These simple models of free trade work fine when discussing commodities or raw materials, but one thing I never see addressed (I'm far from an expert, just an interested layman) is that modern manufacturing involves far more than the raw inputs - there's complicated logistics and an entire holistic knowledge base of the company or companies which produce a thing. A society can forget how to make things, especially if no one in the society makes those things any more. The classic example is that "no individual knows how to make a #2 pencil from scratch". Or, more recently, the USA can't even produce large numbers of N95 masks. So, there can be a short-term benefit to free-trade, but an unknown cost down the line if your trade partner goes away for some reason and you can no longer make things you were trading for.
I'm starting to see a consensus that one of the biggest drawbacks to free trade is the loss of skills. It is great to get cheap steel from China and great for China to sell steel at a profit, but it sucks losing the engineering jobs. But what truly is awful is now there is hardly anyone who knows how to run a steel mill anymore in the US. The US might not always be friends with China, but the US will always need steel.
On the other hand free trade stops wars. If each party is specialized in a needed item that the other side no longer knows how to produce, its much harder to go to war.
The fact that the US will always need steel helps ensure that they _will_ always be friends with China, so long as they also specialize in something that China needs.
Economists were saying that about the interconnected economies of Europe prior to WWII. War is declared by human politicians in an instant. It is not required to be rational any more than human behavior is in general.
The Germans did suffer terribly from shortages, particularly of petroleum, during the war. In fact, one could argue fairly well that the shortage of petroleum ensured their defeat.
Their inability to produce high octane gasoline was also instrumental in the defeat of the Luftwaffe, as it meant their aircraft could not perform up to the level of the Allied aircraft.
The Japanese in WW2 also failed to secure a supply of oil, with similar results.
Yes, there's no doubt it was a major problem for Axis nations. However, it didn't prevent them from going to war. In the case of the Japanese one could argue securing their own source of petroleum and other resources was a major driving factor behind their expansionist policy.
On the other side, the US supplied Britain with all the arms, food and gas they needed. The whole point of the U-Boot campaign was to cut that off, which would have caused the defeat of Britain.
The interesting thing about a future modern war, however, is that modern weapons are too expensive and take too long to produce, so it'll be fought with whatever is in stock and will be over before supply lines matter. I hope we never find out if that is true or not the hard way.
I'm not sure I believe that. War doesn't usually end until one side surrenders in a way the other side is willing to accept.
If all you have left to fight with is improvised weapons, then it continues with that.
I would argue that very expensive, complex machines are the Tiger tank mistake all over again. Mechanically unreliable because of the complexity, but when it worked it was completely unmatched. One Tiger tank defeated 50 Russian tanks in the battle of Kursk, if I remember correctly.
But the cheaper, mass produced tanks of the allies won out because they could be fielded in much greater numbers.
> Insurgents continue to fight, and the usa just cannot completely win.
The US cannot win those because it is unwilling to do what is necessary (indiscriminate killing) to win.
> A war is won on ideology, not weapons.
I don't see much evidence for that in the history of warfare. For example, during WW1, the fortunes of the armies ebbed and flowed with the ebb and flow of who had the technical advantage in the air war.
On the other hand, it's been what... 80 years since a conflict between continental European nations. Has there ever been a gap that long in recorded history?
I think the last 80 years have been the most peaceful in recorded human history in spite of, or perhaps because of the constant threat of nuclear Armageddon.
Globalization is a part of it, but I don't think it's sufficient in itself to keep the peace.
The first 50 years of that peace was Europe being split between two nuclear superpowers. So the “peace” (more like a standoff) isn’t entirely our (European) fault.
Given that China invests gigantic sums of money in the US and has vast segments of industry dedicated to selling goods to the US, it is not very clear to me how you've concluded that.
That's the whole argument of comparative advantage though, even if China is better at everything its still in their best interest to trade because everyone comes out ahead if they specialize in what they're best at.
