The conventional wisdom is that if free trade is good then barriers to trade like tariffs must be bad. Then there is the historical fact (or perception) that decades ago tariffs worsened the depression. This is a simplistic view that ignores the fact that trade, commerce, and the economy are complex systems. Correlation is not causation. I don’t know if tariffs were the cause but I heard an interesting argument that compared the current economy vs. the 1929 economy to dispel the idea. Unfortunately I didn’t pay enough attention to it to save a link.
Tony Seba argues that green energy costs tend to zero and as will wages once humanoid AI powered robots take over even more jobs. Seba has been quite accurate in his predictions, we better take him seriously.
Why tariffs?
Free trade is predicated on two 19th century propositions, both the source of economic efficiency
Division of labor - Adam Smith
Comparative advantage - David Ricardo
The problem is that they did not and could not foresee the negative consequences
Hollowing out of labor which accelerates
Wealth transfer
Tariffs are the blunt instrument to reverse these consequences by disrupting free trade by forcing providers to localize production.
The problem is that tariffs are a stop gap measure. Free energy and free labor are going to have even worse consequences than free trade. Humanity needs an economic paradigm shift. Elon Musk favors Universal Basic Income (UBI). One problem I see is that government bureaucracy is a poor provider of the service, too much inefficiency, waste, and fraud. Bureaucrats are no angels. Idle hands are also a major problem.
Wealth transfer is not an ispo facto consequence of free trade. There are many countries with free trade that have better wealth distribution - and in fact, I would argue that free trade increases wealth distribution intercountry and has likely lead to lifting more people out of poverty than the entire US population (800 million in China alone).
And, with unemployment being below 5%, labor is doing just fine. Business are struggling to fill jobs. In February alone, 38% of small business reported being unable to fill their current openings. We don’t have a labor problem - we have a workforce participation problem.
Hawkwin
Who is open to work requirements for some government benefits but doesn’t think it will help much.
Two approaches to reducing government benefit payments: use a club to drive people off of benefits, or make work more attractive. But making work more attractive might involve better pay, better benefits, and the Proles being treated like human beings, rather than expendable meat. “must not burden the JCs”.
In theory, (Smith n Ricardo’s) free trade doctrine might not have foreseen the hollowing out of labor, but in practice…
Ross Perot in the early 1990s was LOUDLY VOCAL about “the giant sucking sound of good paying jobs going south” (to Mexico).
Perot predicated his presidential candidacy on this one issue.
The Rust Belt developed over a decade or two… In the 2000s, there were numerous documentaries, news reports, pundits, and featured anecdotes of people and whole communities, who lost “the good paying job”.
We were regaled with upbeat stories about how blue collar factory work was transitioning to “service” industry positions.
All while our trade policies supported China with MFN n then WTO.
There was plenty of opportunity for our L&Ss to take action.
I find it difficult to believe that argument that, if you take production jobs away from one group, and give the jobs to a group that works for a tenth of the pay, how the better paid workers will not lose their jobs. Only a JC, who regards Proles as expendable meat, would not “foresee the hollowing out of labor”, because he’s a sociopath, who doesn’t care if he ruins the lives of tens of thousands of people.
The general theory of free trade doesn’t predict that those specific workers won’t lose those specific jobs. It simply predicts that the nations overall will be better off, not that there won’t be winners and losers in specific areas.
There isn’t a “model” that makes any specific predictions about what happens in any particular economy. It’s an economic theory that shows how countries can benefit by specializing in the production of certain goods and importing others, rather than trying to produce everything themselves. Because any given country will almost certainly be better at producing some things rather than other things, productivity is improved by specializing in the products they’re best at making rather than trying to do everything themselves.
It’s an extension of the same economic principle that leads you to have a job doing one specific thing, rather than trying to grow your own food and make your own clothes and build your own home. You specialize what you make yourself, and trade for the things that other people have specialized in. You could certainly organize your society so that each person (or household) did everything themselves, and there exist certain small insular farming communities where that still happens; but on the whole, you’ll have more “utility” if you choose to have a job where you do a thing you’re good at and trade for the rest of your goods.
Anyway, whether there are winners and losers in doing that on a national level with trade - or whether it’s a Pareto-maximizing “everyone wins” - will depend entirely on the specifics of a given economy, not the general theory.
Imagine the US as a bucket of water. Every time something is imported, a little water, to pay for the imports, is drained out. So that the US can continue to import stuff, water is borrowed, from the exporters, to keep the bucket from running dry. The US has lots of cheap stuff, but is now dependent on the good will of others, to provide water to keep the bucket full. How does that make the US stronger, or “better off”?
iirc, Friedman hand-waved this away, implying that US dollars really weren’t worth anything, and trading partners could do nothing with them, other than keep lending them back to the US.
