Monday, June 11, 2012

Trade negotiations are stupid

As your humble Devil has pointed out a number of times, the point of trade is imports. No, really—it is.

Look at it this way: you can buy a piece of land, and some wheat seeds; then you can buy some books on how to grow, harvest and mill the resulting crop; then you can buy an oven and some books on making bread, and shell out the energy required to do all of this. Hey presto!—you have some bread.

Some very expensive bread that has taken an awful lot of months and huge amounts of man-hours to create. Well done you!

Alternatively, you can export your labour in return for some imports—usually money. You can then export that money in order to import a ready-sliced loaf from the baker (or supermarket).

Or, if you want to by-pass the money stage, you can export your labour to the baker in return for the loaf of bread import.

It is the imports that we want, and that applies as much to cheap electronic goods as it does to food.

Any restrictions on those imports make us poorer. Which is why, as Timmy points out quite forcefully, restricting free trade is a stupid thing to do...
At which point the absurdity of trade restrictions becomes apparent, because imports should matters to everyone involved in trade. Other countries may even be stupid enough to put up barriers to stop their citizens enjoying the lovely things that we make. But why on earth should our reaction be to put up barriers to stop us enjoying the lovely things that foreigners make?

Yet this is what trade negotiations are all about. The UK will reduce tariffs on electronic tat only if Taiwan will reduce tariffs on whatever we export. If you don't stop making your citizens poorer then gosh darn it we'll just make ours poorer to spite you!

It was the more-Keynesian-than-Keynes Cambridge economist, Joan Robinson, who pointed out that other people putting rocks into their harbours is no justification for putting rocks into your own.

The problem we have with trade and trade negotiations is that our politicians are simply too stupid to realise this. Simply declare free trade unilaterally, so that we can purchase whatever we want from wherever. And if Johnny Foreigner doesn't do the same then more fool Johnny Foreigner.
Quite. Let me illustrate this with an actual example...

Rightly or wrongly*, the EU has decided—because incandescent lightbulbs are inefficient and are killing the planet—that we should all use energy-saving lightbulbs. Now, whilst a couple of large companies in the EU do make such lightbulbs, they are not as cheap as those from China.

"Hooray!", you exclaim. "We can all buy those nice Chinese lightbulbs and everybody's happy."**

Ah, well, not so much. You see, the EU slaps trade tariffs on various goods. And in the case of energy-saving lightbulbs, the EU has slapped on a 66% import tariff. So, an energy-saving lightbulb that should cost £1 now costs you £3.

The Chinese are poorer, because we buy fewer lightbulbs from them. And you are now poorer because you have had to pay 66% more for a lightbulb than you would otherwise do.

Thank you, EU!

* Wrongly. So-called "energy-saving lightbulbs" give poor light, contain mercury vapour and are generally bad for the environment. LEDs are far better on all counts. But this is just another example of governments being shit at picking winners in technology.

** Apart from those people who want a decently bright light. Or, of course, those for whom these crappy lightbulbs induce migraines.

5 comments:

Ace Gikmo said...

Have we as a country not already spent the last couple of decades following your advice? And what good has it done us? The global manufacturing playing field is not level, because these products are not made in safe environments by decently paid adult workers, but in sweatshop conditions, often by young children. Buying cheap, slave-made, low quality Asian goods as you advocate, has put our own factories out of business, and our workforce on the scrapheap. How can you call it “Free” trade, when the “grunts” making the stuff for global corporations, are on starvation wages, or should be at school?

Andrew S. Mooney said...

Questions: If we have no comparative advantage in any field, where do you propose that we get the money to then buy the stuff that other nations want to sell to this country, all of which we should import from them as that is the most efficient way of doing business?

Please do not say, "Everyone is good at something," what are we good at and should specialize in exactly?

Also: If we have no capability in a new field, like certain forms of biotech or even commercial space access, in the fashion of the Skylon launcher, should we specialise in it in any way? Or presumably should others be left to do that and we follow them about and buy one off of them if the market proves good? Shouldn't we have tried to do it first?

Finally: What if another country is the best baker - Bread analogy - And does it cheaper. Quality and Price. What if I want to be a baker. What should I do then? Go there? How does that benefit this country? I am not interested in sending home remittances.

FlipC said...

"LEDs are far better on all counts."

Except that they're naturally uni-directional, don't produce light above the equivalent 60W bulb*, and cost about 10 times the price**.

*They've only just managed to produce a 100W equivalent last year

**For a Philips omnidirectional 60W equivalent £26.99

Suboptimal Planet said...

"If we have no comparative advantage in any field"

Is that possible?

We might not have an absolute advantage in any field, but I think comparative advantage is inevitable.

Andrew T said...

The benefit of free trade has to be learnt again in every generation, alas!