Buy America and the Knee-Jerk "Free Trade" Crowd
After ignoring the growth of an $8 trillion housing bubble, fueled by junk loans issued by over-leveraged banks, the "free-trade" crew is worried that a "buy America" provision in the stimulus bill will give us a trade war leading to another Great Depression. This complaint should be put in perspective so we can all get a good laugh at their expense.
The free trade crew tells us that this Buy America provision will start a trade war. Why would our trading partners start a trade war over a bill that increases demand for their exports?
That's right, the stimulus bill will increase demand for imports, including for imported steel. The bill will lead to more growth, which will increase demand for all products, including imported steel. That will be the case even if we have barriers that limit the use of imported steel for a small part of the stimulus. So, will our trading partners start a trade war because we are buying more of their products?
It is also worth comparing the protection that the "free traders" see compared to the protection that they don't see. The government has already provided $350 billion in subsidized loans to our banks through the Troubled Asset Relief Program (TARP). The Fed has provided hundreds of billions more.
For some reason, these massive government subsidies, which hugely advantage U.S. banks relative to their foreign counterparts, have gotten no attention whatsoever from the so-called "free traders." Every bad thing that they say about protection for steel can be said for protection for banks, but for some reason we haven't heard any complaints about the bank bailouts.
The obvious answer is this seeming riddle is that the "free traders" could not care less about free trade. They don't like policies that favor ordinary workers, like those in the steel industry. On the other hand, they are very happy when the government intervenes to help the rich, as was the case with the Wall Street bailout.
Slightly off topic ---
I've always wondered whether Smoot-Hawley --and its alleged effect ("trade wars," beggar-thy-neighbor) -- was really that significant a drag on the economy.
As I understand it, America's huge positive balance of trade of the 1920s (exports much greater than imports) was due to what we now call "vendor financing." America had the money, loaned it to Europe, and Europe bought America's products.
When deflation hit after the failure of the New York Bank of the United States (12/30/1930) U.S. bank balance sheets constrained them from lending abroad.
Result: Europeans didn't have the money to buy our products.
So other than being a convenient whipping boy for the free trade crowd, a poster boy for government failures, or an urban legend ---
What was Smoot-Hawley's actual economic significance? Anyone have any figures?
February 5, 2009 8:05 AM | Reply | Permalink
Your question really should start a little thought and analysis about the causes of our current problems. We probably have multiple causes behind the bad economy, so trying to figure out how much of what kind of protectionist policies would have what impact would be a task that Dean Baker should tackle; not me.
After a Google search, I found one article that kinda talks about if and how much Smoot-Hawley did. http://www.ncpa.org/oped/bartlett/oct2999.html
Having said all of that, I wonder if there isn’t a balance that someone can find. I wonder if we really have much of an economy left after outsourcing. For example, I have seen where at least 80% of our huge bloated military spending contracts are done overseas. If we do not rebuild our production capacity, we will not be able to employ large numbers of people and they will not buy from places like China. So foreign manufacturers will be in a hurt if we do too little protection as they would if we did too much.
Bob
February 5, 2009 8:37 AM | Reply | Permalink
Thanks for the link -- a good get.
There, Bruce Bartlett quotes Barry Eichengreen, as follows: "Contrary to the presumption informing most analyses of the subject, holding constant both the impact of Smoot-Hawley on the rest of the world and feedbacks to the United States, the direct effect of the tariff on the U.S. economy is likely to have been expansionary."
I Googled Eichengreen and am unsure whether he'd be that sure of himself, today.
In the event I think we should consider passing a law making it a crime to yell "Smoot-Hawley" in a crowd of economists.
February 5, 2009 9:50 AM | Reply | Permalink
In '29, total GDP was about 100 billion. Net X was about 10 billion. Over four years, net x fell to about 2 billion as world trade collapsed (rather like now, actually). The rest of the economy, ex NX, lost 10 billion in GDP when the margin loans were collapsed by the market, and fell over several years by about ~70 billion dollars total.
Aside from that, pre-Smoot-Harley tariffs were averaging 20% or so, afterwards they ran around 25%. (SH itself was targeted at specific items.)
At any rate, it had very little to do with it. (There was a trade war in Europe of sorts, as Britain reimposed tariffs.)
To the topic: no one seems to be mentioning that the provision for buying American steel is limited to a 25% increase over market price. If it costs more than that, project managers can get supply from anywhere. It's not a ban, just a de facto subsidy to American steel (and then, per Dean, East Asian steel).
max
['Kittens! Kittens everywhere!']
