I love stability. Give me a world where folks can put forth a solid effort in their work and not worry about their future, and I’ll gladly join it with membership in hand. But then with too much stability also comes mediocrity. In times of yore, a lot of folks could simply get by with offering products and services that were less than world class. To put it kindly, they sold crap. But they also benefited from a playing field where the strongest and fiercest were kept far from the action and their kids inevitably got the education needed to make the laggard company successful. Auto Companies in South Korea, Japan and now China have benefited from protectionist policies that offered different degrees of medium-term stability and long-term learning for their once weak automakers. Should we follow suit?
I don’t know. I do believe that the current system we have now stacks the cards against the domestic automakers and encourages them to produce their products overseas. For those of you who believe that this is the only function that’s exported, dream on. China is literally building an exceptionally large market by educating their population and stealing technology whenever possible. The South Koreans throw in a very long line of trade barriers and restrictions that have made foreign competition very minimal in their market. Who did they learn that from?
Primarily from the Japanese. And nearly every country and economic union have policies that intentionally regulate foreign competition. Throw in the fact that a lot of Volkswagen’s (and Daimler’s) success is determined by being the in-house favorite in several developing countries, and you end up with a ‘myth’ of truly open markets. Given our untenable deficits and high unemployment, I repeat: is it time for us to follow suit?
Yes, it is time. Blind adherence to any philosophy without a reality check to insure that it is able to accommodate the changes and imperfections of the real work is nothing but fundamentalism. Free market fundamentalists are just as dangerous as religious fundamentalists, IMO. I’m sick of being the philosophical banner bearer for the world, while the rest of the world practices a ‘bastardized’ version of capitalism and eats our lunch.
I don’t think trade barriers really help the consumer. Are these countries not WTO members? Can the US not file suit against protectionist measures?
Brazil (where my wife is from) has a large number of protectionist measures and it really really hurts the consumers.
Want a honda civic si in Brazil? Prepare to pony up $100k Brazillian reais (roughly $57,100 US). My wifes sister, as a teacher, makes probably about US $600/month. She will NEVER in her lifetime be able to afford a honda civic or really ANY japanese car in her lifetime due to protectionist policies. Only locally built cars (I know just chevy/vw’s are produced there) don’t have import taxes.
They even have protectionist policies for industries that have NO local production such as computer processors. Last time I checked the price was about 10x what it was in THE USA.
Who does that _REALLY_ help ?
I know a japanese hayabusa on end of summer closeout here is about $9k-$10k. IN brazill it’s about $90k reais, or about the price of a house.
A friends uncle wanted one more than anything and actually ended up selling his house & getting divorced in the process, but he has his ‘BUSA.
On the other hand, you have countries like the USA who is in debt to the world. there has to be some middle ground, I just don’t know what it is.
Every single time I go there, my wife (whos extended family numbers 200+) begs us to bring anything electronic we can. Everyone is willing to pay US cash prices to us to bring laptops, mp3 players, etc. Unfortunately the tax free amount allowed in is $500 which doesn’t buy much of anything. Anything over that is taxed at +50%. If you can’t prove the value of the item (I _ALWAYS_ bring receipts with me), customs picks a value and you pay 50% on that
(example: Blu-ray player from wallmart $100. Blu-ray player in brazil 1700 reais. 50% = 850 reais = $485 in taxes)
ABSOLUTELY NOT.
If we have evidence of lawbreaking, we should take them to court instead. International Trade courts that deal with dumping and other illegal trade activities.
Protectionism only leads to the shrinking of thw world Economic Pie for everybody, and misery, less growth, depression and even war, exactly as it did in the 30s, when fools econ illiterate politicians, against the advice of the Econ Literates, resorted to the demagoguery of Protectionism.
Auto Companies in South Korea, Japan and now China have benefited from protectionist policies that offered different degrees of medium-term stability and long-term learning for their once weak automakers. Should we follow suit?
Follow suit? Auto Companies in the USA have also long “benefited” from protectionist policies as well. Surely you know about the “chicken tax” that provides enormous tariff protection to domestically produced trucks (and SUVs, since they count as trucks).
