Issue: Economic: "Free Trade" and import quotas

[jon_perez]

Ron paul has said that he is for "free trade" and not "managed trade" (ala NAFTA, etc...)

Does this mean he plans to completely lift any and all import quotas and other such protectionist measures (as classical liberal economics generally prescribes)?

It would only be right to do so (another question is should it be done gradually or immediately?) in principle, but how would Americans feel about this issue.

Ron Paul has convinced me that he is a straight shooter on just about all the issues so far and does not pander to politics, so it would be interesting to hear about his beliefs on this issue.

 

[Brandybuck]

Why are so many jobs going overseas? One basic reason is that it makes sense for them to go there. Comparative advantage means that it is advantageous for us to concentrate on the jobs we are best at. That's basic Ricardian economics.

But there's another argument for freedom that may be easier for the general public to understand: It will be a heck of a lot easier to complete with India and China for jobs, if we don't saddle our domestic employers with mountains of taxes and regulations. That's the free market answer: get the government out of the way!

No issue stands alone, all are related to each other. That's the biggest hurdle in getting the freedom message out. That's no less true with free trade. While a large part of the expense of a domestic worker is caused by taxes and regulatory burdens, the story is bigger than that. Small private employers are much less likely to outsource, but it's very popular among huge public corporations. What encourages large corporations at the expense of smaller private business? The SEC, Anti-Trust, etc. These programs were meant to "correct" market shortcomings, but their unintended consequence was to create business landscape where companies with legions of lawyers are able to game the system to their advantage. Here's another factor: Excessive intellectual property terms are also stifling innovations that would otherwise create new jobs. Copyrights and patents are allowed by the constitution, but they are a *compromise* with the free market. That's why the constitution also says they need to have limited terms. Another factor: our broken health care system is a major hindrance for self-employment, which in turns stifles the creation of new jobs.

 

[jon_perez]

^ Brandybuck, your answer ABSOLUTELY does not address the question at all. That was a politician's answer and so far, I have never seen Ron Paul make such an evasive answer like the one above.

Ron Paul has said that he is against NAFTA and NAFTA-like treaties. If NAFTA were not around, then trade barriers, by default, will be put up again.

The United States has import quotas on so many goods. Treaties like NAFTA seek to greatly increase these quotas and/or abolish some of them - allowing more foreign goods to enter the United States with some kind of reciprocal agreement on the other end.

However, this is still considered to be a managed way of doing so. The alternative is what classical liberal economics (which Ron Paul seems to espouse) prescribes, which means NO quotas or barriers at all, allowing as many foreign goods into the US as the market can bear (and vice versa).

The thorny problem there is unilaterally removing trade barriers would be greatly disadvantageous for the United States, hence, the rationale for trade agreements (or, in other words, managed trade) like NAFTA.

So, if we go beyond the rhetoric, we see that while "managed trade" is a violation of free market tenets, it seems wise to engage in it first before going to totally free trade. The question becomes what the characteristics and implementation of that managed trade will be - whether it is subject to vested interests and eventually becomes entrenched or if it is done in an enlightened manner leading to totally free trade (which is supposed to be for the ultimate good of all IF you believe in libertarian economics - see the writings over at www.mises.org many of which are also against fiat money).

In the case of NAFTA implementation, for example, one of the main objections we have heard is that the government might assert the right of eminent domain unfairly, and these are valid concerns that Ron Paul seems to have successfully raised.

 

[angelatc]

I thought he was a proponent of Fair Trade, and not Free Trade.

 

[Gee]

I don't think he'd try to lift the tariffs all at once, but yeah, he's for free trade. Economists disagree on when free trade is desirable, but you can be sure politians applying trade tarrifs for political reasons is not desirable.

The tariffs Bush placed on steel were horrible. Yes, they probably slowed the decline of our steel industry. But they increased the price of every other product made out of steel in the United States. I can't imagine this could have possibly saved more jobs than it cost.

Some of the arguments I've seen for managed trade are things like ultra-cheap foreign goods (possibly subsidized) destroying industries with large barriers to entry which might be highly successfull if given time to mature. An example of this could be the tariffs placed on automobile imports in Japan which allowed their automobile industry to start up. Some assumptions behind this are, 1) The politians know the protected industry could start up and be a good thing, and 2) Japan's automobile industry turned out more successfull than whatever else might have sprung up in its place. The first point I think is a definite "no", and the second is most likely a "we don't know". There are probably more reasons, but these are what I picked up watching Milton Friedman's shows.

