Thursday, February 07, 2008

Imports make us rich

This is a concept that I really hadn't thought about at all, until I started reading blogs. Indeed, the blog that made me understand was one in particular and, sure enough, Timmy reiterates that very message today.
The imports are the thing we want, the imports are what make us richer (ie, give us more of whatever for the resources we have available). Exports are just the dreary shite we have to do to be able to buy the imports.

If this doesn't seem logical, do go and read timmy's full explanation. But it is an extraordinarily important point and one which can always be used to counter the arguments of those who fear our leaving the EU "because we won't be able to negotiate good trade deals" or somesuch.

The simple answer is that we do not need to negotiate trade deals: all that we need to do is say that we will buy anything from anyone without any barriers, quotas or tariffs. No negotiation is needed.

It doesn't really matter if those other countries raise tariffs against our goods: they are simply making their populations poorer by ensuring that their imports are more expensive than they would otherwise be.

This is why the EU is a bad thing in and of itself: it is a customs union and exists to make trade less easy and more expensive. Energy-saving light-bulbs, for instance, would be much cheaper if the EU did not slap a 66% tariff on those bulbs imported from China. And why do they do this? To protect those European companies who cannot make the bulbs as cheaply, i.e. Phillips (Dutch) and Siemens (German).

So, in this case, the EU makes the Chinese poorer—keeping the price artificially high is designed to ensure that the Chinese sell fewer bulbs—and it makes the people of the EU poorer by ensuring that they have to spend more money to buy their energy-saving light-bulbs (this is exacerbated, of course, by the fact that the EU is in the process of banning incandescent bulbs).

So, as John says at Banditry...
This is also why protectionists should be lined up against a wall and shot.

Quite. And whilst that applies to anyone, it applies most pertinently to one organisation...

Unio Europaea delenda est.

14 comments:

Rory Meakin said...

It is amazing how widespread the notion that exports are good and imports are bad is. I think it springs from a natural tendency to personify a nation's accounts and think of them like an individual's financial circumstances.

I too used to think like this until a prof started berating politicians for fetishising investment over consumption in one of my first year economics lectures. The point of the economy is to maximise consumption, not production. At the time, I had an A-level in economics and I still hadn't grasped this fundamental point. Worrying, no?

Newmania said...

This is confusing ? Of course it makes us poorer if we cannot export

Tomrat247 said...

My knowledge of economics was in its infancy until I started to read Tim Worstall and Wat Tyler's blogs - now I'd consider it juvenile; naive and mistaken 90% of the time, but not outright idiotic as it would be.
My interpretation of Tim's arguement here (from a complete laymans perspective) is that when you have a lot of something, swapping it with someone who has little of it for something they have a lot of that you need/want is a good thing; it really is as simple as that - negating this simple rule with tariffs just negates the cost benefits of freely trade at the consumer level. The french economists name escapes me at the moment (someone will no doubt correct) but he posited a much better metaphor; a train transporting goods between 2 adjacent countries has ever greater restrictions (tariffs) placed on it - this is perpetrated by both countries to limit the impact on jobs in the sector that suffers from the others cheaper imports. The effect eventually leads to the positive benefits being removed so that the need for the train in the first place is unnecessary.

If people understood that barriers to free trade was the central posit of the anti-globalisation faction and of the left, few would vote for them.

Anonymous said...

Unio Europaena delenda est.

rory meakin said...

The argument, tomrat, is this: if you want to trade something you have for something that somoene else has, then you presumably want to make the trade because it will make you better off. If the someone else agrees to the trade, they too will be better off (otherwise why bother?). The fact that there may be a national border between you and the someone else makes no difference to whether that trade makes you better off or not.

Any attempt to restrict that trade will make you poorer.

Guardian apostate said...

OK, call me naive if you like but how does allowing highly skilled, highly paid manufacturing jobs disappear to China just because they have lower overheads (no pension schemes, workers living in tiny cubicles and not seeing their families for years on end, shocking health and safety regulations etc) work? It isn't anywhere near a level playing field. Isn't there an argument that we should have a degree of self sufficiency in an unstable world? Swapping the Rover car plant for a distribution depot doesn't seem entirely sensible.

Devil's Kitchen said...

"OK, call me naive if you like but how does allowing highly skilled, highly paid manufacturing jobs disappear to China just because they have lower overheads (no pension schemes, workers living in tiny cubicles and not seeing their families for years on end, shocking health and safety regulations etc) work?"

