Landsburg’s version goes as follows:
“There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa.
Everybody knows about the first technology; let me tell you about the second.
First, you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships … into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.
International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.
Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles.
If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.”
Trade patterns get more complicated with more countries. Iowa’s wheat might stop along the way, turn into car parts exported to Japan, and Japan’s cars then head back to America.
America would then have a trade deficit with Japan but perhaps a surplus with wherever the wheat wound up – if wheat and cars were the only things being traded.
An overall trade deficit doesn’t mean America’s losing. It means others want to invest in America. That’s winning! The money either buys exports or it buys assets — either way, the money comes back.
President Reagan understood. His 1987 speech on the harms of protectionism was eloquent. The Chinese Embassy in Washington shared it on Twitter earlier this week.
Trump’s tariffs are like pouring herbicide and soil sterilant on Iowa’s car crop. They wreck America’s best technology for building things – and make the world poorer, too.
I wish Trump had read Stephen Landsburg.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
6 comments:
More rubbish!
Eric , Is all the negativity, sarcasim and hubris against Trump 47 missing the real point of his discussion to the world via tarrifs. US has received 16 trillion dollars of goods , yes 16 million billion of goods more than US earned from exports . ie a 16Trillion deficit.
President Trump has clearly said this imbalance cannot continue for the good of America , it will STOP. America is NOT your sugar daddy.
Quite correct in many respects.
And don't forget that a couple of years back, cars were not being delivered because of a shortage of chips made in Asia.
A modern horse shoe nail.
Maybe a reduction by Amercicans on consumerism might help- their world view that they are entitled to whatsoever consumables they want then more, more, more ...
And yes, it applies to many of us just that we are not all virtue signalling.
Basil - try a little bit of critical thinking about what you just said.
If America has "received" goods from other counties, it's hardly because those other countries have just loaded the goods onto ships and somehow forced someone in America to pay for them. Business doesn't work that way. Every item "received" by an American was purchased by that American because they wanted it and were prepared to pay the asking price for it. That's called being a willing buyer.
And if America fails to manufacture the sort of goods the rest of the world wants to buy, that's hardly fault of the rest of the world. There are perfectly sound commercial reasons why American goods don't appeal to many other countries. There's just not enough willing foreign buyers. For example, Trump bitches about no-one buying American cars. There's a good reason for that. They're too big to fit on European or Japanese roads and guzzle gas. But Trump isn't the most seasoned traveller and can't be expected to understand that.
So, if importing too much stuff from other countries is America's own fault, and failing to sell enough stuff to other countries is America's own fault, it's pure fantasy to blame the rest of the world on any trade deficit. Any damage is entirely self-inflicted.
Trump clearly yearns for a planned economy where his goons dictate what American industry should buy and sell to balance the books. Now what's that called again? Oh yes, a planned economy. Just like the Soviet Union had. And we all know how successful that experiment was. And have we forgotten our own sad history of import licencing to ration foreign exchange. So never forget George Santayana's famous aphorism “Those who cannot remember the past are condemned to repeat it.”.
It is staggering the way USA has reduced itself from the world's greatest industrial and technological powerhouse to primarily a mechanised peasant society producing wheat and soya beans while a large proportion of the population while away their time on drugs. They have passed much of their technology to high IQ highly industrious Chinese and Japanese who will outstrip the USA in development of it, leaving USA to tend the peasant crops. Trump can only restore the former USA position with a huge fall in the extraordinary standard of living of their extravagantly paid upper echelons. But in the event of conflict with any party America might then still have a sporting chance of adapting technical production sufficient to avoid conquest.
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