Serving the Quantitative Finance Community

 
User avatar
Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

Is free trade the problem?

December 6th, 2013, 3:23 pm

QuoteOriginally posted by: HerdT4A said:"I think the Germans benefit tremendously from free trade -- just look at their trade surplus. And if the Germans have retained their industry in an era of free trade and gobalization, it says more about German efficiency, quality, and ingenuity that enables them to produce competitive goods at competitive prices despite their higher wage costs."Ok so you agree that keeping an industry is a good idea Only if it is competitive.QuoteOriginally posted by: HerdYou are wrong about "their higher wage costs". It is the exact opposite in fact. Only now they are talking about minimal wage. And they use a lot low paid labour from central/eastern Europe.Plus, the euro has actually helped them (this is another discussion I can expand if you like?).The thing is that they have resisted delocalisations. Instead of disindustrialisation they have imported cheap labour and paid german workers less.Sounds like Germany benefited immensely from free trade -- importing workers, using the common currency, exporting more from Germany to other European countries. Given that the economic unification of the EU was EU-wide, shouldn't France et al have done just as well as Germany under the much freer intra-European trading rules?QuoteOriginally posted by: HerdFinally by looking at the trade surplus as a good thing you say that exporting more is good, and importing more is bad [EDIT]. So it is a game with winners (exporters) and losers (importers). I remind you that your original argument was that importing was good....I see the arrow of causality in the opposite direction: losers (non-competitive domestic industries) cause imports and winners (competitive domestic industries) cause exports, not the other way around. In a free trade situation, imports and exports are not forced on anyone. Customers may freely choose amongst domestic or international suppliers. To the extent that domestic customers choose international suppliers (imports), it suggests that domestic producers are not competitive. And to the extent that international customers choose a country's suppliers (exports), it suggests that that country's producers are very competitive. In fact, given all the hassles of international trade (added shipping and handling, international money transfers, language, transit time, customs clearance, etc.) a domestic supplier really has to suck to lose business to an international one. Thus, losers cause imports not imports cause losers.QuoteOriginally posted by: Herdre your 2nd paragraph, I agree with you. But for me there is a big difference when jobs are replaced within the same country or when they move abroad.now your last paragraph: "I'm not saying that the country-level job-losses issues are irrelevant, I'm saying they are unethically selfish. No doubt, some people don't care about the standards of living of people outside their our little village and they'll vote in the stores and in the polling places to protect their local industries. Yet unless ALL people in all countries think this way (or unless a village can be truly self-sufficient on 100% of the resource needs), the protectionist village will become increasingly non-competitive (and lagging in standard of living) WRT more open economies. A country with 0 imports has no need for exports.Actually, dependence is good, too. It's countries that believe they are self-sufficient that are the most prone to saying "screw you" and going to war."I think the president of one country should think about his citizens before the citizens of other countries. That doesn't mean he should not care about the standard of livings of people abroad, just that there is a sense of priority. And I don't think I'm saying something controversial when I say that. Maybe one day we'll have a world goverment, all world taxes will be put into a big pot and redistributed, but we are not there yet. Nation states still exist, they cooperate, but they defend their own interests too. There is not one single president in the world who thinks like you, i.e. generously and willing to share wealth etc.... Transnational companies are different: they don't care about the nationality of their workers, all they want is to pay low wages and to sell to a bigger market. They have no nationality. They only remember their nationality when they are in trouble and need money from the government.You are right that a president of a country should think about his citizens before the citizens of other countries. Yet widget makers are just one small special interest group. A good president would also protect his citizens from cartels of over-priced domestic producers -- giving most citizens a better standard of living even if that causes some job losses among a few citizens. Perhaps it's the same logic as not providing unlimited bailouts to banks -- sometimes governments should let badly-run companies fail even if that means lost jobs. And a really good president would look beyond next-year's unemployment figures and realize that the only way to survive in an advancing global economy is to ensure that domestic companies maintain a pace of productivity improvement and innovation. Thus, I agree that a country will defend it's interests but that if those interests are considered more broadly and over the long-term, then freer trade may be better than coddling non-competitive corporations at the expense of consumers, taxpayers, and the long-term standard of living of the citizens.
 
User avatar
Cuchulainn
Posts: 64661
Joined: July 16th, 2004, 7:38 am
Location: Drosophila melanogaster
Contact:

Is free trade the problem?