Proponents of free trade usually point to huge success stories when trade tariffs were lifted, such as rapid growth of Hong Kong, or Britain's growth in the 19th century.

 

[megiddo]

There is nothing intrinsically wrong with unilaterally dropping import taxes and quotas. The American *economy* cannot be damaged overall by this. Some particular business might be hurt, but I assure you that foreign economies will be punished much more severely.

Consider an import quota set on our products. First off, our products will still make it to the intended market, but the price will rise for foreign consumers. In effect, this will be a tax on the product in question that is redistributed to foreign manufacturers as a subsidy.

Consider a tariff on our products. Now the same thing as the first is happening, except foreign manufacturers will not receive the subsidy (unless a particular attempt is made), which is even *worse*.

Either way, taxes inhibit growth, and stagnate industry (esp. if it's targeted). If China wants a nation of assembly line workers, I'm fine with that. We'll make a nation of high-paid accounting and management consultants to Chinese industry. Trade barriers are a losing proposition for any country engaging in them. Just because a foreign economy shoots itself in the foot, doesn't mean we need to as well.

Trade barriers shouldn't be a tit-for-tat political device, we should lead by example here.

 

[DrKevorkian]

^
Ron Paul has said that he is against NAFTA and NAFTA-like treaties. If NAFTA were not around, then trade barriers, by default, will be put up again.
...

The thorny problem there is unilaterally removing trade barriers would be greatly disadvantageous for the United States, hence, the rationale for trade agreements (or, in other words, managed trade) like NAFTA.

That's a false dichotomy. Trade barriers aren't built up "by default" in absence of managed trade. The presence of trade barriers in other country's is more harmful to them than it is to us and by that they will eventually come around to removing those barriers. Its not intrinsically disadvntageous for the U.S. to lack trade barriers while others possess them.

 

[JosephTheLibertarian]

I think that Ron Paul believes that individuals and companies should be free to trade in the way that they see fit freely with other nations, but he rejects things like NAFTA that cater to these Fascist-like corporations.

 

[jon_perez]

That's a false dichotomy. Trade barriers aren't built up "by default" in absence of managed trade.

I thought that the whole rationale of NAFTA was so there would be a framework for slowly dropping the existing tariffs and import quotas for trading that's going on between the North American countries?

If NAFTA had not been ratified, then these tariffs and import quotas would be much more prevalent than otherwise, wouldn't they?

 

[DrKevorkian]

It may have been the rationale for NAFTA but we could have easily lowered tariff's ourself. Other countries would inevitably follow our lead and we could have free trade without managed trade.

 

[PaleoForPaul]

Protectionist

Other countries would inevitably follow our lead and we could have free trade without managed trade.

I doubt that. I do not think other countries have enough goodwill twards us to drop their protectionist measures.

Take China for example. They artificially keep their currency low vs the dollar, and enforce incredible trade restrictions. For example, they put a 25% tariff on our cars imported into their country, we put a 2% tariff on theirs.

I agree with Dr. Paul on most issues, so I overlook that I disagree with him on trade on a few points. If everyone played by the rules, free trade would be great. I wouldn't even mind giving it a go to see if nations would be overcome with a feeling of goodwill and play by the rules.

I do agree that things like NAFTA, the WTO, etc are bad for American sovereignty, and they are typically managed trade agreements, which "manage" to rip off the American people.

 

[RonPaul4President]

Free trade is good for the countries that produce and horrific for those that buy. We are a country of consumers. We're screwed. Americans have to buy American like the "good old days". Buying American does not mean buying a product such as a car from a company that is owned buy an American but produced in a third world country. When you buy a product made in a foreign country you are supporting that country's Gross Domestic Product more than America's. The labor revenues stay there and the American company owner does not pay taxes in America for revenues/profits earned on foreign soil.

I hate to say this but I think some unions are to blame for labor being outsourced. Look at the auto industry for example. The high wages force up the price and consumers go for the cheaper foreign product, not based on choice, but economics. High labor costs equate to higher product pricing, which leads to decreased sales.

 

[Carl]

Free trade is good for the countries that produce and horrific for those that buy. We are a country of consumers. We're screwed. Americans have to buy American like the "good old days". Buying American does not mean buying a product such as a car from a company that is owned buy an American but produced in a third world country. When you buy a product made in a foreign country you are supporting that country's Gross Domestic Product more than America's. The labor revenues stay there and the American company owner does not pay taxes in America for revenues/profits earned on foreign soil.