How long would it take to figure out how to run a steel mill from (more or less) first principles? That is, if you're a country that has zero steel mills and zero people who have worked at one, and for some out-of-game reason (like a global pandemic) you can't travel to one, but you know that they exist, you have access to books, and perhaps you can interview people, how long will it take to build an acceptable-quality mill?
After all, a) humankind developed steel mills in the absence of any steel mills at all, and b) multiple countries have developed much more complicated things in secrecy from each other (like atomic weapons and orbital rockets and radar), so it seems like it should be doable.
It's to your advantage to give up your skills if the cost of regaining them if you need to is smaller than the comparative advantage of having China make steel for you in the meantime.
The metal (steel, aluminum, etc) used in new cars didn't exist 10 years ago. From first principles, making steel is easy. Making stainless steel, figuring out when to add additives and what those additives should be, is harder. Doing it at scale, in quantity, cheaply, and safely, taking all aspects into consideration is dramatically harder, and if you dump the expertise now, and then have to restart from first principles 10 years from now, then you're multiple decades behind the competition.
Geopolitical considerations may mean there's a business advantage to having it made in China as opposed to elsewhere, but as we've seen with the US pandemic response, there are sectors where it's just plain stupid to believe that expertise can be summoned up as needed, and that it's somehow cheaper not to pay for it in the interim. Government isn't a household, and you can't restart having expertise like canceling Netflix for a few months.
you'd imagine they, upon acquiring said expertise, would write it down so that it is permanently available to others. What happens to the expertise if the person with it dies in an accident or old age?
Some institutional knowledge is just knowing where it was written down.
Some of it is trade secrets and so when the company is wound down it's sold as IP to another place.
Some expertise is contextual to the actual build of the equipment. Having a manual that said replace this O-ring every week in a blower or you'll suffer failures may not actually be expert knowledge anymore, It could be all that is stopping you from losing a million dollar piece of equipment or it could be what's causing you to lose productivity for an hour every week in a pagan ritual to the sacred maintenance document.
Being an expert and being able to chronicle that expertise are not just separate skills they're separate tasks. They might not know what is worth highlighting or they might prefer to read a book than to take on the extra task of writing it down.
You do write it down for exactly that reason, but it doesn't make it permanently available in the way that you describe - much of generational knowledge transfer happens by living and working side by side, not just reading books that the elders wrote.
It is certainly doable, but it will take time. Any country can probably get some kind of small scale steel mill up in a few months (or a long afternoon if the scale is small enough). But getting producing high quality steel at industrial scale with economy would probably take longer than a decade.
> one of the biggest drawbacks to free trade is the loss of skills.
The Economics jargon is "real option value". When you have engineers making widgets of type A, it's easy to get them to make types B, C, and D should the need arise. This potential to do other things has real value even if in fact you never do them.
Real option value should always be evaluated when choosing a course of action, but since it's about non-existent things, it's usually skipped. (Edit: calling it "real" must be economist humor.)
Ricardo didn't know about, or chose to ignore, real option value. In the classic England = cloth, Portugal = wine trade, Portugal would be better off making cloth because of real option value.
According to Wikipedia, in 2014 the US was the world's third-largest producer of raw steel. The industry's website says that US has produced almost 55 million tons of steel this year through the week ending September 12.
It's not so tricky. Make the imported product more expensive. Tariffs more or less funded the entire US federal government for the first half of its existence.
N95 is not a very good example, but there are many other good examples. I wouldn't want the above important point to be derailed by the choice of a hot-button example. Unfortunately it seems like it has been.
Advantages are not static; they're path-dependent and time-dependent variables, and treating them properly as such can really change the optimum strategy. The path dependence means that sometimes, instead of always maximally exploiting your existing advantages, you can make a short-term sacrifice to gradually create advantages that you didn't originally have.
