Tag Archives: Trade

How Welfare States Make Us Less Civilized, by Per Bylund

Who would have thought that taking money from some people at the point of a gun and giving it to people who didn’t earn it might make all concerned less civilized? From Per Bylund at mises.org:

Throughout history, the state has justified itself on the grounds that it is necessary to protect us from others whose habits and beliefs — we are meant to believe — are dangerous. For millennia, this fiction was easy to maintain because most people interacted so little with people outside their nearly autarkic — and therefore impoverished — communities.

But, with the rise of industrialization and international trade in recent centuries, the state’s claim that it is necessary to keep us “safe” from outsiders has become increasingly undermined.

Much of this is thanks to the fact that in order to benefit from the market, one must engage in activities designed to serve others and anticipate their needs. As a result, trade increases our understanding for both members of our community and even the stranger; it also makes us realize that other people are much like us. Even if they speak strange languages or have odd customs and traditions.

The Market Order and Civilization

This is in essence Say’s Law, or the Law of Markets, which states that in the market we produce in order to trade with others so that we can thereby, indirectly, satisfy our own wants: our demand for goods in the market is constituted by our supply of goods to it. In order to effectively satisfy other people’s wants we need to not only communicate with them, but understand them. If we don’t, then we’re wasting our productive efforts for a random result. Obviously, we’d benefit personally from learning what other people want, both their present wants and anticipated future wants, and then produce it for them.

So far so good. Most people (except for Keynesians) grasp this very simple point about the market — and how it contributes to civilization and peaceful interaction. But all people aren’t saints, so good, hard-working people risk being taken advantage of as they have nothing to set against such actions. Without a central power such as the state, who will protect us from such people?

Answer: the web of voluntary transactions aligns people’s interests. In the market, “bad people” are not only defrauding, stealing from, or robbing a single person or family. They are, in effect, attacking the community of interdependent producers and network of traders.

To continue reading: How Welfare States Make Us Less Civilized

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‘National Security’: The Last Refuge of Vote-Buying Politicians, by Thomas Knapp

Can you think of one good that somebody, somewhere, couldn’t claim is important for our national security? From Thomas Knapp at antiwar.com:

More than half a century ago, Congress passed the Trade Expansion Act of 1962. Since mid-April, US president Donald Trump has twice invoked one of the law’s nearly forgotten provisions, ordering Commerce secretary Wilbur Ross to investigate the possibility that steel and aluminum imports “threaten to impair the national security.”

If Ross says they do and Trump agrees, the law empowers him to “take such action, and for such time, as he deems necessary to adjust the imports of such article and its derivatives so that such imports will not so threaten to impair the national security.”

Keep in mind that when a president orders “investigations” of this sort it’s not for the purpose of arriving at the truth of the matter, but rather for the purpose of getting the answers he wants to hear so that he can claim justification for doing the things he wants to do.

For that reason, I can confidently predict that in the near future we’ll see restrictions on the importation of aluminum and steel, in the name of, but not actually for the purpose of, enhancing “national security.” In fact, those restrictions will have exactly the opposite effect.

Trade is one of the best guarantors of peace. Economist Otto T. Mallery perhaps overstated it a bit in saying that when goods don’t cross borders, armies will. But it should at least be obvious that when goods DO cross borders, armies are less likely to cross those same borders. Merchants and customers who are happy with each other don’t look for fights with each other.

If “national security” is just an excuse, what is the real reason? Why does Trump want to ban – or at least drastically reduce – steel and aluminum imports?

If you have to ask why, the answer is usually “money.” In this case, it’s “money and votes.”

Trump’s narrow victory in last year’s presidential election came down to a few tens of thousands of votes from Rust Belt workers who believed he would “bring the jobs back.” He wants to keep his promise – or, at least, he wants to keep their votes for his party in 2018 and himself in 2020. He also wants the financial and political support of American companies benefiting from captive steel and aluminum markets.

To continue reading: ‘National Security’: The Last Refuge of Vote-Buying Politicians

Why free trade is officially dead, by Alasdair Macleod

Free trade allows people to trade with each other regardless of their nationalities. Alasdair Macleod explains, brilliantly, the pitfalls of restricting free trade. From Macleod at news.goldseek.com, with a hat tip to SLL reader ikdr for the article:

G20 Finance ministers meeting in Baden Baden last weekend agreed, on America’s insistence, to drop the long-standing commitment to free trade from the final communiqué.

