Trade Restrictions Don't Make Sense: Importers And Exporters Are The Same People
There's just way too much rhetoric out of the last election against free trade that needs to stop. Tariffs and other trade restrictions will not make America great ...it will make us poorer.
The pro-consumer argument is clear: making people pay more for things makes them poorer. That's fairly straightforward. What's confusing is that major importers and major exporters happen to be largely the same people!
In "What If US Importers and Exporters are Largely the Same?" economist Timothy Taylor presents evidence from a collection of studies that show that:
Out of the 2,000 US firms that are in the top 1% of exporters, 36% are also in the top 1% of importers; conversely, of the 1,300 US firms that are in the top 1% of importers, 53% are also in the top 1% of exporters.
Black and white arguments from mercantilist days of yore that portray exporters and importers are different groups, and subsidizing the former as being beneficial for a country are just wrong. The arguments make for good politics, but terrible economics.
Free trade makes domestic productions much more efficient, and therefore helps boost exports. Politicians love to point out the jobs lost from some industries, but they never consider all of the jobs gained in others due to trade.
Manufacturing Output Is Higher Than Ever
Real manufacturing output has never been higher in the U.S., so one has to wonder why politicians always claim that manufacturing is dead?
People seem to be biased pessimistic, for starters. For as rich as our society is, richer than at any other point in human history, we should all be far more optimistic. However, manufacturing jobs have been decreasing. Trade is not the cause, though; politicians have been lying to you, it is productivity gains that have decreased about 88% of manufacturing jobs.
It would be patently silly to argue against improving productivity as a national policy. That would surely protect some jobs, but it'd kill a whole bunch of others and make the country much poorer in the long run.
What are your thoughts?
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Rob Viglione is a PhD Candidate in Finance @UofSC with research interests in cryptofinance, asset pricing, and innovation. He is a former physicist, mercenary mathematician, and military officer with experience in satellite radar, space launch vehicles, and combat support intelligence. Currently a Principal at Key Force Ventures, LLC, a start-up consulting group in North Carolina, and Head of U.S. & Canada Ambassadors @BlockPay, Rob holds an MBA in Finance & Marketing and the PMP certification. He is a passionate libertarian who advocates peace, freedom, and respect for individual life.
Image source: https://conversableeconomist.blogspot.com/2017/01/what-if-us-importers-and-exporters-are.html
Manufacturing chart: https://fred.stlouisfed.org/series/OUTMS
Great post. The argument against free trade is that other countries are not giving the US exporters the same access to their markets that the US gives to them. This is usually offset by a countervailing duty or tariff. You are right that free trade benefits all countries because it increases total welfare through lower prices for consumers abeit at the expense of the industries which lose jobs due to lack of comparative advantage.
This is one of the great features of cryptocurrency is that it cuts out the regulatory agencies which want to politicize the market place and extract value to perpetuate bureaucracy. Although free trade is better, some government will get in the way. This is why the wto was established from gaat. Now that seems to be in peril due to the lack of enforcement of intellectual property rights. One country can't promote free trade while another has the doors locked even though economic theory shows it benefits all countries. The best solution is to have your own free trade with cryptocurrency, gold, and silver ...the parallel economy.
Excellent point re: cryptocurrencies tearing down barriers ...that's the ultimate goal and with the birth of bitcoin we can already do that in the digital world; hopefully the physical goods world can catch up.
I agree that other countries restricting U.S. imports (exports from the U.S.) is an issue our politicians should be tackling relentlessly...it would be one of the useful things they could do! Oddly, though, all the political rhetoric goes towards taxing U.S. consumers and restricting their choices, not towards the obvious of incentivizing other countries to permit freer trade. Extorting U.S. customers is not a moral or an effective solution to further opening trade...
Import/Export companies exist because it takes so much freekin speciallized knowledge to fill out all the form, know all the regulations and to know the system.
Thus, as a single person, you may learn to import furniture in small quantities from India. But, if you include more countries, the more likely that getting things through customs will be your full time job.
Your post tries to state that raising prices doesn't help... but it ignores that the prices are already raised. Furthermore, the quantities are severely limited. The whole thing is huge game played with other people's lives.
Lets take the importing of clothes from China. Only so much clothing is allowed into The US every year. And, every year, the amount is filled on the first day. To get your clothing in, you need to have your clothing in a bonded warehouse, or ready to moved into a bonded warehouse (as in sitting off shore).
There are professional line sitters, that hold the place for the importers, because this is usually a multiple day thing. They make those fools waiting for Star Wars I look like rank amateurs.
So, on opening day, there is a line with importers all queued with all the correct documentation filled out. If you have any of the documentation wrong, you just lost everything. Literally.
Those people who didn't get their import forms approved... well some of the containers are rerouted to mexico, some of them are just dumped in the ocean.
Now here is the other thing that is not readily broadcast. Profit dumping.
You know those $100 pair of sneakers? Well, they actually only cost $5 to manufacture. So, they are bought by a company in the Cayman Islands where they are marked up to $95 before they are imported into The U.S. Thus, you only pay $5 of profit in The U.S.
Import/Export fees are actually the only income a country has.
The income tax in The U.S. goes to the FED, where it is literally destroyed. The govern-cement then has to borrow newly created money for its next years expenses.
None of these issues are caused by free trade, but by regulations blocking or trying to manage trade. Arguments should be made to eliminate these barriers, not create new ones, and certainly not to tax consumers and firms that use imported materials.
My core argument is that opponents of free trade never consider all of the jobs trade creates, which vastly outnumber those lost to competition.
