Why are a large amount of people treaing access to other nations markets as a human right? I can see the argument behind saying you should have access to your local market be realtively free, you have to live somewhere, and you and your local societies interests are relatively aligned.
However,when it comes to foreign markets many people here seems to want the best of both worlds. It's a paraphrase but it seems like saying "let me work however I want in your home, but don't limit me at all", seems to be the rallying cry.
As a response to several people stating that free trade is better for everyone.
I've taken economics courses, I understand how free trade is better overall. However, those calculations only work when both sides follow the same rules. Once you have different groups of people with different values, whether it's the EU valuing privacy, China valuing domestic production, or the US valuing intellectual property, absloute free trade seems to break down.
You can't freely trade if you're using different units
No it never breaks down. Milton Friedman commented some 30 years back to the typical "we should have higher tariffs on steel, because its unfair that the japanese are subsidizing their exports".
His response? "Well that benefits the American consumer tremendously... we are sending them pieces of paper(dollar) and we are getting hard goods in return at a significant discount". If you think in in the absolute terms, wouldn't you want to trade a silly paper for steeel/cars/whatever?
Also, where does the Chinese go with these dollars? Definitely not the Chinese store, they take Yuan. How about Japan? Nope, they take Yen. So...who takes dollars? At some point they have to come back and spend it either directly(investing/purchasing american goods) or indirectly(trading dollars -> random currency) which then leads the other party holding dollars to go out and buy American goods.
It breaks down when near monopoly is established, which is often the goal of these government subsidization programs.
Whether that is acceptable depends on your opinion on global interdependence and national security. If the USA is dependent on Chinese and Russian steel to survive, it’s that much harder to defend against provocation. See EU and Russian gas for a great example.
ooh way late response! That is actually the opposite. Friedman also addressed that point. The case you are presenting is essentially "we shouldn't rely on foreign XYZ too much, we should have our own manufacturing".
Well sure we should have our own if its able to compete freely. But its never been the case that if we go to war with China, the Japanese/India/whomever couldn't start producing more steel and selling it to us. Sure it might be slightly more expensive but it wouldn't paint the picture that you are proposing. If anything MORE producers of steel would pop up willing to sell at a higher price. Crazy theres this thing called supply/demand.
As for the EU/Russian gas example, Russia isn't the biggest producer of gas in the world. According to wiki[0] its the U.S, there are other non-Russian actors in the top 10 list who I'm sure would be willing to provide gas at a higher price.
As to why you mentioned EU/Russia is that Russia so happens to have a nice giant pipeline ready to provide gas into the EU. Well...last I checked there were millions of barrels of oil being shipped globally by ship. Would you have to pay a bit more for energy ? Sure. Is national security critically dependent on Russia ?
No, because I guarantee you if Germany started paying $200/barrel of oil(or natural gas/whatever) all the oil ships around the world would reorient themselves to deliver to Germany. Crazy world called supply/demand. You now have near infinite suppliers.
Given time industry would adapt, but the impact can be devastating in the short term. EU gas dependence was and still is a big factor in the annexation of Crimea and politics across the region.
The BBC reports that this dependence is still growing, further tying the hands of the EU against Russian aggression.
Now if Russia itself was just another western style free market democracy, dependence wouldn’t be such a national security risk.
Unfortunately with econ, our tools are maths, stats, logic and reasoning. We can almost never do actual experiments, which is fundamentally necessary for science. In my opinion, an unpopular but correct description of the state of economics is that the best economists are the ones who are able to make the arguments which others value the most.
The more diverse are the people trading, the better trade works for improving everybody's life.
Where it fails is when there are market failures. Like when you have a naturally the winner takes all dynamic, asymmetric information, and some shady government intervention.
And, of course, the communications market is full of all of those.
Isn't it still free trade having to comply with local regulation? As long as those regulations treats foreign companies/products the same as local ones, of cause.
Import taxes or valuing domestic production/owners are not, but i don't see a problem with requiring food not to contain toxic stuff, no matter what country it comes from.
Exactly... I'm in favor of free trade, but only when it's reciprocal. I'm also in favor of breaking down regional locks or limits in sales... if you as a company are allowed to produce in a cheaper country, then I should be able to buy/import at the price you sell in those countries.
That’s not true and if you can believe that after taking several economics courses it speaks poorly of your teachers.
The main benefits of free trade are in specialisation. People specialise in what they’re good in and trade for other goods and services. Specialisation leads to greater efficiency, meaning you can do the same with less, or more with the same amount. Notice the complete lack of the words domestic production or intellectual property.
