Desirable Deficits

[Taxman]

Last week, the House Ways and Means Committee held hearings on legislation to impose tariffs on Chinese imports. While such action is unlikely, it shows that the political pressure to do something about growing imports from China is increasing. However, emotion rather than economics is driving the agenda.

The only reason anyone cares about China's trade is because it operates within a mercantilist framework. The mercantilists preached that countries should always strive to have a trade surplus and avoid trade deficits at all cost. That is partly because they viewed the flow of gold as central to economic well-being. Deficits led to an outflow of gold, which was bad, while surpluses led to an inflow of gold, which was good.

The Spanish were the best practitioners of mercantilism. When they conquered Latin America, they sent back vast sums of gold to the mother country, for a time making Spain the most powerful country on earth. But it all fell apart in short order as the money was simply wasted. And because Spain did not invest in its colonies, they lost their value when the gold ran out.

By contrast, the British did not find any gold in their North American colonies. This was a huge disappointment to them. But in order to try and salvage some profit from their assets, they were forced to invest in the New World, creating new industries like tobacco. But, being mercantilists, the British insisted that all trade from the American colonies had to go through London, thereby increasing the cost of American goods and creating ill-will that culminated in the American Revolution.

Although many of the Founding Fathers were protectionists, they weren't mercantilists. Rather, they favored protection for the purpose of safeguarding America's "infant" industries. But it never worked very well. In his great book, The Tariff History of the United States, economist Frank Taussig concluded that high tariffs did little to stimulate domestic production. This is evident in the fact that the U.S. ran a trade deficit almost continuously from 1790 to 1875.

- continued

Full article here.

[reagan_youth]

I hate to get into an entire tariffs debate, but I have a legitimate question.
I understand the point of the above mentioned article. However, let's just take a Rush Limbaugh statement and start from there.
Rush always states that the free market is the key and tariffs are never the answer. I know this is simplifying it down a lot, but what is the American worker to do when faced with cheap, SUBSIDIZED foreign labor. Do we allow the free market to win in that case?
I am a Reagan Republican, do not get me wrong. However, I have a tough time believing that President Reagan would have stood idly by as manufacturing jobs left the US at unprecedented rates.
Help me out here. No flame wars, just a legit question.

[Taxman]

There is a massive difference between being in favor of free trade and standing idly by when faced with economic warfare. We have a responsibility to respond in that case. However, that is not normally the case. It is much more typical that foreign labor is simply cheap because of the local economy.

[Snake007x]

I think some tariffs are necessary to help pay off debts, among other things.

Let's just not go too far with them to the point of where people no longer want trade with us.

[Potorik]

Originally posted by Snake007x:
I think some tariffs are necessary to help pay off debts, among other things.

Let's just not go too far with them to the point of where people no longer want trade with us.

I agree with Snake007. Because of all the regulations here and the minimum wage and stuff, labor costs are extremely high here when compared to the labor of countries like China, India, Turkey, etc. A t-shirt that is imported from China can be sold for about 10 cents. The labor to make the same t-shirt here will be more than that. American companies cannot compete with this. I think the solution is to place tariffs, just enough to equal out the labor costs. Either that, or take out all regulations on American businesses to make it a real free market, but since that won't happen, I say we stick to some tariffs.

[reagan_youth]

Amen! I was beginning to think I was the only conservative who cared about this issue. To hear Rush you would think that the Free Market was God and solved all problems. I just do not think that Adam Smith could possibly have imagined a global economy with 10 cent shirts and governments that rub our noses in OUR regulations, etc.
So, I would like to take this into the "what if" category. I must admit that the ONLY good to come out of the Alzheimers is that we have not gotten to hear what President Reagan believed on some current issues. I for one became more disappointed and disillusioned with the memory of Dick Nixon every time I saw him on the Today show talking about this or that. I would have much rather seen him go out with us not knowing what he thought of ..(insert X). The unknown allowed us to put in our own thoughts and ideas and to make him "ours".
With that said, I honestly cannot remember what RR had to say on NAFTA or if the Alzheimers had kicked in by then. (NAFTA passed late 1993 and WTO late 1994 I think.)
If he did not comment on these horrible trade bills, what do you think he would have thought of them? Just wondering.