The reason the US can't produce N95 masks in large numbers is because it made a trade with countries that have comparative advantage in manufacturing commodity items. Commodity items have low margins and low barriers of entry, hence the comparative advantage is usually labor cost, lack of regulations, government subsidies etc.
Even if automation removes the labor cost arbitrage factor, the market distortion due to other factors is unlikely to encourage a spurt in manufacturing unless the US also decides to intervene in markets.
If I understand the terminology correctly, comparative advantage is used within a country (or island) while absolute advantage is used between countries. China has both a comparative advantage and an absolute advantage in manufacturing masks.
Additionally, mask making in the US has very low comparative value. Us workers and business have much better products they to produce.
Dave Chappelle hit the nail on the head in one of his standup routines "I wanna wear Nikes, I don’t wanna make those things. Stop trying to give us Chinese jobs"
I'm not an economist but I think that comparative advantage is a different thing.
Absolute advantage is when you are best/cheapest at producing something.
Comparative advantage is when you have the lowest opportunity cost to produce something. Others may be able to produce it cheaper but they have something more profitable to produce.
Example might be steel mills, USA probably can produce steel, but it is much more profitable to produce end products (machines, tools, cars). So USA could be the best at producing steel and machines, but it ends up producing machines giving China comparative advantage to produce steel (let's imagine they do not know how to produce machines in a cheap way).
yeah, I think that it a more nuanced and accurate description. It is about having the lowest opportunity costs. I guess an individual or country could have both an absolute and comparative advantage if you can only do one thing and do it well.
This is a very important point, often overlooked. It's worth building and maintaining essential capabilities, even if you're not the most efficient at them. E.g., a large nation (> 50m people) should be able to feed itself (fine import oranges from somewhere else if you have to, but grow your own wheat and potatoes).
The US can produce large numbers of N95 masks. What we cannot do is produce large numbers tomorrow. If you are willing to bankroll me I'll setup a factory and in 2 years I'll produce any arbitrary number of N95 masks you care.
There are two obvious problems above. First, 2 years, will we even need N95 masks in two years? Second, I said I'd make them, but I cannot promise I can make them cheaper than China can.
You are severely underestimating the necessary level of manufacturing "culture", logistics and processes that were lost when we outsourced manufacturing.
For many things, including probably making N95 masks, we can no longer just decide to make them now without reconstructing that entire logistical tail, all the myriad of small manufacturers, and train people with specialized know-how and the years of experience that only exist in the presence of a vibrant and active manufacturing ecosystem.
The reason N95 masks aren't a good example is that there are manufacturers in the US, and were, already. Prestige Ameritech is one, and it could easily have scaled up very quickly, but couldn't afford to do so and then scale back down within a few months (they've been through this). So, they needed someone to guarantee that they'd be able to sell enough to be worth the investment of building out capability. There were a bunch of stories about this company back in the beginning of the pandemic.
All of that can be regained for a price. Remember I'm being supplied with an arbitrary large budget. There are a lot of manufacturing experts in the US working for the likes of GM who still make things here, if I hire half of them away (for a nice pay raise) I can make all the pieces of the puzzle I need.
Swiss. It's been months since I was following this story, but the machines were chinese (air freighted in, along with copious supplies of masks for the interim, by our flag carrier airline, which had plenty of spare capacity at the time) and I believe the textile source is german. Our virus response the last two months has been pitiful, but we were doing well in our first wave.
Depends on where I start. If I can buy machines from china I can ramp up much faster than if I have to design and make the machines myself. I also need to develop supply chains.
Note too that I have no expertise in either building a business or designing mask making machines, so I'll need to hire people as experts in both of those which will take time. Probably my mask making machine experts will be experts in designing machines (engineers), but not masks and so they will have to learn what works and doesn't.
