The EU values political correctness more than jobs.
The result was a collapse in support for Angela Merkel, and the rise of AfD and FDP in Germany. Let’s not forget Marine Le Pen in France, Beppe Grillo in Italy, and the far right in Austria.
For the sake of political correctness, the EU is bound and determined to punish the UK for Brexit even though new studies suggest that a Hard Brexit Will hurt the EU More Than Britain.
The European Union will lose more than twice as many jobs as Britain after a hard Brexit, research by one of the world’s leading universities found as tough UK-EU divorce talks begin in Brussels.
Hard Brexit describes what will happen if the UK and EU fail to reach a divorce deal by 29 March 2019. Britain would revert to WTO tariffs on imports and exports to and from the EU rather than the zero tariffs afforded by membership of the bloc.
The return of tariffs to goods and services would cost 526,830 British jobs and 1.209 million jobs in the remaining 27 EU member states, according to researchers at Belgium’s University of Leuven, one of the top 50 global universities. The damage would lead to a 4.48% drop in UK GDP and 1.54% in EU GDP, researchers found.
Free Trade Benefits
As I have pointed out previously, a free trade agreement can fit on a napkin. Her is my proposal once again: “Effective immediately all subsidies and tariffs cease regardless of what any other nation does.”
The first nation that adopts that policy will see an enormous economic benefit.
Very few people fully understand free trade. Even fewer politicians understand free trade. One of the few who does understand is British MP Daniel J Hannon.
In a Telegraph Op-Ed Hannan writes By embracing free trade, we can use Brexit to make everyone better off.
Free trade is actually between individuals, not nations.
The following caption is correct.
Institute for Free Trade
On September 27, Hannan launched the Institute for Free Trade (IFT).
We want to use Brexit to boost global commerce. We have an International Advisory Panel made up of statesmen who successfully pursued liberalisation in their own countries, from Spain’s José María Aznar to Australia’s Tony Abbott. Brexit, after all, shouldn’t just be about having an engaged and global Britain; it should be about reviving a stalled world trading system.
Why does such an institute need to exist? Largely because, however successful free trade has been in practice, it remains counterintuitive.
In rich countries, people fear being undercut by lower wages. In poor countries, conversely, they fear being overwhelmed by superior technology. Logically, these worries cannot both be justified; and, in truth, neither of them is. Free trade between a rich and a poor country, as between any two countries, benefits both.
Excellent Set of Hannan Tweets
Better Deal For Everyone
Hannan’s last Tweet is my favorite of the group. Why not a better deal for everyone?
The EU is a customs union, not a free trade union. It promotes clean energy but puts tariffs and restrictions on solar panels and countless other items.
EU Hypocrites on Free Movement of Goods
Think goods move freely? Then think again. Please consider French Farmers Dump 90,000 Bottles Worth of Spanish Wine Because…Spanish!
EU Hypocrites on Free Movement of Services and Freedom of Establishment
In Germany, a license to bake cupcakes does not allow one to bake pretzels or donuts.
Freedom of movement is a downright lie. A prime case in point is Germany’s Apprenticeship System.
After 18 months of study, $2,200 in tuition and three exams, Ewa Feix is now permitted by German law to bake two variations of cupcakes.
“Not pretzels, not Black Forest gâteau, not bread,” said Ms. Feix, a Canadian who moved to Germany in 2009. Becoming a professional bread baker entails a three-year apprenticeship and more exams.
Germany’s thicket of rules and standards shields roughly 150 professions from competition, from ski instructors to well-diggers. Stiff fines await uncertified practitioners. German authorities conduct thousands of enforcement raids each year.
Ridiculous EU Rules
There are a lot of claims and counter-claims over Ridiculous EU Rules but Business Insider investigated. Here are the ones labeled true.
- Banana’s cannot be too bendy.
- It is illegal to claim water hydrates you on a bottle of water.
- Prunes cannot be promoted for a bowel function effect.
- Turnips cannot be labeled “swedes”, except in one place.
- Diabetics are banned from driving (passed but not enforced).
- Eggs cannot be sold by the dozen, they have to be sold by weight.
In regards to prunes, the EU ruled “The evidence provided is insufficient to establish a cause and effect relationship between the consumption of dried plums of ‘prune’ cultivars (Prunus domestica L.) and maintenance of normal bowel function.”