February 5, 2009 11:52 AM | Reply | Permalink
I'm not much for "framing" but I do believe we need to stop acknowledging the idea that there is, in fact a "free trade" crowd in America. We have only crony capitalism marketed as "free trade." Even when we argue that W.'s tenure is proof that "free trade" or "laissez faire" doesn't work, we only reinforce the idea that "free trade" or "free markets" actually exists. This is not a fringe consideration. It goes to the very heart of what the liberal v. conservative debate is supposed to be about.
February 5, 2009 8:27 AM | Reply | Permalink
Let's just note that by your logic other countries should do the same with their own stimulus bills. After all, everyone's got to have one today. Therefore we don't get to export to anyone else either.
February 5, 2009 8:38 AM | Reply | Permalink
No. This is just dumb, on many levels. First, Ohio Guy is right. If we do it, they do it, and then nobody trades. Second, this is about jobs right? Cheaper raw materials allow more building and more jobs, as opposed to trying to resurrect failed industry. Lastly, this kind of thinking is how we got into the business of paying farmers not to farm.
Sadly though, I expect a lot more of this kind of nonsense. The good news is that I should make a pile of money trading against people like Baker. Keep up the good work.
February 5, 2009 9:20 AM | Reply | Permalink
Wow!. Just think of all the jobs that would be created in America if all those imports from China, Japan, Indonesia, India, etc. had to be made in the USA.
February 5, 2009 4:42 PM | Reply | Permalink
Ohio Guy,
Try thinking this one through. Suppose that Germany, France, Japan and everyone else puts in place a stimulus package which causes their economy to expand. Further, suppose they out in a "Buy Germany, France etc." clause that prohibits the money in the stimulus package from going to anything other than domestically produced goods.
Okay, we're excluded from selling to the portion of the growth that is directly accounted for by the stimulus. However, the multiplier on government spending is greater than one, this means that the portion of the economy that is open to our exports is larger due to their stimulus (even with the buy domestic policy) than it was without the stimulus.
To use numbers, suppose France has a $2 trillion GDP and a $100 billion stimulus. Suppose U.S. exports are completely excluded from the $100 billion spent as part of the stimulus. But, France's economy will expand by $150 billion (a multiplier of 1.5), which means that the portion of France's economy open to U.S. exports is now $50 billion larger than without the stimulus. This is simple enough that even a "free trade" economist should be able to understand it.
Shooter242,
since you've been trading against me, you no doubt have multiple homes in which you are very heavily leveraged. You bought housing stocks in 2006 and bank stocks (including Fannie and Freddie) in 2007. You undoubtedly are a very rich person.
February 5, 2009 9:30 AM | Reply | Permalink
Ah, Mr. Baker. You should note my use of the future tense regarding trades. You certainly deserve plaudits for writing about the housing bubble, but this spin on how beggaring thy neighbor is in everyone's best interest is just awful.
In plain English, your idea is to tell our trading partners that they should ignore an immediate loss of revenue, because we promise to make it up to them later. After rebuilding our own capacity. How dumb do you think these people are?
Worse, you understand very well that wealth, growth, and everything else good about trade comes from comparative advantage. Negate that advantage and everything else good, fades away.
So far, shorting oil, treasuries, and the indexes, is working out pretty well. After reading apologies for protectionism like this one, I'm going to stand pat a while longer. Could be years.
February 5, 2009 10:18 AM | Reply | Permalink
Yeah, I take your point. If the stimuli all work and economies expand there's more space for us all to export. I agree we benefit from the set of stimuli, as do other countries.
That doesn't change the fact that if other countries can't sell into our government purchase programs, they'll make sure we can't do the same into their programs. So while we'll gain something from expanded production for our government, we'll still lose on exports.
I have a question though. What's going on with the Japanese and European stimulus programs in this regard? How much (if at all) do they have buy domestic clauses?
February 5, 2009 10:29 AM | Reply | Permalink
Check out "To the Point" on Monday. Scott Paul of the Alliance for Manufacturing said that all countries have always, like we've had, clauses to use American goods and American labor with money that comes from taxpayers. Nothing new
http://www.kcrw.com/news/programs/tp/tp090202stimulating_the_econ
It is basically anti labor as Dr. Baker points out. It's the same old class warfare gussied up as "freedom". When conservatives and especially "W" referred to spreading "freedoms", he meant spreading crony capitalism or, as Naomi Klein calls it, disaster capitalism. Disasters happen and then the predators rush in and gobble up what they can before they are forced to move on.
We do need protection from the predators. And all this freedom talk is just smoke and mirrors for what Sheldon Wolin calls "inverted totalitarianism".