There are a ton of bad policies that hurt our economy and kill jobs ...we should be focusing on eliminating those and making our own production more competitive.
Also, I wasn't talking about import/export firms, but about firms that make use of imported materials (most firms in the country in one way or another) and firms that export either directly or indirectly.
There is no free trade in The U.S. and I doubt there will ever be as long as The U.S. continues to exist.
If you want to build something in america from parts made in america, you almost literally have to build it all yourself.
I agree that all of these regulations are abhorrent and should be gotten rid of, post haste.
But to state that they will raise prices or cause any other kind of economic downturn, doesn't really follow. Its already baked in the cake, and its just about which entity gets which slice.
Our worst policy in The U.S. is the minimum wage. If we were really about globalism and building up all markets, our minimum wage would be $3 a day like it is in most of the rest of the world.
So, I am not really upset by more import fees. Its not really a game changer. And arguing for the govern-cement to cut back on regulations... well, that will indeed be a red letter day.
It is all a scam. A less scammy scam isn't really better.
Every new regulation is a new cost in the chain of production. All costs are passed along to consumers through higher prices. They are not already "baked in," and changes have drastic effects.
It is true that trade is heavily restricted rather than free, but every new policy ratchets down the controls and further hampers the market.
Hopefully with Trump many of the absurd regulations will be lifted. Global trade practices by many nations is unfair and many do not abide by the rules! I do not like Trump but with trade I think he is right on the money
i agree with min wage being terrible...there are tons of other regs inducing trillions in lost econ opportunity making our economy less competitive. If the goal is to make U.S. production more competitive, then the healthy way to go about that is to actually make it more competitive--get rid of inefficient regs, artificial cost increases, and lower taxes--the unhealthy approach is to extort consumers.
So what is the solution to the people out of work and the people who do work but make poverty or just over poverty wages?. Unemployment is a low 4.7%, most people do not believe that figure and there are also underemployed people and very poor people struggling to survive, one issue away from loosing their apt/ house, job. Also we have the 1% having the majority of the wealth.
I think a lot of us have ideas on how to fix this but they will never happen because difference in ideology each of us have is so great and no one wants to budge.
My view is:
You need heath care for all. That will kill 62% bankruptcies that happen in this country.
Free higher education/training: A lot of people can not afford to go to college, or if they do have massive loans. We need our work force educated so we can compete with the constantly changing world and other countries. One way to pay for this, having companies and government sponsor students. You work for them during the summers for minimum wage and they pay for or part of your tuition. We also need work "retraining" programs to help people when they loose their job. This could also be sponsored.
Higher taxes to pay for all this.
We need a higher tax rate on the wealthiest to pay for this. I do not believe "trickle" down works. Higher taxes also on companies (but this can be lowered when they sponsor education or training and when they help pay for healthcare)
Now, with higher taxes for companies whats to stop them from just leaving the US? Well if we have the people who can do the jobs they want done then that's one incentive. But I also think a way to solve this would be changing the tax rate of US companies that make money out of the US. Make the repatriation tax rate based on how many US employees a company employees (along with how much each employee makes)
On infrastructure. Yes we need to rebuild. We can use some of the minimum wage students as workers to help with this. But we will also need to increase federal and local taxes on gas and some fees on companies that use that infrastructure to do business.
Really need smart people to get together and figure these issues out instead of bickering back and forth but it probably will not happen since they just seem to want to WIN. I'd say in the end they really don't care about us.
i agree that there's a growing set of people...tough to label in any particular demographic...that either feel, or really are, disenfranchised from economic betterment. You touched on two big issues that would likely help alleviate some financial burden and expand opportunities, everything else equal. Health crises without insurance can destroy a family's finances, and education does boost earning potential...again, everything else equal.
However, not everything else is equal and even these seemingly glaring examples can be overdone with policy support. Federal and state governments have been giving away health and education subsidies for decades...problems are not solved and so many still remain pessimistic; and they've distorted both markets horribly in the process, so we don't know what negative outcomes today are due to that distortion versus what would exist without involvement. Everything's a trade off and i have to say that i don't like the outcomes of government monopolizing health care or subsidizing education to the extent they do. There are costs and there are definitely benefits...you're right in that these discussions so often break down in partisan bickering where each side latches onto whatever confirms their own biases; if you want "free" anything you tout the benefits and ignore the costs, if you're against it, you just focus on the costs and ignore the benefits.
I don't support either of these approaches bc i believe advocates ignore the long run and especially hidden costs. Government monopolies suck and always badly manage resources and stifle innovation. Trillions of federal dollars to fund college education has jacked up tuition and created a new debtor class of people who probably should have learned productive trades instead of inefficiently invested in negative yielding degrees.
That said, there are both simpler and deeper ways to make life better for people who feel disenfranchised. Some simple ideas are catastrophic event health insurance subsidies (not the beast we call health insurance today, which is really a terrible pre-paid bundle of hundreds of services you'll never use), or a universal basic income; the deeper fixes address things that cause slower growth that reduces real employment and hence real wage growth, like dumb or inefficient regulations, licensure barriers, taxation, etc. Of these two solution paths i prefer the latter, but wouldn't complain too deeply about the former if given proper concessions with a mixed bag.
Ultimately, however, i believe that human beings retain the right to their own lives and no matter what my opinions happen to be, none of us have claim to any portion of others' lives against their wills. Taxation to pursue these types of social agendas is partial slavery for those compelled to contribute against their will. Unacceptable from a moral perspective.