Comments on: Cialis On Line

By: Michael

Michael — Tue, 09 Dec 2008 10:33:30 +0000

Geoeconomist, throughout the 19th century the US pretty much had the highest tariffs of any major industrial nation. The basic theorizing behind tariffs was established in Alexander Hamilton’s Report on Manufactures, presented to Congress in 1791, in which I think he used the phrase “infant industry” for the first time ever. His system, which a few decades later became known as the “American” system, inspired German economist Freidrich List (in exile in the 1830s in the US) who later became the “father” of the Prussian economic system after 1870, which later inspired Japanese economic policy.

The basic infant industry argument claims that countries with low levels of manufacturing productivity can benefit from protectionism until they are competitive enough to compete with the more advanced countries, in which case trade protection becomes a hindrance, not a benefit. Whatever one believes about that claim, it suggests that there is a big difference between protection for an advanced country and protection for a developing country.

By: Twofish

Twofish — Tue, 09 Dec 2008 05:14:05 +0000

There may be some sort of implicit and almost accidental deal that is coming up, which is that the US government doesn’t complain about trade deficits and suggest tariffs, and in exchange its trading partners doesn’t complain about subsidies to domestic businesses. Someone in this board mentioned the “new Smoot-Hawley” which consists of domestic to local businesses and restrictions on capital investment on foreign businesses, and I think the “new Smoot-Hawley” will remove the need for the “old Smoot-Hawley.”

Something else to notice is that in the United States “nationalization” is far more a taboo than “protectionism” ever was but that hasn’t kept people from moving very quickly to do it.

By: Judy Yeo

Judy Yeo — Tue, 09 Dec 2008 03:44:08 +0000

Wonder if this is the epitaph to China’s yuan story in 97/98. After all, China stood up and refused to devalue then, claiming later that in doing so, it ameliorated the crisis. Now however, pressures are very different. Just think, devaluing might be advocated by export oriented factions in addition to those who think the sinking dollar is adding loss upon loss for Chinese investments, but question is could wit herald in a round robin decline in currencies all round, avoiding the word spiral but there it is. Here’s the dumb one awaiting wisdom from the wise!

By: Twofish

Twofish — Tue, 09 Dec 2008 00:02:11 +0000

Michael: Twofish, you are obviously not talking to the American and European journalists and government officials that I do. Everyone seems to think that trade is going to be a problem, and many are far more pessimistic than I am.

I don’t know about Europe, but I think they are quite wrong about the United States assuming that you don’t have a total economic collapse. I don’t think that those journalists and government officials appreciate the degree to which globalization has sunk some very deep roots into the American economy.

Basically, most people vote their job, and if they think that protectionism will save their job or get them a job, they’ll vote for it. If they think that protectionism will destroy their job, they’ll vote against it. My sense is that there has been a major shift in employment patterns so that most people in the United States see them losing under protectionism than gaining.

Politicians and journalist often tend be left behind these sorts of trends.

Michael: Protectionism is rarely an issue when the economy is booming. Q very cursory glance at economic history suggests that it is always a problem when the economy is slowing.

There wasn’t a huge amount of protectionist sentiment the last major recession in the United States 2001-2002. Given a recession that is deep and long enough then anything is possible, but it will take some time for things to develop.

The reason I wondered if you can list five politicians or journalists that are protectionist is that in order to develop quickly you need people that provide ideological and political leadership, and it’s very difficult for me to see who might provide that sort of leadership.

If you have lots of politicians and journalists that are worried that someone is going to fly the banner of protectionism, that doesn’t worry me. What would worry me is if you can point to a large number of politicians and journalists that are *happy* at the prospect that this crisis will provide the political push that they need to adopt protectionist policies.

If you do know Congressmen that are in that camp, I’d like to know who they are so that I can keep track of them.

By: Estragon

Estragon — Mon, 08 Dec 2008 22:25:25 +0000

Twofish

IMHO, you’re entirely correct in your assessment that there’s no political appetite for “protectionism” in the US. The problem is in the definition though. Politicians and regulators will profess their undying enthusiasm for free trade while taking many and varied actions which just happen to benefit domestic production. Helping Detroit make payroll with cash isn’t quite the same thing as adding a tariff on imports, but it isn’t all that far off. Maybe country of origin labeling makes sense on its own merits, but it does just happen to effectively discourage imports.

Even in good times, lots of these sorts of things get implemented. As pressure builds on US producers and layoffs mount, I expect a flood of lobbying for measures that, while not called protectionism, have the effect of supporting domestic production and/or making life more difficult and expensive for importers.

By: Geo Economist

Geo Economist — Mon, 08 Dec 2008 14:32:41 +0000

The Mckinley Tariff of 1890, The Smoot-Hawley Tariff (1930) and the 10% improt levy with non convertibility of US dollars to gold in 1971 were three occasions where we tried trade protectionism in a big way. Could you elaborate on the consequences?