I hate to say this but I think some unions are to blame for labor being outsourced. Look at the auto industry for example. The high wages force up the price and consumers go for the cheaper foreign product, not based on choice, but economics. High labor costs equate to higher product pricing, which leads to decreased sales.

Labor cost had absolutely nothing to do with the off shoring of our auto industry, they moved their production to Mexico because the government paid them to move to Mexico, just as they paid manufacturers to move to China and India. Our industrial and technological base were moved offshore as subsidies to other countries to garner their cooperation with our State Department Foreign Policies. American corporations moving their production offshore to cheap labor markets has absolute nothing to do with trade, free or otherwise.

 

[DrKevorkian]

Take China for example. They artificially keep their currency low vs the dollar, and enforce incredible trade restrictions. For example, they put a 25% tariff on our cars imported into their country, we put a 2% tariff on theirs.

China has only really industrialized in the last decade. Much as America was dominated by Industrial intrests during its industrial revolution, China is completely controlled by its desire to sate industry at all costs. However this will ultimately subside regardless of whether we create an agreement as tariffs inevitably cause more harm as they raise prices for everyone while they only benefit those protected from competition.

 

[literatim]

The more jobs that go overseas, the larger the gap will be between the poor and the wealthy in this country. How does one expect someone that cannot afford college to rise above their status when all the manual labor jobs are shipped overseas? What jobs will the lower class be able to work hard on to rise to the middle class?

What is going to happen when the technology companies start moving overseas? What will stop them? They, afterall, can move to a country that would normally cost alot of money to import to and export to the United States for free.

Tariffs are 100% Constitutional, there is no reason to lift any tariffs. I am a proponent for more tariffs to balance off the slave labor and the banning of international companies from working within the United States.

 

[Brandybuck]

^ Brandybuck, your answer ABSOLUTELY does not address the question at all. That was a politician's answer and so far, I have never seen Ron Paul make such an evasive answer like the one above.

No it didn't address the question. I'm was only trying to point out a basic fundamental economic principle. Comparative advantage comes from David Ricardo, and explains why two nations trading with each other can both become wealthier. Even if the trade isn't "fair". We shouldn't be worried about our jobs going over seas, instead we should be worried about government meddling in the economy. Protectionism is just one more form of government intervention.

That was my only point, that the we shouldn't be fearful of free trade.

 

[Carl]

China has only really industrialized in the last decade. Much as America was dominated by Industrial intrests during its industrial revolution, China is completely controlled by its desire to sate industry at all costs. However this will ultimately subside regardless of whether we create an agreement as tariffs inevitably cause more harm as they raise prices for everyone while they only benefit those protected from competition.

American economic history would beg to differ from that point of view. Our Federal Government lived off the revenues generated by tariffs during the first 100 years of our existence, our economy thrived and people actually afforded the products that had tariffs applied. Yes tariffs protected industries and rightly so, industries employ American workers and that is what an economy is all about. It's not about prices, prices are relative to the purchaser's economic well being and that is an economic fact that is given little attention today because it doesn't fit with the mantra of "every day low prices" free trade, aka economic rape, that has been perpetrated against America.

 

[DrKevorkian]

Our Federal Government lived off the revenues generated by tariffs during the first 100 years of our existence, our economy thrived and people actually afforded the products that had tariffs applied
...
It's not about prices, prices are relative to the purchaser's economic well being

First: Yes the U.S. government did live off of protective tariffs for that period but it was far from creating a thriving or universally beneficial economy. The tarriff system nearly caused a civil war. The tarriff of 1828 (tariff of abombinations) was so detrimental to the southern/non-industrial interests that it spawned the nullification crisis which saw the first talk of southern separtism.

Second: The purchasers economic well being, as i've stated, is only affected by the tariff if he is part of the industry being protected. GWB's tariff on steel may have helped steel industry workers but it certainly has not aided the economic position of anyone else.

 

[angelatc]

we shouldn't be fearful of free trade.

I'm not fearful of it - I'm practically a globalist when it comes to that. But it has to be managed, or it will be chaos.

I don't care if we trade freely with Canada, because they have an economy that is similiar to ours.

Mexico, on the other hand, has no minimum wage laws, minimal pullution controls, and a government that is more corrupt than ours.

I wcertainly want to work towards making the entire world wealthy and sucessful through trade, but we can't do it all at once without suffering dire economic consequences. If we don't phase into free trade, the economic legacy of a Conservative president will be worse than the Carter administration's was.

 

[JosephTheLibertarian]

The citizens should be the one's deciding to trade or not, not the government. Leave it to the citizens.