Greedy Goblin

Wednesday, November 16, 2016

The two problems of international free trade

Tomorrow a game post will come! Hold on!

I'm a steady supporter of free trade. I strongly believe that if two actors are allowed to trade, they will both be better off. I believe that the best regulation is no regulation. And yet I supported a candidate who ran with tariffs, no TPP, no TIPP, renegotiating NAFTA and draining the swamp of Wall Street.

The first group of reasons is worker rights, minimal wage, health-protection and environmental protection regulations. Which aren't bad on their own, just absolutely incompatible with international free trade. The foreign company having no such restrictions will have huge advantage that they didn't earn, just got from the rules. It's not fair competition if you have to run with a bunch of bricks on your back, the domestic company can't just improve to remain competitive, as they can't do anything about the rules. So the job will simply be moved out of the country and the local workforce becomes unemployable. The workers can't just decrease the price of their workforce or offer better terms to be hired as they can't give up minimal wage or their rights to health and safety.

Of course you can argue that no one should be employed below minimal wage or have their health and safety risked, but you can't enforce it outside your country. So the socialist reasons for implementing the rules will be for nothing: it doesn't matter if we ban childwork if we let foreign childwork-products be imported. People will still work for pennies in horrible conditions, just not in your country. You merely removed their conditions from your sight at the cost of making your own worker class unemployable.

Don't get me wrong, I still think that we shouldn't limit free trade just to protect domestic jobs just because. But we should have free trade with countries only where the playing field - regulations and rights - are equal. This is more or less happening between countries of the EU, but absolutely not between the US and its NAFTA-TPP partners. Since it's not reasonable to expect that the US can enforce US laws and minimal wage to South-East Asia or Mexico, the advantage gained from the lack of regulations must be offset by tariffs. Or, you can argue to abolish minimal wage and worker protection laws and liability for health damage during work at home. Good luck with that!

The other big problem is export-import balance. In the textbook example of free trade, FlatLand sells wheat for the minerals of HillLand. Both are better off with the exchange. And that would happen in real world i we'd enforce export-import balance. The value of stuff China sells the US should be equal to the US stuff sold in China. But it's not, the US-China balance is horribly off. And no, not because China keeps its currency rate low. That would simply mean that they beat out third parties from trading with the US. The problem is that China is not buying much from the US, they invest the money they got for their export in the Wall Street. Wall Street loans it out to US people and companies who then buy more Chinese stuff. Continue this cycle long enough and you get awful lot of debt and that's exactly what's happening. Unless you believe that the US debt can grow infinitely and the Chinese people will just work forever without buying consumer goods, you must realize that this bubble must burst and at some point China won't give the US more loans and this scheme comes down crumbling as the US has no export to ever repay it.

Why is it your problem you wonder? Because last time Wall Street came down it was saved from your money. It will happen again, even under President Trump. The Congress and Senate would revolt against him if he'd refuse to play along. Too much donations and too big shock would happen if Wall Street was left to just go bankrupt - as they deserve to be due to their inability to any resemblance of responsible operation. Many gullible little guys would lose their savings, many honest but careless companies would lose their operating money or go bankrupt over being overextended and unable to refinance. This would make lawmakers scared enough to just give in and save those charlatans once more.

Yes, my ideal solution would be just let Wall Street go unregulated as they please and when they go bankrupt again, just let them. But it won't happen, so the second best option is stop them from blowing this bubble. The Chinese must be forced to buy American wares in return of what they sell, or if it's impossible, the American import must be quelled by tariffs.


Smokeman said...

Holy hell, Gevlon. You nailed it.

Indeed, trade should be free... BETWEEN EQUALLY YOKED PARTNERS! You don't even have to regulate that at all, the currency exchange rate will pretty much work it out in the background.

But with unequal yoked partners like the US and China, BALANCED trade has to prevail. Dollars one way has to equal Yuan the other way. And the exchange rate needs to be figured in a stable medium like gold.

