The Trans-Pacific Partnership: Are We Up To The Challenge?
Wed, Oct 7, 5:11 PM ET, by Bob McTeer
" What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war."
To close our borders to imports, that is. And to those who think exports are okay but imports are not, and that countries who have a surplus in trade with us are "killing us," Henry also pointed out that . . .
"To have all the ships that left each country sunk before they could reach any other country would, upon protectionist principles, be the quickest means of enriching the whole world, since all countries could then enjoy the maximum of exports with the minimum of imports."
The Trans-Pacific Partnership trade pact is about to test the economic literacy of the American public and politicians. I'm not optimistic that it will pass because we all understand and appreciate the benefits of freer foreign trade. Henry George would probably be disappointed. It may pass, however, because the balance of lobbying power could tilt in its favor. In other word, business interests desiring better access to foreign markets may beat the protectionists. I'll take it that way too, if necessary.
The TTP is a trade pact among 12 Pacific Rim countries: the United States, Canada, Mexico, Peru, Chile, Australia, New Zealand, Brunei, Japan, Malaysia, Singapore, and Vietnam. These countries reportedly account for about 40% of global trade. The TTP is supposed to represent the administration's tilt toward Asia.
I haven't read the agreement and don't know the details. I'm pretty sure I would regard the safeguards included for labor and environmental standards as watering it down. I'd rather have my trade pacts neat, but in this day and age I understand that won't happen.
My limited purpose here is to arm the good guys who favor freer trade with some ammunition against specious arguments we'll be hearing against it.
The main argument proponents use against freer trade is that it will cost jobs. Will it? Yes, of course some jobs will be lost as imports substitute for domestic production. But just as many jobs will likely be gained as exports expand. There will be job losses, but not necessarily net job losses.
This offsetting of job losses with job gains doesn't just depend on luck. Automatic economic mechanisms will produce that outcome. When we import more, the exporting countries earn more dollars with which to purchase imports from us. If they don't, on a multilateral basis, the dollar will depreciate against foreign currencies and make our imports more costly in dollars and our exports cheaper in foreign currencies. Flexible exchange rates tend to promote balance between our job creating exports and job killing imports. You can't import without exporting an equivalent value over time. You can't export without importing an equivalent value over time.
The problem is that job losses from imports or movement of production abroad are visible and easily identifiable. The job gains from exports or import substitution are less so. It's the old seen versus the unseen problem.
So far I've concentrated on the jobs question. On production. We should not forget that exports are the cost of trade while imports are the benefits of trade. We are all consumers and we all benefit when output expands because of increased trade, just as we benefit when new technology increases production. All the focus in political debates is on the producer and jobs. Some of us make a living by producing something that is exported. All of us benefit from more plentiful imports.
Speaking of debates, 'they are killing us' usually refers to countries that have a trade surplus with us. I guess for us to kill them we have to have the surplus. This is silly.
I have a deficit with just about everybody I deal with. I buy food at the grocery store, gasoline at my local service station, get hair cuts from my barber. I have a deficit in trade with all of them because I don't sell them anything. I have a surplus with a couple of firms I sell my services to, witch, so far, covers my deficits. My balance of trade is multilateral, not bilateral.
It's the same with countries. We don't have to match our purchases from each country with sales to the same country. Our surplus with some covers our deficits with others. The fact that we've had a trade deficit for several years covered by a surplus in capital flows does not change the principles. In the first place, its a fairly stable deficit. But, more importantly, The various balancing mechanisms, including exchange rates discussed earlier, work on the capital accounts as well. A deficit or a surplus tend to bring about their own cures over time.
Consider trade between the citizens of Texas and the citizens of California, or any other state. Since we don't keep the records, we don't know which has a deficit and which has a surplus. But we can be confident that corrective forces are at work, automatically, without policy intervention.
The two quotes from Henry George are devastating to the protectionist argument. However, the most famous argument against protectionism came from my hero, Frederick Bastiat, who fought the free-trade battles in France in the mid-1800s. He used wit and sarcasm to make his case. He wrote a fictitious letter to the French Parliament on behalf of the French candlemakers arguing forcefully for the shutting out of the sunlight from houses to sustain the prosperity of the candlemakers. The sunlight was, after all, unfair competition. All they wanted was a level playing field.
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