It is hard to know to what extent America’s position is driven by her autarkic view on world trade, or to what extent it is an acknowledgement of the fruitlessness of paying lip-service to an ideal which is never delivered. Doubtless, it’s a bit of both.

It is certainly true that finance ministers in the advanced nations have always shown a protectionist attitude towards international trade, protectionism that has intensified through attacks on American international corporations, which to a large extent can choose where to pay their taxes. The thrust of research by international NGOs, particularly the Paris-based OECD, has been to decry tax competition; however, even though it has bullied tax-havens to supply tax-related information to revenue-hungry states, it has failed to stop multinationals, armed with teams of tax lawyers, from complying with their statist demands.

Therefore, the reasons for anti-globalisation in high-spending governments so far have been based on job protection and maximising taxes. But with President Trump, it’s different. He wants to tilt the odds firmly in favour of American business, and he appears to believe that the World Trade Organisation is little more than an obstructive repository for anti-business bureaucrats. This view is misinformed, because over the years WTO officials have successfully managed to get their members to reduce tariffs to historically low levels.

The threat to this progress is not new. America has in the past often ignored WTO rules, banning or imposing tariffs on imports on overtly protectionist grounds. As always, vested interests and protectionism prove difficult for politicians to resist. However, Trump is different in one respect: he appears to be an old-fashioned mercantilist, seeing America as one gigantic commercial enterprise needing direction. It should, he doubtless reasons, secure and use its monopolistic power. You don’t do that by working to non-American regulations. For this reason, America is becoming more autarkic.

To continue reading: Why free trade is officially dead

 

Renegotiating NAFTA Is A Good Idea – For Mexico, by Frances Cuppola

Notwithstanding President Trump’s rhetoric, NAFTA has not been that good a deal for Mexico. Frances Coppula asks some good questions. From Coppula at forbes.com:

President Trump is not happy with the North American Free Trade Association (NAFTA). During the Presidential campaign, he described it as the ‘worst trade agreement the U.S. ever signed’. He blames it for the loss of large numbers of manufacturing jobs across the border to Mexico, where wages are lower. According to the White House website’s new page on trade, ‘blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base.’

At the same time, President Trump complains about the flow of migrants across the border from Mexico to the US. They take American jobs and American money, apparently. So, he plans to build a wall to stem the flow, and make Mexico pay for it. Exactly how he plans to make Mexico pay for it is as yet unclear: suggestions range from a 20% tax on American imports from Mexico (which my colleague Tim Worstall was quick to point out would in practice be paid by American businesses and consumers), to a withholding tax on remittances from Mexicans working in the U.S.

I sympathise hugely with the Americans who feel that they are losing out. Well-paid manufacturing jobs have indeed declined in the last decade or two, partly replaced by poorer-paying service jobs. But something is not right here. If all the good jobs have gone across the border, how come so many Mexicans have come to the U.S. to work? We should not kid ourselves that this is an easy option. The Mexican border is already heavily policed, and just about the only open route is a long and dangerous desert crossing in which many migrants lose their lives. Why would so many people risk that crossing, if all they had to do was wait for the good jobs to come to them?

To continue reading: Renegotiating NAFTA Is A Good Idea – For Mexico

Germany Slams Trump Criticism: Urges US To “Build Better Cars”, Accuses Washington Of Causing Refugee Crisis, by Tyler Durden

Hard to argue that America makes better cars than Germany, and impossible not to acknowledge that America’s disastrous forays into the Middle East and Northern Africa aren’t at least partially responsible for the European refugee crisis. From Tyler Durden at zerohedge.com:

An angry Berlin has responded with a staunch defense of its policies after President-elect Donald Trump criticized German Chancellor Angela Merkel in two separate Sunday interviews, one with Germany’s Bild and one with the Sunday Times, for her stance during the refugee crisis while threatening a 35% tariff on BMW cars imported into the US.

Germany’s deputy chancellor and minister for the economy, Sigmar Gabriel, said on Monday morning that a tax on German imports would lead to a “bad awakening” among US carmakers since they were reliant on transatlantic supply chains. “I believe BMW’s biggest factory is already in the US, in Spartanburg [South Carolina],” Gabriel, leader of the centre-left Social Democratic party, told the Bild newspaper in a video interview.