The case for free trade is that in the long run specialisation makes us richer. Units have nothing to do with it. Metric or imperial, services and goods are what they are.
He is admitting those benefits. His point is that with different tax rates and regulations the market is distorted and if anything imposing tariffs / revenue taxes is just equalising the market.
If other people do stupid things you don’t have to do stupid things too. Market distortions, different tax rates and regulations do not change how returns to specialisation and gains from trade work.
Anti-dumping tariffs are stupid because it not notnto your benefit to punish people for giving you cheap stuff that should be expensive. Being able to have different tax rates is part of the power to tax, which is part of being sovereign. Equalising the market is a fool’s game. The market is what it is. If you want to help some people or groups by all means do it, but tariffs are a very inefficient way to do it. Transfer payments ftw!
Anti-dumping tariffs are stupid because it not notnto your benefit to punish people for giving you cheap stuff that should be expensive.
That is only true in a very simplistic model. If a country sells for example cheap subsidized steel you may lose your steel production capability because you are not able to compete with that price. But once you lost that capability it may become prohibitively expensive to regain it because the initial costs to rebuild the knowledge and infrastructure is going to be much higher than the marginal costs for an established industry and you would have to accept, at least to some extend, which ever price they ask for. The other country may also be able to offer a lower price due to externalities, for example exploitation of their workers or environmental destruction, and you may want to compensate for that.
If you’re not able to compete with a price that’s the market saying you’d be better off doing something else with those resources. If you suspect that the price is due to subsidy, great, free money. If you want to maintain domestic production capacity subsidise it. If you want to reduce startup costs pay to mothball a plant. If you want to maintain expertise subsidise the salaries of citizens who go abroad to learn about or work in those industries.
As far as externalities go you certainly have a point but if you feel you have a right to tell other people and countries what to do, go ahead. I don’t think there’s any reason to stop anywhere between sovereignty and colonialism. Those positions are coherent, the ones in between aren’t.
Well, it is not free money if I have to spend money to protect me against potential future negative outcomes of that free money. And where would the money come from to mothball a plant? Naturally that would be from anti-dumping taxes on the subsidized goods causing the issue, wouldn't it?
And I would almost never suggest to tell any other country what to do - even though I would consider that legitimate within the right framework because sovereignty is not an absolute right - but I certainly have no objections against and am actually for putting taxes on foreign goods if those were produced according to standards I do not agree with.
The free money is the subsidy that is the reason usually avowed for anti-dumping tariffs. Choosing to mothball a plant is a choice, not something that automatically happens if some other country chooses to subsidise one of their industries.
Revenues and expenditures are both fungible. In the end one goes into the state’s coffers and the other goes out. In no sense worth mentioning would taxes from anti-dumping tariffs fund subsidising domestic production or mothballing a plant. The costs, benefits and consequences of tariffs, subsidies on domestic production and mothballing should be considered not as a unit but as three separate policies with no necessary relations. If one, two or three of them make sense by all means do them but the idea that one can fund the others is just a desire for retribution looking for a justification.
The free money is the subsidy that is the reason usually avowed for anti-dumping tariffs. Choosing to mothball a plant is a choice, not something that automatically happens if some other country chooses to subsidise one of their industries.
Sure, in the general case, but I don't think we are debating the general case, at least I wasn't. If this other country just had a ton of useless money laying around and felt particular altruistic wanting to provide cheap steel to the entire world, nice of them. Also people would probably not be too worried about imposing tariffs.
But that is not really the case that people worry about, they worry about countries subsidizing goods to hurt or even destroy your industry and making you dependent on them even if prices rise above what you own industry was able to provide before. Unless you are willing to accept this or at least take the risk of this happening, you now have a link.
If the price difference is small enough, tariffs will equalize the difference and you might not actually collect that much money from them because buying from the local industry does not cost more. If the difference is large enough, you might decide to capture part of it with tariffs and use that to mothball your plants as protective measures and still profit from the additional difference.
Also note that I am assuming that production costs are comparable before any subsidies and that there are no other strategic interests for maintaining an industry locally which of course will change the equation again. Even if that other country can legitimately produce steel at a better price than you, say because it has a lot of easy to mine iron ore, you might still put a price sticker on becoming dependent on that country. If you consider the relation potentially unstable, then you might not want to put all your eggs in that basket.
