Saturday, 2 April 2016

In a perfect world there would be no Free Trade Agreements, only sanctions and embargoes.

Implicit in the very notion of FTAs is the default assumption that national governments can and will block trade between their citizens/businesses and those in other countries, and that by entering into FTAs, national governments graciously grant each other's citizens/businesses the permission to do trade freely.

This is actually madness and completely back-to-front. In a perfect world, the default assumption would be that anybody can trade with anybody.

(For sure, there will always be import restrictions/bans/quotas on some things (drugs, weapons, creation plants and animals etc) and many products have their own particular rules (such as MOT/road worthiness for cars).

But as long as the actual rules for any particular product are sensible, to society's overall benefit and applied consistently to domestic and imported goods, the default assumption ought to be that anybody can buy anything from or sell anything to anywhere, the same as people in Birmingham can buy cheese from Cornwall and people in London can buy cars built in Swindon without needing special permission.)

Of course, in extremis, I can sort of see the political argument for imposing sanctions or embargoes on unfriendly countries, even though these usually backfire horribly i.e. members of the ruling caste still get what they want and the burden is borne by their downtrodden masses.

33 comments:

The Stigler said...

The only good sanctions are those that affect those in power, and have to be thought about carefully.

I do think the sports boycott of South Africa was quite a good one. It only affected white sports people and fans of sport and those people who could vote to dismantle the system.

Mark Wadsworth said...

TS, good one. Can you think of any others?

James Higham said...

Tarrifs and protection then.

paulc156 said...

In a perfect world, yes. When GB first ruled the waves it absolutely did so with the aid of all manner of tariffs and subsidies to protect it's nascent industries and allow them to become dominant...whereupon it became in the 19thC the greatest advocates of free trade. The US followed the same protectionist model under Alexander Hamilton and then once dominant industrially demanded free trade and access to other's markets. Plus de change...

paulc156 said...

...or pardon my French, plus ca change.

john b said...

It's worth looking at the actual structure of modern FTAs here.

The current global system basically *doesn't* have significant duties or bans on trading with anywhere that isn't under formal sanctions - the problem is, the domestic regulations you accept are necessary are used to create effectively the same thing by proxy ("non-tariff barriers").

Almost all of the detail of FTAs is about agreeing consistent regulations to prevent governments from using non-tariff barriers to simulate the effect of tariffs and bans.

Mark Wadsworth said...

PC, that might or might not be true. I thought that the British Empire gained a trade advantage for Britain by rather more direct methods than that.

JB, yes, thing have improved dramatically over the years and the current state of play is closer to a default assumption of free trade than it ever has been.

As you say, damaging non-tariff barriers can be dressed up as harmless domestic regulations. In a perfect world, no government would impose these in the first place, of course.

DBC Reed said...

The default position of trade is fraud and fiddles , lets be honest.
The American electorate seems to be supporting Trump and anybody who knocks free trade because it has become a shitty trick by which firms sack all their local workers, move abroad, produce cheap goods by using foreign labour and land and then import goods back into the original country at the much higher price level .
In the Midlands, Cadburys was moved to Poland by American blackguards who told a lot of lies about commitment to the UK: the affable but extremely bright Northampton MP, Brian Binley was reported as saying in the Conservative Club bar "They lied to us..The whole thing has made me believe that international capitalism is not necessarily good for the evolution of society. Then I think: "hang on, I'm a Tory." (Northampton saw Avon Cosmetics and British Timken move the town's biggest manufacturers move to Poland like a shot at the earliest opportunity).
Historically Britain commitment to Free Trade ended with Joe Chamberlain (not London based/ not Oxbridge) who saw Birmingham becoming uninhabitable through industrialisation and realised international Free Trade was rigged.His ideas for an Imperial Common Market were on the point of realisation by his son Neville Chamberlain at the Ottawa Conference only for the very weird Churchill to pull us into a wartime alliance with the US which lost us our (now Commonwealth) protected export markets.

paulc156 said...

MW. Britain used all manner of ways to ensure it's domestic producers and it's colonies did not have to suffer competition until it felt such competition was to its advantage. Tariffs were not completely eliminated until the 2nd half 19thC. But it was more than just tariffs.eg; the Navigation act required that all trade carried out with Britain had to be done with British ship. Walpole insisted British manufacturing should be protected whilst tarrifs on imports of raw materials were eliminated.Tarrifs on foreign manufactures remained far higher than those that existed in France, Belgium, Germany or the Netherlands in the early 19thC. Previous to Walpole we'd liberally applied import substitution policies. Henry VII instituted a plan to develop the English wool industries. Banning exports of wool and finished cloths until it was advantageous to allow it and it eventually raised duties on such exports only once the producers could bear it.