December 6th, 2013, 4:46 pm

QuoteSounds like Germany benefited immensely from free trade -- importing workers, using the common currency, exporting more from Germany to other European countries. Given that the economic unification of the EU was EU-wide, shouldn't France et al have done just as well as Germany under the much freer intra-European trading rules?Germany was booming in the 70's and 80's long before 'free trade'. IMO the Euro, VAT homogenisation and less bureaucracy in EU are factors to be taken into account. But AFAIR Germany still has a manufacturing base, e.g. Baden-Wurtemburg with many factories comprising 200 employees. Since the 60's free trade has also been accompanied by the race to the bottom. Take the shoe industry that moved from Dundalk ->Italy->Romania->India and the race to the bottom for < 1$ dollar a day.It is only since some weeks that German law has a minimum wage. Wages are quite low. Germany kept down inflation and introduced austerity measures in the 90's when the others were partying. That's why things are going well _now_.Some countries do better than others, but it has probably nothing got to do with free trade. Maybe I am missing something. Free trade is neither necessary nor sufficient for any goal you want to achieve. Look at Prohibition in the USA in the 30's.
Last edited by Cuchulainn on December 5th, 2013, 11:00 pm, edited 1 time in total.
"Compatibility means deliberately repeating other people's mistakes."
David Wheeler

http://www.datasimfinancial.com
http://www.datasim.nl
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 7th, 2013, 9:32 pm

Germany did become very competitive in the 90's. Canada went through a similar transformation under the Liberal government. But, Germany benefits greatly from not having their own currency. Constant devaluation gives them a tremendous competitive edge.
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 7th, 2013, 9:36 pm

I was reading this article on the negative effects of deindustrialization (http://rodrik.typepad.com/dani_rodriks_ ... ation.html). Although people have this strange fetish about manufacturing (e.g. we don't make things anymore!), there does seem to be something special about industrial job losses.
 
User avatar
Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

Is free trade the problem?

December 8th, 2013, 2:28 pm

QuoteOriginally posted by: gardener3I was reading this article on the negative effects of deindustrialization (http://rodrik.typepad.com/dani_rodriks_ ... ation.html). Although people have this strange fetish about manufacturing (e.g. we don't make things anymore!), there does seem to be something special about industrial job losses.Thanks for the link.That article doesn't seem to show that industrial job losses are a problem. It shows that China, Brazil, and India began to reduce reliance on industrialization whilst at lower levels of per capita GDP but it doesn't give any data on problems created by deindustrialization in either the developing countries or the developed ones. Aren't China, Brazil, and India still growing quite quickly? The more telling graph might be post-de-industrialization GDP growth as a function of the wage levels at the point of peak industrialization. If the US, Germany, UK, Sweden, et al did not grow as quickly after they began to de-industrialize and China, Brazil, and India are growing now, then we might conclude that earlier deindustrialization is better.Personally, I think it makes sense that China, Brazil, and India would move much more quickly through the agarian->-industrial->services phases of economic development. The older developed nations had to invent the post-industrial services world. The newer economies can readily copy it. Moreover, to the extent that deindustrialization is inevitable in an open global economy, would not China, Brazil, and India wish to avoid excessive industrialization because it will only lead to the sorrow of job losses later?
 
User avatar
Cuchulainn
Posts: 64661
Joined: July 16th, 2004, 7:38 am
Location: Drosophila melanogaster
Contact:

Is free trade the problem?

December 8th, 2013, 2:41 pm

QuoteOriginally posted by: gardener3I was reading this article on the negative effects of deindustrialization (http://rodrik.typepad.com/dani_rodriks_ ... ation.html). Although people have this strange fetish about manufacturing (e.g. we don't make things anymore!), there does seem to be something special about industrial job losses.What do you mean by 'manufacturing', i.e. the entire value chain or just the step 'manufacturing'? The most logical solution is to have R&D, design, manufacturing (and possibly marketing and sales) close together. What are the other services in this chain?QuoteGermany did become very competitive in the 90's. Canada went through a similar transformation under the Liberal government. But, Germany benefits greatly from not having their own currency. Constant devaluation gives them a tremendous competitive edge.You've lost me on this one, especially on the (implicit) cause&effect relationships.
Last edited by Cuchulainn on December 7th, 2013, 11:00 pm, edited 1 time in total.
"Compatibility means deliberately repeating other people's mistakes."
David Wheeler

http://www.datasimfinancial.com
http://www.datasim.nl
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 8th, 2013, 5:16 pm

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: gardener3I was reading this article on the negative effects of deindustrialization (http://rodrik.typepad.com/dani_rodriks_ ... ation.html). Although people have this strange fetish about manufacturing (e.g. we don't make things anymore!), there does seem to be something special about industrial job losses.Thanks for the link.That article doesn't seem to show that industrial job losses are a problem. It shows that China, Brazil, and India began to reduce reliance on industrialization whilst at lower levels of per capita GDP but it doesn't give any data on problems created by deindustrialization in either the developing countries or the developed ones. Aren't China, Brazil, and India still growing quite quickly? The more telling graph might be post-de-industrialization GDP growth as a function of the wage levels at the point of peak industrialization. If the US, Germany, UK, Sweden, et al did not grow as quickly after they began to de-industrialize and China, Brazil, and India are growing now, then we might conclude that earlier deindustrialization is better.Personally, I think it makes sense that China, Brazil, and India would move much more quickly through the agarian->-industrial->services phases of economic development. The older developed nations had to invent the post-industrial services world. The newer economies can readily copy it. Moreover, to the extent that deindustrialization is inevitable in an open global economy, would not China, Brazil, and India wish to avoid excessive industrialization because it will only lead to the sorrow of job losses later?He explains the process in the link to the link (http://www.project-syndicate.org/commen ... ufacturing). But you are right, it's hard to establish causality.
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 8th, 2013, 5:27 pm

QuoteWhat do you mean by 'manufacturing', i.e. the entire value chain or just the step 'manufacturing'? The most logical solution is to have R&D, design, manufacturing (and possibly marketing and sales) close together. What are the other services in this chain?The actual production. But you are right, the other components are just as important. There was a fed study that showed that 80% of the value added of 'made in china' products come from the US.QuoteYou've lost me on this one, especially on the (implicit) cause&effect relationships.Unit labor costs in Germany are very low. If we had deutsche marks, their value would go through the roof. This would increase the costs of their exports to their trading partners, reducing their competitiveness.
Last edited by gardener3 on December 7th, 2013, 11:00 pm, edited 1 time in total.
 