In regards to eggs, they can be packaged by the dozen, but the package has to include the weight. This is nothing but needless red tape.
The UK does not need any of this madness.
Fair Trade is Unfair
In response to every article like this one, I get slews of emails and comments along the lines of “I support fair trade”.
Such arguments are presented by people who want to drive up prices or protect their jobs at your expense.
Here is my counter-reply: Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?
The unions howl they want “fair trade”. Fair to whom? The answer is fair to their self-interests, damn the enormous costs to everyone else.
China Doesn’t Play Fair!
Also consider Reflections and Reader Comments on Free Trade: “China Doesn’t Play Fair!”
My inbox and comment box are filled with reader comments and emails telling me “China doesn’t play fair”.
As part of that allegation, many point out Chinese pollution. I’ve written about that many times myself. Yes, it’s disgusting.
Let’s assume for a second that China is the one and only nation that plays unfair, or if you prefer plays the “most unfair.” Let’s also assume China subsidizes its manufacturers.
Who Benefits, Who Loses?
The logical conclusion of such an arrangement is the Chinese government is robbing its people for the express benefit of citizens of the United States.
There is no other logical conclusion. To subsidize exports, every person in China has to pay a cost, via taxation, pollution or both.
The winners are US consumers.
Reader Stuki eloquently explained the math in response to one of my free trade posts. He writes …
In order for a foreign government to subsidize one sector, it must necessarily pull the money from others, rendering them less competitive. Conversely, by subsidizing steel, the Chinese government is indirectly subsidizing each and every industry that uses steel as an input, in the US and elsewhere. While simultaneously taking that subsidy back from their home market companies, in order to pay for the steel subsidies.
So, the net result is the Chinese government subsidizing a low value add, albeit politically well connected, industry at home, while disproportionately subsidizing higher valued add industries abroad. Any way you look at it, it’s a better deal for foreigners than for the domestic Chinese. Which shouldn’t come as a surprise, because, as Friedman has pointed out, the Chinese government is taxing it’s own people, in order to pay for free gifts to foreigners.
If we would only be so lucky…… Of course, the Chinese collectively aren’t nearly stupid enough to not understand that. So the whole “subsidize” gift we’re supposed to be getting from China is, in reality, nothing more than the figment of some congressman-on-the-take’s imagination, planted there by the lobbyists for whatever LBO shop happens to have bought the steel maker that paid for his campaign.
Problems with Free Trade?
There are no problems with free trade, but there are two rules that prevent free trade.
- Every country wants free trade for exports
- No country wants free trade for imports
“Fair Trade” is a concoction by industries that seek or need protection via tariffs and import restrictions, to the damage of everyone else.
It is absurd to have everyone pay triple for underwear to “save 500 underwear manufacturing jobs” but that is precisely what the “fair trade” advocates seek.
Steel tariffs, Trump’s current hot button, constitute a similar story.
Steel tariffs may protect a small percentage of jobs in the steel industry (at best), but that is at the expense of auto manufacturing, fence manufacturing, etc. jobs, as prices rise everywhere else.
Fair Trade Irony
Finally, think of all the trucking, shipping, and shelf-stocking, and refueling jobs lost when trade slows because of protectionism.
Ultimately, the only “fair trade” is “free trade”.
Mike “Mish” Shedlock
Sure, the EU will suffer more economically from a hard Brexit than the UK. However, a successful Brexit (where the UK prospers) threatens the very continued existence of the EU since it would encourage other EU member states to bolt.
It is the disintegration of the EU that is by far the biggest threat to EU policy makers, not economic harm.
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@formula57 – Yes, there is not a great enthusiasm for leaving the EU amongst the remaining EU member states at present. However, that might change if the UK had a successful exit and prospered outside the EU. EU policy makers can’t allow that to happen.
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3 out of 4 Italian political parties want to leave the Euro and/or the EU.
The second place finisher in France wants to leave the EU.
The 3rd place party, and fastest growing party, in Germany wants to leave the EU.
Austria and Poland have governments that are openly defiant of Brussels.
For all the media spin, Greece, Spain, and Portugal defy Brussels as well. They nod their heads and sign EU agreements — but then they just do as they please, ignoring EU agreements. Greece keeps demanding more and more subsidies from Brussels as tribute not to leave.