February 5, 2009 11:19 AM | Reply | Permalink
Greater part of your post was bunk, but that last paragraph is spot on!!!
February 5, 2009 9:53 AM | Reply | Permalink
There is no such thing as free trade, there is only managed trade; but its a useful term to segue us to...
'Free markets", which is a euphenism for unbridled capitalism, the practice of capital going where it gets the best return on investment, which means where it finds little/if any labor laws, little/if any environmental laws, little/if any regulations, little/if any social programs.
Both terms; free trade and free markets are Judas goats, leading a politically unsophisticated public to build the gallows the Republicans use to hang them.
February 5, 2009 10:10 AM | Reply | Permalink
little/if any labor laws
Thank you!
The whole maquilladora flourish was nothing but labor racketeering on a large scale. (In this case, the government of Mexico being one of the co-conspirators.)
What the fuck ever happened to labor solidarity?
When I was a kid, the idea that you could subcontract out ninety percent of the content of a product (that was going to go out with a union label or be made in a plant with a union contract) to non union suppliers would have been unthinkable.
Let alone that you could have a strike sanctioned by the central labor council of your city and there would be even a question of *other union labor not honoring your picket line.
*The Teamsters under Hoffa, say what you will about him, knew how to honor a picket line.
February 5, 2009 3:48 PM | Reply | Permalink
jollyroger asks:
Reagan happened.
February 5, 2009 5:30 PM | Reply | Permalink
Reagan happened
PATCO, R.I.P.
February 5, 2009 5:36 PM | Reply | Permalink
Dean does it again--pointing out some more emperors with no clothes.
February 5, 2009 11:05 AM | Reply | Permalink
Dean seems to be preaching to the choir today; or maybe selling snake oil to suckers...
The problem with a Buy American provision is that it would destroy American credibility overseas. why would anyone else give us the time of day on trade issues if we're protecting our own markets.
Deeper still, why do we think that American producers are so useless and shabby that they can't compete in world markets?
And why do we think that Americans should necessarily be producing the particular things involved in a stimulus (heavy industrial things we've produced less of over time because our labor force is too expensive and in many cases, too skilled)?
The answer is that people who don't automatically assume that the moving force of history is a right wing conspiracy (meaning, among other things, people other than Dean Baker) know that while the costs of free trade (and, it is the same thing) fre markets can be obvious, they are smaller than the costs of the alternative in the long run.
It isn't always popular, and it certainly isn't populist, but as usual, Dean elevates ideology over empiricism and comes up with a big batch of snake oil for the like minded.
Also, I'm amused that someone actually managed to come out against capital going where it receives the best return on investment.
February 5, 2009 11:26 AM | Reply | Permalink
When other countries erect protectionist barriers do their leaders worry about whether doing so will "destroy their credibility" overseas? Sure, some US politicians will bark about it on occasion, but it seems mostly for show. Nothing happens. It's mostly bark, with not much bite.
It never ceases to amaze me how many of those who are really hardline when it comes to the use of US military power are total patsies on trade policy. When it comes to discussions that invoke the possible use of military force, they'll tell you that it's a jungle out there. Other countries will take advantage of us unless we respond firmly. But somehow they are adamantly opposed to applying that perspective to trade policy.
The real snake oil is what is sold by the ideological "free traders" in our country. They're not always wrong. The problem is that they usually get a free pass in the media and in elite discussions. They rarely are even compelled to argue whether what they're selling applies appropriately to the case at hand.
February 5, 2009 11:54 AM | Reply | Permalink
I'm left wondering, what credibility? The American workers are not shabby and useless. They would like a standard of living high enough to afford single family dwellings, college for their children, a summer vacation before the kids leave home,and a few other modest rewards for their work.
I believe the wages and bonuses paid to the money changers are obscene. I also do not think there is such a thing as free trade.
I believe we must protect manufacturing and agriculture because all new wealth is created in these fields.
If you think imported oil has caused lots of problems, imagine relying on a foreign country for all our food. An overwhelming amount of our new free trade partners have only ag products to export. So once again free trade comes right out of the farmers pocket.
February 5, 2009 12:32 PM | Reply | Permalink
EL Presidente says:
When a company closes a plant in North Carolina and sub contracts or builds a factory in Bangladesh, Pakistan etc. where there are no child labor laws, where there are no worker's rights, no workplace safety programs, no environmental programs, no child labor laws, no government regulations regarding that factory; and lets not mention social work or healthcare, but yep, I tend to look askance at that.
NIKE, ADIDAS, Liz Claiborne, etc. made billions in these third world countries where people, children included, work in deplorable conditions for peanut sized wages.
But hey, look at that dividend check!
