Hello everyone, and happy holidays.
I'm not sure if this is strictly an economics question per se, or more of a political type question. I think it falls into the latter, so here it is.
How do free market supporters view trade with China when China puts high tariffs on U.S. goods? Should our government take some sort of action due to this, such as placing the same tariffs on Chinese goods? And what role should government play in regards to the safety of items coming from China?
Much thanks for your opinions!
Regards,
David
Welcome to the forum!
Liberty Dave: How do free market supporters view trade with China when China puts high tariffs on U.S. goods? Should our government take some sort of action due to this, such as placing the same tariffs on Chinese goods? And what role should government play in regards to the safety of items coming from China?
Any right-thinking Austrian would disapprove of China's tariffs. The same goes for all tariffs inasmuch as they restrict trade and, as a result, lower net wealth. Placing tariffs of our own on Chinese goods would only serve to exacerbate the problem, as a further reduction in trade does not "make up" for the wealth lost at the hands of the initial tariffs. Think of free trade as economic pacifism: they may hurt you, but you choose not to hurt them back because in the end you'd be hurting yourself as well.
With regards to the role of government and the safety of imports, you'll likely get three responses. The anarchists (including myself) will claim "no role whatsoever." The more extreme minarchists will echo the sentiment of the anarchists, having limited the role of government to military, police and courts only. You might find a few moderate-ish minarchists who'd support a small import-monitoring agency, but I doubt there'd be all that many on this forum.
"Melody is a form of remembrance. It must have a quality of inevitability in our ears." - Gian Carlo Menotti
When China slaps tariffs on imports, American goods are more expensive for Chinese consumers. The Chinese government hurts their own citizens when it does this. This situation does hurt U.S. exporters too, but why should we respond by hurting American consumers by making Chines goods more expensive? A trade war with China could only bring economic pain to both countries. The U.S. should not respond to tariffs with tariffs. This can easily spiral out of control.
The U.S. government has been ineffective in protecting citizens from defective Chinese products. The Chinese brushed off government complaints on this issue. They did respond, however, once foreign companies started to cancel shipments and cease production on those products. In other words, the market provided the incentive for the Chinese government and companies to address this issue.
Thanks to both of you for your responses.
You have clarified this very well and added some well needed knowledge to my arsenal.
I especially like the point econ student made in regards to the free market being responsible for Chinese companies to address the issue of safety with their products. It's too bad many people will not see that aspect, and instead will rely on more government regulations, which the politicians relish.
I would really enjoy seeing this particular subject greatly expanded upon. While I am no fan of tariffs, I think that this particular question is the source of a great deal of nationalistic drum-beating lately. On the subject of Free Trade, the libertarian writings, to which I've been exposed, tend to embrace an international model whereby all sides play by the essentially the same rules; or at least, they are supposed to play by those rules. In the situation with China, we have vast quantities of cheap products coming here from an increasingly industrial economy that can still employ the benefits of a vast supply of cheap human labor. At the same time, the few remaining U.S. manufacturers are faced with import tariffs if they attempt to enter the Chinese market.
Over the past several years, we've seen industrial operations, of many sorts, leave the U.S. shores in order to find cheaper sources of labor in foreign countries; China among them, but China is certainly not alone in offering cheaper labor markets, even forced labor markets. The political environment in the U.S. tends to use these facts as ingredients to produce a myriad of arguments in support of restrictive laws that would engage in one or more of the following:
1. Higher import tariffs on goods imported from foreign economies that produce the goods at a cost below our own domestic costs.
2. Laws and/or regulations governing the ability to restrict the flight of U.S. manufacturers.
3. Removing private medical insurance costs from U.S. manufacturers and placing those costs into the realm of the Federal budget. In other words, it seems that they want to use this situation in order to somehow justify nationalizing health care in order to, in theory, remove some costs that are built-in to U.S. manufactures. I'm not referring only to defective or potentially dangerous manufactures from China or another foreign manufacturing base.