By: tom

tom — Mon, 08 Dec 2008 13:27:27 +0000

I’m sorry but there’s something that doesn’t sum up. Basically we have three variables under consideration: inflation, unemployment and wages. If monetary environment is stable than there would be no inflation (I agree on that), but what about two others variables? If money supply is stable and citizens want to buy the same amount of goods (to not decrease their standard of livings) than wages will have to fall in order to suppress the rise of prices (which before trade tariffs were a function of low Chinese wages). If wages will not fall than the unemployment will rise, because existing money supply will be insufficient to buy the same amount of goods as before tariffs but with higher prices. Moreover even if wages will fall than the amount of goods (with old pre-tariffs prices) that US citizens will buy will also decrease because aggregate wages will be lower than before tariffs. And that’s the crucial point: Chinese are gifting US consumers with “free” goods, so with tariffs these gifts will go away. There’s nothing that the US consumers can gain on tariffs.
Now let’s assume that we will increase domestic production in order to decrease unemployment and hire more workers. First if these factories were able to produce as cheap as Chinese than tariffs would not be necessary. Secondly in order to invest we need savings: either domestic or from abroad. I don’t believe in domestic savings simply because expected rise of personal savings will be used to pay people’s debt and financial institutions will use this cash to decrease their leverage ratio and not to increase investment lending. And borrowings from abroad are (1) not sure (every country will use them for domestic purposes and deleveraging is everywhere) and (2) put US into risk that if these investments fail (will not be competitive with foreign factories in the long run) than the only result will be increased foreign debt of US (which will put another pressure on US currency).
But I agree that there’s overcapacity in China and overconsumption in US. But in order to rebalance these inequalities US workers would have to lower their standards of livings to be more competitive. Closing the borders will only hurt other consumers. So in my opinion there ‘s lose-lose situation for US (and Europe also). And during 1930s there was also high unemployment in US and tariffs only worsened situation.

By: Michael

Michael — Mon, 08 Dec 2008 10:38:40 +0000

Tom, no, it means that unemployment should decrease. The short-term purpose of trade protection (one can argue about its long-term effects) is to divert domestic demand from foreign goods to domestic goods. This requires an increase in domestic production, which requires more factories hiring more workers. Yes, a low RMB means Chinese workers subsidize US consumption, but they are willing to do so precisely because it boosts employment in China. Although I subscribe broadly to Bhagwati’s view, it is not always true. In fact I cannot think of any country in history that has gotten rich through productivity gains (I exclude very small city-states like HK and Singapore or commodity-rich countries) that did not rise during a period of significant trade protection. That doesn’t mean it is always a good idea. I think Adam Smith argues that free trade is always good for countries with high levels of productivity, but not necessarily for others, and I suspect that may be right. Faber is only right when there is little excess capacity. That is not our problem today. Look at the 1930s. – high protection and deflation.

Sharpe_Minde, thanks for the video. There is a lot of pressure on the Obama administration to resolve the problems in statesmanlike ways that set the stage for good growth in the future, but I sense a coming increase in frustration. I do not think Chinese officials see the problem in the same way that US and European officials do, and that is going to cause trouble.

Anon Monetarist, I am not sure of the gaming issues, but I do agree that China should see appreciation as a way of putting off other trade pressure and giving everyone time to find an optimal solution.

Twofish, you are obviously not talking to the American and European journalists and government officials that I do. Everyone seems to think that trade is going to be a problem, and many are far more pessimistic than I am. Protectionism is rarely an issue when the economy is booming. Q very cursory glance at economic history suggests that it is always a problem when the economy is slowing.

By: W

Mon, 08 Dec 2008 10:34:23 +0000

The Chinese government has already implicitly made the Rodrick argument by reiterating that its own stimulus package will be a domestic one. The stress put the domestic nature of this spending implies that where possible domestic sources will be preferred to foreign ones for capital goods, for example. In other words, this could well be import substitution for China a la fiscal stimulus. This might sting for companies like CAT, high speed rail manufactures and other heavy industrial firms in the OECD. However, in the end the effects will be strongest in the form of the looming capacity correction in supply chain economies in China’s periphery.

With respect to the Chinese currency, a slight devaluation relative to the USD is nothing compared to either the depreciation of the won or the appreciation of the yen in recent months. Beggar-thy-neighbor policies are simply impractical, but “encouraging” companies to buy domestic is certainly not.

By: François

François — Mon, 08 Dec 2008 09:33:45 +0000

@sharpe_mind

I can certainly not handle English in such a way to argue the way you do. But let me say that I agree on every single word you used on your latest post.