China tire tariffs

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Robert
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Joined: 04/01/2005 - 1:01am
Obama is not the only one.

Obama is not the only one.

Geneva-based World Trade Organization issued a report this week that cited "continued slippage toward more trade restricting and distorting policies." It listed 91 new potentially protectionist measures by G-20 members just between the April summit in London and the end of August, 15 of them by the United States.

Protectionism rising despite G-20 vows on trade

FLAMMENWERFER
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Joined: 03/27/2005 - 1:01am
Let's keep our eyes on the

Let's keep our eyes on the prize, i.e., union support. Trade policy, safety, relations with China, have nothing, absolutely notihng, to do with this decision.

pmconusa
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Joined: 04/20/2000 - 12:01am
There is absolutely no doubt

There is absolutely no doubt that almost anything you can buy in the United States can be bought more chaply from foreign sources. If we fully utilized that option, where would the money (income) come from to buy it.? That is why a society to survive must be a closed system that ignores what goes on outside it except for that which it must trade for its own survival. Not economics, plain common sense.

Economike
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Joined: 11/28/2006 - 9:09am
Let's keep our eyes on the

Let's keep our eyes on the prize, i.e., union support.

Agreed. The real story here is that Obama is willing to hobble the economy in exchange for union support for his political goals.

There is absolutely no doubt that almost anything you can buy in the United States can be bought more chaply from foreign sources. If we fully utilized that option, where would the money (income) come from to buy it.?

You've started to answer your own question, pmconusa. In order to buy something, you must first produce something to exchange for it. You're correct that in this case, plain common sense seems at odds with economics. The economic idea is called [url=http://www.econlib.org/library/Enc/ComparativeAdvantage.html]comparative advantage[/url], which demonstrates that even if one country has an absolute advantage in producing all goods, it nonetheless can gain from foreign trade.

Mike G
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Joined: 02/17/2000 - 1:01am
Emike I understand what you

Emike I understand what you are saying about how the consumer has to pay the tariff and the basic cost inefficiency of the American tire maker vs china and that the consumer is in fact is subsidizing the American tire maker.

The American tax payer also subsidizes our military and they also subsidize our welfare system.

If america is dependent on foreign supplies of goods especially from a potentially hostile producer then the military expense must be greater to secure production (making the world safe for america) than if produced on our own shore.

If unemployment rises because of laid off workers then expenses must be out laid to support these unemployed. The efficiency of production and capital only works on our side if these people have something to produce and for others to invest.

It is not as simple as you state, because there are costs to a nation beyond the tariff cost on a tire. Government costs.

Economike
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Joined: 11/28/2006 - 9:09am
If america is dependent on

If america is dependent on foreign supplies of goods especially from a potentially hostile producer then the military expense must be greater to secure production...than if produced on our own shore.

Mike G. -

One could argue, I suppose, that the cost of a military establishment is entirely a consequence of foreign trade, but that strikes me as tendentious. Any trading partner is "potentially hostile" and, further, having no trade at all doesn't obviate the need for a military establishment. The [url=http://www.associatedcontent.com/article/1369445/the_national_defense_th..."national defense"[/url] argument against foreign trade is an old one.

If unemployment rises because of laid off workers then expenses must be out laid to support these unemployed. The efficiency of production and capital only works on our side if these people have something to produce and for others to invest.

Here's that fallacy of composition error again. There's no dispute that foreign trade can cause unemployment for some, but for a nation as a whole foreign trade creates a net benefit - a rise in real income. Think of foreign trade in terms of individual transactions - in every trade, each trader exchanges a good of lower-value for one of higher-value.

It is not as simple as you state, because there are costs to a nation beyond the tariff cost on a tire. Government costs.

Sure. Nothing is ever as simple as I state. Are you implying that protective tariffs reduce cost of government?

Mike G
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Joined: 02/17/2000 - 1:01am
Yes that is what I'm saying,

Yes that is what I'm saying, potentially tariffs can reduce government costs, if those tariffs have the desired effect of saving american industries, reducing unemployment and securing necessary industry in America.

There are several core industries that should be protected within our nation borders, (subsidized, tariff protected, encouraged) I'd say several heavy industries are necessary for transportion, energy, defense.

The key is however is getting an actual return for our taxpayer dollar by reducing the costs of the military and social budgets as these core industries are protected and grow.

Therein lies the problem, will our government cut back military and social costs and invest those savings in America? I'm not talking green either.

Will private investments increase in America to support industry within our border?

Big ifs, yes, but is being the greatest debtor nation, with the largest trade deficits and a rapidly declining industrial base and dollar the answer?

If we can get the socialists, world bankers and imperialist out of DC, we might be able to get some investments in production here in America. Yeh that's not going to happen, so financial ruin is just around the corner.

