Yes, I\’d go with this

On the other side if there is no agency problem then deregulation should remain the order of the day.  Trade restrictions create arbitrageurs – and the arbitrageurs ensure the trade restrictions don’t work anyway.

Sensible policy.

A very strange question indeed

There we have it, thirty years ago the world’s centre of economic activity was in the mid Atlantic, today it is around Turkey, in thirty years time it will have reached India and China. This is the new globalization and I’d like to hear how Western politicians plan on dealing with it.

Why should politicians deal with it? Quite apart from whether politicians can or that we\’d even trust them to deal with matters economic, why on earth should they?

Who gives a shit where the centre of economic activity is ?

All we care about is that we can trade with it.

After all, it\’s not like we\’ve not been here before. China has been the world\’s largest economy in 19 out of the past 20 centuries.

Yes, yes, I know that the question is being asked because Duncan labours under the delusion that politicans can do something about everything and under the even worse one that they should do something about everything but really. Think about what is actually happening here to move this centre. The 1.5 billion or so of South Asia and the further 1.5 billion or so of East Asia are both producing and consuming more (that\’s what economic activity means, see?).

In what way is this a problem that needs something doing about it? Either they produce and consume their own stuff (fine, so what?) or they produce stuff for us to consume and we make stuff for them.

Lovely, where\’s the problem?

The cost of the Jones Act

The Jones Act is that little bit of US protectionism which says that not US owned, not US crewed and not US union rule recognising ships cannot operate either between US ports or in US waters.

And here we see some of the costs:

Four of the world\’s largest oil companies are creating a strike force to stanch oil spills in the deep waters of the Gulf of Mexico in a billion-dollar bid to regain the confidence of the White House after BP PLC\’s disaster.

Certainly, this isn\’t a silly thing to be doing however:

The companies will evenly split an initial investment of $1 billion in the nonprofit venture, which they are calling the Marine Well Containment Co. But the tab to build the system and have crews on alert for years could run in the billions of dollars.

The containment system will be designed to deal with well blowouts and is expected to be ready within 18 months, Exxon said. The response team should be able to start mobilizing within 24 hours of an oil spill, and be fully in place within weeks, said Sara Ortwein, vice president of engineering for Exxon Mobil Development Co.

It is costly.

But what has this to do with the Jones Act?

Well, y\’see, something much like this already exists, over here in Europe. Indeed, that European system, skimmers, barges, oil tankers able to scoop from the surface and so on, was offered to BP at the start of the Macondo crisis. But it couldn\’t be used because of the Jones Act.

So, now we\’ll have two such systems in place, one for Europe and one for the Gulf. And the expense of the second is clearly down to precisely and exactly the Jones Act.

All of this is to protect the 153 large ships that meet the Jones Act criteria. In just this, this alone, we see a cost of $6.5 million per ship.

About time for a little more free trade, don\’t you think?

More economic silliness

Another email from a protectionist containing this gem of a line:

Service industries do not produce wealth.

No, seriously, they do believe this. They go on:

There are a limited number of ways a society can become wealthy.
1. Hunting
2. Gathering
3. Fishing
4. Farming
5. Manufacturing (along with that go the exploitation of natural resources: mining, oil production and timber)
In the context of the US they are therefore saying that agriculture (8% or so of GDP) and manufacturing (12%) are the only things that produce wealth. All of everything else, 80% of US GDP, isn\’t in fact wealth at all.
In fact, they\’re stating that all the lawyering, medical care, insurance, banking, restaurants, hotels, supermarkets, well, just about everything in fact, do not add to the wealth of those who consume their products.
Which is sufficiently weird as a belief to explain their similarly odd ideas about trade really.

Protectionist arguments that don\’t stack up

Second, the total balance of trade deficit went from (0.9 billion to 0.2 billion). In other words, the United States was losing less money because of Smoot-Hawley. It was in aggregate better off.

(From an organisation called \”Citizens for Immigration Control\” via email)

Imports are going shopping. Exports are simply the shit that we do so we can go shopping.

So, doing less shit so that we can go shopping less makes us better off does it?

