Tag: freetrade

At long last, the rotting intellectual corpse of David Ricardo is finally buried:

France, Germany and Bulgaria today blocked travel even within the free-moving Schengen zone as the EU proposed barring all overseas visitors from entering for 30 days to stop the spread of the coronavirus.

Border guards were seen across the continent tonight locking off the crossings between Spain and France, Portugal and Spain, Switzerland and France, and in Germany’s northern coastal states police prepared to block tourism.

It’s probably too optimistic to assume that the econonazis will not start pushing for open borders and the free movement of people the moment the health crisis is over, but at least we will have a powerful rhetorical argument to utilize against them.

And long overdue. If the primary casualty is globalism, the winner is humanity:

Globalists May Soon Become an Extinct Species

The disruptions caused by the spread of the coronavirus mean supply chains will be moved closer to home rather than in foreign lands.

The coronavirus’s depressing effects on the global economy and disruptions of supply chains is no doubt driving the last nail into the coffin of the globalists.

They believe in the theory first articulated by Englishman David Ricardo (1773-1823) that free trade among nations benefits all of them. He argued for the comparative advantage of free trade and industrial specialization. Even if one country is more competitive in every area than its trading partners, that nation should only concentrate on the areas in which it has the greatest competitive advantage. He used the example of English-produced wool being traded for French wine—and not the reverse.

But Ricardo’s simple trade model requires economies in static equilibrium with full employment and neither trade surpluses nor deficits, and similar living standards. These aren’t true in the real world. Also, Ricardo didn’t consider countries at different stages of economic development and different degrees of economic and political freedom, or exchange rate manipulations and competitive devaluations since gold was universal money in his day.

Ricardo also didn’t factor in trading partners with huge wage differences such as the U.S. and China.

Corona-chan is demonstrating the truth of Big Bear’s sophisticated critique of free trade. Ricardo retardo. Thank you, Corona-chan!

It’s interesting to see that the West is suddenly discovering the intrinsic dangers of free trade when it is China providing services to other nations:

China could shut off the Philippines’ power grid at will, a report has warned – highlighting fears about Beijing’s role in infrastructure around the world. A report for Philippine lawmakers found that the country’s national security ‘is completely compromised’ by China’s access to the power grid.

Chinese engineers have exclusive access to parts of the system and could shut it down remotely, the report seen by CNN reveals. The findings will spark alarm in the West where China is helping to build a new nuclear power station in the UK and has already faced sanctions from the US.

But why would this cause any problems? Surely the New Filipinos who happen to be of Chinese descent love their new country and are just as Filipino as those whose great-great-grandparents were born in Manila are!

Paper nationalism is, and has always been, a shameless lie told by immigrants to advantage themselves vis-a-vis the native populations. 

And who cares if China can shut off the Philippines’ power grid anyhow. The important thing is that the arrangement is more economically efficient, right? And nothing is more important than economic efficiency!

President Trump finally starts to get serious about immigration:

A five percent tariff on all goods coming from Mexico will go into effect on June 10, and will gradually increase up to 25 percent until the illegal immigration problem is resolved, US President Donald Trump has announced.

This appears to be the “big league” announcement on the border Trump had teased earlier in the day, prior to delivering a commencement speech to the US Air Force Academy in Colorado Springs.

Invoking the International Emergency Economic Powers Act, Trump said the US will start at five percent, but keep ratcheting up by another five percent every month, culminating with 25 percent beginning in October.

I look forward to hearing the screams of the free traders…. Now build the Wall.

Pat Buchanan was correct all along:

If you choose not to purchase Chinese goods and instead buy comparable goods made in other nations or the USA, then you do not pay the tariff. China loses the sale. This is why Beijing, which runs $350 billion to $400 billion in annual trade surpluses at our expense is howling loudest. Should Donald Trump impose that 25{078d2fa92d2710998490ec6979ca31630e0fb1e1550511b9ab87370364231a3d} tariff on all $500 billion in Chinese exports to the USA, it would cripple China’s economy. Factories seeking assured access to the U.S. market would flee in panic from the Middle Kingdom.

Tariffs were the taxes that made America great. They were the taxes relied upon by the first and greatest of our early statesmen, before the coming of the globalists Woodrow Wilson and FDR.