I'd like to read a discussion as to what the rest of you think about the situation, regarding a decline in U.S. industrial power. For instance, how would you correct these differences or would you act to correct them? Are there imbalances that you would like to see removed and, if so, how would you go about removing them? How would your solution differ from the Hamiltonian model employed during the early stages of our economic development?
Tnx
I am working my way through Robert Higgs books - a section in one he edited (that I have not gotten to yet) may be of interest to those posing questions in this thread:
OPPOSING THE CRUSADER STATE: Alternatives to Global InterventionismPart IV: Free Trade as a Peace Strategy
None are more hopelessly enslaved than those who falsely believe they are free. - Goethe
Thanks for the post ozzy43, I'd like to find more reading material on this specific subject. The reason I created this thread is I couldn't find what I was looking for by searching the Mises.com website or other sites.
Another reason I created this thread is due to this article on Townhall.com that piqued my interest, and revealed that I didn't have a good response or answer to this issue:
http://www.townhall.com/Columnists/PhyllisSchlafly/2007/12/17/republicans_should_answer_questions_about_china,_too
Great comments cstarsoft, you bring up good points. I don't think the Libertarian solution to this is well recieved by many others. Many people get angry with situations like this and cry for more government involvement because of how "unfair" it is. What do you do when you want to trade with a country that isn't "playing fair" (and of course is "destroying jobs" here in the U.S.)?
Of course I don't feel as though punishing consumers with higher tariff's is the solution, and I also feel we need to adapt and learn to compete with those countries. However, there's a lot of details that would have to be explained, and things that would have to be changed in our country I think for that to work (minimum wage laws, our high taxes, inflation, etc).
I've already obtained some good points from the posts thus far, I'm sure more are to come.
Cheers,
Liberty Dave:Many people get angry with situations like this and cry for more government involvement because of how "unfair" it is. What do you do when you want to trade with a country that isn't "playing fair" (and of course is "destroying jobs" here in the U.S.)?
From what I've found people are completely irrational when it comes to China.
You point out that tariffs will harm the US consumer by raising prices on goods and they counter that it will produce (low wage) manufacturing jobs that will let the people afford the higher priced goods. You point out that these jobs are very inefficient uses of the skilled labor force in the US and they counter that it doesn't matter because the minimum wage laws and unions will ensure that they (theoretically) make enough to be firmly established in the middle class. Oh, and don't forget that profit is theft.
So they call for protections and tariffs even after pointing out the effects of the Smoot-Hawley tariff that pretty much shut down the global economy during the Great Depression or at least prevented its timely recovery, depending on your point of view.
These are the people that the politicians target with all their fancy speeches, they notice that their income isn't going as far as it used to and the ruling elite needs a scapegoat. Well, hell, blame the commies, that's always worked in the past...
</rant>
David: Thank you very much for responding. I have read arguments regarding tariffs and tariff-wars from a number of Libertarian economists and I certainly do agree with the theory set forth; which is to say that imposition of such an import tariff only serves to hurt consumers in the importing economy or country. The austrian school theory is both easy to understand and, for my money, entirely logical. You made mention of the fact that the austrian position on this question is not generally well received by others. It has seemed to me that the solution to the situation (U.S. manufacturers being "hurt" by foreign imports not subjected to any such competitive tariff protection) must embrace those issues that you have mentioned; issues that are involved in making the cost of U.S. goods higher. Costs attributed to minimum wage laws, all manner of different (high) taxes, the cost of inflationary monetary policy, as well as other costs that are attendant with the costs of having and maintaining a work force, are examples of home-grown costs that have to be recaptured as an incremental portion of the final price that must be obtained in order to make such manufactures economically worthwhile, without regard to whether or not they are made for export to foreign shores.