> But once you lost that capability it may become prohibitively expensive to regain it because the initial costs to rebuild the knowledge and infrastructure is going to be much higher than the marginal costs for an established industry and you would have to accept, at least to some extend, which ever price they ask for.
This has literally never happened. People keep bringing up this objection, but nobody can point to a single instance of it ever happening. It's irrelevant.
How has it not ever happened? China, who essentially blocked Google, Amazon et al, now have Baidu, Alibaba, Tencent and other massively successful tech companies, while EU is stuck with aforementioned monopolies with near-zero chance of a local competitor competing with them.
Google, Amazon, Microsoft etc. are still there. The US can still produce steel and computer chips. Other countries subsidising domestic production of software, steel and computer chips did not lead to the US being unable to do so.
And amazon is pretty big in China, taobao and jingdong are just bigger and better.
Yes, they are still there, but the protectionism is what allowed the local companies (Baidu, Tencent, Alibaba etc) to compete initially and be better in the end. Whereas in EU, local competition has been crushed and it is now stuck with the monopolies.
Baidu is still not better than Google, even in Chinese, for what it’s worth.
Infant industry protection may make sense in some cases but it’s more commonly used as a smokescreen for corruption. It was used as a justification for high tariffs and low quality domestically produced goods all over the world throughout the 50s to at least the 80s.
If the EU doesn’t have much in the way of domestic IT companies so what? They’re still rich. The fact that others are getting rich in other, different ways does not make them poorer.
It's happened multiple times. Companies attempting to reshore manufacturing have run into major problems with skilled labor and with modernizing lines and processes.
The case for free trade does not care about borders. It cares about consumption, which there will be more of if things can be produced most efficiently. Things can be produced most efficiently with maximum specialisation, which is likeliest with free trade. Domestic production can be consumed more easily than foreign production so it is more valued because transport costs are lower.
The border between San Francisco is as relevant as that between California and Nevada, or the US and Mexico.
There are certainly things where it’s good to have domestic production, vaccines for one. But the argument is grossly overused. The wool of angora goats is protected in the US as of military value.
Trading for what you need has worked out well for plenty of countries. Switzerland, Luxembourg, Costa Rica, Bahrain, Singapore, Hong Kong, my native Ireland.
Overrating domestic value creation is how you end up being a third world country. I think you are oversimplifying free market dynamics. Free market doesn't magically create optimal results for consumers (see monopolies and the resulting lack of competition and suboptimal results for consumers as one example). Similarly it doesn't magically create optimal results for maximising the well being of a country.
> It cares about consumption, which there will be more of if things can be produced most efficiently.
This is part of the problem. Production doesn't occur in a vacuum, and the most efficient methods of production are often either terrible for the workers, terrible for the environment, or terrible for society.
Pure, unfettered globalization would be ideal if the goal was production and wealth generation maximization because it maximizes the labor pool and capital allocation efficiency, but those shouldn't be the only things that governments and economists worry about.
If you look at where most of the world’s wealth is produced and how your worries may be allayed. The US and the EU are almost half of the world economy by themselves. Add Canada and Japanand you’re comfortably above half.
If there are problems caused by economic growth the products of said growth can buy solutions to them.
> Why are a large amount of people treaing access to other nations markets as a human right?
Why would you want to restrict (economic) interaction between two parties just because they’re far away from each other?
I’m sure some of the local companies in my area would love to prevent me from buying goods elsewhere, but why would I want to buy goods elsewhere unless they are either cheaper and/or of better quality?
In my opinion, your quote misrepresents the situation. It’s not about “giving someone access to a market”, it’s about not restricting trade between two parties because it’s assumed those two parties are intelligent human beings who choose to trade with each other for a reason, and restricting this activity only helps inferior companies who are unable to market their own goods.
There are at least two reasons why a locality would want to impose taxes on a foreign company.
1) The foreign company is using loopholes to dodge taxes à la Amazon having dodged sales tax for decades at the expense of local retailers who have to charge sales tax.
2) Protectionism. A specific tax to give local competitors an edge in order to promote the development of local businesses. The rationale behind is this is to trade off the advantages of a "better" foreign offering in order to develop a local company that has more incentive to reinvest its earnings into the local economy. An example would be India heavily taxing Apple products to produce iPhones inside India so that a bulk of the money spent would go back into the Indian economy in the form of wages for factory workers, instead of going to the US and China.
Another example is US and Europe protecting the interests of Boeing and Airbus respectively due to the national security importance of the aerospace companies.
