Protectionism vs free trade

[David]

Having just read Donald Trump's inauguration speech, it strikes me that popular commentary has paid little attention to the central plank of his presidential platform: that is, a return to the economic doctrine of protectionism after decades of aggressive free trade policies. The success or failure of his presidency will largely rest on a) whether that promise can be fulfilled, and, if so, b) if it pays off both in the short-term and long-term. He's staked pretty much everything on it. So, what chance does he actually have of pulling it off?

One of the reasons I find this debate fascinating is that it cuts across so many political lines. Neither right nor left, conservatives nor progressives seem to have a coherent stance or even visible leaning on the topic. Even the parties, here and elsewhere, are divided: Labor in the last few decades has fluctuated between neo-liberal and protectionist agendas, and the two parties that make up the Coalition – oftentimes seeming more like a single party on most policy issues – basically hold diametrically opposed views on trade. The same seems to go for Republicans and Democrats in the US context; both have factions that are more or less predisposed to free trade or protection. And this is no niche topic: rather, it goes to the very heart of how society operates, what its organising economic principles are.

So, what are the arguments for or against such approaches? I can recall enough from my year 12 economics class to retain the impression that protectionism is frowned upon by most contemporary economic schools of thought. Because it is organised around subsidies (artificially inflating struggling, inefficient local businesses) and tariffs (penalising foreign competitors and thus reducing competition), it seems to raise prices, decrease efficiency and reduce a nation's ability to specialise in certain industries, inevitably hurting export markets as other countries respond with trade restrictions of their own. Protectionism is also such easy and compelling politics for populist political forces and has been around as an idea for so long that you would think that it would have had more political success before now if it actually held economic credibility. On the other hand, there's no doubt that aggressive free trade policies can cause mass unemployment, and I have a suspicion (one undoubtedly shared by a great many Trump voters) that the real aim of free trade is to benefit big companies as much as possible and not necessarily the average citizen.

Of course, it's worth acknowledging that no Western country has a system that is wholly protectionist or wholly free trade oriented – there has traditionally been a mixture of such approaches in place, with the paradigm slanted heavily towards free trade since the early '80s. But it seems likely that Trump's plan, if he is sincere about implementing it and can get it through congress, will make for a significant shift in the way the American economy operates. The only question is: will it work?

[think positive]

yeah i just watched the whole speech, and i found myself cheering on occasion! i really hope he pulls some of this stuff off, i have many American friends and i still aim to go back again at least once more.

free trade. OK. GMH just went under and broke my heart, and the heart of many a holden fan, so too ford. and the ever reliable, value for money Toyota. and then there are all the local supplies, who will soon follow. bringing in cheap shit cars that dont match safety, (meeting criteria is not enough, aim to exceed it) then have to lower the safety standards to match the cheap cars.

our banks make squillions of dollars a year, so why do the need to go for cheap overseas labour, that is sub standard? why are they not made accountable? value for money, they earn plenty, and the voice on the end of the line should be an educated Aussie voice. same as telstra, etc etc.

471 visas. they are quite frankly, dangerous. a very big company we do maintenance for has just employed 471 visa drivers for weekend work because they dont demand penalty rates. those hard fought for penalty rates. we should be working to live, not living to work. wouldnt be so bad if they could drive. let me tell you, judging by the amount of work we get in this place, they bloody well cant! smashed dock doors galore! knocked over bollards, armco railings, gees they even break the toilet seats with monotonous regularity! lets not forget the indian gentleman who did not know how to back his truck when he realized he could not fit in the tunnel a year or so ago. how the hell did he get a licence?

now another big client has decided the cleaning bill is too high, and gone for 471 visa workers. and they have no idea. we are talking hazardous chemicals, oil spills that can send a forklift smashing into racking holding tonnes of product, its a catastrophe waiting to happen. and it will happen.

i hope Trump is genuine with his promises, and if so, he could revolutionize the economy.

lot of tools are still made in USA, bloody good tools, not like those shit asian knockoffs. and how do you like woodshavings in your grated cheese? or pulp in your rice? yes its there. standards. for your health, for your livelihood, they have dropped, and china etc are laughing all the way to the bank - you know the one with the indian call centre!!

[David]

[stui magpie]

I'm not an economist by any stretch, I didn't even do it in high school, so my comments are from an observation and practical perspective.

Protectionism doesn't work in a global economy, but neither does full globalisation. There's a balance somewhere.