… but other than the three anchor countries having major parties wanting to leave, and other than a half dozen smaller economies openly ignoring Brussels… other than that there is “no impetus to leave”
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Wrong but why preach to the “unpreachable”.
If you want to have some BREXIT fun, here is one simple transaction before and after BREXIT: the curious case of the pellets:
https://www.nakedcapitalism.com/2017/09/brexit-denialism-the-customsborder-problem-and-the-curious-case-of-the-pallets.html
The EU can throw in so much sand into the UK export efforts if they don’t knee down and say “Bitte, bitte…” LOL and it is all totally legal since everything had been agreed on year’s ago.
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I’ve been saying for months that UK PM May should just ignore Brussels and focus 100% of her energy on two-way free trade deals with the former British commonwealth, and as many African, Latin American, and southeast Asian countries as she can get on board.
Every minute wasted negotiating with Brussels has opportunity costs that dwarf all benefits.
As June 2019 approaches, the EU will probably come to England on bended knee begging for a settlement — because the EU’s continued existence depends on it. But there is no downside risk to England if the EU remained stubborn — the EU is failing as a political entity anyway, and there is zero economic growth.
It makes no sense to waste time battling for a tiny piece of a shrinking pie — especially when there are dozens of better opportunities all over the world. There are only 24 hours in a day, shouldn’t the British government focus on the best risk/reward opportunities? Why waste time on Brussels?
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Unfortunately, May only has a very small working parliamentary majority that is highly vulnerable. The pro EU members of the Tory party would desert May if they thought she was not hell bent on getting a trade agreement with the EU. Worse, most of the business community is also lobbying hard for an EU agreement.
May would find herself tossed from government if she followed Medex Man’s suggestion.
The sad fact is that the UK populace is so terribly divided by Brexit that it is impossible to either negotiate a good deal or even to walk away cleanly.
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The Tories will not abandon May because it would put Labour in power.
It’s as simple as that.
Mish
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+1000
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May’s purpose at present for the Conservative Party is to take the blame, for she is damaged goods so far as the public is concerned. Once she has done that (which will be complete when she delivers Brexit), she can be ousted as party leader without jeopardizing her party’s hold on goverment (the mechanics being aking to the case of M. Thatcher when she was replaced by Major).
May benefits from the fact that at present there is no agreement within the party on who is to succeed her as leader and of course an early appointment of a successor would leave such person tarnished by the blame that is still to be layed.
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What the Eurocrats wish is indeed to see their European dreams furthered even if the price is harming member states economically and in other ways but the pressures they are under do not really arise from other members wishing to follow the UK’s lead.
Recall that none of the other EU countries took the same view as the UK about EU reform, none supported its efforts to renegotiate and redefine and so we must question to notion that any of the others are incipient leavers. Those in the Euro currency would face high barriers to exit.
(As an aside, Mr. Hannon is a member of the European Parliament (pro tem) and would normally be described as an M.E.P. rather than as an M.P. (usually reserved for members of the UK parliament).)
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The above was meant as a rejoinder to the first reply above by Mr Surkan.
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@formula – “Recall that none of the other EU countries took the same view as the UK about EU reform … that any of the others are incipient leavers.”
Three out of the four leading political parties in Italy want to leave the Euro and/or leave the EU.
Le Pen came very close to winning in France, but for some rather shady electoral shenanigans.
AfD went from a bunch of outliers to having the 3rd most seats in the Bundestag — and they aren’t subtle about saying the EU should go stuff it.
Austria and Poland both have governments that have told Brussels they will not be adhering to Brussels edicts.
… how do you look at these facts and conclude there are “no incipent leavers”??? The three anchor countries all have top 3 candidates that want to leave, but you want to ignore that?
@formula — “(As an aside, Mr. Hannon is a member of the European Parliament (pro tem) and would normally be described as an M.E.P. rather than as an M.P. (usually reserved for members of the UK parliament).)”
As an aside, none of the M.E.P.’s were elected by anyone. They are all political appointees. There is nothing parliamentary about them.
Definition of “Parliament” — “A national representative body having supreme legislative powers within the state.”
EU bureaucrats are not representatives at all. “M.E.P.” is a silly title they awarded themselves.