[TXNavy]

Reagan was for increasing trade in North and South America and reducing artificial barriers - his autobiography is pretty clear. The government can't exist on "no" taxes, but lower taxes are better in the long run than higher ones.

NAFTA has been a great success for all involved. No one wins in a protectionist battle - look at the wonders its done for the US shipyards, so completely protected but also the world's worst at what they do. With NAFTA, we've strengthened the Mexican and Canadian economies, which means they're able to buy more goods from us, and so on and so forth. Mexico in particular has benefited the best, especially with the industrial sector around Saltillo. We *want* strong neighbors. You don't want a destitute state feeding off you on either side.

But what about the Latin American countries we've been screwing for years? Every year the WTO nations promise them we'll open our produce and raw goods markets to them, and every year we renege on it. Countries that used to be wealthy in the 20's, before we mostly shut them out of the US markets. This is bad for them and bad for us in the long run. Would you rather buy their goods or pay them in aid as we do now? Hmmmmm...

Honestly, I wouldn't lose sleep if some American t-shirt makers found themselves out of work. That's the nature of commerce and it happens. What the economy does, however, is adapt to such things on its own. Those workers don't just stop making t-shirts, never to work again.

[Potorik]

Originally posted by TXNavy:
Honestly, I wouldn't lose sleep if some American t-shirt makers found themselves out of work. That's the nature of commerce and it happens. What the economy does, however, is adapt to such things on its own. Those workers don't just stop making t-shirts, never to work again.

It's not just some American t-shirt guy thats going to lose his business. It's going to be a lot of American manufacturers. America cannot survive unless it has a strong manufacturing industry. Just look at what happened to England after the U.S. became stronger in manufacturing. Back in the day, England had the strongest, most advanced manufacturers, but then the US came along, England paid no attention to it, and boom, US is the most powerful nation on Earth, and England has almost no more manufacturers. The real competition to the US is not any of those wacko Western European countries. It's the countries that are a threat to our manufacturers. I'm not saying that we should raise the tariffs sooo high that other countries won't want to do trade with us, and as a result, the American consumers pay the price. All I'm saying is that we should place tariffs on those nations that have extremely low labor costs. I come from a manufacturing family, we have a jewelry factory. Our biggest fear right now is jewelry coming in from Turkey at dirt cheap prices. The labor fees we have to pay is more than what the imported final product is. How can this be a good thing? There is no way to compete with these prices. We shouldn't import these things without any tariffs, we need some or else American manufacturing will go out the window, and before you know it, we'll be another socialist country, bowing down to the wishes of the Chinese!....ok maybe things won't be that bad, but you get the point.

[reagan_youth]

OK, I will say from the beginning that my arguments are based on emotion. I normally do not do that but I really have other arguments that I like talking about that I keep rather read up on.
Now, with that said, I would like to look at Mexico in general. I agree that Mexico has a flourishing area JUST across the border where FORMER American jobs have gone. NEVER to return.
What, pray tell, was the purpose in that? What did it accomplish. Illegal aliens are crossing at a rate that makes pre Nafta seem nice. I see NO increased stability in the Mexican government. What the hell are we producing that they are buying? Chicklets?
On the other hand, what are they producing that we are buying? Cars, refrigerators, etc. Yes, I like buying a refrigerator for $595 instead of $800 like it was just a few years ago. However, that guy that used to work at the refrigerator assembly plant in X-Town USA is no longer receiving a paycheck from them. There is NO WAY I am going to believe that he is better off. His mortgage probably went into bankruptcy. He lived off the dole for a minimum of six months. Now that he is making $6 an hour at Wal Mart selling those $595 refrigerators WE are supporting his kids with reduced lunches, etc.
We must start standing up for the American worker. All of this leaves out the national security issue. We won WWII because we produced more widgets than the other guys. (Simplified I know). Now, I read that the magnets needed to make our smart bombs are going to start being produced in China. Now there is a plan. But you see, some bean counter told his boss that they could save $13 per magnet if they produced them overseas.
When will it stop? When we are a complete SERVICE based economy. The problem is that SERVICE based economies do not fare well in recessions or depressions.
(No flame war intended. I just get a little worked up as I see my friends losing jobs left and right....)

[Potorik]

I wonder what The Taxman thinks of all this stuff. He knows more about these things than the rest of us combined.