In some cases if another (single) country invents the wheel and thus controls the world's supply, your country would benefit from importing the wheel and selling the other country the axel. But as it turns out wheels are very useful and if the other country has a near monopoly on it due to scarcity, your country would opt to reinvent the wheel so they have the ability to produce the whole wheel and axel combo within the borders without being gouged for price.
If I'm in the UK and choose to buy something from Amazon, it will be shipped from a warehouse in the UK owned by Amazon.co.uk Limited.
However, I pay my money to Amazon EU Sarl which is based in Luxemburg. This company is a tax shell, it contracts back to amazon.co.uk for the fulfilment. The Sarl keeps all the profit.
According to this https://beta.companieshouse.gov.uk/company/FC032354/filing-h... (see full accounts, which ironically are served from AWS), the SARL made profits of €481m in 2016. Futher down the PDF we see they are involved in a number of tax disputes about this.
Fundamentally if I buy goods from a .co.uk website that are shipped from a UK warehouse, it is very hard to argue that the profit should be counted in Luxemburg.
Noone is restricting trade, they are simply saying that the fact that you are "far away" doesn't give you the right to dodge taxes that local companies have to pay. If anything it levels the playing field.
It is the government that is threatening force (fines, jailtime) if the company/people do not hand over a portion of their hard earned cash.
These same thieves/politicians are the ones that wrote the laws and made these exceptions.
The companies are under an obligation to their families, employees, suppliers, shareholders, and the community at large to maximize value.
Or so you think that a government committee could build a cheaper, better, nicer iPhone?
Do you think a group of bureaucrats would make a cheaper, better, more efficient Tesla Vehicle?
We laugh at this, because we know the government is a bunch of people that on the whole have never employed people and created value from launching their own businesses. They do not know how to maximize wealth creation.
Why do we think that the government raking in Billions more is going to be put to create better, faster, cheaper and more efficient goods ands and services than a company like Tesla, Apple or Amazon?
Here's what's going to happen:
Billions will be raked in. And billions will be spent on duds. Look at Canada spending 1B on a scheduling app that got scrapped because government workers didn't give a shit.
Look at US gov spending on the billion dollar website.
The money will go to the pockets of more lobbyists, politicians, and will flow back to the companies.... and less quality service will be delivered , and at a higher price.
These companies employ so many people (who pay income tax from said revenues) and all kinds if intermediate taxes are paid in acquisition, and distribution of raw materials to final product to the door of the customer.
Quite literally a $700 iPhone would cost less than $200 had the government not levied/taken profits at each step from:
Land development, ore mining, glass and silicon manufacturing, assembly, distribution, packaging, shipping.
And then they want to stifle growth further and take a 3% cut of gross revenues?
I'm all for their cut during trade and VAT (20%!) But taking your hard earned profits to spend in wasteful ways while lining the surveillance communist state's pockets via broken and inefficient products is disgusting.
This will not end well. The EU is well on it's path to full blown centrally planned totalitarianism and communist level controls. You will see.
Usually when you want to find a "loophole" or "mistake" in the predictions of conventional economic theories -- like the idea that free trade is good -- it makes sense to start looking at the sorts of things we already know that neoclassical economics has trouble with: asymmetric information, externalities, and human irrationality. Asymmetric information isn't generally a major issue when it comes to imports (and if it is, you use inspections, not taxes), and with a few exceptions (like the reputational status of Cuban cigars or French wine) human irrationality isn't either, but externalities can be a big one. When you look at, say, steel tariffs, there are relatively few positive externalities, and plenty of negative ones, associated with steel production, but for another industry like IT, the externalities may be positive, such as promoting technical know-how among citizens.
So in the specific case where having a local industry brings positive externalities, I think there may be a case for some limited forms of protectionism, but even these can be misapplied. In the specific case where countries want to promote "white-collar" industries, such tariffs should only apply to end-consumer products, never to products which are sold to businesses, because usually the farther along you are in the supply chain, the more "educated" your profession is, with a few exceptions. The most compelling positive example comes from China's development of its own Internet services like WeChat, Baidu etc, which stemmed directly from China's exclusion of Western competitors like Google, Facebook, and historically Visa/MasterCard, and which may have promoted the growth of an IT industry in China. For a negative example, Brazil's tariffs on video game consoles are devastating for Brazilian video game developers, because their potential market is eliminated. Even in this latter case targeting a consumer product hurts domestic businesses. Another case is when positive domestic externalities are replaced with negative foreign externalities, such as when considering carbon taxes on imports.