We are NOWHERE near that. And gold is a distant joke right now as a measure of value in international currencies. We are at the precipice of a global financial meltdown... the only real question now is how long can we all ride the lightning before it finally hits the ground?

And the longer that timeline drags on, the closer we come to the "Judge Dredd Future (tm)."

Anonymous said...

"Since it's not reasonable to expect that the US can enforce US laws and minimal wage to South-East Asia or Mexico"

well maybe not minimum wage, but when it is US companies employing people in South-East Asia and Mexico, or polluting in Africa, India or China, it absolutely should be reasonable

99smite said...

Nailed it again, Gevlon!
Only thing is, saving entities like wall street or the banking sector is what I call crony capitalism.
It really enrages me, when I hear political leaders or chairmen of big business ramble about free trade and capitalism and free markets. They use these terms to chastise people with socialist ideas about economy and to teach other companies that they should adapt or go bankrupt.... Only, when they are threatened with bankrupcy, they do not go out of business as should be a consequence of their stupid business decisions, but go begging to politicians to save their asses by threatening them with the drastic consequences of them failing. While they argue that when other companies go bankrupt, the work force of these companies will be set free to work for better companies, they then argue taht their work force will be out of jobs and that would be the end of the world...

So, from that POV, FUCK capitalism in this state! Capitalism can only exist when there are equal laws and equal opportunities for all the market participants.

The American icons of capitalism, like Rockefeller, Carnegie, Astor, Rothschild and the likes were not capitalists, but monopolists. They did not care for free markets, onyl for themselves. They strived for a monopoly in order to dictate prices and rule the market.

luobote kong said...

Or to put it another way, Chinese mercantilism - a political choice, has stuffed US neoliberalism - also a political choice. There is no such thing as a free market. All markets operate as a result of some degree of political accommodation. Those that have the power can influence the politics. Those that don't have to suck it up. If the US decides to make different political choices then they might get a better deal. But it won't be a free market. That ship has sailed and China is already divesting itself of US bonds.

Anonymous said...

@Gevlon - China actually has a fairly robust set of workers rights regulations. Domestic companies are required to provide housing, food and healthcare to their employees, or they must pay large stipends into municipal funds to instead. If you were to ask a manufacturing worker in the US how many meals their company provides to them, or the quality of the apartment they're given, you'd get laughed at because almost nobody gets that here in the states. The total package of what you get in china is actually a lot better compared to a similar job here in the US. Where the US beats China is that your labor is worth more, and what you can get with it is better.

Saying that China and the US are on unequal footing because of the differences in regulations isn't accurate: The difference is how those regulations are leveraged between the two countries.

China has built it's entire economy so that foreign money comes in and stays. A foreign company trying to do business in china has an albatross of regulations around it's neck, specifically to prevent them from being competitive with domestic companies. That's why Nike had to contract a Chinese company to manufacture it's shoes, rather then starting up their own factory. You have to cut in a Chinese company to do business, or you can't operate profitably. That means the money flows one way: To china.

You remember when World of Warcraft released in China? All of the censorship had less to do with deeply held customs, and more to do with making sure foreign media has a huge disadvantage in the Chinese market. That's also why they refuse to take part in deals and partnerships regarding copyrights, or the protection of ones rights over products. As you can see from Joyland(The wow/universal studios ripoff theme park), the Chinese don't really have that much of a problem with foreign entertainment products as long as a domestic company is making the money instead.

These extra regulatory links in the chain and middlemen on the Chinese end make it difficult for US companies to sell competitively in china, but really easy to buy from them.

Rodolphe Ortalo said...

Alternative option: in the meantime before the next big Wall Street failure, prepare an alternative stock exchange system with adequate controls (why *not* do something big after all) and propose it for replacement as soon as the main one is failing.
Granted a brand new worldwide financial system may be as unthinkable as a brand new open-source general purpose operating system ; precisely.