Yes, the unhelpful part of these simplistic examples is that they show Comparative Advantage as a property that arises from the ether. It just happens to be that my island has easily accessible bananas and yours has easily accessible coconuts or whatever. But modern trade is more often about complex products where comparative advantage isn't a byproduct of the natural world but a created situation. So we're left with the question: Where does comparative advantage come from? And the answer is that it comes from lots of different factors but sometimes, in some cases, one of those factors is protectionism. And that complicates the whole thing. It could be that your island has a CA in computer chips and mine has a CA in McDonald's toys. It could also be that the inhabitants of my island don't like that scenario and think they might be happier if they had the CA in computer chips and yours had the CA in McDonald's toys. So what can I do to make that the case?
These toy examples are useful as an introduction but basically irrelevant to modern political debates around economics, we need to move past discussing trade like we do in "Econ 101."
"Comparative advantage" has always embodied, to me, the difficulty with electoral politics. It's a fairly easy concept, taught fairly widely, yet almost no one really understands it and views the world through that lens. Most voters are operating without an understanding of comparative advantage.
Now apply that to dozens of other concepts in other fields. Same situation. It's depressing.
The notion of comparative advantage that's presented in the article is a little facile though. IMO there are quite a number of real-world practicalities that derail the analysis:
* The infant industry argument. The analysis in TFA assumes comparative advantage is fixed: in reality advantage shifts all the time. Fifty years ago China had a comparative advantage in farming and not much else.
* Measuring comparative advantage: in order to make a good policy recommendation, we don't just know what each country does produce, we need to know how much each country could produce under a huge range of scenarios. Does anyone honestly know how much value a given country could produce if it decided to shift its entire economy in a new direction?
* Mobility of labour: instead of trading with other countries, why not just allow their workers to work in your country and reap the benefits at home? (I recognise that some advantages don't come directly from labour, but we do see this happen in low-skilled jobs). Even Ricardo recognised that labour mobility hurt his argument.
For what it's worth, I'm not saying that trade doesn't usually benefit both parties: I'm saying that _this argument_ isn't the smoking gun that demonstrates that fact.
Free trade based on the principle of comparative advantage only survives so long as the gains of free trade are adequately distributed to the public. Otherwise, the public will revolt and show the elites who's really in control, even if they don't end up better off in the short-medium term. In the long run, this can lead to reestablishment of free trade on more equal terms. The elites must preemptively make free trade work for everyone. That's not only moral, but it's rational too. It can help avoid an age of wasted potential and strife. The Great Depression was preceded by isolationism. Who wants to go through that again? Not me.
The point is, the ball is in the court of corporations and the wealthy. Money in politics will work for them until it doesn't. No amount of donations, ear whispering, and cocktail parties can avert popular rage. Trump supporters are only a taste of what may be coming, because Trump was easy on the rich (of course). There's no guarantee that the next populist president will be as nice to the rich. There's no guarantee that the next populist president won't be more capricious on free trade. The underlying ailments that gave rise to populism must be addressed as soon as possible. Critically, free trade is not the problem. The problem, like I said, is that the rich capture too much of the surplus from trade. More of that surplus should be going to education, bullet trains, research, socialized healthcare, etc...and it's not.
I know that feeling. I've accumulated a small collection of what I think of as "lenses". Simple ideas that help make sense of a lot of otherwise confusing observed human behavior. What I wouldn't give to inject them in the brain of everyone.
(Off the top of my head, a few for me are in-group/out-group behavior, path dependence, sunk cost fallacy, fundamental attribution error, and externalities.)
My field is propped up by various governments. My paycheck is a combination of sales, bailouts, and loan forgiveness. I also make lots of money.
Should I be in favor of cronyism?
I actually take the other side despite getting paid by them. These companies/Management made terrible decisions and continue to make terrible decisions. Instead of selling and replacing managers we are burdened with zombie companies.
I agree so much with this. The more I study economics, the more issues I run into that people ought to know but are unknown to everyone who hasn't studied it. Arrow's Impossibility theorem is another interesting one that perhaps ought to be more well known.
