Tag: free trade

Ricardo’s Deliberate Deception

I recently had the privilege of assisting one of the world’s greatest economists in his detective work that comprehensively completes the great work of demolishing the conceptual foundation of the free trade cancer that, far from enriching them, has destroyed the economies of the West. The subsequent paper, The Deliberate Deception in Ricardo’s Defence of Comparative Advantage, was published today by the lead author, Steve Keen. And while it’s a pure coincidence that he happened to notice Ricardo’s textual amphiboly at about the same time that I noticed Kimura’s algebraic amphiboly, I don’t think it’s entirely accidental that two intellectual fixtures of modernity should prove to be constructed on such fundamentally flawed foundations.

Abstract
Ricardo’s arithmetical example of the gains from trade considers only the transfer of labour between industries, and ignores the need to transfer physical capital as well. He discusses the transfer of capital in the subsequent paragraph in Principles, but uses a textual amphiboly: whereas exploiting comparative advantage involves transferring resources from one industry to another in the same country, Ricardo speaks instead of the transfer of resources “from one province to another”. The fact that this verbal deception has escaped attention for over two centuries is in itself notable. When considered in the light of subsequent discussions of capital immobility by Ricardo, this implies that the person whose model led to the allocation of existing resources becoming the foundation of economic analysis, was aware that this foundation was fallacious.

Introduction
The theory of comparative advantage is perhaps the most influential and celebrated result in economics. Challenged by a mathematician to nominate an economic concept that was both “logically true” and “non-obvious”, Samuelson nominated the theory of comparative advantage:

That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.(Samuelson 1969, pp. 1-11)

From Ricardo’s original demonstration in 1817, to modern trade theory, the conclusion has remained constant: even if one nation is more efficient at producing everything than all others, it and its trading partners will gain from specialization and trade.

However, there is an obvious flaw in the logic: while labor can hypothetically be moved between industries at will, fixed capital cannot. Ricardo’s own text contains evidence that he knew that this reality invalidated his theory, since his defense of comparative advantage relied on an amphiboly that conflates two categorically different forms of capital mobility. Remarkably, though this evidence was hiding in plain sight, it has not been noted until now.

The Amphiboly: Province Versus Industry

In Chapter VII of the Principles, Ricardo presents his famous example of England and Portugal trading cloth and wine. Portugal has an absolute advantage in both goods but a comparative advantage in wine; England has a comparative advantage in cloth. Gains to both countries result from specialization according to comparative advantage. Portugal ceases cloth production and England ceases wine production, both countries focus their resources on the industries where they have a comparative advantage, and total output of both cloth and wine rises:

England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth. To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth. (Ricardo, Sraffa, and Dobb 1951, p. 135)

Ricardo next explains that international trade means that “England would give the produce of the labour of 100 men, for the produce of the labour of 80”, something which is not sensible with domestic trade. He then states that:

The difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another, to seek a more profitable employment, and the activity with which it invariably passes from one province to another in the same country. (Ricardo, Sraffa, and Dobb 1951, p. 136. Emphasis added)

“Province”? Why does Ricardo give the example of moving capital between provinces here? His model involves something categorically different: to exploit comparative advantage, capital must move between industries—from cloth production to wine production.

This is not a minor distinction. Geographic mobility of financial capital means that financial resources can flow to wherever returns are highest—a bank in London can lend to a manufacturer in Yorkshire. Geographic mobility of physical capital means moving equipment by road or canal, rather than by sea and ship. But sectoral mobility of physical capital means that the physical means of production in one industry can become the physical means of production in another—that looms can become wine presses, and vice versa. These are entirely different forms of mobility—one feasible, the other impossible.

Ricardo elsewhere in the Principles demonstrates his awareness of the distinction between physical and financial capital, and the fallacy inherent in treating physical capital as if it has the fungible characteristics of financial capital. In Chapter IV, “On Natural and Market Price,” he explains how the profit rate equalizes across industries: “the clothier does not remove with his capital to the silk trade” (Ricardo, Sraffa, and Dobb 1951, p. 89). Adjustment happens through the financial system, not through physical transformation of productive equipment. Only money moves between industries, and only relative prices change; the looms and the wine presses stay where and as they are.