As we can see, “protecting” the US market and encouraging domestic automakers to make nothing but trucks and SUVs have certainly strengthened them.
What the fundamentalists never seem to address is the hard fact that a consumer’s ability to buy stuff for cheap is not the only metric of success in an economy. If a $100 blu-ray player comes at the expense of stable, high-wage manufacturing jobs (traded for minimum-wage McService jobs), then the tradeoff is not worth it.
You can argue theory all you want . . . the real-world results show that one of the idealogically ‘purest’ countries (the U.S.) is seeing real income shrink for most people; seeing greater gaps between rich and poor; seeing good jobs disappearing for many of the citizens . . . while the countries that bend the rules are growing and increasing their people’s standard of living.
We are the only country practicing “free trade” – to our detriment. It seems like our government is the only government in the world that seems to be actively engaging in policies that hurt the long term economic health of the country.
is seeing real income shrink for most people; seeing greater gaps between rich and poor
The same thing is happening in Germany and Japan.
you have countries like the USA who is in debt to the world
Japan’s gov’t debt load is 190% of GDP the US gov’t debt load is ~80%. Their debt level is nearly 2.5x as high as ours.
http://www3.interscience.wiley.com/journal/119178479/abstract?CRETRY=1&SRETRY=0
Abstact:
In the last ten years, a number of economists have tried to explain the observed decline or stagnation in the real wages of the US labor force in spite of slow but steady rise in labor productivity. This paper reports a similar affliction for the Japanese labor market since 1973. The explanation for stagnant wages in spite of respectable productivity gains in Japan lies in the vast appreciation of the yen versus the dollar, and ultimately in the highly regulated retail distribution.
Related: anybody else see that WSJ article last month on the Ford Transit Connect and what was done to avoid the chicken tax? Import a Turkish-built passenger van, rip out windows/carpeting/seats, put unwanted parts in the shredder.
http://online.wsj.com/article/SB125357990638429655.html
Every nation has protectionist policies, including the US. To that extent, this post is a straw man argument — it is not accurate to claim that we have none.
On the other hand, the US does have open markets by world standards, we do have less protectionism than other nations. It’s ridiculous for the economic faux-literates to claim that protectionism is anathema to successful economies, when many successful economies do use protectionism to their own benefit.
To bring this all together, it would help to understand that the US maintains its open market practices largely for its own benefit. We don’t have them because we’re naive or idealistic, but for more practical reasons. We have them because these trade policies allow us, in effect, to export inflation.
By allowing in cheap imports, the US ends up with lower inflation than it would have if we relied exclusively on domestic goods. We get the benefit of low wages abroad, which makes products cheaper than they would be if made in the US. Since wage growth is usually the prime component of inflation, we effectively use imports to keep inflation low.
If we had more trade barriers, our goods would cost more and we would have higher inflation. We would probably save some higher wage manufacturing jobs, but those would come of the expense of the service industry. The CPI would be higher, so interest rates would be higher as well. The consumer would feel less prosperous, because of the higher costs of credit and goods, which would mean less spending, which would lead to lower GDP. With our disposable incomes reduced by the higher prices, we would buy less stuff, so other businesses would fail, creating higher unemployment in some areas that might offset the gains in other sectors.
None of this is easy. The current path is unsustainable, but the alternatives are not easy and not necessarily even any better. As far as cars go, the consumer would really lose from trade barriers — it’s hard enough as is to get Detroit to think competitively even when it has a gun to its head, let alone when they are protected.
For a country like the US, what may make more sense is to create incentives for foreign automakers to build more plants here, so that we get the products that we want while keeping most of the money in the US economy. In retrospect, the “voluntary” quotas maintained during the 80’s may have been a good idea, if only because they motivated the Japanese to build plants here.
Yes but not the way most people envision it. High tariffs should be placed on autos based on place of manufacture. GM Ford an Chrysler products produced in Mexico or Canada as well as Foreign cars produced outside the US should heavily taxed. All autos produced in the US should not be. The purpose should be to encourage high paying jobs to remain in the US by rewarding any company that produces in the US. The numskulls in Detroit actually think its ok that they import cars to sell. Note Mexico and Canada are foreign countries. Cars produced there are imports tax them.