Arrow's theorem is nonsense that has set back election reform by decades. Because in any realistic scenario, "irrelevant" alternatives are never truly irrelevant. That is, Arrow's IIA assumption is simply not desirable or relevant.
Once IIA is relaxed to a sane axiom [read: abolished almost entirely], there are multiple methods that work like versions of STV. Besides, Arrow never applied to ordinal voting methods like Approval (which is OK) or Range (which I strongly dislike for other reasons).
In the quoted context I'd agree it isn't a great use. However I do think it's something worth knowing about.
Another economic topic would perhaps be marginalism, so we don't keep getting flooded with "but why is water cheaper than diamonds, it must be injustice/bad values/conspiracy".
And perhaps some kind of history of thought on value, so we don't get the simple version of labour theory, or the Fisher-Price version of utility theory again and again.
Perhaps I sound like a snob, but I find a lot of economic discussions are derailed by having to clear up confusions that appear repeatedly.
Arrow's impossibility theorem has always seemed a little fishy to me: I think the axioms are too strong (if you pressed me on this, I'd wonder if the 'independence of irrelevant alternatives' axiom is problematic).
The fact that it holds when there are three or more options but not for two options just doesn't sit right with me.
It turns out that there is very little scope to relax the axioms: for almost any voting scheme, there are circumstances where you do better by not voting your true preferences.
See the Gibbard-Satterthwaite theorem.
Pretty much the only scheme that avoids this is "choose a voter at random and elect the candidate they like best".
>for almost any voting scheme, there are circumstances where you do better by not voting your true preferences.
Which isn't a very important consideration compared to other attributes of election methods. Usually, coordination and signalling problems make tactical voting inadvisable. But even when tactical voting does work, it's not necessarily a problem.
The source of all of Arrow's nonsense is treating an election as a very large opinion poll on a single candidate. Of course pollsters hate liars, so everyone who takes Arrow seriously tries to eliminate tactical voting.
However, that's the completely wrong model. An election is an opportunity for a citizen to use their equal political weight to try to steer the polity. If some citizens managed to be smart and use their political weight smartly good for them. So what if their vote wasn't their true preference?
Tactical voting is only a problem when the election method allows a minority to win frequently - because political weight isn't really equal in that case - but one can imagine methods where tactical voting can happen yet the winning candidate always ends up with a majority (e.g. France's 2-stage Presidential elections). In those cases, tactical voting is not a problem to be eliminated.
I think the root of the problem you’re getting at isn’t that we shouldn't have leaders we elect, but that education and trustworthy journalism in a democracy are vitally important.
If I understand correctly, one reason there seem to be so many results for zero-sum games is that they have defined solutions, whereas in other situations, a mathematically valid strategy is to be a jerk ("blow up the island") and attempt to take the lion's share[1] of the surplus for oneself.
One of the early game theory papers considers two people with radios, parachuted onto a grid, who must rendezvous. It derives a theoretical strategy: broadcast one's location, then destroy one's radio, forcing the other player to do all the walking.
Similarly, if you get stuck trying to traverse a hallway or an intersection due to another person who keeps deciding to go at the same time as you, breaking eye contact is the quickest way to end the standoff.
James K. Galbraith has stated that "free trade has attained the status of a god" and that " ... none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules." [..] These comments have been heavily criticized by mainstream academics like Paul Krugman, who noted the lack of mathematical modeling or simulations supporting the argument -- https://en.wikipedia.org/wiki/Comparative_advantage#Criticis...
Imagine criticizing an empirical result on the basis that simulations don't support it. In other sciences, it's the other way around - if the simulation differs from the experiment, it's the simulation that's considered faulty.
I guess economists think their simulations are so perfect and complete, such good representations of a system as complicated as human behavior and society, that any result disagreing with those simulations must be due to experimental error.