Reminding ourselves of the basics

Note that Adam Smith pointed out more than 240 years ago that \”Consumption is the sole end and purpose of all production\” and that the measure of a country\’s true wealth, is the total of its production and commerce. That is, a country\’s wealth is what the people of that country can consume. The great 19th century French economic pamphleteer Frédéric Bastiat wrote, \”Consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption that their ultimate and definitive justification is to be found.\” Note also that exports are things that we produce and send to other (overseas) people. That is, they are goods and services that we produce but do not consume and thus they lower our welfare. Imports on the other hand, are goods and services that other counties produce and send to us to increase our consumption. This means imports increase our welfare. So imports are welfare increasing and exports are welfare decreasing. Therefore \”imports are good; exports are bad\”

But this does raise the question of why do we bother to export and not just import? The obvious answer is that exports are the way we pay for our imports. If we want people to send their goods and services to us we have to send our goods and services to them in exchange. Adam Smith also noted that in any free exchange, both sides must benefit. The buyer profits, just as the seller does, because the buyer values whatever he gives up less than the goods he obtains. That\’s why we trade at all.

Shorter version: Imports are going shopping. Exports are just the shite that we do so we can go shopping.

Lordy almighty, things really are bad

Paul Krugman (yes, Paul friggin\’ Krugman) is advocating a trade war.

In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.

Smoot Hawley here we come……

Paul Krugman hands in his economist\’s secret decoder ring

I\’m seriously having a difficult time digesting this.

Yes, I know, he\’s the Nobel Laureate in international and trade economics and I\’m just a lowly blogger.

But he seriously seems to be advocating a protectionist trade war against China.


Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: “With employment less than full … all the debunked mercantilistic arguments” — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — “turn out to be valid.” He then went on argue that persistently misaligned exchange rates create “genuine problems for free-trade apologetics.” The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.

The bottom line is that Chinese mercantilism is a growing problem, and the victims of that mercantilism have little to lose from a trade confrontation. So I’d urge China’s government to reconsider its stubbornness. Otherwise, the very mild protectionism it’s currently complaining about will be the start of something much bigger.

And Smoot Hawley worked so well, didn\’t it?

This globalisation shtick

OK, so this is about second hand photocopiers but the lesson stands for all goods.

The global cost of shipping has never been as cheap as it is now, according to Stephen Armistead. \”We ship our fax machines to China for the same price as delivering a consignment from Penrith to the south coast of England.

You\’ll recall that the EU was set up in the same year that the first container ship set sail. As far as trade is concerned the EU was set up on the idea that countries that were geographically close to each other should be trading with each other, not with the far flung corners of the globe.

That\’s why we have no tariffs or technical barriers (often much more important) to intra EU trade while we do have tariff and technical barriers to ex-EU trade. And yes, these do apply to exports just as much as imports (you can shift dead electronics around the EU but not outside the EU, only working but used machines are freely exportable).

However, that very invention of the container ship made the economic geography different. If you\’re a node on the container shipping lines then transport to any other such node is cheaper than transport of the same goods to a place vastly closer, but not a node on that system.

In other words, the new technology entirely eviscerated the justification for the trade stance. As far as the new economic geography is concerned, Penrith and Shanghai are closer to each other than Penrith and Brighton (or at least the same distance). And so if we\’re not to have trade barriers between Penrith and Brighton, nor should we between Penrith and Shanghai, in either direction.

The EU are like the anecdotal Generals, always ready to fight the last war.

Not the most convincing argument

Yet he has defended the indefensible by saying that sanctions will remain in place until the communist government in Cuba frees political prisoners and improves human rights, just like his predecessor.

Yes, I think the embargo is a very stupid policy and one which props up the Castros.

However, I don\’t see the above as being a particularly convincing argument: \”you\’re bastards for insisting we have a little freedom and liberty in Cuba\” just doesn\’t quite cut it.

Oh, and, full marks for spotting, as you obviously have done, that exactly the same argument is used in reverse in Sri Lanka. No more trade goodies with the EU unless you stop being beastly to the Tamils…..a policy fully supported by similar lefties.

Lord Davies and Adam Smith

It has been a challenging and rewarding first ten months as minister for trade. Even doing this job at such a difficult time for the global economy and for UK businesses, I’ve been constantly impressed by the ambition, tenacity and success of UK firms.

I’ve been disappointed, however, by the fact, that although we are a nation of small and medium-sized businesses, we are not yet a nation of exporters.

Umm, if any of the civil service type bods in the UKTI would like to dig out a copy of Wealth of Nations (it\’s available free online if the taxpayer doesn\’t want to spring a tenner for it) for the Minister?