Toyota, Nissan, Honda, BMW and Mercedes all produce cars in The US. Those vehicles should have no tariffs.
Domestic automakers moving production overseas seems to me to be more the result of lousy management than any issue with trade barriers or the lack thereof. Don’t Toyota and Honda source most of the parts for their US built cars here in the US and still manage to make money on them?
What do you mean should we follow suit? We were among the first and are still doing it. The massive national highway system, unique safety standards, bailing out Chrysler in the early 80’s, subsidized research including ethanol, and now bailing out everybody to the tune of $100M or more.
Pch101: As far as cars go, the consumer would really lose from trade barriers — it’s hard enough as is to get Detroit to think competitively even when it has a gun to its head, let alone when they are protected.
This hits the nail on the head.
I understand that any ideology has to be flexible enough to survive in the real world – and that includes free trade. Sometimes, politicians have to pay lip service to an idea while taking steps in the opposite direction (as Reagan did owith the “voluntary” import restrictions in the 1980s).
The problems is that, whenever I hear about the need to “protect” our auto industry, I can’t help but think that if we had taken those steps, GM and Ford would be offering us updated versions of the Vega and Pinto that get about 20 mpg and meander from 0-60 in about 20 seconds. The build quality would embarrass a high-school shop class, and the price would be about $40,000.
Detroit management would be whining about how hard it is for them to compete and how they need those million-dollar bonuses because they work so hard…and the UAW would be threatening to strike if members didn’t receive at least $150,000 a year for four days of work.
@Pch101 – Amen brother. The World as a whole does not look on the United States as the banner child of free trade. I think that distinction still historically falls on Great Britain. Rather the world views us as their most valuable customer. We have the GDP to spend on their crap and their commodities. Europe is so bothered by our economic prowess they are busily establishing a free market republic headed by a President soon to compete for the honor.
I’m sick of being the philosophical banner bearer for the world, while the rest of the world practices a ‘bastardized’ version of capitalism and eats our lunch.
Oh please, all Roads lead to Rome wasn’t just a euphemism. America is the new Rome by most standards and the world constantly compares itself to us, right or wrong. We are customer to the world. However, like Rome, it does us a disservice of not being able to take care of our own.
I never did believe in “Free Trade”. I have always believed in “Fair Trade”. That may mean tit-for-tat trade with other countries over the same product or a “we trade you ‘dis and you trade us ‘dat”, where we exchange products each other does not have.
Sherman Lin:
“Toyota, Nissan, Honda, BMW and Mercedes all produce cars in The US. Those vehicles should have no tariffs.”
I agree but would add that it should be based on US manufactured content. What’s more “American” – a PT Cruiser made in Mexico with a US built engine, transmission, and interior parts or a BMW built in South Carolina with those same components built overseas?
YZS:
Chrysler did not get any federal money in the 1980’s, not even a loan. They got loans from private banks that were guaranteed by the feds.
It’s easy to focus on what we import while losing sight of what we export. Trade wars have never ended imbalances while usually causing worse problems.
Smoot Hawley comes to mind.
“Auto Companies in South Korea, Japan and now China have benefited from protectionist policies that offered different degrees of medium-term stability and long-term learning for their once weak automakers”
http://www.mac.doc.gov/japan/sector-specific/usjfinal.htm#MEASURES%20TO%20ENCOURAGE
You know, I get a little weary of this old song about protectionist measures by the Japanese Government. At the absolute best you are 15 years out of date.
Here’s my cite for saying you’re wrong… please provide one for your opinion:
http://www.mac.doc.gov/japan/sector-specific/usjfinal.htm#MEASURES%20TO%20ENCOURAGE
Toyota Cavalier, anyone?
http://www.members.shaw.ca/toyota_cavalier/
“By the late 1980s, Detroit’s relationship with Japanese automakers had stabilized–major Japanese plants opened across the United States and the Japanese government relaxed its tariff laws to allow free competition from American automakers. During the 1990s, cooperation became the rule of thumb, and cars can no longer be considered strictly “Japanese” or “American,” as most automobiles today are constructed in any number of countries from parts made all over the world.”