Read the whole thing on Steve Keen’s site.

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Watch Them Crumble

I don’t know how long it will take the EU member states and the UK to endorse the US conquest of Greenland, but it will almost certainly be measured in minutes:

US President ‌Donald Trump today vowed to implement increasing tariffs on the UK and other European allies ​until the ​United States is allowed ⁠to purchase Greenland from Denmark. The tariff will start at ten per cent and come into effect on February 1, rising to 25 per cent on June 1.

The rates will apply to the UK, Denmark, Norway, Sweden, France, Germany, the Netherlands and Finland, Trump announced in a post on Truth Social.

The UK already pays a ten per cent tariff on some goods imported by the US, after the President introduced a wave of taxes on countries around the world on his so-called Liberation Day on April 2.

It is dangerous to be an enemy of the USA. But it is fatal to be its friend.

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Iran Still Has It

The utter lunacy of the USA’s foreign policy pretensions can be seen by the fact that the USA still has no ability to enrich uranium.

America no longer had the capacity to enrich uranium.

Pause. Rewind.

America no longer had the capacity to enrich uranium — I only learned myself this year — which meant it could no longer fuel itself without the help of foreign governments. Mostly, that placed us at the mercy of Europe, which refused to fuel our military bases. But we were also buying enriched uranium from Russia. In fact, we were buying it that very afternoon in November 2023, as war raged in Ukraine. Our government hadn’t included enriched uranium in its initial sanctions against Russia on account of it really couldn’t. Fuel-dependence was not only a risk to our grid, but a risk to our national security.

Nuclear energy, despite its somewhat confusing status in our culture, where battles for its adoption are often waged with great, righteous indignation, as if attempting to persuade some alternative course for our civilization, presently accounts for nearly 20% of American energy production.

In labs across the country, reactors produce critically important medical isotopes for use in cardiology, oncology, orthopedics, and neurology. Then, military applications are obvious, as are their critical importance to our nation’s security, and require significantly greater enrichment than anything used by civilians.

In all of this, we need fuel. American companies used to enrich it. They no longer do. Today, nuclear enrichment is dominated by Russia’s Tenex (Rosatom), Europe’s Urenco, France’s Orano, and China’s CNNC, all of which are state-backed or closely aligned with national governments. Here, a few (foreign operatives) would probably quibble. There is one plant in America. But while Europe’s Urenco operates a facility in New Mexico, it uses European centrifuge tech and security protocols, which means — via braindead policy agreements — while there is technically some capacity to enrich on the U.S. mainland, our government doesn’t control that capacity, and can’t even use it to power our military bases.

But don’t worry, they’re working on it!

General Matter is a nuclear enrichment startup, which means once its enrichment facility is up and running in Paducah it will be producing fuel for nuclear power plants, including the classic giants cooked up in the 1950s and 1960s, as well as the sexy sleeker modern microreactors and small modular reactors (SMRs).

In the meantime, I suppose we could just buy some from Iran. It’s a good thing that whole “totally destroying Iran’s nuclear infrastructure” thing was nothing more than an expensive sound-and-light show.

If it wasn’t already clear to you before, then it should be now that there is absolutely no way the USA is in any position to fight a war with either Russia or China. Free trade theory has entirely hollowed out not only its industrial infrastructure, but its military power as well.

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Talks Collapse

Trade talks between the United States and Switzerland have collapsed.

Switzerland’s President Karin Keller-Sutter and other top officials traveled to Washington on Tuesday to try to convince Trump that the measure — among the highest from the Trump administration — was too much and could cut profits for famed Swiss industries like chocolates and watchmaking.

Despite two days of intense negotiations, President Trump declined to alter the Tariff Rate against Switzerland.

Personally, I doubt they were even meeting with the actual President. Anyhow, we will be fine one way or another thanks to the revisions and restructurings we’ve made.