That businessmen prefer home to foreign business was explained all the way back in 1776. It\’s actually the only use of the phrase \”invisible hand\” in the book. Given the difficulties of dealing with Johnny Foreigner, language, law, distance, time, capital turnaround, even if the total profits over time are slightly greater in foreign trade, businessmen \”will be led as if by an invisible hand\”* to prefer domestic trade.

It\’s also true that there\’s no particular joy in exporting: we only need to export sufficient to pay for what we import, no more. The idea that he who exports most wins is what underlies mercantilism and is, to put it mildly, a very stupid idea.

There is another point to be made here as well. Our biggest net exporter is actually The City. That very part of the economy that Lord Turner is insisting should shrink. Is this the joined up government we were rpomised?


UKTI provides excellent value for money; adding £16 in additional profit for British companies for every £1 of taxpayer spend.

Don\’t believe you. With corporation tax to be paid on such profits, that would mean the taxpayer gets back, what, £4 for every £1 spent? Sorry, simply do not believe that any government has found such a magic money machine. If it had, really, you\’d be screaming to spend £100 billion on such to dig us out of this fiscal hole, would you not? You\’re not so of course not even you believe the figure.

* Maybe not exactly the right quote, from memory.

Institute of International Trade in Kolkata

An interesting definition:

Mercantilism, which is the precursor of capitalism, originated in Rome and the Middle East, during the early middle ages. Mercantilism can be defined as the process by which goods are bought at one place for a certain price and sold at another place at a higher price, in order to realise a profit.

That\’s not mercantilism, that\’s trade…..possibly \”being a merchant\”, but that\’s not what mecantilism means.

Strangely, the rest of the briefing paper about capitalism is reasonably (note, reasonably) fair.

However, the point of noting this twittery is here.

Ashton is also eager to conclude a trade deal with India. A draft of the accord that she wants the New Delhi government to sign would spell disaster for the 5 million Indian women and 15 million men that depend on dairy farming as they would struggle to compete with lavishly subsidised imports from Europe, according to a new analysis by the Institute of International Trade in Kolkata.

Yup, David Cronin, our idiot in Brussels, approvingly quotes from an institution that is responsible for such silliness.

60% of all trade takes place through tax havens

It\’s an interesting claim, isn\’t it? One that might slightly boggle the eyes in fact.

So what is the origin of this claim? As a new report about international trade, multinationals and taxation says, the origins of the claim are a tad obscure.

TJN (2009) claims that 60% of all global trade is routed through tax havens. The origin of this number is unclear, though.

OK, so what do the TJN say is the origin of that claim? After all, it\’s not possible that they are entirely wrong about everything, stopped clocks and all that.

Here\’s where Ritchie sends us:

Once you take on board the fact that more than 60% of world trade takes place within multinational enterprises, the importance of transfer pricing becomes clear.

Now clearly, trade within a multinational can indeed be routed through a tax haven. In fact, it\’s perfectly possible that all such trade inside multinationals is routed in that manner. But we do in fact require a little proof of this, do we not?

Something more than \”60% of trade is within multinationals therefore 60% of trade is through tax havens\”?

Now you might think I\’m being unfair here but I\’m not, seriously, I\’m not. I am in fact repeating, word for word, what Richard Murphy of the Tax Justice Network uses as his proof for the claim.

When asked \”where does your claim that 60% of world trade is routed through tax havens come from?\” he answers \”60% of world trade is within multinationals\”.

That\’s it.

Seriously, go look for yourselves:

I have been blogging rather a lot about the new Oxford paper on tax avoidance and tax evasion in developing countries today, but issues keep jumping out at me.

Take this one:

\”TJN (2009) claims that 60% of all global trade is routed through tax havens. The origin of this number is unclear, though.\”

If they’d just picked up the phone or sent an email (it’s not hard to do) the answer could have been given. For the record, it’s here, the OECD Observer for January 2002, written by a member of OECD staff:

\”Once you take on board the fact that more than 60% of world trade takes place within multinational enterprises, the importance of transfer pricing becomes clear.\”

So why be so impolite; after all the source quoted is not an academic paper – it is a web page – and a link to an OECD related story implying its source was provided? In addition in other documents where we have used this data we have noted the source – some of which they also include in their bibliography.

One can’t help thinking that a certain lack of effort was expended in trying to find some things out when preparing this piece of work and that demeaning asides were adopted as an alternative.

Why was that, I wonder?