I visit Japan regularly, and there are a noticable number of ‘foreign’ cars on the streets there. In rough rank order of sightings, VW, BMW, Mercedes, Volvo, Jaguar,Ford (Europe),Jeep; a smattering of others. This is not just a Tokyo phenomenon, but in the other major cities I’ve visited as well. No, there are not a lot GM vehicles. Mostly exhibitionist vehicles such as Escalades and Hummers, but I’ve seen the occasional Buick.
Yeah, we should let Obama and Nancy Pelosi set our trade policy! That would save the economy…
Seriously, we could just let 535 congressmen and Senators push our trade policy wherever the political winds blow, but I doubt you’d be happy with the result when your livelihoods became bargaining chips.
There’s a lot of confusion that results in calls for protectionism. Let’s try to unravel some of it.
Firstly, jobs in manufacturing are falling globally, just as jobs in farming have fallen in developed countries from about half the population a century ago to about 3% today. Even in China, the number of jobs in manufacturing continues to fall, as labor productivity rises.
Protectionism won’t stop losses in the manufacturing sector. In fact, they add to it as other nations retaliate with their own tariffs.
Secondly, protectionism simply doesn’t work to protect home grown auto industry. In the long term, all it does is penalize consumers who lose the benefits of competition, including improved quality and reduced pricing.
Thirdly, we all know that Detroit’s mess is of their own doing. GM and Chrysler went into bankrupcy because of their internal bureaucracies, poor labor relations and disasterous disinterest in quality. Not because they couldn’t compete with foreign competitors.
At this point, the only thing keeping GM alive is the profitability of their Chinese operations. Do you really want to destroy that?
Protectionism is a zero-sum game, the moral equivalent of putting a thumb on the scale.
But yes, I can empathize with the plight of a machinist who just saw his job move overseas.
The question we should be asking is “How can America become more competitive?” One modest suggestion: stop giving financial aid to college students majoring in, oh, Sociology, Journalism or
Women’s Studies, and put that money into encouraging future engineers, scientists and linguists.
As is noted, manufacturing jobs are falling. Manufacturing productivity is NOT. The US manufactures more now than it has in past decades, even though manufacturing as a /share of our GDP/ is falling.
Regarding manufacturing jobs… Do you really want to keep all the jobs in hot, sweaty manufacturing facilities as opposed to other service- or labor-based jobs where pay is equivalent or better? McDonalds and KMart are not the only alternatives to manufacturing. There are other IT and service-sector jobs. Putting together a car is a bit more complicated than putting together a burger. Saying that all manufacturing jobs would get shoved into fast-food is blatantly wrong, and would be a massive misallocation of useful labor.
For protectionism, here’s the trick: even if the other country refuses to import our goods, if they’re selling us the stuff we want at ridiculously low prices, why should we object? It makes us better off, regardless.
Furthermore, it is imports and exports that are weighed in the so-called “trade deficit”, while investments and purchases of debt are ignored. All that is looked at is the flow of goods, so it ends up being a very narrow view. It’s also well-worth noting that the trade deficit hearkens back to the days of mercantilism, long discredited by ye olde Adam Smith, who wrote his book On the Wealth of Nations back in the late 1700’s. In free trade, everyone is better off not just because you can get what you want at lower prices, but also because of the principle of comparative advantage. In other words, when we choose to manufacture one item here, we give up manufacturing another. Yet, it may be better for us to manufacture the forgone item and let someone else handle the first. Balancing out who is best at making what is what comparative advantage is all about.
It’s noted here that real wages are falling, yet if I am paid twice as much as other countries, but have to spend my money on objects that cost twice as much as other countries, I am no better off. What matters is costs versus income, not simply income.
And no, we don’t need to protect our domestic auto industry. As others here have pointed out, if we protect an industry that is known for its shoddy products, we’re giving them little incentive to produce better products. It is the fight for survival that forces companies to continually improve.