Economike
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Joined: 11/28/2006 - 9:09am
Mike G. - I suppose it's not

Mike G. -

I suppose it's not impossible that tariffs could serve as a policy tool for defense preparedness, but I doubt that such a plan would be most effective in terms of cost or defense capability.

What factors actually provide war-winning military superiority? War-ready heavy industry is a minor factor.

The pre-eminent military superiority of United States is the result of a highly dynamic, adaptable economy. Military superiority is primarily (1) the successful deployment of capital goods, few of which are products of heavy industry (2) the by-product of privately developed technological advances and (3) a highly-skilled volunteer military force.

If you consider the Second World War, at its outset both Germany and Japan had a greater industrial capacity devoted to war-making and more advanced weaponry. Both were overtaken by the United States both in production and technological development. For example, both the Zero and the ME-109 were superior to existing U. S. fighter planes, but within a year or so, the United States had pulled ahead with the development of several superior fighters from competing manufacturers.

We seem to agree that preparedness for war involves trade-offs heavily weighted in favor of a dynamic market economy and minimal government action. I don't view tariff policy as part of an effective defense effort.

pmconusa
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Joined: 04/20/2000 - 12:01am
Economike: I didn't start to

Economike: I didn't start to answer my own question I asked a question to make a point. As individuals most of us sell our human capital in exchange for money (exchange) that we can use in any manner we choose. If my employer can make the product overseas more cheaply and sell it as if it was made in the USA at no penalty, he doesn't need me and I am out of a job. Tariffs are put in place to take that option from my employer. It levels the playing field so that I do not have to lower my standard of living to compete with foreign labor. That is what happend when we dropped our tariff policy and why the jobs that have been lost are never coming back until we reverse it.

francisz
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Joined: 03/10/2005 - 1:01am
Sounds like you over estimate

Sounds like you over estimate the value of “human capital” and would like the State to take protectionist measures to keep inflating that value artificially.

That’s not how capitalism works.

Creative Destruction:

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

Link: http://transcriptions.english.ucsb.edu/archive/courses/liu/english25/mat...

Economike
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Joined: 11/28/2006 - 9:09am
If my employer can make the

If my employer can make the product overseas more cheaply and sell it as if it was made in the USA at no penalty, he doesn't need me and I am out of a job.

That's right, pmconusa. But what about the rest of the story?

Look at the big picture. Imagine a closed economy we'll call Freedonia. Now imagine the net value of all the trades in that closed economy. Let's call this the Freedonian national income.

Now imagine that another nation called Xanadu is discovered. Suddenly Freedonians can trade with Xanaduians. Let's assume that they do.

Can you now see the result of Freedonians taking advantage of their trading opportunities with Xanaduians?

Remember my insistence that people don't trade goods of equal value? (This is an important point. If the values were equal, then the potential traders would be indifferent to the transaction.) No Freedonian will trade with a Xanaduian unless he comes away from the trade with a good he values more highly than the good offered in exchange. Same for the Xanaduians.

As a result, real income rises for both nations. This is the cumulative and inevitable result of the gain from each trade. Yes, some domestic producers can't compete in the newly expanded market. However, the net result for participants in the expanded market must be a gain.

hatchcar
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Joined: 11/28/1999 - 1:01am
Wow, finally, a great

Wow, finally, a great discussion and not involving partisan bickering. Great.
I'm with E Mike on this one. (Sorry Mike. You're a great guy, and would love to have a beer with you on this one)
Let me start by stating I'm opposed to NAFTA and GATT, simply because of what EMike wrote about comparative advantage. I want to make that decision, not some unknown and unfaced bureaucracy in Geneva, or where ever the heck they are headquarted.
I like what Walter Williams has said about trade. "I'm willing to exchange paper with dead American presidents, and former Treasury secretaries, for exchange for your product or service". I value more the product or service vs the paper I carry in my pocket. Not only that, it should be a individual decision, not a groupie decision.

When talking about trade, I'm wondering, and I'm not trying to be a jerk or anything, but what is the difference between let's say people in Maine doing trade with China, or with New Hampshire? I'm just asking.

In reading of history, complete free trade was practiced in Great Britain in the late 19th Century, and in Japan in the early 20th centuries, and both countries prospered. Hong Kong, which has no natural resources of their own, depends on trade for it's existence. I haven't been following the country recently, but before the Communist took over, it had one of the highest standards of living in the world.

Mike G, if you have time, try and read a book by James Bovard titled, "The Fair Trade Fraud". It might be a liitle outdated now, because it was written before NAFTA and GATT, but it really points out the stupidity of "Fair Trade", and that tarrifs only benefit those industries who are inefficent, and the consumer gets it up the butt with higher prices.
I also believe that due the tax and regulatory state we have, we piss away so much wealth that could be used to create a larger manufacturing base, and we would be able to compete with any country in the world, due to accumlation of capital, both human and machinery, so that no matter what is paid in other countries, our workers would earn higher wages, and produce more items cheaply.
If only the government would get the hell out of the way.