Apologies for repeating Ritchie\’s post in full, but I really do want a permanent record of this. This is a level of argumentation and logic, of proof, that would shame a four year old trying to explain the empty cookie jar and the chocolate smeared around its face.

It\’s entirely possible that the international taxation system is not fit for purpose. I\’m entirely willing to believe that we might be able to build a better one. I\’m even willing to agree that we should go and build a better one.

But given this desperate failure of both logic and evidence, how can we believe anything the TJN tells us on the subject?

Does anyone at all think that the second statement validates the first? On its own? That this is proof of the assertion?

Oh bugger

Even more fundamentally, we should be able to teach students that imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import what it wants. Exports are not an objective in and of themselves: the need to export is a burden that the country must bear because its import suppliers are crass enough to demand payment.

Paul Krugman.

Damn. I\’ve been known to make this point often enough myself. But I was sadly deluded enough to think that I was being vaguely original in doing so.

Ho hum.


At the same time, the current tax regime employed by the U.S. is being abandoned by the two remaining large capital exporters – the UK and Japan – that had maintained similar regimes.


I know we\’ve exported a lot of capital in the past. That we\’ve still got huge overseas holdings (well, people in the UK own lots abroad).

But we\’ve been exporting capital? Seriously? When we\’ve been running trade deficits for decades?

I don\’t think so, not really, at least not nett we haven\’t been.


I agree with Peter Mandelson:

Open trade has driven the rising levels of global prosperity that have defined the two decades leading up to the credit crunch. The growth of trade allowed countries and their companies to specialise and compete for sales globally rather than just in their home market. By allowing developing countries to become part of global production lines supplying developed world markets, it drove the growth that has lifted more people out of poverty more quickly than ever in human history.

How shaming to be on the same side of the argument as him….even if he is in this instance entirely correct.

Trade wars and stupidity

So the US Congress is guilty of the usual crowd pleasing stupidity, they\’ve added protectionist measures to the bailout bill. However, the important thing is not what they do in their foolishness but what we do in response. Sadly, this isn\’t looking good.

European Commission representatives and diplomats from the British, French, Canadian and Mexican embassies in Washington have all launched an intensive lobbying operation to convince senators to strike the provisions from the bill they will debate this week.

A Western diplomat in Washington made clear that otherwise a trade war was in prospect. "The EU has said it will not stand idly by and let this happen. I\’ve not heard words that strong from Brussels in 20 years," the official said.

We should indeed stand idly by of course. Sure, shout about how silly they\’re being but if they go ahead we should do precisely sweet fuck all.

For there\’s a basic fact about trade that all too many people don\’t get. Indeed, it seems that the trade negotiators don\’t get it.

Imports are what make us rich, exports are just the shit we do to buy them.

If the Americans decide that they don\’t want to import steel then that makes them poorer. Absolutely the last thing we want to do if they do is to limit our own imports thus making ourselves poorer.

We just don\’t want a trade war and whatever the US does it is still in our hands as to whether we have one or not. Our reaction should be (but sadly won\’t):

"You\’re making all Americans poorer. Have fun, we decline to do the same to all Europeans."

Trade idiocy

Most sad this.

China, India and Brazil all vaulted ahead of Mexico, following a much less orthodox set of policies that would be illegal for Mexico under Nafta.

Mhm, hmm.

Brazil at 64 in GDP per capita at PPP (ie, after taking account of different price levels), China at 83, India at 112 (with a staggering $3,452 per head) vaulted past Mexico at number 57 on $10,750.


as cheap imports of corn and other commodities flooded the newly liberalised market.

My God, the capitalist bastards! How could they? Cheap food for the masses, such a corruption of everything that is holy and pure, right?

And this is published in a newspaper that was specifically set up to campaign against the Corn Laws?



I\’m referring to trade here. I simply don\’t understand some people on the left and their attitude to international trade. In the 19th century, the \’liberal-left\’ in this country, including sections of what we would now probably describe as the \’hard-left\’, campaigned for free trade and against the Corn Laws on the grounds that it meant cheaper bread for hard-pressed working class families. Can someone explain to me what the hell happened? You might think, for example, that some might welcome trade with China on the grounds that this means cheap T-shirts for children in low-income families as well as recognising that the expansion of trade in this context forms part of the reason why we have seen in the East the largest rise in material welfare ever recoded in human history. Instead international trade is associated exclusively in the minds of some with environmental degradation, sweated labour and the appeasement of dictatorships. I was careful to say exclusively – absolutely no up-side at all for some folk.