February 5, 2009 1:57 PM | Reply | Permalink
February 5, 2009 2:17 PM | Reply | Permalink
tax revenue
I like the sound of that, yessir!
Let's start with that there dividend check, and tax it like the income you get from the sweat of your br...your ass.
Then, let's honor the sacred memory of Five Star General Dwight D. Eisenhower, and bring back the Eisenhower Marginal Rates.
Back to the future, as it were.
February 5, 2009 3:59 PM | Reply | Permalink
Dividends are taxed as income. Hence IRS form 1099DIV.
Seriously...
February 6, 2009 12:02 PM | Reply | Permalink
. . . in these third world countries where people, children included, work in deplorable conditions for peanut sized wages.
I'm not sure the alternative is all that much better.
February 5, 2009 3:20 PM | Reply | Permalink
the alternative
Nice get.
But does this represent the full universe of choices?
February 5, 2009 3:52 PM | Reply | Permalink
No, but ---
A confusing slant on the old Lennon warhorse, don't you think? Nietzsche would be intrigued.
February 5, 2009 4:54 PM | Reply | Permalink
But that is hardly an alternative, but rather more of the same.
And yet, there are some such as Friedman who will tell you these people are fortunate in being provided with a job - as if "job" is something you do to simply fill up your day and keep your mind off the fact you and your kids are starving to death.
February 5, 2009 4:55 PM | Reply | Permalink
"Why would our trading partners start a trade war over a bill that increases demand for their exports?"
This is one of the silliest things I've read in a mountain of silly things that have been said about the stimulus bill.
Your trading partners are not starting a trade war. You are. Or are protectionist actions by America qualitatively different from protectionist actions by other countries? This is called "the Doctrine of American Exceptionalism," or IOIYAA (It's Okay If You're An American). It does not make you popular.
Never mind that you tried this last time. (You have heard of Smoot-Hawley, right?) Never mind that it was catastrophic for the US as well as its trading partners. (You do recall the Great Depression, right?) Never mind that Einstein explained to you long ago that to repeat the same action and expect a different result is the definition of insanity. (You have heard of him, right?)
Look at the exact question you ask: "Why would [y]our trading partners start a trade war?"
Because they see no reason not to.
Many years ago, Canada signed a free trade agreement with you. But that was inconvenient to your lumber industry, so you blatantly violated it to prevent Canadian softwood lumber from being sold in the US. You devastated the economy of one of the three "have" provinces of Canada. You lost the dispute, but not before half the mills in British Columbia had gone out of business. You never cared, or even noticed.
Then a cow in Canada was found to have BSE. You reacted by closing the border to all Canadian beef for years. This was good fun for your agribusiness lobby (Thank you, Tom Daschle!), but devastated the Canadian agricultural sector. You never cared, or even noticed.
The latest rumour is that the bail out of the auto industry will require GM (and perhaps Chrysler) to "protect American jobs" by closing more efficient, higher-quality, more cost-effective plants in Canada. This will gut the economy of another of the three "have" provinces. You will not care, or even notice.
Some context:
Seven years ago, you invoked article 5 of the NATO treaty. Unlike some of your nominal allies, Canada ponied up and sent its largest expeditionary force in fifty years to fight your enemies half way around the world.
Seven years later, we are still there, deliberately serving in the hardest mission available. Last week we brought home the 108th coffin from your war.
This week I was in a room of career soldiers when the question of protectionism came up. One of the senior officers present pointed out that, if you are really so concerned about "American" jobs, there are 2,800 steady, good-paying, government jobs in Kandahar Province that you are welcome to. The bitterness in the room was astonishing, but then, most of the soldiers in the room have lost someone in your war.
Why is this relevant? Because seven years ago, you Dear Leader said that the world was either with you or against you. We were with you. We put our blood and our treasure where our mouths were.
Now, apparently, we are not really with you at all. All the blood that we spilled defending you, all the money we spent on your behalf, apparently means nothing. Thanks for clarifying that.
When the inevitable retaliation starts, there will be similar high-minded rhetoric about "protecting Canadian (or European, or Chinese) jobs," and "the taxpayers expect," and so on.
But that's not why a trade war will be politically expedient for the governments of all of your trading partners.
There will be a trade war because, contrary to all evidence, the US does not have a *complete* monopoly on stupidity in the realm of public policy.
There will be a trade war because you routinely treat everyone outside your country like dirt. And expendable dirt, at that.
There will be a trade war because you piss people off.
Does that clear it up for you?
February 5, 2009 5:29 PM | Reply | Permalink
Sure, but you know what Jim?
No one held a gun to your head and asked you to sign trade agreements or go to war. You did that on your own.