Lola said...

'Free' trade is an oxymoron. Trade is always free. If it isn't free it isn't trade. What 'free trade' agreements actually are are agreements to harmonise regulations, so not 'free trate' at all. They also try to eliminate non tariff barriers and to persuade other countries to stop doing stuff like subsidies to their own industries. A lot of this problems with free trade (from now on I will call it just trade) is jingoism. My business based in Ipswich trades freely with businesses and customers based in Colchester. What's so different between trading between Ipswich and Colchester and Ipswich and Cologne? All the problems in doing the latter are down to government failure, mostly based on a jingoism and the needs to buy votes.

DBCR. No. Pretty well all trade is honest, open and rewards both sides in any transaction. You are thinking of government and socialism when you say "..That the default position of [trade] is all fraud and fiddles...". There is no coercion in voluntary exchange unlike government and socialism both of which rely 100% on coercion.

Trade is the primary source of civilisation and peace. Why? You don't shoot your customers or potential customers and you make Damn' sure that not only property rights are protected, but so are theirs.

British Steel is the victim of Chinese corruption fuelled by an international tsunami of bad money.

The Stigler said...

DBC,

"In the Midlands, Cadburys was moved to Poland by American blackguards who told a lot of lies about commitment to the UK: the affable but extremely bright Northampton MP, Brian Binley was reported as saying in the Conservative Club bar "They lied to us..The whole thing has made me believe that international capitalism is not necessarily good for the evolution of society. Then I think: "hang on, I'm a Tory." (Northampton saw Avon Cosmetics and British Timken move the town's biggest manufacturers move to Poland like a shot at the earliest opportunity)."

The problem is (and this especially applies to Trump supporters) is that people get an idea of When the World Was Normal. They then see deviations from that as bad.

When Trump talks about bringing Apple jobs back to America, that's all that's doing. 20 years earlier, he'd have been rallying about keeping Japanese cars out. He isn't talking about Japanese cars today because for the 60 year old Trump supporters, Japanese cars are part of their normality.

Binley is doing the same thing. Was he fighting to save all those Northampton shoe factories back in the 70s when production moved to the far east? Of course not. That was just the normal change that he encountered at that age. It's only that he's reached a certain age that Cadbury's moving to Poland is such an odd thing.

What really matters is skills and education. There's lots of jobs for people who know Catia in Northampton. I know someone who teaches welding at the old Nene College who is producing people at a rate slower than employers want them. Everyone is desperate for employees in the software industry everywhere (someone called me about working in Blisworth, of all places).

Bayard said...

"which lost us our (now Commonwealth) protected export markets."

Would they not have gone anyway, as the ex-colonies stopped being simply exporters of raw materials and importers of finished goods and started making stuff for themselves?

I think one of the problems "developed" countries now face is the gradual move away from the "raw materials exporter/finished goods importer" model of the developing nations. After all that's what the developing nations are developing: their own industries.

Bayard said...

"What really matters is skills and education. There's lots of jobs for people who know Catia in Northampton. I know someone who teaches welding at the old Nene College who is producing people at a rate slower than employers want them. Everyone is desperate for employees in the software industry everywhere."

Agreed. What politicians, and especially those of the left, seem reluctant to face up to is that the days of the mass employers of unskilled labour are gone, never to return. Perhaps this accounts for the "romanticised nostalgia about heavy industry" that you mention in your post on Tata Steel.

Mark Wadsworth said...

DBC, I refer you to Lola and The Stigler's replies.

PC, yes, that sounds like a fair summary of all the ways the British Empire used force to obtain a favourable position for British industry.

B, first comment, good summary. Second comment, agreed.

The Stigler said...

Bayard,

I do think that we have a class of people who are massively out of touch with the changes of the past 35 years. They still talk about manufacturing industry as a special class, even though most "manufacturing industry" does very little bashing of metal together.

I mean, in "manufacturing", almost no-one is bashing any metal in the UK. My mate works for an F1 team. A few years ago, that meant making the wing of an F1 car. Today, that means using a piece of CAD software to instruct a CNC machine to make it for him. Because it can do it to a better accuracy than him, and that wing design then becomes an asset. A driver breaks a wing? Click a few buttons and you've got another. There's a lot more people involved in writing and testing and documenting the software for an airliner than physically touching the aircraft.