This is all just speculation, of course, except the part about border carbon adjustments, which has been the subject of serious analysis:
This is not so much about the interaction between the two parties, but aboutjust taxes.
if companies can go wherever taxes are the lowest, without impact on profits, there will be a race to the bottom in corporate tax laws.
In order to have an optimal amount of taxes for tech companies that can move at a whim, you need some sorts of capital controls that prevent that.
Sales tax might be lean in 1 jurisdiction but if you make companies pay it globally it's not. Huge amounts of complexity and many many jurisdictions. In some countries, even cities have sales tax not just counties or states. It would be a multi-million dollar project for a small company that does business worldwide online to figure out how and what to collect and pay in every jurisdiction it's customers are in and then file and pay the taxes to each entity.
> Why would you want to restrict (economic) interaction between two parties just because they’re far away from each other
I think the fundamental difference in view is on the one hand seeing two parties as individuals that should be free to have this interaction.
On the other hand as two individuals in a society, whose ability to even consider having the interaction comes from society providing the means (infrastructure, education, legal frameworks, ...) and that the idea of individuals doing interactions on their own isn’t even a reasonable concept.
Reality lies somewhere in between but I subscribe more to the latter.
This is essentially Trump's argument against free trade. Your companies makes so much money in America and you don't have any rights here, why shouldn't we restrict you?
Free trade isn't some right, it's just better for everyone involved
> Free trade [.. is] just better for everyone involved
How are zero-rate imports better for everyone?
The consumer saves money. The government loses sales tax revenue, loses income tax revenue from the people that could have made it locally, has lower employment rates.
Buying locally doesn't always make sense, but often you can make an economic argument that paying slightly more for something made and sold locally is better for the consumer too.
> Buying locally doesn't always make sense, but often you can make an economic argument that paying slightly more for something made and sold locally is better for the consumer too.
9/10 times this isn't correct. If you live in an urban capital, sure. If you live in somewhere more rural, oftentimes the only local makers in the area will be rather terrible, and a large company will have a better warranty almost all of the time.
> The consumer saves money. The government loses sales tax revenue, loses income tax revenue from the people that could have made it locally, has lower employment rates.
The consumer has a higher chance of the product they bought having support in three years.
> How are zero-rate imports better for everyone?
More opportunities for the consumer to buy things, more incentive for the company to entice customers with benefits, government isn't "everyone," and they still benefit by more net units sold because they can tax on-sale still.
By local, I mean national, or state, depending on where your taxes actually go. Not necessarily from your next door neighbour.
But I think we're looking at this from different aspects. I was considering self-imports (eg Alibaba, some Ebay/Amazon sellers). You're considering big-box-Chinesium-imports vs something made by a local mom-and-pop. You might get better support from the big box longevity but that might be more reason for protectionist policy, not less.
If you compare buying imported crap from a big-box to importing it yourself, you're paying the big-box for your "free" warranty. They build it into the price. But 30-50% of your cash is ending up offshore with no benefit to your own economy.
> If you compare buying imported crap from a big-box to importing it yourself, you're paying the big-box for your "free" warranty. They build it into the price. But 30-50% of your cash is ending up offshore with no benefit to your own economy.
That's the brilliant part of free trade—in total, the amount gained by exporting will generally equal or be greater than if you were to tax on imports.
Lessening consumer options is almost never a good thing.
There's a bit more to "support" than a warranty. For example: if a person buys a piece of software, they should reasonably expect it to last until they move onto an operating system incompatible with it, no? What if an API the program uses is deprecated/removed for security reasons, ala Microsoft Gadgets.
There's also the problem of long-term customer support. Your average user uses CS at least a few times over the course of the product's lifespan.
A person who lives in Estonia or Poland doesn't even have a company creating say, a smartphone. They aren't competing with anything, so why punish both the company and consumer for getting a necessity in the modern age, a smartphone?
The impact of globalization against rural communities is one of the biggest reasons why there is the anti-globalization push. Sure, local makers may not be as nice as a large company, but when items are shipped from overseas instead, jobs and manufacturing are no longer pushed to rural areas anymore, leading to big cities being the only areas to grow.
I am ok with free trade, as long as it also apply to freedom of movement of capital, goods, and people, and we have a common set of rules, and a common court that applies them.
However,when it comes to foreign markets many people here seems to want the best of both worlds. It's a paraphrase but it seems like saying "let me work however I want in your home, but don't limit me at all", seems to be the rallying cry.
How is this not hypocritical?