I think that my question or difficulty arises from primarily political considerations having to do with the changes that have taken place in the U.S. economy during the past several years and the perceptions, fears and frustrations that I encounter when I speak with friends and business associates. Here is one example:
I have a friend who makes T-Shirts for different companies, primarily for trade shows, sales events, marketing purposes and the like. Up until about 10 years ago, he had 10 employees working for him. None of the employees were paid very much more than minimum wage. His little company was enrolled in a health insurance program which, while not overly generous, did cover major medical and most traditional medical conditions. He picked up the lion's share of the insurance costs as part of his employee's compensation. He finally was forced, by the economics of his situation, to get rid of most of his employees, except for his wife. Now it's just the two of them and their function is primarily sales. The actual manufacture of his custom T-Shirts is done by an operation in China and at a cost far less than what he had been paying. In order to stay competitive and still make a profit, according to his own explanation, he had no other choice. His customers continue to receive a product of equal, or at least comparable, quality and he's able to sell his product at a price that remains competitive. When listening to him, it was obvious that he believed that he had lost some measure of control over his business because, clearly, he felt badly that he had to layoff so many employees who had worked for him for such a long time and had helped him become successful. I've known him for about 25 years and he is, by no means, some stereotypical "greedy corporate monster" of the type which the mass media find so irresistable for their news stories. While we can't allow emotions to enter into a sound business or economic decision, his example has been repeated many many times, in different businesses, throughout the U.S.
Do you think it is the case that, in a very general sense, the people of the U.S. are going to be forced to learn, and eventually accept, that their labors are going to have to be re-evaluated and re-priced, based upon the labor costs of foreign economies, if U.S. manufacturing is to remain (or become) competitive enough to keep domestic manufacturing labor employed? That strikes me a a very tough "sell" in the political world. In the rather murky and emotional world of politics, it seems to me that such an inevitable body of change has been used as a strong club with which the austrian school tariff attitude has taken an undeserved beating and it has served as an effective whipping boy for politicians who are inclined to avoid the truth and to shift the blame onto a foreign country or elsewhere.
BTW, thanks also to Anonymous Coward for the post, especially the point regarding Smoot-Hawley. That is an excellent point that is not discussed nearly enough in public debates and I would venture a guess that no more than a relative handful of people are even aware of the terrible effects of Smoot-Hawley. Best regards.
cstarsoft:Do you think it is the case that, in a very general sense, the people of the U.S. are going to be forced to learn, and eventually accept, that their labors are going to have to be re-evaluated and re-priced, based upon the labor costs of foreign economies, if U.S. manufacturing is to remain (or become) competitive enough to keep domestic manufacturing labor employed?
If you look at it from the immediate view that 10 jobs are lost in the US economy because of your friend's exporting his production to China then things are bad.
But if you look at it as 10 laborers are now freed to become employed in more productive activities than silk screening T-shirts then maybe it isn't so bad after all.
If someone loses their crappy job and is forced through circumstances to get a better job then everyone gains through this more productive application of capital. Like I was saying in my earlier post, inefficient application of labor just for the sake of someone having a job is pretty counterproductive to the overall economy.
A lot of the current outsourcing is basically giving away the store while trying to retain control from afar and when the foreign manufactures realize they really don't need the US companies to sell *their* products on the US (or world) market then a lot of MBAs are going to be in for a big shock. There was a daily article about this a while back but I can't remember the technical term for 'giving away the store' so can't find it.
A great story of your friend the T-Shirt maker. One to keep as an example for future discussions on topics like this and similar ones.
I'd also like to comment on the post following yours by Anonymous Coward. A particular piece of his post stuck out to me:
"...inefficient application of labor just for the sake of someone having a job is pretty counterproductive to the overall economy." That's a great quote, I'm keeping it if you don't mind (but I won't take credit for it of course )
Dave and Anonymous Coward: The quote, regarding inefficient application of labor, is indeed the crux of the problem underlying the example that I submitted. My kudos to Anonymous Coward as well. The use of "Coward" in your handle seems inappropriate. Given the general attitudes of our body-politic in the U.S., I can only imagine the reaction of a large group of voters to such a statement by an candidate. There is an old proverb (of middle east origin as I recall) which says that "A man who tells the truth is chased from seven villages".