Trade

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.

Oh.

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?

Amazing.

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.

The UK\’s goods trade deficit climbed to its highest figure in more than 300 years in July, leading analysts to warn that the economy has fallen into recession.

A deficit in the goods trade balance (after adjustments for the services surplus of course) is obviously and clearly balanced by a surplus in the capital balance for of course the balance of trade does indeed balance.

Which means that even in this, the most difficult financial environment since, well, put in your own since when here, foreigners are happy to invest billions and billions every month in the UK economy.

Nice to have some good news occasionally, no?

He\’s swallowed the protectionist line….completely, entirely and sadly.

Neoliberal economists claim rich countries got that way by removing their barriers to trade. Nothing could be further from the truth. As Ha-Joon Chang shows in his book Kicking Away the Ladder, Britain discovered its enthusiasm for free trade only after it had achieved economic dominance. The industrial revolution was built on protectionism: in 1699, for example, we banned the import of Irish woollens; in 1700 we banned cotton cloth from India. To protect our infant industries, we imposed ferocious tariffs (trade taxes) on almost all manufactured goods.

By 1816 the US had imposed a 35% tax on most imported manufactures, which rose to 50% in 1832. Between 1864 and 1913 it was the most heavily protected nation on earth, and the fastest-growing. It wasn\’t until after the second world war, when it had already become top dog, that it dropped most of its tariffs.

Sigh. During that period the US was almost certainly the largest free trade economy on the planet (the only one that could have been larger was the British Empire and I seem to recall that there were an awful lot of restrictions on what the colonies could do). This does not go to show that free trade is a bad idea, nor that protectionism makes you rich.

Further, there are two components to trade barriers and costs. There are the tariffs imposed, to be sure, but there are also the transport costs. Such transport costs were falling so fast in that 1864 to 1913 period that they completely overwhelmed the effects of the tariffs. The barriers to trade were falling fast throughout the period….some might say that was part of the cause of the growth.

Protectionism, which can be easily exploited by corrupt elites, does not always deliver wealth; but development is much harder without it.

Interesting argument really….those countries which are not currently developed. Do we think that they are governed by corrupt elites who would take advantage of the possibilities for enrichment? Or by those benevolent and omniscient beings that would be required for protectionism to work even in theory? Ethiopia? Zimbabwe? Equatorial Guinea? Sudan?

There is also the one most obvious point about protectionism. By its very nature it insists that the poor must pay more for their consumption than they would in a free trade world. That\’s the very point, to make it possible for more expensive domestically manufactured goods to find a market.

Even if there were a tension between current free trade and the protectionism required for future development (something which I reject) the argument in favour of protectionism insists that those currently shit poor should pay more to the local capitalists.

This isn\’t an argument which I expect those of a progressive nature to put forward.

Now there\’s a surprise!

In a six-month investigation, The Sunday Times tape-recorded Fritz-Harald Wenig, a trade director, passing secrets to undercover reporters posing as lobbyists for a Chinese businessman seeking insider information.

Wenig discussed the possibility of payment or taking a lucrative job with the businessman. He said he would decide further once he had provided “results”.

He leaked the names of two Chinese companies likely to get special status if the EU imposes a protective tariff barrier against Chinese candle-makers. The information is potentially worth millions to those trading with these companies.

When government gets to make these sorts of decisions then of course there will be those who will take advantage of the money that can be made. The only way to stop such corruption is to remove the ability of government to make those decisions.

It\’s an underappreciated point that free trade reduces corruption, just yet another reason to support it.

Reduced government borrowing would let the country export more capital, buying assets in faster-growing regions of the world.

How does that work?

In order for us to invest overseas we would need to be exporting capital: that means running a trade suplus, no?

Whatever the effect of more or less govt borrowing, given the point that the balance of trade has to balance, the only way we can be nett exporters of capital is if we are also nett exporters of goods and services.

No?

Richard Gott likes the new President.

It\’s going to be a disaster, isn\’t it?

In his inaugural speech, Lugo called for an unusual combination of austerity and happiness. He had already renounced his presidential salary, and he called upon young people to embark on the task of reconstructing the country with a smile. He invoked the great political leaders of Paraguay in the 19th century like Francia and the López family…

Francia? That\’s this guy.

In 1814, a congress named him Consul of Paraguay, with absolute powers for three years. At the end of that term, he sought and received absolute control over the country for life. For the next 26 years, he ran the country with the aid of only three other people. He aimed to found a society on the principles of Rousseau\’s Social Contract and was also inspired by Robespierre and Napoleon. To create such a personal utopia he imposed a ruthless isolation upon Paraguay, interdicting all external trade, while at the same time he fostered national industries. He became known as a caudillo who ruled through ruthless suppression and random terror with increasing signs of madness, and was known as "El Supremo".