We used to make our own socks, and had lots of textile mills to make them (and other garments). We had a lot of capital locked into factories that made socks, and a lot of workers that had to sit in those factories and make socks. Back at the turn of the century, we also used to spend about 14% of our household budget on clothes.
Now, we don’t do that. Only about 4% of our household budget is spent on clothes. All the capital that would have been invested in textile factories is invested in other things - whether it’s the computer servers that run the internet, movie and television production facilities, refineries that process petroleum products, etc. The money that households would have spent buying much more expensive clothes is instead spent on purchasing other goods and services: we spend less money on socks, and more money in restaurants.
All those things make the bucket bigger. Instead of investing a smaller amount of “water” into our economy in less productive things, we invest a much larger amount of “water” (some borrowed) into more productive things, so we’re all better off in the aggregate. The bucket is making more “water” than it would if we didn’t engage in trade, and getting bigger than if we didn’t engage in trade, in the aggregate.
The key is “in the aggregate.” The average American household is much better off without having to spend an extra 10% of their budget on clothes (several thousands of dollars) - but there will be some people who would have benefited from being paid to work in a textile mill. But on the whole, it’s vastly inefficient to have well-educated Americans working in a textile mill (rather than doing other more productive things) instead of having poorly educated workers in another country working in a textile mill and just importing the socks.
Thing is, there is a very large number of USians, who are NOT well educated. And, with the continued defunding of education, that number of poorly educated people may grow. What will they be kept occupied doing, so their thoughts don’t turn to revolution?
Relative to the U.S., sure - but they’re still well-educated compared to folks in the low-cost labor markets. In the U.S. about 90% of people have graduated high school; in places like Cambodia or Vietnam that number is closer to 50-60%. It doesn’t make sense to have even your high school grads making socks if there are large numbers of comparatively less-educated people in the world that could do it.
Working in a warehouse. Or in a hospital. Or as a counter worker in a retail or restaurant job. Or any number of other places that are non-manufacturing jobs - many of which jobs exist in part because households don’t have to spend an extra several thousand dollars a year on their clothes.
Do those jobs offer pay and benefits comparable to screwing on lugnuts in an auto plant? I was a counter worker in retail. The pay is poor, and the hours zuk.
Read “1984”. The problem was that factory automation made it possible to produce far more goods than could be consumed. So, large numbers of people were laid off. The large population of un/under employed lead to social unrest. The forever war was created as a means to destroy manufactured goods, so the Proles could be kept occupied building more.
Un/under employed people’s thoughts turn to revolution. Orwell foresaw it. We are now living the revolution.
Some jobs do, some don’t - though that’s not really germane to the question of whether people can be kept busy or not.
Orwell created brilliant literature, but he wasn’t much of an economist. For example, mechanization and other advances completely decimated U.S. farm employment. In the late 1940’s (when 1984 was written), U.S. farms employed about 10 million people, or just under 25% of the U.S. workforce. In the present day, U.S. farms employ about 1.7 million workers, or just about 2% of the U.S. workforce. And we produce more food than ever. But we don’t have to have massive bonfires to destroy surplus food products to keep an extra 23% of the workforce - 40 million people - busy on farms making food we don’t need.
This isn’t complete. We get the both utility of whatever it was we imported and we value that utility more than the money we spent on it. That’s why we made the deal.
The size of the bucket isn’t fixed. By importing value, we expand the size of the bucket. And the money doesn’t vanish once we spend it. Foreigners can and do spend it on our stuff or invest it here.
Importantly, we don’t borrow to import stuff, even if we have a trade deficit. The balance of accounts…well, always balances. For example, we have a trade deficit with China, but a capital account surplus.
There’s the problem in your analogy. That bucket continues to grow and grow, usually every quarter and every year. Your example assumes the bucket has a finite amount of water in it when in fact, that bucket, as measured by GDP, has increased by roughly $20 trillion since 2020.
The trade deficit is less than 3% of GDP (as of 2023).
From the 50s through the 70s there were better jobs available than being a farm hand. Jobs that both paid better, and were safer. That is probably where the unneeded farm hands went.
We of a certain age remember the government cheese giveaways of the early 80s. One of the scandals of the Nixon administration was the way the dairy industry was shook down for a campaign contribution, lest the government’s milk price support program be ended. Tons of surplus food is bought up by the government, and given away as foreign aid. I have read screeds that complain that African farmers can’t make a living, because the market for their product is destroyed by tons of free US food being shipped into the country.
