Monday, July 7, 2014
Countries with Open Markets for Free Trade Do Better Than Countries with Markets Closed to Free Trade
Countries with Open Markets for Free Trade Do Better Than Countries with Markets Closed to Free Trade Lex Loeb Contributor Network . Politicians and Journalists tend to take the view that just because other countries in the world treat our companies poorly denying them access to their markets, raising tariffs on their products or imposing special anti-competitive taxes as so many other countries do that we in the USA would somehow be better off if we countered that with our own nationalist protection of industries, markets and access to markets. That argument is not only wrong it is dangerous to the welfare of our own economic circumstances. The first thing to realize is that tariffs imposed on foreign imported goods of any kind is that those are taxes ultimately paid for by consumers in our own economy and not by the foreigners or importers. Every Tariff imposed is passed on to the consumer. If the government imposes a tariff on Mercedes Benz cars and parts manufactured outside of the US then what happens is either we stop importing the cars or more likely the buyers of the cars will pay the tariff directly or indirectly and continue buying the products. The manufacturers and importers will merely pass on the added costs to the ultimate retail buyers down the line. When government sets a tariff to levy on imports they do so realizing they will net a profit from selling nothing and just by merely tagging it or stamping as having had the tax paid for legitimate redistribution in the USA. Everyone knows that there is no government tax that is beneficial to the economy by making goods and services cost more unless the government has a better way to spend the money than individuals do that helps produce or retain wealth in the country. Government has a really poor record of doing that so that adding to the cost of anything with additional taxes merely just slows the economy down siphoning off the funds for patronage of waste to suit whom ever holds the offices that controls the funds at time. Tariffs finance more government and not less the same way ordinary taxes do. The attempt to compete with lower cost foreign labor where demographic benefit those foreign economies with too much surplus labor has the effect of reducing the wealth of a country. This happens because there is no competitive advantage for a scarce labor economy to try to compete with an economy that has a surplus so large that the rate of payment for working hour is a tiny fraction off what a laborer can expect to be paid here. For government to get involved attempting to equalize work they may also be working to reduce wages. Say it costs 3 to 4 times as much to have American workers assemble big flat screen televisions then it would be possible for the USA to assemble all of the big screen televisions the local markets wanted but they could not be sold overseas and compete with the foreign cheap labor assembled ones. The result would be almost immediately that fewer big screen televisions would be selling in the USA because they would cost a good deal more, Profit margins for distributors and retailers would be somewhat lower and . Selling less, manufacturing fewer would not be good for long term labor requirements in the industry. Labor would then also be wasted producing something where it would be unlikely any could be exported because of higher unit costs. Labor spent already being much more limited in the USA would then be diverted to creating something that fewer people would want to buy within the country because it cost a lot more and almost no one would want to buy outside of the country as an export so the industry would automatically not be the most efficient generator of new jobs nor producer of wealth to society. It would mean that the US might be sacrificing part of it's competitive advantage at the expense of something that has no export competitive advantage and few additional domestic advantages other than pride in national handiwork. That would be a Utopian plan on the verge of disaster. Imagine otherwise that all the foreign manufactured/ assembled flat screen televisions could be imported from China and cost as much as one quarter what they would cost made by government controlled factories here. Well that would mean more average Americans would be able to afford not just one of these big flat screen televisions but several or maybe even more like one in every room, an American television tradition. What is the sense in having big flat screen televisions you can barely afford that keeps you spending more time working to pay for them than having them and also having the free leisure time to sit at home and watch them.