And I'm certain that much of the sympathy for these steelworkers is because people assume they're still sweaty, muscular men moving metal around, when really, they're blokes looking at computers giving them feedback from the processes, or blokes testing samples.

Lola said...

MW, B et al. There was a period from about 1750 to about 1970 when 'mass employment' in large enterprises was the thing. Before that people we mainly working in small enterprises or tied to the land or self employed (Shakespeare for example). From about 1970 the move to outsourcing, technology, etc. etc. has drastically reduced mass employment enterprises. In my own trade insurance companies have shrunk their workforces hugely since about 1990, mainly because of technology, and people like me have grown, mainly because of technology and I have taken on a lot of what insurers front ends used to do, but with far less people. Self employment has grown from about 750,000 in 1979 to about 4m now. Car factories assemble thousands of cars with probably tenth of the workforce required in 1960. The days of mass employment have gone, and that's a good thing. Except in one area - government. And that's the next bit for the chop. You could lose 80% of HMRC staff if you simplified the tax code. You could 80% of DHSS staff if you simplifies the benefits system. As you can do that (entirely equitably) that means that those people are already redundant.

Shiney said...

Start RANT

OK I've waited long enough.... Some of you make good points and some are talking shite (you know who you are.... or maybe you don't).

As I actually have some experience of this.... please take note.

In the last two months my company has lost contracts with two big supermarkets totalling approx 25% of 2015 turnover. Both these changes will come in within 13-20 weeks (i.e. at half year). Contract #1 was lost to a US corp who will share the production (we think) between its UK/EU/Far East plants and maybe use the US plant as well. The 2nd was lost to a Turkish supplier.

25% of our workforce will lose their jobs. Are even the local news interested? Nope. Am I asking for a subsidy? Nope. Govt support. Nope.

That is just business. We grew by winning those contracts at a profitable (for us) price. We created jobs and invested. Now the price is now too low. This is great.... for our customer (and the ultimate consumer). Tough on me and my workforce. We'll have to find other markets where our core competences can be used profitably. THAT is how free markets work.

Overall The Turks (Poles/whoever ends up making contract #1) are better off and so are we - everybody wins (ultimately) because the price for the same goods is lower. Either the supermarket makes more money (in which case they pay higher dividends/open more stores/create jobs... whatever) OR the consumer pays a lower price and buys something else with the difference.... maybe even one of my other products.

Trade makes us ALL richer. And stops us fighting. So we don't nee steel to build f**king battleships. And we DO'T need the EU or any other governement to help us trade. They just need to get out of the f**cking way.

End RANT.

The Stigler said...

Lola,

I did some work for a large high-street retailer and their IT department was basically empty offices. That once would have had 40 or 50 people. Today, it's more like 10. And the reason is that everything is outsourced. Those 10 people are half looking after their core till system, the other half is just managing contracts.

My favourite example is Instagram. When Facebook offered them a billion dollars, they had 13 employees. And that's because things like their server management, serving tens of millions of customers, was outsourced.

Shiney said...

Note.....

#1 - sorry for the typos at the end of the last comment.

#2 - we do make stuff you can 'drop on your foot' although it ain't that heavy ;-D

#3 - most of the guys/gals who will leave came into our business with little or no 'skill' - some were unemployed, some were immigrants, at least one was an ex con. They will leave with transferable skills (better English, the demonstrable ability to get up in the morning for an early shift, computer/HMI skills, fork truck training... whatever) so will probably get other jobs easily.

#4 - me and my business partner will also be taking the appropriate 'haircut' before anyone dares to suggest otherwise.

Lola said...

Shiney. Feel better now? Or, I feel your pain.

Shiney said...

Lola.....Ho Ho. Just thought I'd 'share' in the spirit of making the world a better place.

Don't you find it interesting that us 'small business' types seem to accept this sort of thing whereas the big corporate/govt types, and their shills, can't seem to accept the reality of the fact that free exchange (or trade if you will) makes us richer.

Bayard said...

Shiney,

I, too, am facing a similar future to you. In the past two months, I tendered four jobs that would have been worth about two thirds of the company's turnover, had we got them. We got none of them. AFAICS, that's just the way it goes in an industry that works by competitive tender.

Mind you, I don't blame Tata Steel asking for a handout. If there's a good chance of some free money, whyever not?

DBC Reed said...

