Elsewhere

Protectionists would have you believe that domestic firms would be helpless against those viciously efficient foreigners, so we must have trade barriers to stop that pressure. But it’s actually that competition from viciously efficient competitors which drives up productivity and thus increases living standards. If domestic productivity is low, or lower than foreign, that is exactly the reason not to put up protective barriers. It’s only under outside pressure that our own producers up their game.

If domestic productivity is not lower than global then of course there’s no argument at all for protection. Who needs tariffs against less efficient competitors? Reading the runes of trade correctly insists, either way and whatever the state of the domestic economy, that we don’t want to have restrictions upon the very thing which makes us richer.

12 comments on “Elsewhere

  1. I think that the theory of free trade needs some updating – its no longer that Country A is ‘more efficient’ than Country B at producing a certain product (historically because it had access to natural resources that made the production more efficient), its that businesses in Country B are hamstrung by their own governments in restricting them in how that can produce the product, via business regulation. If companies in the West had the same business regulations that exist in China (ie not very many) then they could be a lot more competitive with them. Maybe not 100% equal due to wage costs, but a far more even playing field than today.

    The reason TVs are made in China and not the UK is not because the Chinese are intrinsically ‘better’ at TV making, its because trying to operate any manufacturing plant in the UK is a mugs game, given the rules you have to abide by, that the imports don’t.

    A good deal of protectionism is nowadays is businesses asking for an even playing field – if the Chinese TV can be made in a factory that chucks all its toxic waste into the nearest river, either let us do that in the UK, or if not, stop TVs coming in produced by exactly those methods.

  2. . . . and Chinese government operates the business at a loss to position itself for market dominance in the future.

    Western businesses are not competing with Chinese businesses, they are competing with the Chinese government.

  3. Jim makes a good point. I don’t agree but don’t have the right words to explain why other than this example from decades ago.
    Suppose imported soviet timber is cheaper than domestic because they use gulag labour. Should we still buy it? If we don’t then the gulags may be shot. If we do, we increase the value of the slave workers, and they have a better chance of organising and negotiating a better life for themselves. Aah but UK timber producers lose out, but only by as much as consumers gain, so the effects cancel out. Actually it’s a +ve because the UK timber produces do something else.

  4. @Jim’s comment illustrates the point I was going to make – the protectionists never admit that the foreign competitor is more productive, they always claim some unfair advantage (weak environmental or labour regulations being classic examples). And sometimes that may be true, but how do we know the net effect until we do a full accounting of the comparative costs and benefits of doing business? Sure a business in a developing country might get a break on some regulations, but I know from experience working in such places that there are many, many things that are much harder and more costly to get done than in the west.

  5. and also as the developing economy does what every developing economy does and grow itself a restive middle-class, it’ll then develop environmental protections and costs will rise as well as living standards

  6. “isn’t that a win-win for the British consumer? We get cheap tellies and clean rivers.”

    No, its rank hypocrisy on the part of the consumer – they have a cheap telly that poisoned a river, just not in their location. If its wrong to poison rivers to make TVs, that principle stands wherever on the planet the TV is made surely, not just in your own back garden?

  7. @Bongo: buying gulag-produced lumber would cause the Soviets to put more people in the gulag to produce more lumber. This is more or less what happened in Africa in the 18th and early 19th century – more demand (for slaves) caused increased supply (of slaves).

    See @Jim.

  8. Seriously, Jim, you think people look to see where a TV is made before they buy it?

  9. “you think people look to see where a TV is made before they buy it?”

    No of course they don’t. But they do vote for politicians who promise more and more environmental legislation, more and more labour laws etc etc etc. Yet also demand cheap TVs made by people earning a pittance and are made in conditions that would never be allowed in the West. That’s rank hypocrisy.

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