More on Trade

The fact that free trade is even debated is very frustrating to economists. We can all prosper by free trade, but politics often get in the way. This article is more evidence of this. (More of this has been talked about in the past, for more info look to the "trade" label at the end of the article).

Trade with China

This classic post my Mankiw highlights how confidently economists feel about trade. That is why it is so frustrating to read this news. Usually these things are meet with retaliatory tariffs and in the end no one wins. It will be interesting to see how the US reacts.

Obama and the Tire Industry

One thing that economist stress is the fact that trade is good. Most economists would agree with the assertion that protectionist policies deepened the Great Depression. This is in part excusable as politicians catered to the initial drop in industry by ‘protecting’ them with tariffs. We fast forward to today and assume that our politicians take the important lessons we learned from the Great Depression and abandon ‘protectionist’ policy for short political gains. It does not always work out that way.

The latest example of this is in the tire industry. Obama decides to place tariffs on tires imported from China. Political opinions are that he is paying back some union support during the election (not to pick on Obama, as I recall an extremely similar action by Bush when he got into the office by placing tariffs on steal). The next step will be China’s retaliatory tariffs. The end result: reduced trade… which to an economists is a sad event.

More on ‘Buy America’

The ‘Buy America’ provision is another form of protectionism. This argument is advanced by Temple economist Dr. Dunkelberg in the following link.

Buy American

The ‘Buy American’ provision is a type of protectionist policy that economists warn about. The theory is that the stimulus money should be spent on American products… which seems good at first. But one of the major problems with such policy (aside from subsidizing inefficient production) is that they often are followed by retaliatory trade barriers. Such is the case in the following links. The first discusses the ‘Buy American’ provisions, and the second discusses retaliation.

The bottom line is that trade is NOT a zero sum game. Everyone wins by trading, and in this instance it appears as if everyone will lose.

Protectionist policy in the stimulus package II

An update here: Obama appears to be backing down.

Will there be protectionist provisions in the stimulus package?

Most economists are probably keeping a close eye on this issue.