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If facts are important to you consider neither AfD nor Le Pen (both of whom are probably spent forces) want their countries to leave the EU. As for Italy, the 5 Star movement has shifted its ground on Euro membership (which of course is distinct from EU membership) – as have all others (most starkly Greece’s Syriza) who have given serious contemplation to how abandoning that currency would work for them – and do not wish for exit from the EU. Even Italy’s Northern League has recently softened its approach – see http://www.politico.eu/article/italys-northern-league-goes-soft-on-the-euro/ for example. The Forza Italia of Berlusconi has limited itself to callig for introduction of a parallel currency to the Euro (somehow using it contemporaneously with continued use of the Euro) and it too does not wish to leave the EU.
The EU is in difficulties I would agree but not to the point where members are likely to exit.
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Short of a depression Marine L Pen will never make it.
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Le Pen almost did make it… a lot of shady tactics were used to put the pretty boy into office instead (and he isn’t very popular if you believe the French media).
That is not an endorsement of Le Pen (I think she is a little nuts). Just pointing out that the EU has pushed a lot of people into her circle.
I don’t know how many Germans support AfD per se… but every time Angela Merkel opens her mouth to praise Brussels / bash Germany, she puts a few more German voters into the AfD camp.
The EU and their puppets in Paris / Berlin are their own worst enemies
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A proper mix of ideology from years of indoctrination…and guilt for Hitler, and a substantial dependency on government, will keep them voting for what they have. Most are afraid of change, even in the face of disaster. The race is on to get the EU locked down and fully dependent…before the immigration influx becomes an apparent financial disaster. BREXIT screwed that up royal, and Spain’s difficulties will fall right behind them.
Sometimes I think the whole world is devolving into one big civil war. The hungry unproductive mindless eaters against those resisting theft and dependency.
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“A capitalist will sell you the rope you hang him with.”
China’s Intellectual Property Theft Must Stop
15 Aug 2017
China must stop forcing U.S. firms to share intellectual property –
When a U.S. company turns over technology in exchange for access to today’s Chinese market, it creates a Chinese competitor in tomorrow’s global markets
https://www.usatoday.com/story/opinion/2017/08/14/china-must-stop-forcing-us-firms-share-intellectual-property-peter-navarro-column/563151001/
Let me correct that second headline – “U.S. companies should stop turning over technology in exchange for access to today’s Chinese market”. That correction fixes the problem found in the first sentence of this post.
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This is my biggest concern too. It takes time to develop an industry that can become globally competitive and it can require government intervention to foster the innovation, capacity and specialized skills. Once those skills are gone they do not easily come back. For example the Australian car industry was destroyed by the liberal government and the high dollar courtesy of the RBA. The US subsidizes its industries amongst many other nations – this is because the US and Germany believe that having heavy manufacturing is in the national interest. Now the Australian economy is a country of only mining and real estate investment supported by a population ponzi.
Governments need to play a role in fostering an industry and in some cases protecting it long enough to transform. Look at India’s pharma industry for example. Indians protected their industry and now they have a viable global industry.
Mish would love your thoughts on this argument.
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1. If it’s good for the consumer I support it.
2. Protectionism and higher prices are not good for the consumer
3. Standards of living go up when prices fall
4. Letting governments pick winners and losers (that’s what subsidies and tariffs do) is a bad idea. How can a bunch of bureaucrats possibly know what to do? Central planning is a failure.
5. Governments have a role: Get the hell out of the way
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Our reality is that we have no reality. How is it possible to speak of free trade when there are so many interventions already in place,with many have far reaching effects. Are not taxes and debt considerations as well as interventions by domestic government in our own production? Are we oblivious to short term destruction as long is it is not ours? Have we ever in history seen such rapid growth in technology, combined with world wide internet trade and universal financial instability?
So we assume no risk, as with so many other hypothesizers who will casually impose rules that could have disastrous effect on millions, and it is simply the necessary collateral damage of “growth”?
Why are we pretending that we know what we do? Can anyone really say it is the same as before given the massive acceleration of trends?
If so, I will posit that we had a positive trade balance, very low national debt, a booming economy and our federal government was funded 90% with PROTECTIONIST TARIFFS in 1900. No taxes on our production, no sales tax, no income tax. If we can “imagine” what a free trade world would look like, why is it not at least as rational to consider something with historical precedence?