We changed our government, and we need to look out for our poor and unemployed right now.
I suggest you do the same and quit blaming your own inaction and bad judgements on America.
'kay?
Thanks.
February 5, 2009 5:46 PM | Reply | Permalink
Okay, all the folks who think that a stimulus with a "Buy America" provision starts a trade war, believe that our trade partners would be happier with fewer exports to the U.S., if the alternative is no stimulus.
My guess is that they prefer more exports to less exports (btw, our trade partners have regularly shown that they are willing to put up with the U.S. pissing on them and then saying that they like it, so I don't think any of them would ever take a stand on principle), but maybe they will surprise me.
February 5, 2009 7:06 PM | Reply | Permalink
Dean. On their own, the numbers stack as you say. The problem is that they are seen internationally as a "signal" of American intentions. In addition, rightly or wrongly, people in other countries have felt bullied. In Canada, I lost a year of my life, and took a major career hit, fighting against that first Free Trade Agreement. It was a bad deal for Canada, and our PM then is now regarded as having been corrupt, and one of the worst leaders ever. But. Industry went to work & adapted.
The US, under Bush, then proceeded - much as Jim describes - to ignore it, seemingly with no regard to the fuel they were adding to an already damaging perception of the US. The Wars have amplified that. The dead bodies coming home is a big deal here. We're in Kandahar, kids keep dying, and I see comments even here at TPM which are completely ignorant of the fact that some allies HAVE been pulling their weight.
And now, we have the GM fiasco. Say what you want, the Canadian plants are highly-efficient, and cost less than their US counterparts. Canada lived for years in a situation where we accepted fewer vehicles built here than were made here, and adapted, 'til we made more. Now that looks likely to be collapsed by an internal corporate/US Government decision. And Canadians already have to deal with a raft of Buy America policies at work at lower levels (like buses.)
You outlined the quantitative economic cost/benefit of the Buy America provisions in the bill. I agree with you. But there IS a question of the wider political & economic context, and its weight. I would have preferred no Free Trade deal to start with. Give us 10-20 years to readapt, and that'll be fine. But that one little clause was the #1 headline in the media up here. Because it was immediate, and arbitrary, and looks as though it broke treaties you've signed. So... is THAT cost worth it? If it is, then - as Jim's anger expresses - you may find the (absolutely essential) level of international cooperation you need to be badly eroded. Which nobody wants.
Thanks again.
February 5, 2009 7:43 PM | Reply | Permalink
Dean: "I don't think any of them (U.S. trade partners) would ever take a stand on principle, but maybe they will surprise me."
The U.S. is not quite the economic powerhouse it once was, Dean. The incentive to take a stand has improved and the cost is d4ecreasing.
The EU is not amused with the stimulus restrictions, and as for Canada you should know the current government is a minority one.
The new leader of the opposition is keen for an election, so the government will fall as soon as all three opposition parties agree on an issue to take to the voters.
Standing up to U.S. trade arrogance could well be that issue.
February 5, 2009 8:23 PM | Reply | Permalink
Jim, if you believed that Canada's middle class--and with it your society--was being severely damaged in part because Canadian multinationals were relocating to China where they wouldn't have to deal with pesky unions, health and safety laws, environmental laws, etc. what sort of response, if any, would you urge upon your government?
I make a qualitative distinction between countries which have an artificially high competitive trade advantage because they are violating the human rights of their workers, versus ones that are not benefiting from a competitive advantage on that account.
The case for some sort of--preferably multilateral--actions to try to get the human rights violating country to permit freedom of association and a fairer playing field seems much more legit to me. At least I don't think some sort of organized multilateral (preferably, if others would join with us) pressure should be ruled out on principle. The question, rather, would be a pragmatic one--whether such an action would be more likely to produce its desired effect or rather would be more likely to be counterproductive.
It's another matter altogether, it seems to me, to slap on tariffs or quotas against a country such as Canada when it is playing by the rules.
Oh, and not so BTW, we've got a ways to go in the US in effectively honoring the specific form of freedom of association that is the freedom to unionize and bargain collectively.
February 5, 2009 9:38 PM | Reply | Permalink
"No one held a gun to your head and asked you to sign trade agreements or go to war. You did that on your own . . . [Q]uit blaming your . . . bad judgements on America."
Bad judgement? Living up to our NATO treaty commitments is "bad judgment?"
What exactly is your understanding of a treaty obligation? Are you suggesting that we should have "cut and run" on our allies? Is that the American way of dealing with friends? Thanks for clarifying that for me.
Signing a trade treaty with the US is "bad judgment?" Why is that exactly?