However, despite these seemingly authoritarian attributes, Dr. Francia helped to create one of the first per-industrial societies in Latin America. By closing the borders to free trade (which was at that time almost solely British), Dr. Francia allowed Paraguayan factories to open and begin producing manufactured goods. While the people were limited to buying only from Paraguayan companies, the country under Francia was the earliest example of a Latin American country exhibiting Henry Ford\’s more modern idea of paying the factory workers enough money to be able to afford the products they make.

However, since this closing of the market was viewed by Britain as counter to their system of free trade, they incited dissent with the newly industrializing nation in the neighboring countries of Brazil and Argentina, which eventually led to the War of the Triple Alliance, the reopening of Paraguay\’s market, and the end of industrialization. To this day, Paraguay\’s economy has never reached the same threshold of industrialization as it did under Dr. Francia and his successors.

He outlawed all opposition and abolished higher education (while expanding the school system), newspapers and the postal service. He abolished the Inquisition and established a secret police force. He had abolished higher education because he saw the need to spend more money in the military in order to defend Paraguayan independence from those that did not recognize it such as Argentina.

Leading a spartan lifestyle, Francia frowned on excessive possessions or festivities. He even returned his unspent salary to the treasury. He closed the borders of the country to both people and trade (including river trade with neighbouring Argentina, from which Paraguay had broken off during the Wars of Independence), reasoning this would prevent a national debt from forming, but also isolating the country from outside – especially modernising European influences.

Yup, fucked.

The scale of Chinese imports into the UK.

But Britain has an insatiable appetite for Chinese imports, worth more than £15 billion in 2006, and China\’s importance as an investor in the UK is growing.

We\’ve got a (very roughly) £1.5 trillion economy. Total imports seem to be about £250 billion. Chinese imports are thus 1% of the economy, or perhaps 6% of all imports.

I\’m surprised at how small that is. Has Ruth Lea actually got that number correct? For 1% doesn\’t indicate to me an "insatiable appetite".

It\’s also not the sort of unstoppable juggernaught that would have all that much effect on the domestic economy either.

OK, so, yes, NAFTA isn\’t in fact free trade, it\’s simply freer trade than what went before. Still, this is a pretty odd argument to use about it:

In agriculture, until the recent price spikes, cheap US corn flooded Mexican markets,

Consumers eat cheaper and are thus richer. And this is bad?

British politicians may not be able to achieve much but London\’s powerful international business community needs to be taking this threat personally. If London-listed companies such as BP cannot be assured of proper shareholder protection in Moscow, then the many Russian companies listed in London must be made be to fear the consequences.

The simplest and fairest starting point would be for regulators over here to announce an investigation into the shareholder protection afforded to all companies operating in Britain and Russia. It may not help BP overnight, but official opprobrium over here is the best way of deterring official corruption over there.

So Russia is not making the proper distinction between business and State power. This doesn\’t mean that the UK should do the same thing.

It\’s directly analagous to import restrictions: just because some benighted foreigners are made poorer by their own governments does not mean that we should make ourselves poorer by following their lead.

"The propensity to truck, barter and exchange one thing for another," was, Adam Smith argued, peculiarly human. "Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog." So much for trade 18th century-style, but what would Smith have made of trade negotiations in the 21st century?

Let\’s have a stab shall we?

At the heart of the World Trade Organisation (WTO) talks is a simple belief, held by economists since Smith and (especially) David Ricardo: trade should benefit all sides.

Erm, no. The point is that any specific voluntary trade will (note, will, not should) benefit all sides that take part in it. There most certainly can be disbenefits to those not taking part in it….but that\’s another matter. If I go to one pub that voluntary exchange of my money for their beer benefits (at least, it is my belief that it does) both me and them. But the other pub that I didn\’t go to loses from the way that I\’ve conducted this exchange.

This doesn\’t benefit all sides now, does it? But we don\’t say that I should compensate those pubs that I\’ve not gone to, do we? If I change my local I\’ve not got to pay a termination fee to the one I\’m abandoning, do I?

Tomato paste imports into Ghana benefit Ghanian consumers of tomato paste, the importers of such and the producers of those imports. Everyone involved in the actual trade benefits. But the local Ghanian producers of tomato paste lose out….why should compensation be due?

We most certainly do not say that trade should benefit all: we say that it will benefit those who take part in it. A rather crucial distinction.

Some are home-grown: protecting strategic or vulnerable industries. Others are foreign: persuading rival nations to lower the barriers to their markets so that your producers can get a foothold.

Most amusing to invoke Smith and Ricardo and then point to the remnants of mercatilism that infect the political classes.

It really is quite hard to look at the world today and say that what it needs is less regulation and more unbridled market forces.

That\’s Larry Elliott that is. I can think of at least a few regulations the ditching of which would make the world a better place.

Let\’s start with the insane, counter-productive and absurd biofuels targets shall we?

The similarly insane, counter-productive and absurd farm protection plans in the US, EU and Japan?

The protectionist trade barriers that impoverish both EU consumers and those that would sell to them?

Extend this list as you wish.