Ok, beat me up now.

pmconusa
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Joined: 04/20/2000 - 12:01am
The reason to trade is to

The reason to trade is to obtain something you need or want. Unless you are supported by someone else, parents, government, or charity, or born to wealth, you work for a living and obtain the means of exchange (money) by expending your human capital to accumulate wealth. Some of that wealth is used to obtain the things you want or need.
If what you want or need can be obtained from domestic sources, the wealth you have generated stays here. If what you want or need can be obtained more cheaply from foreign sources that portion of your wealth crosses the border.
The wealth of a nation is represented by its human capital and the potential its natural resources possess to be converted by that human capital in things people want or need. The difference in the value of our human capital (labor cost) to that of other countries is that, due to primarily government action, productivity gains have been distributed unevenly to labor rather than the capital investment that created them. (Again, government action that allowed and supports collective bargaining that is in essence legalized coercion). We also pay people, primarily government workers, more each year for doing the same job, with the same output, that they did previously.
The U. S. Dollar has become the international currency and the measure by which world trade is conducted. If, as should be the case, the dollar represents the nation’s wealth at the present moment, we are currently exporting it to the tune of nearly $1 Trillion per year. In addition we are currently borrowing it back to continue the inflationary activities that got us to the present situation. In addition we are simply printing it. The situation is that nations who have not followed our inflationary ways are becoming leery of the dollar’s use as a means to measure trade.
If we continue on our current course and the Obama Administration is intent on not only doing that but making it worse, we will soon see as a first step a basket of currencies and ultimately the Chinese Yuan.

Economike
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Joined: 11/28/2006 - 9:09am
When talking about trade, I'm

When talking about trade, I'm wondering, and I'm not trying to be a jerk or anything, but what is the difference between let's say people in Maine doing trade with China, or with New Hampshire? I'm just asking.

I'm sure that we agree on many things, hatchcar. It's nice to find an area of agreement once in a while.

You pose a timely question, since pmconua thinks there's a big difference between domestic trade and foreign trade. He writes that when an American buys something from a foreigner, the American sends "a portion of [his] wealth across the border." How does that work?

When a foreigner receives dollars in exchange for selling something, the foreigner must either exchange his dollars for his local currency or he must purchase an American product with dollars. In either case, eventually those dollars must be used to purchase something from an American. I suppose that pmconusa would say that, at that point, the foreigner is sending a portion of his wealth back across the border. That supposed loss of American wealth turns out to be equal to an American gain: a wash transaction.

In an fundamental sense, all trade is an exchange of goods or services. The currency or currencies used to lubricate the transactions don't alter the underlying terms of trade.

Mike G
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Joined: 02/17/2000 - 1:01am
Hatchcar I'm not surprised

Hatchcar

I'm not surprised you are against tariffs, governments take regulations, taxation and powers to excess. Certainly I understand the hypocrisy in myself having an anti-state opinion about many matters then suggesting government tariffs are a means to better national economic security.

Certainly government presently has many tariffs placed on the goods we buy, they call them taxes and fees, road use taxes, tire disposal fees, white good disposal fees, internet connection fees, the list is long and hard and includes probably a damn good portion of what we spend on goods and services. Aren't they saying we work up until August now to pay our government tariffs?

Most of these taxes and fees were placed on goods and services to place money into the states coffers to supposedly use for the betterment of the collective. They were placed in some cases to defer consumption by making costs higher, but mostly to pad some government run or subsidized program for some perceived good.

Tariffs placed on foreign goods in just a continuation of this state run game and for that I'm against it. But if you are a sportsmen for instance and want to get rid of the pitman/robertson tariff (tax) on sporting goods, for instance, you have to wonder if you are looking out for your own self-interests.

Thus is the hypocrisy of politiking and why the state is so complex and immovable and why it continually gets worse, people are concerned about their self-interest and believe this or that will help them. :)

pmconusa
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Joined: 04/20/2000 - 12:01am
If you ever lived in a

If you ever lived in a foreign country as an American you know that in order to trade locally you use local currency you obtain by trading your dollars. If its legal a legal transaction it is the government that determines the rate of exchange or, if the currency is freely traded, the market determines the rate. In the long run it is the foreign government who ends up with your dollars and will use it to buy our debt (treasury notes) on which they will earn interest.

Now, lets look at our biggest trading partner, China Our trade imbalance with the Chinese is over $200 billion per year. The Chinese currently hold over $1 trillion of our debt on which we are paying about $40 billion in interest for the privelege of borrowing back our own money. The Chinese Yuan is not a freely traded currency and its value is strictly controlled by the Chinese government, In other words it sets the rate at which the dollar can be exchanged for the Yuan. Is it any wonder that the U.S. government is putting pressure on the Chinese to revalue their currency? We want them to inflate the value of their currency to match the deflation of our own. When we try to accomplish this unilaterally by raising the tariff on tires they scream bloody murder. Unfortunatley, we have some here who are sympathetic to the Chinese in the name of so called "Free Trade". There is no such thing unless you are talking about a closed system.