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I an understand Mish’s points but my concern is the lack of know how and the surrounding economy that are based on some core industries as well as IP theft changing the balance. Government has a role to play in markets and as to your point Madshellowell – Americans used protectionist tariffs well at the expense of the British.
Your point on the inability of the government to pick winners or losers is a sound one which works against this argument but the core investments that governments made in science (for example) drove amazing technological developments that may not have been possible without the government getting involved.
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I totally agree with your stance on free trade. and great article. My one comment is that per my understanding a turnip is not a “swede”. I believe a rutabaga is a “swede”. Thus, a rule preventing a turnip from being called a “swede” is as reasonable as a rule saying that you can’t call a broccoli a cauliflower, or call a grapefruit an orange.
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“Free trade between a rich and a poor country, as between any two countries, benefits both.”
Rubbish. The loss of a job in the rich country will simultaneously reduce the governments funding from loss of taxation while increasing the demands on the inevitable welfare system.
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Free trade must simultaneously assume a single world government with one set of world wide rules, a level playing field, and if you can believe THAT will not be corrupted to benefit the few, I have some beach front property in Puerto Rico to sell you.
We know why our jobs left. We refused to buy our own production. Now we tax our corporations, our personal labor and everything we consume to help pay for those who’s production we refused to buy. WHAT A BARGAIN.
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“Free Trade” doesn’t “assume” anything about government at all. Much less a single world one.
All that is required for free trade to result in better outcomes than lack thereof, is that someone able to pick the most suitable product, for him, from a strict superset of the ones produced domestically, is better off than if he was restricted to the domestically produced subset. Which is trivially true.
And it’s trivially true whether that someone is an end consumer, or a producer competing with other producers. The latter is why steel tariffs is such a disaster, as steel is an input in so many higher value add products made by American companies. Each and every one of whom will face higher costs than international competitors if steel tariffs are enacted, due to then having to pay a higher prices for one of their key inputs. So then, in order to make up for that cost disadvantage, they have to pay lower wages to American workers than they otherwise could…… And so on and so on…..
“Our jobs” leaving, has nothing at all to do with “free trade.” Instead, they left because it is too expensive to produce anything in America. Because every American who produces something, has to carry on his back, an army of produce-nothing-consume-a-lot banksters, lawyers, bureaucrats and zero-value-adders who “make money” by having the Fed and regulators pumping up the “value” of their house, stocks and other idle “assets.”
Sitting idly around “owning” something produces no new value at all. So, inevitably, whatever purchasing power someone gains by doing so, has to be taken from that produced by someone else, who happens to be producing something. Driving up his cost. Reducing his competitiveness. Until he is no longer able to compete against less so burdened international competition.
And sitting idly around “owning something,” is all that the “ownership society” drivel propagated since Nixon went off gold, have encouraged Americans to do for the past 4 decades. Which happens to be exactly the same 4 decades over which America’s manufacturing base has been shipped abroad, for those starry eyeds who insists on believing economics is some sort of an empirical discipline.
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You might enjoy this parable from a friend:
Genie: I will grant you one wish.
EU: I want everyone to be equal.
Genie: Granted! You have no wishes.
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Ethics go out the window when profits are involved there is no clean country,they all spy and cheat,wars are the continuation of economic struggle.
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Motivation goes out the window when profit is absent.
Clean open competition under rules administered by the court system can function without the destruction Of profits.
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Reblogged this on World4Justice : NOW! Lobby Forum..
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As long as Merkel remains, the EU remains on a path to destroy itself.
Looks like Great Britain has a chance to save itself while the rest of Europe commits suicide.
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Protectionism is a symptom of individual and policy failure, just like war is. Are we to deny our failure and insist on a pure and just world, pacifist in nature to the extent that we stand defenseless against the onslaught of our own making? To insist on “free trade” when we KNOW our trading partners have NEVER played fair, is asking for defeat. How many years of massive trade deficits can we accumulate before the system breaks? Are we going to bet on “the something for nothing” lasting forever? Do we really think China’s giveaway prices will continue once they have concurred all of their competition?
The Chinese not only dominate world manufacturing, but they are quickly becoming dominant in the production of the machines used to manufacture.How will America rebuild their productive capacities if needed if they must purchase those machines and technology from China?