Edit as reply to the question of whether Japan, Korea, Taiwan, China reached their status "without utilizing free trade":
They utilized trade, but not completely free, unrestricted trade. I'm sure we're all aware of China's historic and current protectionist policies. Western countries also used and still use various "protectionist" policies (e.g. corn subsidies in the US), they just try to be subtle about it. That's what was meant by "neoliberal trading rules".
True, but it still means the current status is: Several countries that reached prominent economic positions with protectionist policies, and zero countries that reached such positions without them.
Now perhaps those countries would have succeeded even more without protectionism. Do you go with something proven to work for your country, or experiment with an alternative with a worse track record?
But did Japan, Korea, Taiwan, and mainland China reach their current status without utilizing free trade? That's the important question here, and it's certainly not trivial.
You can not reach a developed industrial capacity without protecting your industries. That's true for Japan, Korea, Taiwan, China and the USA. The historical examples are clear (1).
If you open your markets without restriction, before you have a developed industry your industry will die.
Of course, once your industry it's developed, your best strategy is to be a champion of free trade.
I think it's sort of strange to refer to comparative advantage, which is taught in every "Introduction to Macroeconomics" class/textbook in existence, as an "arcane" part of economics.
Arcane might be the wrong word ... but how many people leave an economics class actually understanding comparative advantage? I would bet (just on the basis of my mostly college educated friends and family) that most don't actually retain the knowledge if they even learned in the first place.
"Dumping, in economics, is a kind of injuring pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product."
How would it work in this example?
The other guy would sell you coconuts and bananas well below the Zone of Possible Agreement (ZOPA), and you would be so glad to buy everything from them -- destroying your industry.
A few years go by, and they raise their prices above the ZOPA -- and you have no option because it would cost you a lot to rebuild your industry from scratch.
If you try to produce bananas, they drop the price of bananas; and make profit from coconuts. If you try to produce coconuts, they drop the price of coconuts, and make profit from bananas. (You need coconuts and bananas!)
That's what happens in real world -- developing countries export iron for $100/ton (2,200 pounds) and buy high value-added products (phones, tablets, computers) for $500/unit.
Rich countries use the profit they make from high value-added products and services to subsidize their farmers, pushing the price of food down. For instance, wheat costs $188.75 per metric ton, less than $0.20 per kg ($0.10 per pound).
Without subsidies, the farming industry would be decimated from rich countries, and prices would go up.
So, "free market" is an abstraction that doesn't exist in the real world -- and you can see it in this idealized model of two islands.
What bothers me in today's world is that we ignore how some countries achieve their comparative advantage.
Why did Hershey's chocolate close the factory not too far from where I grew up, and move the manufacturing to Mexico? Well, labor is cheap there because there are no unions, few health and safety regulations, few workers' rights groups. That makes it much cheaper to operate.
Why can China manufacture clothing cheaply? Well, they have hundreds of thousands of Uighur prisoners being 're-educated' via forced labor.
And while I don't disagree that for some countries that are trying to move up in development, so-called 'sweat shops' can represent a stepping stone forward (2 generations ago, South Korea had plenty of them), the question is how long that's an acceptable excuse?
In my opinion, we need trade rules that explicitly tax and tariff those countries who are only finding comparative advantages through exploitation and unethical activity.
I think you are conflating comparative advantage and absolute advantage. As the article explains, comparative advantage is what a country is good at doing, not how good it is compared to other countries. The latter is absolute advantage.
You can be worse than every country on earth at making X, but still have a comparative advantage in making it.
>And while I don't disagree that for some countries that are trying to move up in development, so-called 'sweat shops' can represent a stepping stone forward (2 generations ago, South Korea had plenty of them), the question is how long that's an acceptable excuse?
Understanding comparative advantage helps answer this question. Sweat shops should not be banned by the exporting country as long as it provides a comparative advantage to workers. That is to say, if sweat shops are better than the next best option, they should be allowed. Once better jobs exist for workers, sweatshops should be disallowed. Otherwise, banning them doesn't make replacement jobs, it just pushes workers into worse options.