Petey Mandelson writes a reasonable piece on trade and globalisation. I add something in the comments. Wonder how many will get the point?

The mind boggles at some of these responses (and yes, it also boggles at reading a sensible piece from Mandy but that\’s another matter).

We know what it is that creates wealth: voluntary exchange. When an asset moves from a lower value use to a higher this is the very definition of wealth creation. This is true whether it is you and I swapping my surplus apples for your surplus pears over the back fence or whether it\’s swapping the banking services of the City of London for the manufacturing products of Shenzen.

Along with such voluntary exchange which itself creates wealth come two further things: the division of labour and the specialisation of labour. Think Adam Smith and his pin factory here. These two together create further wealth as because of them labour becomes more productive.

It\’s possible to dislike those latter (there\’s a Marxist argument about the alienation of labour for example) but it\’s not possible to argue that they don\’t create wealth.

Now this logic, these processes, work whether we talk at the level of the household, the town, city, county, region, country, continent or globe. Once we\’ve accepted (which I assume everyone does) the wealth creating possibilities of voluntary exchange then there\’s no reason in logic at all to limit it to one area or another. The natural size of the market in which we exchange is the global one.

Note that so far there\’s been no mention of capitalism: for the logic above is about methods of exchange. Capitalism (and the various other possible different methods of ownership of assets) is a different matter. The logic of trade holds whether assets are owned by individuals, collectively, by the State, by the workers themselves…..it doesn\’t matter a damn for the purposes of this argument whether we are a capitalist, socialist, communist, fascist or whatever else economy….it is still true that voluntary exchange, the division of labour and its specialisation create wealth.

That\’s the bit that boggles the mind. Those who confuse the two….the structure of ownership with the simple realities of trade. The globalisation of trade we definitely want: the other stuff we can still argue about.

Hmm, not sure if that comment actually went through or not.

This is an excellent piece which deserves to be read in full. By shifting manufacturing offshoe Hornby has been able to reduce manufacturing costs, of course. But in the process it\’s raised total employment in the UK and those jobs here are in hte design side, the high wage end of the business. Oh, and better products and a wider range of them.

The workers there, the workers here, the consumers and the investors all benefit.

Long live globalisation, eh?

So, Barcelona is running out of water. What should or can they do?

Barcelona received its first seaborne shipment of drinking water yesterday, part of an unprecedented emergency plan to tackle the city\’s worst drought in decades.

The tanker carrying five million gallons (23 million litres) of water from nearby Tarragona is just the first to help to alleviate the growing shortages in one of Spain\’s top tourist destinations, which has already resulted in hosepipes being banned and many fountains turned off.

One reservoir has fallen to such a low level that the remains of a village flooded in 1962 have reappeared.

Other water shipments are due from the French city of Marseilles, and, in August, from a desalination plant in Almería, on the south coast.

Hurrah for trade! Movinfg resources from lower to higher value uses!

This really rather confuses me, this piece from Bob Kuttner (Via).

Adam Smith observed in 1776 that economies work best when governments keep their clumsy thumbs off the free market\’s "invisible hand." Two generations later, in 1817, the British economist David Ricardo extended Smith\’s insights to global trade. Just as market forces lead to the right price and quantity of products domestically, Ricardo argued, free foreign trade optimizes economic outcomes internationally.

Reading Adam Smith in Copenhagen — the center of the small, open, and highly successful Danish economy — is a kind of out-of-body experience. On the one hand, the Danes are passionate free traders.

Now I agree, there is indeed something different about Denmark but their attitude to trade isn\’t anything to do with it. Because, you see, they\’re members of the European Union. Trade with the other 26 members is by definition free as it is between any pair or more of the 27 members.

Trade with countries outside the European Union is nothing to do with Danish attitudes or domestic politics. It is a sole competency of the European Commission itself: doesn\’t matter a damn how much the Danes like (or don\’t) free trade. They don\’t get to make the decisions.

You\’d hope that someone writing 5,000 words on the subject would note that point but from the extracts I can see he doesn\’t.

Ho hum.

In the debate upon the Constitutional sell out M\’Lord Maclennan of Rogart says:

It is also pure fantasy to think that we can, through our lone voice in the councils of the world, influence trade policy to protect our citizenry without aligning others in support.

When has trade policy, uni- or multi-lateral, ever been used to protect our citizenry?

To protect producers, yes, but that\’s always at the expense of the citizenry.

Protection of the citizenry would be unilateral free trade, something which requires no voice in the councils of the world nor the alignment of support.

We simply tell the special interest groups to bugger off and buy what we wish from where we wish.

These boys do worry me you know.

Reform tax policy to close tax havens, revise tax treaties and use revenue-raising tariffs more productively.

Eh? They\’re approving of this NGO talking point document for presentation to a UN conference.

Reform tax policy to close tax havens, revise tax treaties and use revenue-raising tariffs more productively.

If they were actually trying to help countries develop, they would be wanting to reduce or eliminate tariffs, wouldn\’t they?