“The US car industry would have a bad awakening if all the supply parts that aren’t being built in the US were to suddenly come with a 35% tariff. I believe it would make the US car industry weaker, worse and above all more expensive.” Playing Trump’s threat off Congress, Gabriel added that he “would wait and see what the Congress has to say about that, which is mostly full of people who want the opposite of Trump” as quoted by The Guardian.

In his interviews with Bild and the Times, the US president-elect had indicated that he would aim to realign the “out of balance” car trade between Germany and the US. “If you go down Fifth Avenue everyone has a Mercedes Benz in front of his house, isn’t that the case?” he said. “How many Chevrolets do you see in Germany? Not very many, maybe none at all … it’s a one-way street.”

So, when asked what Trump could do to make sure German customers bought more American cars, Gabriel had a simple suggestion: “Build better cars.”

To continue reading: Germany Slams Trump Criticism: Urges US To “Build Better Cars”, Accuses Washington Of Causing Refugee Crisis

How Trump Could Unwittingly Gut Boeing’s Global Business, by Wolf Richter

When a country throws up trade barriers, other nations retaliate. Wolf Richter is being too kind using the word “unwittingly.” Donald Trump is a smart man, he certainly knows about the risks of retaliation. From Richter at wolfstreet.com:

Other US companies are equally vulnerable.

Boeing’s airliner business is in a slump. Serial large-scale layoffs of engineers and production workers have been percolating through its operations since early 2016, with another big wave announced a week ago, as net orders have collapsed 53% from 2014, to a seven-year low. The last thing Boeing needs is help from President Elect Trump to speed up the process.

But that’s what might happen next if the trade and investment policies proffered by Trump become reality after his inauguration.

In an interview published on Monday in the German tabloid Bild, Trump threatened BMW, Daimler, and Volkswagen with a 35% tax on imported vehicles, which would make them very expensive for US consumers. The automakers and their dealers would respond by cutting their margins, but it might not be enough to stem a large sales decline.

The three companies already have assembly plants, research & development offices, and logistics operations in the US, including:

• BMW has a manufacturing plant in Spartanburg, South Carolina; with the $1 billion expansion announced in 2014, the plant would become BMW’s largest in the world.

• Daimler has bought into the US heavy truck business (Detroit Diesel, Freightliner, Thomas Built Buses, etc.) and has those manufacturing plants in the US. Plus it has a passenger vehicle assembly plant near Vance, Alabama.

• Volkswagen has a manufacturing plant in Chattanooga, Tennessee.

As global manufacturers, they all have plants scattered around the world. So Trump:

“If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35% tax,” he said, which Bild translated into German, which Reuters translated into English.

To continue reading: How Trump Could Unwittingly Gut Boeing’s Global Business

In Stunning Pair Of Interviews, Trump Slams NATO And EU, Threatens BMW With Tax; Prepared To “Cut Ties” With Merkel, by Tyler Durden

Trump upsets European apple carts. From Tyler Durden at zerohedge.com:

In two separate, and quite striking, interviews with Germany’s Bild (paywall) and London’s Sunday Times (paywall), Donald Trump did what he failed to do in his first US press conference, and covered an extensive amount of policy and strategy, much of which however will likely please neither the pundits, nor the markets.

Among the numerous topics covered in the Bild interview, he called NATO obsolete, predicted that other European Union members would join the U.K. in leaving the bloc and threatened BMW with import duties over a planned plant in Mexico, according to a Sunday interview granted to Germany’s Bild newspaper that will raise concerns in Berlin over trans-Atlantic relations. Furthermore, in his first “exclusive” interview in the UK granted to the Sunday Times, Trump said he will offer Britain a quick and “fair” trade deal with America within weeks of taking office to help make Brexit a “great thing”. Trump revealed that he was inviting Theresa May to visit him “right after” he gets into the White House and wants a trade agreement between the two countries secured “very quickly”.

Trump told the Times that other countries would follow Britain’s lead in leaving the European Union, claiming it had been deeply ­damaged by the migration crisis. “I think it’s very tough,” he said. “People, countries want their own identity and the UK wanted its own identity.”

To continue reading: In Stunning Pair Of Interviews, Trump Slams NATO And EU, Threatens BMW With Tax; Prepared To “Cut Ties” With Merkel