I'm not sure that Germany takes this attitude that mass employment is a thing of the past, so its no use clinging on to old practices.The Germans still have a huge range of vigorously protected Mittelstand firms as well, local firms built up over generations that have become technically advanced.
I thought the idea of getting house prices under control was so our economy became more German. (According to "German Lessons" 2012 by Colin Wiles, a one bedroom flat in Berlin could be had for £35,000, a four bedroom detached house in Rhineland for £51,000)in which case they have the optimum land value scenario of high wages, low housing costs. If we acquiesce to the diminishment of jobs, we demolish the mechanism for distributing the Land Tax. We could go all Douglasite or Wadsworthian and hand it out as an unearned Basic Income for all, but it would be easier to have an active employment policy to get everybody into jobs ( like before all the Thatcherite nonsense).

Lola said...

DBCR. Mass employment in the sense of huge labour forces for single employer are as dead in Germany as they are here. BMW is a mass production car producer with a very modest workforce.
The German Mittelstand companies are part of the problem in that ike the Chinese steel works they are massively subsidised and protected with all sorts of stuff .like soft loans and interlocking ownerships. I know of one outfit that was handed a load of very high grade machine tools by BMW (I think) at nil cost.
You can see the effect of this in the Eurozone where Germany loaned money to Greeks to buy Mercedes. That didn't exactly work out well did it now.

DBC Reed said...

@L
Greeks would not be able to pay back car loans because there is not the mass employment in a developed industrial system .This one of the problems with Free Trade: you end up subsidising grief stricken countries to buy your output.The claims of self supporting agriculture (voiced by Tories) were pitted, unsuccessfully, against the claims of exporting industry (Liberal)in the nineteenth century with the result that we imported masses of foodstuffs from abroad simply to provide them with purchasing-power to consume the products of the mechanised "workshop of the world" which we hadn't the population to consume ourselves.
Far too much is being taken for granted in this thread: there is a long academic tradition of scepticism of the claims of Free Trade and whether there is any difference between Free Trade and Mercantilism, expressed notably by Joan Robinson.
Whatever you say, Germany has a much more prosperous economy than ours and protecting the mittelstand companies which governments of all persuasions in this country wiped out (there is a poisonous letter from the BoE commending Charles Clore for rationalising the Northampton shoe industry)plus cheap housing is a better mix than we have got.There is more money about and more of it goes into workers' and entrepreneurs' pockets rather than dysfunctionally inflating land values . (They have a land tax and levies on change of ownership+ mittelstand+ a car industry. )

Lola said...

DBCR.

Nope 1. Being able to pay car loans, aka international creditors in the Greek case, has absolutely nothing at all with the presence or absence mass employment (by mass employment I mean masses of people working for one or several major employers - coal, steel, cars etc. etc.).

Nope 2. (From "One of the problems with free trade ...to consume ourselves") Complete economic nonsense. The initial 'comparative advantage' means that we sell manufactures and we import food stuffs (say). This exchange creates wealth. And the evidence for this is all around you. It is precisely what has happened over the last 50 years or so such that there is now no poverty anywhere except in states where a combination of socialism and wealth extraction by the resident elites prevails. Or war.

Nope 3. Para three. Nonsense.

Nope 4. Last para. Germany has not done free trade. It's done protectionism. The consequences of this flawed policy are now biting into its wealth. The Greeks were not bailed out by the Eurozone. The German banks were bailed out. That's not going to work and sooner or later the house of cards will fall and Germany will suffer, probably with mass unemployment.

DBC Reed said...

My impression is that comparative advantage in free trade was dreamt up by our old friend Ricardo, who suggested that Portugal had an advantage in producing Port while we had an advantage in woven woollen products, so if we both concentrated on what we did best we could just barter with each other and both end up with cheap fortified wine and cheap woollen goods.
However in the long run the Portuguese get stuck with a primitive agricultural economy while we evolve the machinery to first process and weave wool then other textiles until Jacquard looms start using punch-card technology and we have an industrial revolution with exponential growth.
There is nothing free about countries being stuck producing bananas and sugar by hand when industrial economies get all the advantages of mechanical and computerised production. Please explain how Free Trade is to the long term benefit of the Banana Republics!
Anyway you are not saying that the current situation which American workers are complaining about where American companies move factories across the border and hire cheap Mexican labour to make the same products has anything to do with classical Free Trade are you?

Lola said...

DBCR Nope. Again.