--Watch television! It makes far more sense for the USA to have the Chinese, Mexicans , Koreans take the competitive advantage away from us because they have more supply of low cost labor than we do. It seems like we could lose 90% of all jobs available in the USA as this sort of thing goes on but unfortunately for super low cost Chinese labor they don't necessarily find they have the competitive advantage against us in every part of their economy. The United States clearly has pronounced competitive advantages in may industries that cannot be matched in China without a lot more deeper capital resources after years of expenditures to catch up as competitors. The same thing happens with competitive advantage in industries in the USA without any foreign involvement. In America it was discovered early that we could divert water from distant mountains using aqueducts and canals making water much cheaper than having to drill for it or pump it locally. If a city could find a near limitless supply at almost no cost why would they not invest in that kind of system instead of paying to drill for water and pump it out from below the city at a significantly higher cost? If you found you had trees you could cut down and harvest almost for free living on the frontier why would you bother to plant new trees and wait for them to mature over the next 50 to 100 years before cutting them down? Economic success depends on finding out where you have the competitive advantage and doing just that using it for your competitive advantage and not against your own interests. It does not mater where the big flat television screens are manufactured or assembled in the same way it would be foolish to only cut down trees you spent the last 100 years growing and not taking the ones from the wild that are already at least 100 years old and re-panting new trees to take their places after cutting them down. Foreign countries that impose trade barriers to US products because US manufacturers have the competitive advantage are doing no less than harming their own people and their economic vitality. Yes they are also harming US firms but no more than they harm their own people. The more that an economy can generate for free or next for free the more wealth it has to take advantage of. There is no sense at all in making what costs less from overseas cost more to protect jobs that might not have existed 50 or 100 or just 5 years ago. If a job did not exist in the past why should it always exist in the future? About 98 percent of the agricultural jobs that existed in the USA 140 years ago no longer exist because 98 percent of the working population moved out of agricultural areas into modern urban centers with jobs that evolved with the development of those cities. If we listen to the politicians and journalists telling us to save jobs why haven't we preserved all those farm jobs in the recent past? What about all the jobs that no longer exist having to do with making typewriters? It is hard to find new typewriters in stores . It used to be that more people in the USA had jobs with sewing machines than had jobs with computers in front of them. Why are we not preserving those jobs with sewing machines? There are lots of Chinese people making underwear , socks and virtually everything else we wear using sewing machines but we can't find very many people in 100 who even know how to use a sewing machine. Should we be teaching children in our schools to sew then to compete with the Chinese? Great idea? It is not really a great idea. It would prove to be an experiment in economic disaster and far more costly in wasting capital on a romantic dream rather than on anything with competitive market value. Free market competitive advantage includes our energy resources too. It makes no sense pay more for energy than necessary. Getting all the energy we can for free would do more to power the economy than anything else would . Imagine if a hospital could use all the electricity and keep itself heated and cooled for free wouldn't that be a start in making it cheaper to stay longer in the hospital? Wouldn't that mean that the hospital would not have to attempt to charge patients more when energy cost them a lot less? Free electricity would make Aluminum a lot cheaper to manufacture and after that it would allow machines to the aluminum more efficiently to make products cheaper as a result. Free energy coming from new facilities could harm your expensive electric company that is used to charging you monthly for the electricity you use. Would you rather the government protect you against free energy to protect the obsolete utilities? That would be the same stupid move of going along with trade barriers on foreigners. The foreigners can stay the one's suffering when their government already decided their rights to import and export. In the long run it seems that countries that are less open to foreign market participation do worse than the countries most open to free trade. Fair trade really isn't but it might seem that way when the need for a quick fix seems to be made for the sake of nationalism. When the old soviet union had complete economic control they did just what our journalists and politicians said to do which was to produce virtually everything on their own and importing nothing from abroad. It was supposed to create jobs there and did not. It was supposed to protect their valuable industustries including state enterprises and it failed badly too. It was supposed to make society wealthier and instead it made society poorer. The USA at the same time was open to the rest of the world and it got richer and richer. The US had the most new jobs and the highest levels of productivity on earth and all along we were being told we were suffering because of what foreigners were doing to us. But as it happens foreigners were not doing anything to our open markets they were instead doing all the harm to themselves and compounding that harm annually. The US could have been even better off if there was less government intervention. The politicians and journalists don't do their homework when it comes to issues like this they know in advance what they want to prove and disregard the facts. .