night and stealing the machinery?
Our manufacturing is being taken away by unions, taxes on businesses, and gov't regulations. The Chinese are just there to watch it all happening.
and soon we will be only a service sector economy. Then when we are dependent on China for our basic manufactured goods, they will control us. They could stop selling us goods and sell their goods to themselves. Remember they are a communist dictatorship, they could cut off trade with us at any time; we need manufacturing jobs here in the USA. This is getting worse because China is getting more and more engineers and educated people. When China has all the manufacturing and engineering jobs, America will be screwed
All that is 100% correct.
and we’ll be sorry we didn’t implement barriers to trade earlier.
Nope. Wrong conclusion. Trade barriers impoverish. We'll be sorry we shot ourselves in the foot and closed down our manufacturing because of govt interference in the economy.
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