Of course, we guaranteed a percentage of our oil production to the US under NAFTA. We could get more for it on the open market. That would certainly help us to "look out for our poor and unemployed right now."
It would kind of screw your energy supplies (we are the largest source of foreign oil for the US), but, hey, it was your idea.
Alternatively, we could all agree that when we sign a treaty, we mean it, we are committed to it and we will live up to it in good times and bad.
Oh. Wait a minute. We all did agree to it already. That's what a treaty means. You can't just ignore it when it's inconvenient. Or are you saying IOIYAA?
Jim
February 5, 2009 6:00 PM | Reply | Permalink
I'm suggesting that you calm down and quit referring to America as the great satan. Look, my mom's Canadian, and I get an earful every time I go visit. Some fair criticism, other things rather unfair criticism.
All I am saying is it isn't just America that got us into this mess. You need to look at the beam in your own eye, and then go after other Countries.
I understand that it's very appealing to blame America for everything, like David Seaton does, but frankly, it's not true, and it gets us nowhere.
Think globally, work locally.
February 7, 2009 9:45 PM | Reply | Permalink
First, realize this is a worldwide economic crisis, not just a domestic American one. International trade and monetary policy are as important to its solution as juicing up U.S. consumption and credit.
Obama, I believe, is aware that the world's major economies have to pull in the same direction to get out of this mess.
Protectionist measures would undermine any appeal he makes for international co-operation, and I think he fears that at least as much as the damage to U.S. exports that a "trade war" might provoke.
"Buy American" policies may resonate with the public, but the U.S. runs a big risk if it pisses off its NAFTA partners or its Chinese sugar daddy.
Let me state for the record that I am not one of Baker's "free trade" ideologues. I opposed the deal when it was being negotiated 15 years ago.
But the three North American economies have long since adapted to those rules-of-the-road, becoming inextricably intertwined.
Unilaterally scrapping bits and pieces of that system would negatively impact the system as a whole -- especially counterproductive at a time like this.
Then there's the whole issue of whether the U.S. can be trusted to abide by its binding treaty obligations. Obama has set out to restore such trust in the foreign policy area; this dispute could cripple that effort for years to come.
February 5, 2009 6:25 PM | Reply | Permalink
And by the way, everything that Jim said -- with a bit more emotion than I did -- upthread.
I was going for the logical argument. Jim managed to weave the two together.
In the days after 9/11, the worldwide sentiment was, "We are all Americans now." In a few short years, George Bush managed to dissipate every bit of that support.
Now Obama has come in with a wellspring of international good will and approval. And what do the myopic morons in Congress do? They start pissing that away too, with an eye to re-election rather than the country's overall good.
The hope that a lot of us felt on Nov. 5 was that maybe, finally, Americans had learned something.
Maybe we were wrong.
February 5, 2009 6:40 PM | Reply | Permalink
Thanks for a note of rationality as counterpoint to my raving, acanuck.
I'm a pretty calm guy, most of the time. I've always been able to take the casual and thoughtless actions of the US against Canada with a dose of perspective and some distance.
I've been to a couple of funerals lately, though, and my reaction surprises me. Saluting a coffin seems to make it personal. If their lives did not buy their country some consideration from the country they were defending, well, that's a kind of a game changer for me.
And I think of my friends who are "playing in the sandbox" (military humour is . . . different) and it gets really, really personal.
At times like this, I try to remember the Patriot Guard riders I met at one of the funerals. (They had bought out all the big Canadian flags the local Wal-Mart had in stock.) I try to remember the individual officers and soldiers I've worked with over the years.
But it's still personal, now. I expect a higher standard from the US now. Because I refuse to believe that standing up for your friends (personally or nationally) is "bad judgment."
February 5, 2009 6:58 PM | Reply | Permalink
I recommend this thread for the comments by the Canadians--thanks for your input.
February 5, 2009 11:57 PM | Reply | Permalink
max_v, US nominal GDP in 1929 was $103.6 billion. Net exports were $300 million ($5.9 bn exports, $5.6 bn imports), not $10 billion. We suffered a trade deficit in 1935 and 1936 ($200 mn each year), but that was the only shortfall in the 1930s. Much more important was the 66% drop in both exports and imports that took place between 1929 and 1932. Total trade didn’t recover until 1944.
Smoot-Hawley increased effective tariff rates from 13.5% in 1929 to 19.8% in 1933. On those ~3,200 items targeted, rates rose to 60%.
.
History has shown that protectionism always leads to retaliation.