I think that you seriously over-estimate how skilled a job it is to screw the same type of nut onto the same place on the same car 8,000,000,000 times a week is.

As for working conditions in China: do you seriously and honestly think that if they didn't have jobs, that their conditions would be any better?

And what kind of pension schemes and health and safety regulations do you think existed in British factories a century ago?

"It isn't anywhere near a level playing field."

Who said it was? I wasn't aware that we had subscribed to equality of outcome over in The Kitchen.

"Isn't there an argument that we should have a degree of self sufficiency in an unstable world?"

Unstable world? Compared to a century ago? I don't think so.

The best way to stabilise the world is to make trade so lucrative that going to war with your suppliers/customers is too expensive in terms of lost trade.

"Swapping the Rover car plant for a distribution depot doesn't seem entirely sensible."

Um... why? Because you think that someone screwing a nut onto a car is more skilled than someone keeping track of inventory?

Rover is a grat example, as is British Leyland: despite MASSIVE government subsidy, they both went bust.

Doesn't that give you some inclination of the way in which the wind is blowing?

The main point being that it doesn't matter how much you would like to return to the halcyon days of 70s manufacturing (snurff, giggle, choke!), the world has changed.

And yes, imports make us rich.

Otherwise, of course, next time you need to buy a new car, instead of going for the best that you can afford, why don't you go and find a British car...

DK

Guardian apostate said...

I think that you seriously over-estimate how skilled a job it is to screw the same type of nut onto the same place on the same car 8,000,000,000 times a week is.

Designing and building cars is a little more than just screwing a nut.



As for working conditions in China: do you seriously and honestly think that if they didn't have jobs, that their conditions would be any better?

So all those losing highly paid designing, development and manufacturing jobs can comfort themselves in the knowledge that at least it means someone in China has a job in sweatshop conditions? I spoke to someone from China once who explained that most workers have to work whenever they are told to and sometimes they get as little as a day's holiday a month. Many live in small cubicles and only get to see their families every three or four years. This is what we are expected to compete against?



And what kind of pension schemes and health and safety regulations do you think existed in British factories a century ago?

So that makes it ok then. As above, at least we can comfort ourselves in the knowledge that China *might* get round to decent working conditions in a hundred years or so.



"It isn't anywhere near a level playing field.

"

Who said it was? I wasn't aware that we had subscribed to equality of outcome over in The Kitchen.

I did in that statement of fact. Those Rover workers and many more like them are earning less than they were as a direct result of the Chinese competition which drags us down closer to their level.



"Swapping the Rover car plant for a distribution depot doesn't seem entirely sensible.

"

Um... why? Because you think that someone screwing a nut onto a car is more skilled than someone keeping track of inventory?

Designing, developing and manufacturing cars and their components is much more highly skilled and better paid than driving a forklift truck in a distribution depot.



Rover is a grat example, as is British Leyland: despite MASSIVE government subsidy, they both went bust.

The main point being that it doesn't matter how much you would like to return to the halcyon days of 70s manufacturing (snurff, giggle, choke!), the world has changed.

I'm not arguing for government subsidies merely that not having a level playing field with the likes of China and India puts our manufacturing companies at a distinct disadvantage. Skills and knowledge that took years to develop are being lost.




Otherwise, of course, next time you need to buy a new car, instead of going for the best that you can afford, why don't you go and find a British car...


I have some friends who designed and developed an electronic paintball gun. It eventually employed around 40 people (no massive government subsidy) who were highly skilled and well paid. Eventually competition from China forced them to close down their factory and get their guns made in China. The workers who lost their jobs have struggled to find new jobs. The type of skills these people had are no longer required. Many have had to take work paying much less. I'm sure they'd love to buy a car, British or otherwise, if they could afford one.

It's at this point I have to confess (as I'm sure you've worked out) to knowing very little about economics. I've merely being playing devils advocate because I'm struggling to understand it all a bit better than I do. I can't help feeling that despite what you say that there aren't some downsides to the type of free trade you argue for.

rory meakin said...

“how does allowing highly skilled, highly paid manufacturing jobs disappear to China just because they have lower overheads (no pension schemes, workers living in tiny cubicles and not seeing their families for years on end, shocking health and safety regulations etc) work?”