Economike
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Joined: 11/28/2006 - 9:09am
We want them to inflate the

We want them to inflate the value of their currency to match the deflation of our own. When we try to accomplish this unilaterally by raising the tariff on tires they scream bloody murder.

pmconusa -

I understand the point you are attempting to make.

However, if you think your example through to its logical conclusion, you will grasp that a change in the exchange rate will not change the underlying terms of trade.

hatchcar
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Joined: 11/28/1999 - 1:01am
Mike G I can only speak for

Mike G
I can only speak for myself, but my self interest is to obtain goods and services by willing providers and to pay for these services that satisfy me and the provider. That's my only interest. If I could do that by buying it for Maine providers, I will do it. If that means I have to purchase it from a Chinese provider, I will do that to.
I will never lobby Congress or any bureaucrat to make that decision for me. However, you do make a point that there are to many of us who do lobby for their self-interest, which hurts all of us. A better idea to shrink the damn government where these providers have to satisy me and you, and not Congressmen and Senators, and Adminstrators etc. I know, it's a lofty goal, but heck, anything is possible.
EMike, I bet we do agree more than disagree. Has for my prior explosions against you, I'm very sorry for that. Seeing this discussion proves to me people can disagree, but do so in a civil manner.

pmconusa
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Joined: 04/20/2000 - 12:01am
A Chinese merchant sells his

A Chinese merchant sells his products in the U.S. for $100. In order to pay his workers and buy more raw materials he must take his dollars to the bank and obtains 50 Yuan. The rate is determined by the Bank of China and currency rules require the merchant to trade only with the Bank of China. Exchange rate 2 for 1. Rules also prohibit any export of Yuan which is why the Yuan is not a free and floating currency.
Assume for a minute that the Yuan is allowed to float and its value is now 1 Yuan = $4.00. The merchant now sells his goods for $100 and when he goes to exchange it for Yuan he gets only 25. His raw material and labor costs have now doubled. If this doesn’t affect the underlying trade I don’t what else does.
The reason this is not happening is because the Chinese economy is still strictly controlled by the government. The danger is, when China becomes even wealthier and their economy begins to reach international proportions a black market will develop that will undermine the control of the value of the currency. Its timing is accelerating because as the Chinese currency increases in value, other currencies are decreasing in value. It is an economic war the Chinese are winning and our policies are only insuring it.

Economike
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Joined: 11/28/2006 - 9:09am
pmconusa - By "underlying

pmconusa -

By "underlying terms of trade" I mean to say that currency manipulation doesn't alter the productive capacity of either nation's economy. Currency controls can shuffle the gains from trade within a market, but they can't increase them.

In your example, the Chinese government subsidizes exports through currency controls. In effect, it forces its domestic consumers to subsidize American consumers by foregoing consumption for themselves. (We are assuming, of course, that the yuan is truly undervalued.)

The cost of China's currency controls is borne entirely by the Chinese. It doesn't follow that there is some sort of "economic war the Chinese are winning."

pmconusa
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Joined: 04/20/2000 - 12:01am
What about the outflow of our

What about the outflow of our currency? A classic example is Germany after WWI when reparations payments bled Germany of its wealth and the German government printed money that ultimatlely became worthless and resulted in Hitler. We already have his clone and all it will take is a bit more time and we will be in the same shape.

Economike
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Joined: 11/28/2006 - 9:09am
What about the outflow of our

What about the outflow of our currency?

pmconusa -

Foreign trade requires a net "outflow of our currency," so I suppose one could find similarities between (A) the currency outflow of a government for paying war reparations and (B) the currency outflow from individuals in national economy who purchase foreign goods.

In the case of A, the outflow represents a cost to the citizenry; countries receiving reparations payments acquire an uncompensated claim on German production.

In the case of B, the outflow represents a gain to the citizenry; individuals in the United States have chosen to purchase foreign goods for dollars because that exchange creates a gain for them. In these transactions, the Chinese acquire a claim on the production of Americans for which the Americans have chosen to be compensated.

pmconusa
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Joined: 04/20/2000 - 12:01am
America sold. Game, set and

America sold. Game, set and match.

Economike
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Joined: 11/28/2006 - 9:09am
A good example of

A good example of undervaluing a currency -

Suppose that ICS (my school) had undervalued its tickets. Say, if the ‘correct’ (by whatever calculus) price of each ICS ticket was $1.00, suppose my school sold each ticket for $0.75.

http://cafehayek.com/2009/10/on-undervalued-currency.html

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