One thing I read recently was how the US has spent trillions of dollars in fighting in overseas conflicts in recent years. Trump seems to want to stop that and instead spend money on infrastructure projects, The munitions companies may not be happy but most others will as that creates local jobs for blue collar workers.

Subsidies and tariffs need to be used sparingly and targeted, not just applied across the board. You can't save every industry, if it's not outsourcing manufacturing work to Asia then it's technology that bites the jobs.

Apart from cultural differences, the population density map in the USA is totally different to here. We're all concentrated on the East coast and around capital cities. They have a much wider population spread and the state capital is often the 2nd or 3rd largest city in the state rather than the biggest. So with that spread of people, you need to have a spread of work.

good luck Donny, there's a hard core brainwashed mob who will ignore anything good and shriek about anything remotely bad, real or imagined. You can't undo their malfunction, it's hardwired, so just get on with business./

[Mugwump]

The received wisdom in economics is that free trade makes nations richer, and that is fairly hard to refute. It is beneficial because it keeps your domestic industries globally competitive (therefore able to export and service the domestic market well), it ensures goods are as cheap as possible for consumers because they are made where it's cheapest and best to make them, and it forces you to allocate resources (capital and labour) toward industries that are competitive, rather than those that are cosseted by tariffs. Finally, if you are God, it increases the overall wealth of humanity by allowing poor countries to develop through access to rich markets. At a global level, it is an equalizer - far more than the international development industry.

All that seems pretty hard to argue against.

However, like most things in life, it is not without its winners and losers. Firstly, dumping and predatory pricing can distort real competition on global markets as well as domestic markets, and it is harder to control without any potent regulatory authority. . Secondly, it makes corporate tax easier to avoid by disintegrating supply chains. Thirdly, it can push production to places where environmental standards are terrible (most of China's power is coal fired and the environment is disastrous) - and in a globally interconnected world that is important.

Finally, it increases the pressure on those who cannot compete in a global market. That last point has pros and cons, as it can force adjustment that needs to be made, but it also creates loss, and inequality and then anger within richer nations. It may make most of the rich world's poor better off in absolute terms because they have cheaper mobile phones, they can use Skype, etc - but they still have less of this stuff than their neighbours, and that is their reference point. So they feel that they have lost out.

So if you run a rich nation, you need to find ways to mitigate that internally. We have been doing that via welfare payments, increasing public debt, and by reducing real unit wages to a small extent. I think that model is running out of road in much of the world.

[HAL]

[think positive]

[Mountains Magpie]

In 2010/11 I saw an article about Australian orange growers ploughing their produce into the ground as they could not compete with the Argentinian imports.

I wrote to the then Agriculture Minister asking about this situation, only to be told we had to let Argentinian oranges into Australia so we could send our stuff there. The Minister's department didn't elaborate on what our 'stuff' was. Considering the erosion of our manufacturing base over the last 50 years I do wonder how much 'stuff' we export.

So, if protectionism benefits our primary producers, let alone what is left of our manufacturing industries, then I'm all for it.

The world is changing, as it always does. Maybe it's the children of Allentown who are voting with their vote these days.

MM

[stui magpie]

^

We export Meat, grain and stuff we dig out of the ground (minerals, oil, gas)

http://dfat.gov.au/trade/resources/trade-at-a-glance/pages/top-goods-services.aspx

We basically don't have a manufacturing industry left to protect. The US on the other hand, actually still makes stuff.

http://www.worldstopexports.com/united-states-top-10-exports/

In relation to the oranges, lots of orchards between Cobram and Shepparton seem to have gone. They were heavily reliant on water from the Murray system for iurrigation, I think the drought a few years back combined with the price fixing between woolies and coles and cheap imports screwed a lot of them out of business.

[Member 7167]

[stui magpie]

^

I didn't say it was good.

[Member 7167]

I realise you didn't. The comment was directedto the people elected by us to look after our collective interest. The fact is that the deal has benefited the Argentinians at the expense of Australian farmers

[David]

Bernard Keane on the dangers of protectionism:

https://www.crikey.com.au/2017/01/23/fear-and-protectionism-the-sad-ambitions-of-a-hapless-government/

[David]

Greg Jericho always explains this stuff well:

https://www.theguardian.com/business/commentisfree/2017/mar/12/trade-war-is-it-time-to-collect-canned-food-and-build-a-bunker