That's not how (free) trade and development work. Countries don't get 'stuck' like that. What's more they don't work like that intra state either. You have a flawed, or perhaps incomplete understanding of how trade and states develop. As less developed states (or intra state areas) sell more stuff, they save more wealth. That wealth is used by ever aware entrepreneurs to exploit opportunity to undercut competitors - they work out how to make mouse traps locally at lower costs and hence lower prices, for example.

Countries do get 'stuck' though. And for why? Parasitical elites, lack of the rule of law etc. etc. It's not trade per se that sticks them. It's failed government.

Last para. Yes, of course that 'would be' free trade, IF it wasn't for the massive distortions and costs added to US labour by failed governments. It's not the 'trade' bit that's wrong - relocating to where costs can be minimised (whether it's from California to Mexico) or Japan to Sunderland (Nissan)) - it's the government bit. In other words the problem is expensive US labour, not cheap Mexican labour. The US (and the UK and the EU etc.) are bedevilled (among other things) by high and confiscatory taxes, high rents, high benefits and bad (nationalised) money - all government failures.

Free trade, or rather just 'trade' works. The other things don't.

john b said...

We could go all Douglasite or Wadsworthian and hand it out as an unearned Basic Income for all, but it would be easier to have an active employment policy to get everybody into jobs

I've never understood this attitude. In the absence of rewarding work for my skill-set, I'd far rather get paid to do nothing than have my employer subsidised for me to do a pointless job that didn't add any value.

DBC Reed said...

@jb I agree but the Great British Public don't and insist on everybody half killing themselves with work before getting any money. Somehow they also believe they have the right to all the unearned increment from house/land price inflation as some kind of income or capital gain. If they can't cope with something as old and obvious as LVT they will not be able to get their heads around the MW Basic income from LVT redistribution or the inter-war Douglasite argument of National Dividends from the State resuming the money creation process and dishing it out to equalise spending power with productivity. NB Douglas was told"With your scheme people might spend all day playing golf" He replied "That might be arranged".
@L I am finding your version of laissez faire too idealised to cope with .You might try looking up Internet entries with titles like Cash crops versus food crops in Africa. There is a huge literature and big organisations like Via Campasina that are concerned that free trade relationships turn colonial when poor agricultural countries get stuck churning out so many cash crops that they can't grow their own food even.Do remember that British Free trade policy included the freedom of Chinese people to get out of it on opium which the Brit gov made available via the Opium Wars. The idea that Free trade laissez faire came about in a romantic Ayn Rand dream without violent State involvement is a bit sad.

Lola said...

DBCR. Nope. Yet again.

"...when poor agricultural countries get stuck churning out so many cash crops that they can't grow their own food even..." I bet if you looked a bit more into this you'd find that stuff like the EU CAP is distorting things again. And so is the 'war on drugs'. Cancel the WOD and the smuggling premium for risk goes away. That means that Afghan poppy growers will switch to growing stuff to eat as opposed to stuff to smoke and inject. Free markets work. The other things don't.

Bayard said...

"@jb I agree but the Great British Public don't and insist on everybody half killing themselves with work before getting any money."

Not the all the GBP, but only the Envious and their organ, the Daily Mail. Mind you, there are a powerful lot of them. (BTW my definition of a member of the Envious is one who would rather they and their neighbour both got £100 than they got £200 and their neighbour got £500.)

DBC Reed said...

@L As you are so averse to doing any research on La Via Campesina's opposition to FTA's (Free Trade Agreements) which leave people supplying cash crops grown on plantations (just like slavery!)to the industrialised West, there is no point in continuing with this exchange in which you have been very arrogant .NB Africa imports 83% of its food.Is it any wonder there are so many economic migrants? Or is your laissez faire uncoupled from its corollary "laissez passer"?

Your blaming the WOD for the trade in opium products is weird.In the 60's , the 1860's that is, this country was awash with opium with not only the intelligentsia ( Coleridge , Ada Lovelace, de Quincy [earlier]) hooked on it but Fenland women buying 1d packets of pills called "elevation" on their visits to rural markets . No smuggling premium there. Gladstone went apeshit over the Opium Wars which he rightly predicted would become a longstanding national disgrace because his sister was hooked on laudanum which had suspended opium powder in alcohol. Another triumph for Laissez faire.And if you wouldn't see the advantages we had gunboats!
I sometimes wonder what those who advocated the pushing back of the State (like Billy Hague , the Boy Genius) and the destruction of our post-war mixed economy, see when they contemplate the disaster they have created with half-arsed theories to engender "business confidence"(by cutting people's wages so they can't afford to buy anything).