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Johann’s fantasy of making things made in Indonesia or China in America must assume either a dramatic increase in the price Americans pay for currently cheap imports, or a dramatic decrease in the cost of producing things in America (e.g., wages). There isn’t any other way.
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This is a global financial and economic crisis, folks. There is no one out there unaffected, which means exports ain’t gonna cut it. We lived beyond our means for too long, and now we get to reduce our standards of living.
.
Very simple stuff.
= = = = = = = = = = = = = =
A reminder,---
At its very heart, protectionism is anti-poor. This sad fact needs to be understood by all those wealthy pundits who loudly proclaim that jacking up the prices paid by scores of millions of people will pay for itself by creating or protecting the jobs of a few thousand.
Get with it: America comprises 100% consumer, among whom 3% (9.2 mn production workers out of 305.7 mn population) actually make manufactured products.
February 6, 2009 12:52 AM | Reply | Permalink
Yes, protectionism absolutely is anti-poor. The most important forms of protectionism in the United States are for highly paid professionals like doctors and lawyers in addition to patent and copyright protection. Of course these special interests are so powerful, they can keep the media and politicians from even discussing the protections that sustain their income and raise prices for the poor.
February 6, 2009 5:31 AM | Reply | Permalink
Actually, speaking as a lawyer, I agree with that point. If I wasn't a lawyer myself, I'd be concerned about the trade implications! Of course, the reason professional services (like services in general) aren't a big deal in trade negotiations is that they aren't always portable. Doctors need to examine their patients. Lawyers are specialists on their local laws. It's hard to learn how to litigate in Michigan from Bangladesh, and hard to diagnose the flu in Peoria from London.
Services are harder to transport than goods (this may not last forever, I'm hopeful and confident that advances in communications technology will eventually make my profession competitive worldwide. Potentially bad for me, but good for the world.)
Besides, Dean, since when are you annoyed with ordinary doctors and lawyers? And since when is the media not discussing these issues?
Lou Dobbs is even more clueless than you!
February 6, 2009 12:10 PM | Reply | Permalink
El Presidente,
If we worked to promote transparency in licensing requirements and eliminate restrictions that don't directly relate to quality, we would have an endless supply of Indian/Chinese/Mexican doctors who are much better qualified than our current crew and willing to work for one-fifth the wages.
http://www.cepr.net/documents/publications/professional_supplement.htm
The protectionists in the media never talk about this one though because their friends and relatives would see big pay cuts.
February 6, 2009 4:30 PM | Reply | Permalink
And I'd be in favor of that. THAT would be a giant step toward making health care affordable for all Americans. Doctor training in the United States, however, is still very good, if extremely expensive. I am far from certain that all of the applicants would be considered qualified even if we had transparent and fair licensing.
But that's not a reason to prevent their application.
I think American immigration laws are absurd, and disproportionally benefit the educated. Being educated, I'm not up in arms about it, be we could do better for our country's future. It's a travesty that people who come to the United States to get educated aren't always able to stay even if they want to, and it is rather silly that "illegal immigrants" are tolerated and have their own lobby.
February 11, 2009 11:18 AM | Reply | Permalink
P.S.:
I guess my point is that saying that certain sectors of our economy are protected (and asserting that this disproportionately benefits the rich) isn't an argument that other sectors ought to be protected.
It's an argument that we ought to liberalize those sectors too.
February 11, 2009 11:21 AM | Reply | Permalink
I appreciate the Canadians chiming in to remind us how parochial our discussions can get when only folks from the US are involved.
In particular, it's useful to see how often the foreigners who compete "unfairly" against domestic workers come from quite reasonably paid and well regulated environments. It's time that we move away from the myth that all imports come from places where exploited young women toil for 3 cents a day making our shoes or whatnot.
February 6, 2009 8:59 AM | Reply | Permalink
Ah, thank you, OhioGuy, you've got the word I've been searching for for quite some time: parochial. If there's one flaw with this website, that's it. It's also why I don't tend to trust the opinions of those who crow that they are well-informed because they get all their news from American political blogs like this one. When I see someone do that, I am really skeptical of anything else they say. I don't really consider parochially-informed people to have the best advice for their own countries much less other countries. It's the whole "can't see the forest for the trees" thing. What's ironic is that sometimes people with the most parochial interests also crow about the globalized nature of the internet, but they don't use it to get global perspectives.
February 6, 2009 1:41 PM | Reply | Permalink
P.S. TPM majority audience = There are only three countries of import in the world: the United States, Israel and Palestine. Well, ok, you could consider Iraq and Afghanistan/Pakistan of marginal interest, but you know, out of sight, out of mind... :-)
February 6, 2009 1:57 PM | Reply | Permalink
What's reassuring is that Obama gets it that a global crisis needs a global solution.