Changes can also be made on the buyers side to not import products made in sweatshops. This could have positive or negative effects on workers in the exporting country. If the manufacturing country still has an absolute advantage in shirt making after the import ban on sweatshop goods, their people will be better off. If the absolute advantage now goes to another country, the workers will be worse off.
> In my opinion, we need trade rules that explicitly tax and tariff those countries who are only finding comparative advantages through exploitation and unethical activity.
The US and Europe have this situation too, where some European countries have decent parental leave and overtime rules, non employer subsidized healthcare, and lack of employer dependent H1B workers.
Even within the US, you have states like CA offering paid parental leave, paid sick leave, environmental protections, non compete bans, and eliminating tipped minimum wages versus most of the other states trying to compete with cheap labor and not offering any job protections to people.
It’s 2020 and Ohio doesn’t even require employers to pay out accrued PTO.
Many people don't think all of the goodies you mentioned for workers are things they should have rights to. Why is a company responsible for your decision to have kids? That makes no sense. If CA wants to make up said rights then it has to suffer the consequences. The only way this logic makes sense to me is when it comes to environmental issues which everyone suffers the externalities.
I consider taxpayer funded healthcare needed by a child due to the child's mother not being able to breastfeed due to needing to work all the time an externality.
Employers also do not need to be responsible for people's decision to have children. Parental leave can be paid for by the government. However, in the current economic system, retaining one's ability to earn income may need to be protected by the state and involve employers having to do something. Maybe with a universal basic income, employers can be completely left out of the equation.
Many people do think all of those necessities you mentioned for workers are things they should have rights to. Why is a company responsible for your decision to have kids? That makes perfect sense. If CA wants to uphold said rights then it gets to reap the benefits. The only way this logic does not make sense to me is when it comes to environmental issues from which everyone suffers.
China's comparative advantage in clothing comes from long before there were any re-education camps in Xinjiang. The first phase of industrialization in China was based on clothing production. Compare China's exports in 1995 [1], which were heavily skewed towards clothing, to their exports in 2018 [2], which were much more heavily skewed towards electronics.
Xinjiang makes up only a tiny part of the Chinese economy, anyways. Xinjiang has 22 million people and exports barely $17 billion of goods per year. Guangdong has 113 million people and exports $440 billion of goods per year.
> In my opinion, we need trade rules that explicitly tax and tariff those countries who are only finding comparative advantages through exploitation and unethical activity.
That policy would lead to tariffs against most poor countries. I could imagine some unintended consequences there.
Note that Hershey's moving only works out for them if the resulting change in labor situation means that their customers can still afford their candy. If the excess labor instead means wages at home go down and now people cannot afford candybars it doesn't work out for them.
In short, we are better off for not having Hershey's in the US. Mexico gets better wages (more competition) and out people are freed from making candybars and can move to more productive uses of our people.
> ...freed from making candybars and can move to more productive uses of our people
relies on the presumption that there is sufficient local demand for laborers (who may not necessarily have any experience that doesn't involve the manufacture or distribution of chocolate) in positions of increased productivity.
The decaying socioeconomic situation for wide swaths of the rural US suggests that this was not the case.
US rural areas face a very different issue: high wages relative to other countries (shared with cities), but with the population density advantages of cities. I don't need to look to tell you Hersey didn't move to a rural area of mexico they moved to a city of some sort. They don't need the largest city, but a small town cannot supply their labor needs.
An issue with this type of analysis is that "them" is ambiguous.
Even if the candy company folds in 5 years, part of "them" is probably still ahead - the management team "them" experiences gains through short-term incentives for performance while the ownership part of "them" suffers losses.
In some cases, those owners aren't fat-cat capitalists - they're workers' pensions and retirements funds.
In these cases, "we" didn't end up being better off by the company moving to Mexico.