Apostate, you need to consider a few points:
1) “Allowing jobs to disappear” means permitting British people to buy cheaper products. If your income stays the same but the price of goods halve, then your real income has doubled. Cheaper goods means richer people. Trying to stop this effectively impoverishes people.
2) When we buy goods from these new factories in China, we pay them in pounds. The only thing they can do with those pounds is to buy stuff back from us! Ie, jobs.
3) Free(ish) trade in China has and will continue to do more for poverty relief than all the corruption-addled schemes Polly Toynbee and Alan Rusbridger could ever dream up over a working breakfast of muesli and organic soya milk. Isn’t ending poverty a good thing?

“So all those losing highly paid designing, development and manufacturing jobs can comfort themselves in the knowledge that at least it means someone in China has a job in sweatshop conditions?”

1) Seriously, when you buy a car you don’t do so in order to create highly paid jobs. You do so to get what you consider to be the best car at the most affordable price.
2) Employment in design and product development has not fallen in Britain. Quite the reverse. In fact, design jobs now are more highly paid and more common than they were 10 years ago. It is likely they will be even more highly paid in ten years time, too. All this while manufacturing has declined.

“Otherwise, of course, next time you need to buy a new car, instead of going for the best that you can afford, why don't you go and find a British car...”

Wow! Why on earth would you want to pay over the odds for a product that doesn’t make the cut, just out of sympathy for the seller? That’s insane! You impoverish yourself, you impoverish people in developing countries and you keep the sellers from switching to something they will excel in so they can keep doing something at which they’re no longer any good!

“I can't help feeling that despite what you say that there aren't some downsides to the type of free trade you argue for.”

The world changes. That’s how we get more prosperous: by changing how we do things. We stop doing things the old way in favour of more efficient ways. Those who were doing well under the old ways will, of course, suffer in the short term. But that’s outweighed by the benefit both to the new sellers and the buyers.

The great French journalist/economist Frederic Bastiat explained it best in his short essay “The Candlestickmaker’s Petition” available here

wildgoose said...

As in all matters, it is possible to take things to the extreme.

Trade enriches us. Absolutely.

But "Guardian Apostate" is absolutely right in one respect - sooner or later the Piper has to be Paid.

A few centuries back Spain was the richest country in Europe. South American gold meant it could buy anything it wanted. It had no need to build its own factories, it left that kind of work to the non-Spanish on the periphery like the English and the Dutch.

Where are they now?

Trade is only truly trade if we are truly making an exchange. I am not convinced that continually handing over paper ("fiat") money is a good long-term survival strategy. Those promissory notes have to be redeemed sometime.

Roger Thornhill said...

If you import more than you export, you need to sell more £ than people want to buy £. This can devalue it. It also means wealth leaves the country.

If the £ is a rock solid currency with no inflationary printing presses, I would think countries would like to keep their £ hidden away in vaults which mitigates it while that lasts.

The reason the USD has not fallen so far is because China is stashing away vast reserves of USD.

Anonymous said...

The only thing they can do with those pounds is to buy stuff back from us!

The reason the USD has not fallen so far is because China is stashing away vast reserves of USD.

Apparently ready to buy up many of our major companies.

rory meakin said...

“Trade is only truly trade if we are truly making an exchange. I am not convinced that continually handing over paper ("fiat") money is a good long-term survival strategy.”

This is true so far as it goes, but worryingly misleading. One of the functions of the money is to store value between time periods. I don’t see what objection can be made to me trading something now in exchange for repayment with something else at some point in the future. This whole concept of “true trade” sounds a bit like those quaint, sentimental notions of a “manufacturing base” that you sometimes hear.

“Apparently ready to buy up many of our major companies.”

They can only buy them from us if they are prepared to pay us more than anyone else would. Is being paid a premium for our assets in voluntary exchanges a bad thing?

Anonymous said...

This blog is a creepy joke. It calls itself the devil and then claims to be spokesman for the church fuck off. This is crap. Why is it the sun newspaper which is just scum slag newspaer has the gall insult the pious bishop. He di not call for the retun of sharia law extreme elemets he called for moderate lemts of it.
You lot should see you are insultng a good pious man and totally missinterpreting what he said. He did not call women to wear burkhas, and for gays or women to be beheaded. So shut uip yourt bully boy creep remarks. By the way we will probably get a far more liberal bishop if we chuck this one out.