The “free trade” agreement that was just signed between the US and South Korea is simply another managed trade agreement. Don’t let the name fool you; read the agreement, as I did. A real free trade agreement would take no more than a paragraph or a page at most.
What is language like this doing in a free trade agreement? “For greater certainty, a Party may: (a) raise a customs duty to the level established in its Schedule to Annex 2-B following a unilateral reduction; or (b) maintain or increase a customs duty as authorized by the Dispute Settlement Body of the WTO.”
Or this: “duties on originating goods provided for in the items in staging category H in a Party’s Schedule shall be removed in 15 equal annual stages beginning on the date this Agreement enters into force, and such goods shall be duty-free, effective January 1 of year 15.”
And check out the current 220-page US tariff schedule.
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When the results come in, and this nonsense bears fruit, what takes the blame?
Free Trade.
And yet people still believe we have “free” market capitalism. Unreal.
You said a real ‘free trade agreement’ would be one paragraph to a page in length. Could you draw up what that would look like for an agreement between the US and South Korea?
What does the ‘free trade agreement’ between the American States look like?
I’m thinking a simple sentence would suffice.
Then again, in an anarcho-libertarian world there would be no need for a trade agreement. Why does there need to be an official declaration to do something that comes naturally?
Off topic:
Can anyone tell me what happened to the “Notify me of comments by email” box that used to sit just below the Submit button?
How Long Does a Free Trade Agreement need to be? (http://mises.org/daily/3019).
16 words: Regulated trade between the individuals, companies, and institutions within our respective countries will be illegal henceforth.
Actually, a real free trade agreement would have no policy at all. Not a single paragraph, sentence, or word!
Yes. It’d have a stipulation to governments of both sides with the erudite statement: fuck off and die.
It’s called a “free trade” agreement rather than managed trade agreement so that if any one opposes it, they can be scolded, “what, you don’t believe in free trade?”
But can we really carry on either “free trade” or managed trade with developing economies and not hear a giant sucking sound? Aren’t many of our less-developed trading partners practicing mercantilism to some degree?
Yes they are, and it is totally self-defeating.
For example, had the chinese not been manipulating their currencies to the benefit of their exporters then they would have been able to import more cheaply and thus have a higher standard of living. Conversely, their lower exchange rates have allowed americans (and everybody really) to buy more stuff from them (thus raising their standard of living) more than otherwise would have been possible.
Many are practicing mercantilism, and they are impoverishing themselves because of it.
Do cheap goods for all Americans balance out the downward pressure on wages and and increase in job losses for some Americans? I understand comparative advantage in theory, but I don’t see it as a reality. We are exporting manufacturing jobs and getting more in return, or less?
And why would the Chinese government care about a higher standard of living for their people? If they did, they might also have a somewhat higher regulatory burden (though not as foolishly high as ours).
noah,
I will ask you a simple question: I you had the option to work more hours or the option to buy more things while while working the same hours, which would you pick?
What people who complain about trade are really saying is that it is better to work then it is to get paid. People are upset that the Chinese are working harder then they should to give us more goods more cheaply then they should… if you think about it they are doing us a favor.
As for lost jobs, I think the point that is missing is the fact that there is no shortage of work to be done, and no shortage of demand for goods. Do you know even a single person who would not increase his consumption of anything (including leisure time) if all prices were lower?
The reason that displaced Western workers can’t find jobs fulfilling some of the limitless demand for goods and services is because our governments have made it illegal to do so (minimum wage, business-killing regulations, etc). It is true that displacing manufacturers in America might reduce wages, but prices would fall more than wages, which follows from the idea of comparative advantage. In an environment where the government outlaws work for many people the costs of free trade are increased, but the benefits still outweigh the costs.
edit
“Do cheap goods for all Americans balance out the downward pressure on wages and and increase in job losses for some Americans? ”
Balances out in what sense? Also, why would it necessarily entail overall job losses? Industries that shrink from losses to foreign manufacturers would likely be offset by industries which are more reliant on imports. Furthermore, we have to keep in perspective as to what is important in economic exchange: the absolute increase in the standard of living.
Another way to look at the issue is to ask “is it moral for manufacturers to force people to buy their products instead of someone else’s”? Because that is really what mercantilism is (in one way or another). It is using the guns of the state to prevent exchange, to the benefit of the party who is lobbying for the prevention. That is how all trade restrictions (tariffs, quotas, etc.) work.
“And why would the Chinese government care about a higher standard of living for their people?”
That is exactly my point. The chinese government is engaging in this policy to the benefit of its state industries and to the detriment of the population at large. That is why mercantilism is actually a losing proposition for them, foreigners and the state industries benefit at the expense of the population at large. So if what WE care about is our general prosperity, why would we want to emulate a policy which obviously harms us?
