August 26, 2003

The Politics of Comparative Stupidity

The Howard Dean quote below is one reason why a trade war is highly likely in the next administration--whether it's Bush, Dean, Gephardt, or Hillary Clinton. Free trade is always a convenient political scapegoat. You don't gain much ground trying to explain to voters that allowing inefficient or uncompetitive industries to go the way of the dodo makes an economy richer, not poorer. All the voters hear--and all the politicians are willing to talk about--are lost jobs as a result of "unfair trade." Take Bush and steel, for example. The Mackinac Center for Public Policy reports that the Bush steel tariffs cost 8 jobs for every one steel job preserved. It also estimates that higher prices for steel would actually decrease U.S. nationa income from between $500 million and $1.4 billion. And even in the places where the steel tariffs are supposed to preserve jobs, they do more harm than good. Mackinac says that Michigan stands to lose more jobs in steel-related industries than every state in the Union except California. What's more, Michigan stands to lose almost five jobs in steel consuming industries for ever job saved in the steel producing industry. Here's the rub: trying to protect jobs with tariffs only costs jobs. It raises the price of the goods protected by forcing consumer to pay more for the product than they would otherwise have to. Forced to pay more for the product (either through subsidies/taxes) or higher prices, both consumers and businesses are prevented from spending or investing that money in ways that would create new jobs and add income and actually grow the economy. There's nothing new here. It's just basic economics. Under the Law of Comparative advantage, you produce what your most efficient at producing at the lowest cost and you trade that for the production of other low cost producers. If it really did work that way, consumers would get better and cheaper products and jobs would be created and incomes would rise. It DOESN'T work that way because of tariffs. And tariffs are largely the product of self-destructive nation states and politicians which want to blame economic stagnation on foreign competition rather than on poor public policy. What you eventually get is what we're starting to see now. "Blame the Foreigner." "Make the Chinese Pay." "Fair Trade, not Free Trade." Denning Forecast: The trade wars are coming. And when they do, the shooting wars may not be far behind. Defining Dean ( "One multilateral institution that might not fare so well in a Dean administration, though, is the World Trade Organization. In what would be a radical departure, China and other countries could get trade deals with the United States only if they adopted 'the same labor laws and labor standards and environmental standards' as the United States. Whether or not that demand was consistent with WTO rules? 'That's right.' With no concession to their relative level of development? 'Why should there be? They have the right to have a middle class same as everyone else.' Dean says, 'We've tried it' -- NAFTA, WTO -- 'for 10 years, and has it succeeded? No. . . . What's the purpose of trade? If it's to create jobs, we haven't done that in America.'


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