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Throw ‘Em in Dat Briar Patch

President Trump – presumably the short fake one – threatens the BRICS countries with an additional 10 percent tariff:

US President Donald Trump has threatened to impose an additional 10% tariff on any country which “aligns itself” with BRICS, accusing the economic bloc of adopting “anti-American policies.”

The warning came just hours after BRICS leaders concluded their annual summit in Rio de Janeiro. In its joint declaration, the bloc criticized unilateral tariff actions and condemned what it described as “indiscriminate” trade measures, without mentioning the US directly.

“Any Country aligning themselves with the Anti-American policies of BRICS, will be charged an ADDITIONAL 10% Tariff. There will be no exceptions to this policy,” Trump wrote in a post on Truth Social on Sunday.

There is just one problem with this tactic. The whole point of BRICS is to break free of the Clown World financial system. So increasing the cost of doing business with the United States, which requires submitting to that financial system, only further increases the incentives for the BRICS countries to not do business with the USA, but with each other instead.

And BRICS is already economically outperforming both the USA and the other G7 nations. We can expect it to continue doing so, especially as the USA wastes its resources in the Middle East, Eastern Europe, and the South China Sea.

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Rethinking Free Trade

After wrestling with Deep Research over the flaws in evolutionary theory, it went a little better when addressing my critique of free trade, although it did require telling the AI to ignore government policy for the actual economic theory. It initially tried to go the classic libertarian “acktually, there is no formal government policy of free trade or open borders” route. It offered to put its conclusions in the form of a policy paper, so I told it to go ahead and so so, then lightly edited the results.

Rethinking Free Trade: The Case for Balancing Efficiency with National Cohesion

Executive Summary

For decades, free trade has been upheld as a pillar of global economic policy, praised for its ability to generate growth, reduce consumer costs, and promote international cooperation. However, the full economic logic of free trade—which includes not only the movement of goods and capital, but also labor—has profound implications that are often ignored. This essay argues that the pursuit of maximum global efficiency through unrestricted factor mobility imposes significant and often destabilizing social costs. Policymakers must reconsider the assumption that free trade and GDP growth are always aligned with the national interest.

Introduction

Free trade, grounded in the theory of comparative advantage, promises economic efficiency by allowing nations to specialize in producing goods where they are most productive. Classical models emphasize that for optimal global output, factors of production—capital and labor—must be able to move freely to their most efficient uses. In theory, this leads to a maximization of global GDP and an increase in global wealth.

Yet this economic logic, when extended to its theoretical limit, demands extensive cross-border labor mobility. As capital and automation make production highly mobile, efficiency increasingly depends on the ability of labor to relocate as well. This creates tension between economic theory and the realities of national cohesion, cultural continuity, and demographic stability.

Theoretical Imperatives of Labor Mobility

In models such as Heckscher-Ohlin and neoclassical growth theory, the equalization of marginal productivity across borders implies large-scale international labor migration. Research from economists like Michael Clemens suggests that lifting all migration barriers could increase global GDP up to 150%, primarily by relocating labor from low-productivity to high-productivity regions. Achieving this would theoretically require 2% of the global labor force to migrate annually for several decades—roughly 15 million workers per year.

These numbers dwarf current international migration levels and point to a fundamental reality: the logic of global efficiency and economic growth demands labor mobility on a scale most nations are socially, structurally, and politically unequipped to handle, and which their native populations do not desire.

Social Costs and Institutional Limits

The pursuit of maximum economic output through unrestricted labor mobility imposes costs that go far beyond wages or employment figures. These include:

  • Cultural displacement and loss of social cohesion in host nations.
  • Brain drain and demographic decline in sending countries.
  • Institutional strain on housing, education, and political systems.
  • Democratic erosion as native populations feel increasingly alienated from policymaking elites.

Nation-states are not merely economic units but are groups of related people built on shared genetics, language, culture, and historical continuity. Large-scale migration—even if economically efficient—will disrupt these foundations. The backlash seen across Western democracies in response to the mass immigration in recent decades is evidence that the social fabric has limits.