I think we should have few tariffs with any country that also has fairly open markets. But most countries don’t, including those that export to the United States. And trade restrictions aren’t just tariffs. I’ll give an example-the United States is the world king of “entertainment software” (that is, movies, television shows, music, books, video games, etc.). But many countries (for instance, Canada, China, and France, to name a few) have restrictions on how often a foreign song can be played on the radio or how many foreign movies can be shown in theaters, or don’t enforce copyright laws adequately. Even though none of those things are tariffs, and the actual physical product (CD or DVD, etc.) might be made locally, those are trade restrictions just like a tariff or quota.
Giving the domestics a protected market has been tried and failed. The Reagan administration’s 1981 Japanese car quota gave them breathing room to improve their model line-ups and quality. Instead they charged more for even lousier cars and consumers paid through the nose.
Robstar :
October 14th, 2009 at 11:29 am
Want a honda civic si in Brazil? Prepare to pony up $100k Brazillian reais (roughly $57,100 US). My wifes sister, as a teacher, makes probably about US $600/month.
—
It happened to China before and still somewhat true there.
On the surface, it’s trade protectionism. But it really is a over-valuation of Brazilian reais (or Chinese RMB).
If the “trade barrier” is lifted (i.e. a Civic lists at US$18k there), there will be a dramatic depreciation of the Brazilian reais. Your wife’s sister salary will be worth about US$200.
I am a firm believer in free trade. However the gains made in free trade are by design heavily slanted towards the wealtiest segment of society. The problem in America is not that trade is too free, it’s that the resulting wealth is too unevenly distributed. Several posters have commented that the gap between the rich and poor in America is getting wider. Free trade contributes to this, so it must be offset with higher taxes on the wealthy and more social services for all. If health insurance and university education were made affordable through subsidies then families could make a decent living at a lower paying service job. The last few administrations, Republicans and Democrats, have forgotten this side of the equation.
I miss talking about cars.
wsn,
You have it backwards – the revaluation of the Real or RMB would make Brazilian or Chinese wages higher not lower.
# 50merc :
October 14th, 2009 at 1:02 pm
The question we should be asking is “How can America become more competitive?” One modest suggestion: stop giving financial aid to college students majoring in, oh, Sociology, Journalism or
Women’s Studies, and put that money into encouraging future engineers, scientists and linguists.
—-
I don’t agree. Maybe we really need more people learning sociology than engineering. You never know.
My suggestion may be a bit extreme, but it can work:
Only allow the top 70% net tax payer to vote. (GM workers receive more tax than they pay, so they are negative net tax payers)
That way, (relatively) competitive workers shape the political landscape. And we can prevent the 10% lazy/dumb ones vote us into bankruptcy.
Generally I like the idea of buying Michigan/USA made products whenever possible. I can live with some inflation better than I can live with 15% unemployment. (When it gets to 16% it probably takes my job too).
But it’s really hard to justify helping the D3 in any way. I supported the bailout because I want a soft landing rather than a crash. I support it for my sake (I do not work in the auto industry) and for my neighbors sake, but the truth is GM/Ford/Chrysler haven’t really even tried to compete. It’s been decades since their cars have come close to being as reliable as the competition.
If I had the feeling that execs in Detroit had made good decisions for the past 35 years, and just couldn’t quite keep up without some protection, I’d be all in favor. But they’ve made lousy decisions, or done nothing at all. They’ve sat on their hands for 35 years and now wonder why they’ve lost half their market and are rapidly loosing the other half.
Instead of protectionism, I suggest we round up the top 30 execs from each of the D3, stand them in front of a wall, and shoot them.
No, absolutely not. No trade barriers of any kind for any product at any time.
Tariffs are just ways for politicians to protect their friends and pretend they are thinking of you.
Here is a secret the politicians of the world don’t want you to know – we are all on the same space ship.
“jonny b :
October 14th, 2009 at 1:54 pm
I am a firm believer in free trade. However the gains made in free trade are by design heavily slanted towards the wealtiest segment of society.”