The proof is that he actually used up some political capital to get the bill's protectionist clauses watered down, when the expedient move would have been to do nothing.
Solid discussion, guys and gals.
February 6, 2009 1:49 PM | Reply | Permalink
I did not want to wade into this conversation because I spend my days dealing with its implications.
However, I am dumbfounded by the utter lack of comprehension of both our existing trade laws and the economic merits of the short term Buy America extensions.
According to both our WTO obligations and the NAFTA, American procurement rules regarding federal and state contracts exempt both steel and iron for infrastructure projects. In a similar vein, Canada and the European Union both have exemptions, or "carve outs," for an even greater range of projects. In Canada, it is coal, steel and motor vehicles. In Europe, it is drinking water, energy, "transport" and telecomm. Each country made a choice for its procurement exemptions to these obligations. We are now imposing ours.
The original creation of these provisions are per the Buy America provision in the 1982 Surface Transportation Assistance Act. As such, the current language represents not only a mere extension of existing law but also allows for the waiver of Buy America in the event that it might violate an agreement. In short, it is completely legal and in keeping with our existing trade framework.
It is clear that the bluster of trade wars and violations and so forth is mere hot air. For instance, the EU Ambassador to the US - who participated in the lobbying effort to derail these provision (unsuccessfully) - claims this will result in retribution. For one, it is legal and he is more than welcome to take his case before the WTO; and ought to before he instructs the EU to violate its obligations. Also - and this transitions to the economic argument - he fatuously suggestw that Buy American provisions in the stimulus bill represented a breach of agreement since they represent a long term policy addition. This is not true. The provision applies to the stimulus plan, which is by definition a short 'timely and targeted' plan. Such activity has been lawfully taken by the French and German govts regarding efforts to bolster there hemorrhaging auto industries.
Which brings me to the economic merits, which I wont belabor because I am neither an economist and many of the points have already been addressed here. But put simply, if we do not use American manufactured goods to assemble our meager stimulus package, we risk a serious leakage issue in which US tax dollars are not spent to create employment - the key issue - and are unable to yield the desired stimulative effect (see Morici). And as Dean ably points out, a stronger US domestic market will spur the markets of other countries which depend on our consumption.
P.S. To my Canadian friends:
I'm afraid you haven't a clue of the existing trade agreements to which you speak. You are, however, correct about previous violations. But in this instance you are screaming protectionism without the proper context to place your argument. In fact, I suggest you read the latest adopted amendments of the stimulus plan and examine their exact language.
February 6, 2009 11:18 PM | Reply | Permalink
K-town, glad you waded in, even reluctantly. You do seem to know your international trade pacts.
Your assertion that the Canadians commenting here "haven't a clue" seems a bit harsh, however.
Given the integration of our economies and the fact we're one-tenth the size, most Canadians are viscerally aware of the current state of trade deals and trade disputes with the U.S.
Auto pact, softwood lumber, bulk water exports, Hollywood location outsourcing, MMT and MTBE -- issues like these tend to make Page 1, not some brief on the back page of the business section.
I haven't read the specific text in the stimulus plan but I think I got the gist: the House banned use of the funds for foreign iron or steel, the Senate version upped the ban to include all manufactured products, and now -- under prodding from Obama -- it's amended that to say the clause must be applied consistent with international obligations.
At least it's a nod toward NAFTA and the WTO, but how much weight will it carry at the local level? People will tend to avoid foreign suppliers just to cover their asses.
And nothing guarantees that qualifier will stay in the bill once the House and Senate versions are reconciled.
Protectionism is a dangerous tendency, even when it doesn't violate a specific trade agreement.
Even as amended, the clause would ban Chinese steel and manufactured products from stimulus-funded projects. This at a time when Obama needs China to sop up more U.S. debt and stop manipulating its currency.
Do you think maybe that might cause some problem?
February 7, 2009 2:49 AM | Reply | Permalink
So, did anyone notice that US merchandise exports rose 82.3% over the past five years? And, that exports to China rose 152.6% in 2003-08 ?
Or, that imports from East Asia (China, Japan, NICs and ASEAN) actually fell? That’s just the fourth time since 1980 that such a thing has happened (the previous times were in 1982, 1991 and 2001 . . . see the trend?). It is also the only time that the drop in imports from East Asia didn’t coincide with a decline in overall imports.
Did anyone notice that imports from East Asia were 38.1% of total imports, the lowest ratio since 1985?
*sigh* I didn’t think so.
It is tough to be a free trader these days . . .
February 13, 2009 3:41 AM | Reply | Permalink