GDP Growth vs. National Interest

Gross Domestic Product measures economic activity but says little about its distribution, sustainability, or moral value. Increases in GDP driven by mass immigration or offshoring do not translate into improved well-being for all citizens. They can, in fact, erode the sense of national solidarity essential for democratic governance and eliminate the very concepts of nationality and citizenship.

Policies that maximize GDP at the expense of social cohesion risk trading long-term national stability for short-term economic gain, and due to the financial costs of mass immigration, may not even achieve the economic growth anticipated despite incurring tremendous social costs. It is not anti-market to suggest that economic policy should serve national interests more broadly defined—including demographic stability, cultural continuity, political legitimacy, and public trust.

Policy Recommendations

  1. Adopt a Balanced Trade Framework: Pursue trade agreements that prioritize national resiliency and strategic autonomy alongside economic gains.
  2. Restrict Labor Mobility to Sustainable Levels: Recognize that the social capacity to absorb migrants is finite, and base labor mobility policies on more than just economic efficiency.
  3. Re-evaluate GDP as the Primary Policy Goal: Develop alternative metrics that account for cultural, institutional, and demographic health.
  4. Strengthen National Institutions: Protect the demographic balance, invest in infrastructure, and support civic institutions to enhance national unity in the face of economic change.

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Free Trade is Deader than Dead

Free Trade, and the Comparative Advantage theory that supported it, were always examples of the Ricardian Vice, in which all other relevant variables are stripped away in order to support false conclusion based on a single variable. But among the many fatal flaws of Free Trade, and there are at least nine, is the loss of national security based on outsourcing consumer production to potential enemies.

Engineers have discovered ‘kill switches’ embedded within Chinese-manufactured parts in American solar farms, raising fears that Beijing could manipulate power supplies or even ‘physically destroy’ grids across the US, UK and Europe.

Energy officials are now assessing the risks posed by small communication devices discovered inside power inverters – an integral component of renewable energy systems that connects them to the power grid.

While inverters are built to allow remote access for updates and maintenance, the utility companies that use them typically install firewalls to prevent direct communication back to China.

But rogue communication devices not listed in product documents have been found in some solar power inverters by US experts who strip down equipment hooked up to grids to check for security issues, two sources told Reuters.

Using these devices to skirt firewalls and switch off inverters remotely, or change their settings, could destabilise power grids, damage energy infrastructure and trigger widespread blackouts, experts said.

‘That effectively means there is a built-in way to physically destroy the grid,’ one of the sources declared.

In other words, it appears that China can turn off power to the West any time it chooses, thanks to the economists and politicians who encouraged the outsourcing of solar power manufacturing there.

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Pay Now or Pay More Later

The Chinese Global Times points out some of the obstacles that are facing the USA’s attempt to bring back the semiconductor industry:

The substantial losses incurred by Taiwan Semiconductor Manufacturing Co’s (TSMC) factory in the US state of Arizona illustrate both the consequences of ignoring market logic and the deep-seated difficulties the US faces in its attempt to forcibly restructure global semiconductor supply chains through political intervention. TSMC’s Arizona facility incurred a staggering loss of nearly NT$14.3 billion ($441 million) in 2024, the largest loss since the establishment of the US factory, Taiwan-based media outlet Economic Daily News reported on Monday, citing TSMC’s latest Annual General Meeting Report to shareholders. By contrast, TSMC’s factory in Nanjing, East China’s Jiangsu Province earned nearly NT$26 billion last year.

This financial disparity goes beyond a simple comparison of operational efficiency; it underscores the challenges of replicating TSMC’s traditional profitability model in the US, a market plagued by high costs and a fragmented supply chain.

TSMC’s Arizona struggles were predictable. It is no secret that the decision to build chip manufacturing plants in the US was never driven by commercial viability but by geopolitical pressure under the CHIPS Act. There are multiple causes for TSMC’s losses in Arizona. While the site has been in volume production since late 2024, the trajectory of financial deficits indicates that its problems are not temporary. 