Where did you see that? That’s absolutely wrong. The poor suffer much worse in the absence of free trade than the Rich ever will. The ROckefellers and the Kennedys never shop at Walmart, but most of the US poor that have a brain do. Walmart saves the US consumer 10,000,000,000.00 a year, it is estimated, and this is largely a result of the availability of free trade and imports.
“Several posters have commented that the gap between the rich and poor in America is getting wider. Free trade contributes to this,”
no it absolotely does not. And in fact, free tradeeventially will also narrow the salary gaps between the high-paid and low-paid workers in different nations making the same product.
” so it must be offset with higher taxes on the wealthy and more social services for all.”
That’s a recipe for disaster. Especially in the way overtaxed USA.
” If health insurance and university education were made affordable through subsidies then families could make a decent living at a lower paying service job. ”
How many people really are qualified for a serious university education? IS college like grade school, which everybody needs to do? My dealer charges $120 an hour for basically unskilled labor, the mechanics that never FIX stuff, but merely REPLACE it. Name ONE MIT phd genius math professor that makes this kind of $.
Do Janitors and plumbers need a college degree? do taxi drivers need a PhD in Sociology or education? Do social workers need a PhD in Women’s studies?
We can have protectionism now that the domestic industry is dead. Isn’t it a bit late?
ONE MIT phd genius math professor that makes this kind of $.
Yi Tang is the Global Head of CVA Strategies at Morgan Stanley and he has a PhD in Physics. Many of those with math and physics PhDs go on to become 7 figure earning quants.
Many of those with math and physics PhDs go on to become 7 figure earning quants.
Logical fallacy alert! Just because many ‘quants’ on Wall Street have advanced degrees in math and physics does not mean that those with advanced degrees in math and physics are, or have the opportunity to become, wealthy. For every millionaire Wall Street math/physics PhD I can give you 100 thousandaire math/physics PhDs working in academia/industry/government.
Smoot-Hawley, anyone?
Seriously, though – there’s little we can do to prevent the exporting of manufacturing jobs (aside from the ones that involve the highest-quality high-tech goods), but we can protect American service jobs better by fighting outsourcing. What the hell are the Indians, Filipinos and all the other exotic Third World locales that are stealing jobs gonna do – increase the price of their crappy export goods?
Morea,
I was asked to name one.
Can we stop using “the gap between rich and poor” like it’s some kind of defined metric? The difference between rich and poor will continue to grow because poor has a limit while rich in infinite.
Auto Companies in South Korea, Japan and now China have benefited from protectionist policies (…) Should we follow suit?
“Should we follow in that direction?” is a spurious question. The applicable question in the context of reality is “Should we continue to lead in that direction?”.
The USA has to address productivity and structural reforms (like health).
Australia did this in the late 1980s and it was very painful.
For far too long, the USA has been fixated on the “genius” of Wall Street gambling, which has ZERO productive outcome.
For the most part, the USA has the technology and education to change the level of value add per unit of energy or labour.
Energy productivity is something you can easily change. Just for cars alone, if in the USA, you were all driving cars that were just 5% more efficient or you drove less there would be a further $50b-$60b/pa of spending or household savings (investment).
The problem with the North American auto industry was never trade policy. The problem was their steadfast refusal to build better products for three decades.
You wanna solve the trade deficit? Produce stuff the world wants to buy.
@Richard Chen: thanks for the link to the Chicken Tax, interesting read.
Down here, Ford would have to do exactly the opposite: a transit connect for passengers (rear seat and windows) would pay 19% tax and the panel van version of it would not (actually, you have to pay it but you can credit it the next month agains your VAT)
People buy panel vans, claim the tax credit and then put rear windows and rear seats them. There is a catch, though: for 2 or 3 years after the tax credit has been claimed if they catch you with a modded van you have to repay the tax plus fines. Its very rare to be fined though, if they do fine you it because you normally are already under review for much more than that.
Won’t the continual and ongoing devaluation of the dollar eventually solve this ? Importing a car will become more expensive, and overseas labor will become more expensive compared with domestic labor and production.
jmo :
Morea,
I was asked to name one.
And so you did. Then you over reached by saying “Many…”.