I’m sorry, but I just don’t get it. Maybe because I’ve worked too many years actually making things and can’t imagine a prosperous world where we are simply consultants and resellers. Looks mighty fragile to me. It feels like we are eating our seed corn.
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I really liked Stuki’s argument.
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So the Chinese can create trillions of dollars from thin air to subsidize their industries competitively to the rest of the world. Their failing debt continues to be rolled over while their profligate printing leaks all over the world pushing up real estate and other asset prices so high that domestic citizens can no longer afford to live in their own neighborhoods. Meanwhile they decimate the rest of the world’s productive capacities. As US business suffers greater and greater losses, they are left with no choice but to buy Chinese steel or whatever in order to even begin to compete….which they can’t.
All I can say to foreign competitors regarding free trade is “you first”.
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Mish, it seems that Stuki’s and your arguments pro free trade lack information regarding the long term (20 years+?) effects of the type of free trade in which the US and China are currently engaged. If you have the time, I think it would be interesting if you could research and report on the following:
– What are the long term economic effects on business viability, both small and large, when nations engage in free trade similar to that currently happening with US and China?
– What are the long term economic effects on employment when nations engage in free trade similar to that currently happening with US and China?
– What are the long term economic effects of IP transfer/theft from one nation to another due to free trade?
– If there are negative long term consequences, what are the costs to society? Do these costs negate the short term benefits of free trade?
Please include data from any historical precedent you might find. Thanks!
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Hi Mish;
As an American living in France, I enjoy your European coverage.
I understand your position on free trade but there is something perhaps you could clarify. How does a country such as France with high social charges and an aging population directly compete with one that doesn’t have those handicaps?
Thanks for your time and your work.
Rick
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It is tough for socialists to compete.
It needs something like the EU with all its rules and regulations.
But that is a path to very anemic growth if any growth at all. Musch of the growth is in Germany. Italy is a basket case and so is Greece.
French-sponsored agricultural tariffs to save the small farm and the French way of life are an absolute disaster for the sole benefit of French farmers at the expense of everyone else in the EU. To his credit, this is the one positive of Macron (I think). He says he wants to liberalize French work rules. Will he?
Mish
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Is it me, or is the caption on that second picture ironic? The man is literally doing backbreaking toil in what can clearly not be characterised as “subsistence” farming, and free-trade will only increase that by increasing demand for his produce, unless you are suggesting he will be able at some point to automate it … which we won’t, because even he will be undercut by cheaper producers elsewhere and will not be able to accumulate the capital to keep himself competitive.
Freedom of movement is not a lie: It is an aspiration. Article 45 TFEU specifically provides for the freedom of movement workers, but this is subject to limitations justified on grounds of public policy, public security or public health. The apprenticeship system has a private aspect of ensuring an appropriate pipeline of talent is in training, and a public aspect in ensuring appropriately qualified persons are doing the job.
The authorities do try to be accomodating: One of the funnier stories I ever heard about the German apprenticeship system was the authorities in Dresden trying to figure out how to qualify one of their Beamters (officials) to be up to speed on assessing the skills of and licensing a couple of Italians who had started a Gondola service on the River Elbe. They eventually worked through it by getting him up to speed on licensing operators of flat-bottom boats and then deeming that equivalent to driving a gondola. This is not exactly a trivial matter, since ensuring that persons carrying paying passengers on a public waterway can do so safely is reasonably a function of the state within its competence to safeguard health and safety.
I like the apprenticeship system. Yes, it is a collar on free trade and free movement, but it is ultimately more fair to the people of a nation-state than the Anglo-American system of pushing everyone toward college and the accumulation of mountains of debt that will follow them through lives, or pushing them into welfare, all the while importing masses of unskilled foreigners to do the trade work that would have been done by the locals but for either being pushed into debt serfdom which makes it financially untenable to do a trade or welfare serfdom, which financially pays better than doing trade or menial labour.
Further, you trivialise the debate by offering up the lame story of becoming a master baker. Yeah, it seems absurd on the surface, but there are a lot of things learned in the course of being an apprentice, like proper hygiene. I’ve been served baked goods in the US and EU, and the standards of hygiene in the EU are significantly better. I’ve also had hot-water heaters installed on both continents: In Germany, by a Pole who qualified as a master plumber and who confidently and competently installed the heater in short order, and in Florida, by a Mexican of questionable legality and whose skill was dubious.