Also, the claim that this type of relocation "frees" local labor from the toil of candybar-making to focus on real value creation is a stretch. More likely, they're now free to compete in a smaller labor market and superficially one would expect that to drive wages down (since the demand for jobs hasn't changed and the supply has of them has gone down).
> Why can China manufacture clothing cheaply? Well, they have hundreds of thousands of Uighur prisoners being 're-educated' via forced labor.
This is complete nonsense. I hate CCP as much as anyone outside it but let's be real for a second: China became a manufacturing center way before the islamic terror attacks (like the Kunming attack of 2014) incitated them to take action against that ideology in East Turkestan.
Alternatively, you could issue an annual dividend to all taxpayers at the end of the year. This would be akin to the carbon fee and dividend policy some have proposed.
The article describes someone exploiting an unfair advantage and then says they are "worse off" when they are situationally forced to stop that exploitation.
This is a horrible perspective.
Exploiting another person's need to survive in order to gain unlimited labour is akin to slavery.
Serious question: Is there an ethics course for popular economics?
being materially worse off or better off is orthogonal to ethical concerns. you will miss out on a lot of important analysis if you refuse to consider cases where people make unethical choices to follow incentives.
> What about strategies that involve blowing up the bridge
The article rules those out by presenting scenarios in which there is always some advantage to trade. In any such scenario, neither party has any incentive to blow up the bridge, since there is always some way for each party to improve their situation by using the bridge to trade, compared to what their situation would be if the bridge did not exist.
In the real world, there are cases where there is no advantage to trade, usually because one or more of the "complexities" described in section III of the article applies. The obvious one, of course, is "there might be more than two people"--in the real world, there are always more than two parties with whom potential trades can be made (this is true even if we consider the "parties" to be nations instead of individuals), and as the article notes, in that case there can be scenarios where at least one party will gain nothing from trade.
But can't you leverage cutting off trade in the same way that he talks about threatening to blow up your island, and it wouldn't result in total loss of everything (which any rational player would see through as a bluff, as opposed to losing trade which would be a negative but still survivable).
IE think about the modal logic intersected with the game theory, no one will believe that you will blow up your own island, but they may believe that you will blow up the bridge.
> can't you leverage cutting off trade in the same way that he talks about threatening to blow up your island
If you are the only possible party the other party can trade with, then blowing up the bridge and blowing up your own island are, as far as the other party is concerned, equivalent, yes. So if there is any benefit to the other party in trading with you, they have an incentive to have that trade available to them, and hence to do whatever it takes to have you not blow up either your own island or the bridge.
However, if there are any other parties besides you that can be traded with, that is no longer the case, because you not being there just means they go trade with someone else.
Another thing to note is that the article's assumption of non-violence, which basically means neither party will do anything to harm anything that isn't their own property, also rules out blowing up the bridge, since the bridge, by hypothesis, is not the property of either party. A better analogy to withholding trade in the article's scenario would be something like building an impenetrable wall at your end of the bridge.
I'm not sure you are following my point though, whether its blowing up a bridge or building a wall, if you look at the payout to the party that is blocking it is higher than blowing up the island. If you then use modal logic to analyze the opposite parties perspective of whether or not that party would actually go through with it then their threat seems much more believable.
> if you look at the payout to the party that is blocking it is higher than blowing up the island
Ah, yes, you're right. I was only looking at the payoff for the other party. You're correct that for the party that is making the threat, they're much better off after blowing up the bridge or building a wall than they are after blowing up their own island, so the former is a much more credible threat. I think the "modal logic" thing confused me because I don't really see how modal logic in particular is involved here; but game theory certainly is, yes.
Once I realize there is a possible trade I can make a boat, or swim. The bridge is the easiest way, and allows us to ignore the (very real) cost of transport in this example. In the real world most trade involves third party delivery companies with trucks, trains, or boats.
