Saturday, September 29, 2012

Where the rhetoric merges... (white board illustration)

So President Obama attacks Romney on Chinese investments, or, in other words, condemns his challenger for supporting U.S. exporters (for supplying Chinese companies with the [U.S.] currency they'd only accept if they desired U.S. goods, assets or services). Or, at a minimum, supporting the global flow of US dollars by investing in foreign securities. And while Romney's trustee unintentionally supports the U.S. economy while pursuing the trust beneficiaries' best interests, the trustor himself promises, should he take office, to double-down in the opposite direction. That is to collect from the American consumer (tariffing Chinese goods and thus forcing higher prices onto you and me) and the U.S. exporter (who recaptures those U.S. consumer dollars) and distribute to his corporate supporters.

If personal liberty is your hot button, there's, alas, no clear choice (on trade) between the two candidates. Their rhetoric entirely merges when it comes to protectionism.

Once again, here's my free-trade lesson. Forgive my hammering you on protectionism, but, in my daily discussions with clients, I find the consumer (his/her understanding) to be most abused on this issue.


  1. *Excellent* demonstration of free trade and protectionism.

    One other point to add is that although the workers in the protected tire industry go and spend their money and increase demand in the U.S., demand is lost from the tech workers who lost their jobs. That is an important part of the "unseen," and adds to the cost of protectionism. Right?

    Anyway, keep up the good work. I think this is very helpful to non-economists (like myself).

  2. Yes! Good point... Although the USW would try and convince you that the two offset - that a tech-worker job gained, in this manner, is a tire-worker job lost. Or - a tire-worker job preserved is a job-preserved - no need for the tech-job. Or - that there'd still be the tech-job creation - that it'll be tire-workers demanding the technology as opposed to Austrailians. They can go on and on (and they do), but, at the end of the day, you and I understand that we lose productivity (let alone liberty), big time, when the politician forces higher prices onto the consumer just to please his friends.

  3. Actually, there are two very quantifiable impacts the Protectionist must account for.

    First, the 35% tariff coming out of the private sector is spent on what?

    And second, since it's now proven that it is more cost-effective to lobby than to innovate, how much more is being spent on politics than in actual manufacturing? The results change the incentives.

  4. We don't want union protected tire producing jobs but high tech jobs that pay greater than union wages without a union!

    Then well educated people wonder why the can't find a job!

    Why not off load crappy hard tire-making jobs to people that could gain the most from them?

  5. [...] #socialbuttonnav li{list-style:none;overflow:hidden;margin:0 auto;background:none;overflow:hidden;width:62px; height:80px; line-height:10px; margin-right:1px; float:left; text-align:center;} [...]

  6. Good screencast. It clearly highlights the unseen cost of protectionism (impact on tech workers).

    But I have to say the last third (talking about multiplier of tech workers salaries vs. that of tire workers) is weaker part of the argument.

    I don't think you can use multiplier-type arguments, as all scenarios will look the same (since same amount of money). So main argument has to be moral: who deserves to get the business and spend the money?

    A second argument is, the danger of politics picking winners is that people switch from production to rent-seeking activities.

  7. You make some very good points but I believe there is one benefit to free trade that you forgot. Yes, the tire employees spend money on goods and services but so would have the technology employees. The savings of the U.S. consumers, however, are incremental. In other words, with the same amount of wealth, society can afford both tires and other goods and services with free trade whereas before, it could only afford the tires. Standards of living would have therefore risen.

  8. [...] From this morning’s NY Times on the 2009 tariff on Chinese Tires (the example I use in my white board illustration): “Gary Hufbauer, a trade expert with the Peterson Institute, said the action protected at [...]

  9. [...] patterns was indeed respectable. Why, by the way, haven’t I read his work? Because, for me (should be for you as well), the phenomenal benefits of international trade are the ultimate [...]