The Guardian doesn\’t understand trade

Quelle Surprise.

Either the EU gets tough in its demands, by threatening to shut out firms from countries like China that remain closed – barring them from tendering for public contracts in Europe

The aim and point of trade is not to make exports. It is to purchase imports. Those lovely things that Johnny Foreigner can make better/cheaper than we can.

Exports are just the shite we do to afford them.

To ban imports from people who will not buy our exports is simply insane. Who cares whether they will buy our trains, pottery, planes, cars? What we want is their cheap spanners, low cost solar cells and mountains of tchotchke. So we should buy these from them, whatever they deny their own citizenry by excluding the results of our labours.

Our lives are made better by having low cost spanners, cells and tchotchke. So we should act in our best interests and ignore whatever fucks ups they might be making.

9 comments on “The Guardian doesn\’t understand trade

  1. There is actually a case for this kind of a trade war, so long as you’ve a reasonable chance of the outcome being a general reduction of trade barriers rather than mutual protectionism.

    Tim, I fear you’re taking the Smithian/Ricardian et al comparitive advantage thing a bit too literally or something. Yes, the advantage of international trade is cheap imports. But you do need to export value in order to purchase them; in an extreme example if nobody will buy from you, you will not be able to afford the imports however cheap.

    Use the Smithian “what applies to the home applies to the nation” or whatever the quote is. If the homeowner is not exporting anything (generally, his labour) he loses the capacity to import anything (food, clothing, spanners etc). It’s the same thing.

    On a regional level, this is the problem with e.g. the Soviet Boroughs. They aren’t making anything to export. Take a region that lost its major export when Thatch closed the mines, in that case, coal. They became impoverished because they did not develop new (regional) export industries and thus lost the capacity to import from other regions.

    If you can’t sell, you can’t buy. It is actually valid to use the threat of tit-for-tat protectionism to open markets, so long as the result actually is open markets.

  2. Ian B, if the Chinese are selling goods into Europe, then they are acquiring euros (or pounds, or Swedish crowns and what not) in return for these sales. With all due respect to the Swedish currency designers, there is a limited amount of currency that can be admired for pure aesthetic reasons. So the Chinese are going to want to trade their European currency. They can either do that by buying something in Europe (perhaps by sending their kids to Europe for a university education, perhaps by buying European government bonds), or by trading the European currency for some currency they do want, most likely the renminbi.

    The person who they then trade with has a bunch of European currency that they are going to want to do something with – buy or invest.

    If no one wants to do anything with the European currencies then the profits that the Chinese make from selling into Europe will fall until the Chinese stop sending so much over to Europe, or in other words until the supply and demand for the currencies is brought back into balance. So if “you can’t sell, you can’t buy” is a problem for the Chinese exporters as much as for the European importers.

    About the only way this consequence can be avoided is for the Chinese government to subsidise exporting like crazy. Which if you’re European, is like having a rich uncle willing to send you presents for no particular reason. What’s the problem?

    Within a currency area of course this doesn’t operate so neatly.

  3. So the argument here seems to boil down to, “exports are useless”. I am overwhelmingly an exporter (of crappy cartoons on the internets). So, I’m creating value in Farawaynia, and flooding Britain with entirely useless foreign currency.

    This seems to end up as some kind of argument in favour of autarky, in the sense that exporters are doing something entirely useless and, since they are using local resources (including labour) to do it, are damaging the local economy.

    I think there is something wrong there in that argument, myself.

  4. Ian B, when I was independent contracting in NZ, and did some work for some Australian clients, the bank converted my pay into NZ dollars. I presume they did this by finding some people who were willing to swap Australian dollars for NZ dollars (possibly with some steps along the way, eg people who wanted to trade Australian dollars for Hong Kong dollars and other people who wanted to trade Hong Kong dollars for NZ dollars). If I had wanted to, I could have left my earnings in Australia, and spent it when I went there travelling.

    My understanding is that this is common practice amongst exporters – you either spend or invest the money in the currency area where you earned it, or you convert it into a currency that you do want.

    You are of course free to flood Britain with your entirely useless Farawaynian foreign currency, rather than converting your export earnings into something useful to you. You are of course also free to create your cartoons solely to give them to your cat to shred to pieces. And I have no desire to deny you this freedom to produce things and then just give them away, be the recipients Farawayians or your cat. I just don’t think that, at a country-level, it’s remotely common enough to drive trade patterns.

  5. Although it is nice if a rich uncle pays for everything, you might find ten years later he demands repayment and you have no skills.

  6. “you might find ten years later he demands repayment and you have no skills.”

    Which is going to be a problem for the rich uncle as much as it is the feckless nephew/neice.

  7. At which case, the rich uncle is up against the old quote:
    “If you owe the bank $10,000 you’ve got a problem. If you owe the bank $10 million dollars, the bank’s got a problem.”
    And banks generally have the paperwork sorted (not always, as the US case shows, but generally). If the rich uncle, rather than lending you the money, was paying his kids to send goods to you, as per the Chinese government supporting Chinese exports, then he’s got even more significant problems demanding repayment from you.

    As for lack of sell-able skills, that’s always a risk. Your major export market could always discover an alternative, cheaper and/or better source for whatever it is that they buy from you. Or your domestic market, if you’re selling internally.

  8. “Which is going to be a problem for the rich uncle as much as it is the feckless nephew/neice.”

    Yeah, but bye-bye to your house.

    Your arguments are like saying you c an never be in too much debt.

  9. Matthew2 – you forget that in this scenario, the rich uncle was giving you the presents, not loaning you money.

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