User avatar
Cuchulainn
Posts: 64661
Joined: July 16th, 2004, 7:38 am
Location: Drosophila melanogaster
Contact:

Is free trade the problem?

December 8th, 2013, 6:01 pm

QuoteThere was a fed study that showed that 80% of the value added of 'made in china' products come from the US.Famous last words?
"Compatibility means deliberately repeating other people's mistakes."
David Wheeler

http://www.datasimfinancial.com
http://www.datasim.nl
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 8th, 2013, 7:03 pm

QuoteOriginally posted by: CuchulainnQuoteThere was a fed study that showed that 80% of the value added of 'made in china' products come from the US.Famous last words?What does this mean?
 
User avatar
Cuchulainn
Posts: 64661
Joined: July 16th, 2004, 7:38 am
Location: Drosophila melanogaster
Contact:

Is free trade the problem?

December 9th, 2013, 7:14 am

QuoteOriginally posted by: gardener3QuoteOriginally posted by: CuchulainnQuoteThere was a fed study that showed that 80% of the value added of 'made in china' products come from the US.Famous last words?What does this mean?It's an idiom in English. For every statement/assumption there is a counter argument. And how do I quantify '80% of added value'? I think you are not realising the full impact of what outsourcing is, in the medium to long term but what do I know.QuoteUnit labor costs in Germany are very low. If we had deutsche marks, their value would go through the roof. This would increase the costs of their exports to their trading partners, reducing their competitivenessI remember in one year (I think it was 1980) that Germany became exporter number one in the world. This was the era of the rock-hard DM. And in those days wages did not go through the roof. As I mentioned, they did have an austerity program in the nineties.Update October 2013
Last edited by Cuchulainn on December 8th, 2013, 11:00 pm, edited 1 time in total.
"Compatibility means deliberately repeating other people's mistakes."
David Wheeler

http://www.datasimfinancial.com
http://www.datasim.nl
 
User avatar
exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

Is free trade the problem?

December 9th, 2013, 1:20 pm

Deindustrialization?IMO, T4A is right. It sounds like a paradox, but industrialized countries should deindustrialize. IMO, it is about factory work vs lab work. A factory is made for reliability and productivity. It works automated and precise. It does what it did yesterday, probably faster and cheaper.At the lab we search for the breakthrough, a new way to do things ? It is hard to do factory and lab work simultaneously - objectives and culture are so different ... In terms of Wittgenstein's ladder: who climbed up the ladder to reach perfection, need to throw it away to go beyond to understand new possibilities ...(it is one of the major problems here in (major parts of) Europe: we are "industrialists", thinking in blueprint technologies ...)
Last edited by exneratunrisk on December 8th, 2013, 11:00 pm, edited 1 time in total.
 
User avatar
exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

Is free trade the problem?

December 9th, 2013, 1:29 pm

No, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 9th, 2013, 4:46 pm

QuoteIt's an idiom in English. For every statement/assumption there is a counter argument. And how do I quantify '80% of added value'? I think you are not realising the full impact of what outsourcing is, in the medium to long term but what do I know.I know what the phrase is, I just don't understand what you are trying to say. I linked to an article that shows how premature deindustrialization can have severe economic and political effects. As t4a mentioned, it's hard to assgign causality. And I have no idea 'what you know' or not know. Here's the fed article: http://www.frbsf.org/economic-research/ ... ina/QuoteI remember in one year (I think it was 1980) that Germany became exporter number one in the world. This was the era of the rock-hard DM. And in those days wages did not go through the roof. As I mentioned, they did have an austerity program in the nineties.Those are levels. What I mentioned is a conditional statement. If Germany had her own currency and was number one exporter in the world right now, that would not tell you how much they would benefit from active devaluation.
 
User avatar
gardener3
Posts: 1496
Joined: April 5th, 2004, 3:25 pm

Is free trade the problem?

December 9th, 2013, 4:51 pm

QuoteOriginally posted by: exneratunriskNo, free trade is not the problem - the problem is capital accumulation by fixed market occupation. The solution is not protectionism and regulation, but progressive taxes and an unconditional basic income (citizen income) ...Yes, I think it's good to think about trade as another technological innovation that improves productivity. I read this analogy a while ago. It's pretty good:"International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans? well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on ?imported? automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.The task of producing a given fleet of car can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost.* It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole."
Last edited by gardener3 on December 8th, 2013, 11:00 pm, edited 1 time in total.