A key factor is the disruption of the supply, industry and market chains. The semiconductor industry is a highly complex and intricate system where upstream and downstream companies are closely interdependent.  While the US excels in chip design, it lags significantly behind Asia, especially East Asia, in terms of the complete supply chain needed for manufacturing. TSMC’s Arizona factory relies heavily on importing key components and raw materials, which not only drives up logistics costs but also extends the supply cycle. Any hiccup in the supply chain can lead to production standstills.

All of these issues, problems, and challenges are real. And yet, what is the alternative? There is no alternative, unless the USA is willing to become dependent upon either a self-reliant USSR or the global manufacturing giant China for all of its digital devices?

The point is not efficiency or minimum cost; it’s the misplaced focus on efficiency and lowered costs that created this dilemma for the USA in the first place. The point is national sovereignty, particularly when war is increasingly going to be decided by large-scale high-tech drone manufacturing. It’s important to take market logic into account, but it’s even more important to avoid confusing market logic with national best interest.

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Who are the Reactionaries Now?

As comically unprincipled as conservatives are, liberals are even worse. Specifically, 2.86 times worse.

Support for free trade among American liberals has more than doubled since Donald Trump won his second term as US president in November, a study has suggested. During the election campaign, Trump accused America’s trade partners of ripping off the country and vowed to impose harsh duties on them. On April 2, he made good on his threat, announcing new “reciprocal” tariffs on nearly 90 countries, saying that it would raise revenues and boost the number of jobs in the US.

After global markets reacted by dropping sharply, the president put most of the tariffs on hold for 90 days, reducing them to a baseline rate of 10%. However, the pause does not apply to China, whose exports to the US are now subject to tariffs of up to 145% amid an ongoing tit-for-tat trade war.

A poll by Polarization Research Lab, first published by the Financial Times and actively shared by social media users on Friday, has suggested that “American attitudes towards free trade have rapidly polarized” over the past several months.

In early 2024, there was some 20% support for unrestricted exports and imports among both liberals and conservatives, the study said. However, the divide on the issue between the groups, which appeared in the run up to the election, has increased dramatically since Trump’s victory, it said. According to the poll, more than 40% of leftists surveyed now say that they “strongly approve” of free trade.

Meanwhile, the number of conservatives who support free trade has decreased, albeit not as sharply, with some 13% of them still favoring it, the study suggested.

In other words, 20 percent of liberals now SUPPORT the nonsensical, societally-destructive concept of free trade solely because President Trump is against it. Conversely, only 7 percent of former free trade-supporting conservatives have changed their mind on the topic.

A pox on both their retarded houses.

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Importing Taiwan’s Semiconductor Industry

There is a lot more going on in the trade war between the USA and China than just escalating tariff rates. The Chinese are obviously concerned that the US is going to essentially import all of Taiwan’s most valuable intellectual capital.

In response to media query on concerns on the Taiwan island over the US hollowing out its semiconductor industry are growing, Zhu Fenglian, a spokesperson for the Taiwan Affairs Office of the State Council, said that the concerns of Taiwan’s industry are not groundless. TSMC has long become a political pledge of the DPP authorities’ attempts to seek “Taiwan independence” by leaning on the US. It is only a matter of time before Taiwan’s semiconductor industry is handed over by Lai Ching-te, who is a “professional traitor of Taiwan.”

According to Reuters reports, TSMC and Intel recently discussed a preliminary agreement to form a joint venture to operate the US chipmaker’s factories. TSMC will take a 20 percent stake in the new company. Taiwan’s major chipmaker United Microelectronics and US-based GlobalFoundries are looking into the possibility of a merger.

As hard as it is to build, it falls as quickly as a spark sets hair on fire. If the DPP authorities are allowed to continue down the dangerous path of selling out Taiwan and ruining Taiwan, Taiwan’s industrial sector and the public will not only lose their current jobs, but also the opportunities for future development, said Zhu.

This is where trade war can lead to actual war. Remember, what President Trump is attempting to do is set up the USA in the best possible position for when the current international trade regime collapses entirely. Getting Taiwanese semiconductor companies to move to the USA would be a major coup, and it’s obviously one that the Chinese authorities will seek to prevent.

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