I wouldn’t make too much of the French farmers dumping Spanish wine, because that is not a function of the EU (under Articles 34 & 35 TFEU and in numerous CJEU cases, these kinds of actions are illegal, and member states have been dinged for not doing enough to stop these sorts of actions): It is, rather, French farmers being French farmers.
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Politicians are not smart people. They are ruthless driven people who seek power. Such people seldom make sound decisions especially when their greed for money and more control get in the way. Thus why question the wisdom of anything they do. Most of it is sheer lunacy.
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Stuki smart !
Suki should reboot by reading :
“Bad Samaritans” by Ha – Joon Chang.
S.Korea started with steel and moved, one step at a time, to high end industrial products.
China started with low end electronic components assembly, but when AAPL project engineers ( email, or two way conference call, from 6,000 miles are not good enough)
want to design a new phone, they have to fly to China to get an advise. A country
that don’t Produce lose their advantage & skills and the minute tech know how. It will be taken over by those who are Producing the next generation of products.
The non productive nation, can benefit for a while, but their citizens are
basically useless people until they expire.
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Your point is exactly the problem that I keep mentioning.
Stuki’s comment in the original post, that a country which subsidized one industry is effectively taxing itself elsewhere, is true as far as it goes but ignores the strategy behind a decision to be dominant in certain types of production.
For example, what reasons could China have for subsidizing its steel production besides that of giving a gift to foreigners? Could it be that steel manufacturing technology is a vital component in infrastructure and defense? Meanwhile, other countries who open themselves to total dependence on low cost Chinese made steel may become unable to reliably produce their own supply. I think it is a narrow view to look at trade exclusively from the point of view of lowest front-end cost to consumers.
I am open to a convincing counter argument.
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Fun fact: from 1942 to 1945, the city of Pittsburgh and the area around it (Monongahela Valley, etc.) produced more steel than the Third Reich.
The fact that we weren’t being bombed by the British or invaded by the Russians made our job a bit easier than the Germans’.
Today China’s steel industry has a productive capacity about ten times that of the USA. They produced 808.4 metric megatons in 2016 versus 78.6 by the USA.
https://en.wikipedia.org/wiki/List_of_countries_by_steel_production
If there’s another prolonged world war requiring the mass production of weapons, the US will lose to China.
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Thanks for that.
That’s a striking contrast and I dearly hope the US will not be facing a war with China any time soon.
I imagine a large scale war today would destroy assets much faster than anything previously seen in history. Possibly neither 78 megatons or 808 megatons of steel fabrication would make much difference.
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And the US pisses $5 billion on Elon Musks lunacies.
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Hi Mish.
Thanks for all your posts!
I agree in theory with zero tariffs and subsidies. Let’s assume the US follows this route and China subsidizes their steel works until all the US steelworks go out of business. China then increases their steel prices to become profitable again. At that stage the US will not commit new capital to start up the steelworks again in fear of future subsidies. How do you square theory with practice?
Cheers
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In practice, it will not happen.
China would go broke and interest rates would soar before it could give too much free steal away.
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Free “steal?” Did you do that on purpose? My comments, such as they are:
The steel does not need to be free. It only needs to be significantly cheaper. In return, China gains economy of scale in steel manufacturing which is difficult to challenge and, as long as China is a huge consumer of steel, much of the steel itself and the subsidy spent paying for that steel presumably end up somewhere else within China’s economy (assuming they use it to build productive assets and that the Chinese citizens being paid to make the steel spend their subsidized earnings locally).
In the pure free trade argument, other countries should be grateful for the windfall of cheap steel coming from China and they should use as much of it as they can to lower their own costs. Fine, except (1) steel manufacturing technology is a strategic asset and, (2) western governments consistently enact regional economic policies that hobble the ability of their local industries to compete.
The pure free trade model only works well if countries in the group are guaranteed never to have military conflicts with the others, every country follows a pure free trade policy, and every country is willing to shutter their own production whenever their supposedly egalitarian regulations make their local production noncompetitive. I think there are a number of famous social psychology experiments that say human nature is not consistent with that.
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