Isn’t the chinese government engaging in the same policy Britain and the United States did to build industry to the point of establishing their currency as the reserve currency? Yes, it’s to the benefit of industries and to the detriment of the population NOW, in the short term, but perhaps not in the long term.
How is an absolute increase in the standard of living measured? If ten people making $100/hour and a hundred people making $10/hour goes to ten people making $200/hour and a hundred people making $1/hour, is that a net increase of 5% in the standard of living, even if retail prices decrease?
” Industries that shrink from losses to foreign manufacturers would likely be offset by industries which are more reliant on imports. ” Maybe, maybe not. But I’m wondering, is that akin to saying decreased production would likely be offset by increased consumption?
I am not sure whether you have read “Economics in One Lesson”, but you definitely should.
Take the simple example of softwood lumber import restrictions:
Tree harvesters gain higher prices for their goods, employing a few more people: Gain
Houses are more expensive, leading to fewer jobs in the construction industry, the lumber processing industry, the housing manufacturers (making nails, mining steel, making furniture, etc.), in addition to the fact that there would be fewer houses built a lower standard of living for everyone outside of the lumber harvesters.
If you apply restrictions across the board then everyone is worse off. If you don’t believe me then think about the results if your city applied protectionist measures and banned imports. Would you be better off?
(p.s. please notice my post to your comment above)
I understand these points, but I wonder if Hazlitt and others ever foresaw a virtually infinite supply of such dramatically cheaper labor. It seems the downward pressure on wages from globalization, mechanization and immigration are leading to societal disruptions that do not have short-term cures, and which have unseen economic costs as well as psychic costs that can’t really be measured.
In pure economic terms, there may be an overall higher standard of living with open trade. But culturally, millions of Americans sacrificing the idea of the work ethic is not going to happen overnight. So regarding your question: “If you had the option to work more hours or the option to buy more things while while working the same hours, which would you pick?” – if I was working zero hours, the answer might very well be “work more hours.” In fact, I made that choice when going off unemployment benefits (they paid better than working).
As for “un-free” trade, if your city applied limited protectionist measures against my city (like most countries do, to a greater degree than us) wouldn’t it make sense for my city to even the playing field? It just seems we should trade by the same rules as others, in the absence of truly free trade. Open trade with like economies (developed ones) makes more sense to me than open trade with mercantilist developing economies.
I also can’t help but wonder what the long-term ramifications are of such a lopsided balance of trade.
We don’t have “a virtually infinite supply of such dramatically cheaper labor.” Wages are rising in China and India, and the rest of the 3rd world, in case you hadn’t noticed. But to the larger point, it doesn’t matter. As long as the underlying laws of economics are correct, they still apply. Newton never anticipated airplanes.
There is no need for Americans to sacrifice the idea of work ethic and I’m not sure where you’re getting this. Consider this: if you want to live at the level of a 18th century peasant, you can do so today without working. Even your average (American) homeless person today is richer than your average European peasant of a few centuries ago. Yet how few people choose such a lifestyle? You can probably live at the same economic standards of your parents working part time, if you can manage to forsake your Internet connection, cell phone, ipod, cable TV, etc. Again, how few choose this?
Finally, no, it does not make sense to “even the playing field” with retaliatory protectionist measures. That’s like shooting yourself in the foot because your opponent did this same. Trade is not like a sports contest where one can get an advantage by stretching the rules. The “rules” of economics are not prescriptions; they’re descriptions. You can’t get richer by violating them any more than you can get lighter by standing on the scale with only one foot.
Couldn’t retaliatory protectionist measures have been used in an effort to get China to stop currency manipulation? Even Adam Smith might support that.
It’s true, wages in China (and for billions of others) have doubled in the past decade – to nearly $2/hour. That’s not exactly stopping downward pressure on American wages.
Yes, you can probably live at the same economic standards of your parents working part time, if you are a highly skilled professional. But not if you are a butcher, baker, or incandescent-light-bulb maker.
Noah
“Couldn’t retaliatory protectionist measures have been used in an effort to get China to stop currency manipulation?”
That’s really, really, really rich coming from a subject of the USA!
Most humorous. You’ve made my weekend!
END THE FED!
Si
Free Trade does not exist anywhere in the world. The Asians practice Mercantilism. Further, why does the county that prints the reserve currency for the world want free trade? The U.S. has been the loser in trade every year since 1974. Free Trade remains a myth, nothing more. With currency manipulation rampant, free market capitalism has been replaced with world wide government control. Further, why does the U.S. want its people exposed to the wage base of China??
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