Tariffs, to protect manufacturers and jobs, were the Republican Party’s path to power and prosperity in the 19th and 20th centuries, before the rise of the Rockefeller Eastern liberal establishment and its embrace of the British-bred heresy of unfettered free trade.

The Tariff Act of 1789 was enacted with the declared purpose, “the encouragement and protection of manufactures.” It was the second act passed by the first Congress led by Speaker James Madison. It was crafted by Alexander Hamilton and signed by President Washington.

After the War of 1812, President Madison, backed by Henry Clay and John Calhoun and ex-Presidents Jefferson and Adams, enacted the Tariff of 1816 to price British textiles out of competition, so Americans would build the new factories and capture the booming U.S. market. It worked.

Tariffs financed Mr. Lincoln’s War. The Tariff of 1890 bears the name of Ohio Congressman and future President William McKinley, who said that a foreign manufacturer “has no right or claim to equality with our own. … He pays no taxes. He performs no civil duties.”

That is economic patriotism, putting America and Americans first.

Anyone who claims that free trade is good for America is either a) lying, b) does not understand economics, or c) both. I pointed out when this US-China trade dispute began that any so-called trade war would be good for the US economy because imports (M) are an intrinsic statistical drag on the economy.

Do the math. Since GDP = C+I+G + (X-M), does GDP grow or contract when M gets smaller?

And on the logical side, if Chinese imports are so good for America and its workers, then why is China shrieking in outrage over mere prospect that it will not be able to export as much to the USA in the future?

Then there is the key question asked by Mr. Buchanan: What great nation did free traders ever build?

This destruction of the housing stock by rich foreign owners is the sort of consequence the free traders never factor into their “it’s good for the economy” arguments when considering the free flow of capital:

Drained whirlpools, decaying walls and foliage creeping up the stairs can be seen on a North London street called Billionaires’ Row. Bishops Avenue in Hampstead, north London, is one of the most exclusive roads in the country, but many of its 66 mansions lie vacant. Footage taken by ‘urban explorers’ shows moss growing up the once pristine white walls of the huge rooms and swimming pools with a shallow layer of murky water. The gardens rise high and in many the decor is clearly a few decades behind.

They include a selection of residences worth £73 million, reportedly bought for the Saudi royals between 1989 and 1993. In those days the homes caught be purchased for a cool million, now prices rise to around £20 million. In 2014, an estimated £350 million worth of mansions could be found on the prestigious street, the Guardian reported.

An Iranian resident told the paper: ‘Ninety-five percent of the people who live here don’t actually live here. It is a terrible place to live really.

So, the best housing stock in the most desirable areas is being destroyed, but on the plus side, the natives can’t afford to live there anyway. And the cycle will only continue as new developments are built to house the people who now live elsewhere and are building up a desirable neighborhoods that will attract more foreign “investors”.

Free trade theory is about to be put to a large-scale empirical test:

South Africa’s and Togo’s parliaments this month ratified the agreement establishing the African Continental Free Trade Area (AfCFTA). The total number of countries committing to the deal has thus grown to 49.

Once the agreement comes into effect, it will create a tariff-free continent, covering a single market of 1.2 billion people in 55 nations with a combined gross domestic product of about $3 trillion. It will constitute the largest free trade area globally, according to South African Trade and Industry Minister Rob Davies.

The agreement is expected to reduce export tariffs which currently average 6.1 percent, and boost intra-African trade by more than 52 percent after import duties are eliminated. It is focused on diversifying trade exports away from just extractives and enhancing the chances of small and medium enterprises to tap into more regional destinations.

Economists say that tariff-free access to a huge and unified market will encourage manufacturers and service providers to leverage economies of scale.

If the free traders are right, the African economy is about to explode with trade, economic growth, and rising per capita incomes. If the biologists are right, none of this will make a damn bit of difference, as the biological limits of the populations will outweigh any structural improvements.

Of course, all of this is probably irrelevant, as the conspiracy theorists who believe China is going to colonize Africa and put blacks on reservations in imitation of the European treatment of the North American continent are the most likely to be correct.

There are dire warnings about a financial nuclear option in the dawning US-China trade war:

It took China just 11 hours to retaliate against the United States for proposing tariffs on some 1,300 Chinese products, but Chinese officials are holding back on taking aim at their largest American import: government debt.

In a tit-for-tat response to the Trump administration’s plan for 25 percent duties on $50 billion of Chinese imports, China hit back with its own list of similar duties on key American imports including soybeans, planes, cars, beef and chemicals. But officials signaled no interest for now in bringing their vast holdings of U.S. Treasuries to the fight.

China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America’s foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve. Any move by China to chop its Treasury portfolio could inflict significant harm on U.S. finances and global investors, driving bond yields higher and making it more costly to finance the federal government.

But a reader explains why the bond threat is toothless.

It’s hilarious reading Drudge headlines about how the Chinese owning US Treasuries is some kind of “nuclear option” for Beijing.

Presumably, China thinks it will somehow crash the value of its Treasury holdings by dumping it on the open market. This is somehow supposed to destroy the value of these bonds…or something. It’s almost as if no one understands how bonds actually work.

Bonds have an intrinsic value, the face value of the bonds which is the amount of money that is returned to bondholders when the bond matures.

This is the par value. If I sell a bond to you for $1,000, then I am obligated to return $1,000 to you plus interest when the bond matures. If I sell a $1,000 bond to you at an interest rate that is lower than the market rate, then I may only collect, say, $950 for the bond, but, at maturity, I am obligated to pay $1,000 back to you plus interest.

If you decide to sell the bond that I sold to you on the open market, then you may get a premium above the $1,000 or you may get a discount below $1,000, but the face value of the bond, the money owed, does not change. Upon maturity, $1,000 is owed to the bond holder.

The value of the bond may oscillate on the secondary market because of the risk of default or because interest rates have changed, but, absent the risk of default, the value of the bond is purely mathematical. Since US Treasuries have virtually zero risk of default, the value of the bond is simply the interest rate paid by the bond, vs. the interest rate of competing securities of similar risk vs. the duration. These can all be calculated in Excel using amortization tables.

There is nothing China can do to devalue US Treasuries by dumping their holdings. If they decide to sell for an artificially low price, then they are simply creating arbitrage opportunities for the buyers and frenzied trading will quickly bid back up the value of those bonds to their mathematically determined price.

See how important bonds and interest rates are in understanding the economy?

The financial trade media is heavily invested in arguing that there can be no winners in a trade war. But they are ignoring the fact that the trade war has been ongoing for decades and the USA has been continually surrendering.

They are also ignoring the uncomfortable fact that if comparative advantage were legitimate, the correct response to tariffs and other trade restrictions would be to do nothing. According to free trade theory, a country is economically better off if it enacts no trade restrictions regardless of what its trade partners do. The fact that various US trade partners are threatening retaliation for US tariffs is further evidence that, despite their free trade rhetoric, they do not genuinely believe in the concept. Nor should they, because it does not work as advertised.

This is a bonus Voxiversity video, which we decided to release after CGTN graciously granted me permission to release the video of my appearance on Dialogue with Yang Rui earlier this month, in which I was asked about the prospects for trade war between the US, China, and other US trading partners.

Episode Four: Tariffs & Trade with China

• BitChute
• DailyMotion
• Facebook
• YouTube

As I predicted, China responds in a measured and mostly symbolic manner, with 128 tariffs affecting less than 2 percent of US exports to China:

China is ‘firing back’ after US announces tariffs on steel and aluminum. The world’s second-largest economy has responded to President Donald Trump’s controversial trade tariffs.

China’s commerce ministry proposed a list of 128 U.S. products as potential retaliation targets, according to a statement on its website posted Friday morning.

The U.S. goods, which had an import value of $3 billion in 2017, include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng, the ministry said. Those products could see a 15 percent duty, while a 25 percent tariff could be imposed on U.S. pork and recycled aluminium goods, according to the statement.

The statement did not go into greater detail. U.S. agricultural products, particularly soybeans, have been flagged as the biggest area of potential retaliation by Chinese President Xi Jinping’s administration.

Just to keep it simple and understand the most extreme scenario, let’s pretend that these tariffs will be enough to completely kill the US ability to export these goods to China. That is $3 billion removed from GDP that represents 1.7 percent of US exports to China and 0.00148 percent of total US exports. Against that, let’s pretend that the US tariffs were sufficient to entirely shut down the Chinese ability to sell the $60 billion in goods that are affected by them in the USA.

The net means the US economy just grew by $57 billion. A bit more if the domestic goods are more expensive.

See how this works? And notice how the media never explains any of this, or even bothers to try to work out the price elasticity of the tariff-affected products.