Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Free Trade vs. Balanced Trade - we were published in American Thinker this morning
Here's a selection:
If you want to read it, go to:
The Case for Free and Balanced Trade
In the 2016 presidential campaign, trade has become a major economic and voting issue. For decades both political parties have supported expansion of free trade through trade agreements. So have most academic economists. But a few have urged a policy of balanced trade with the rest of the world. Free trade and balanced trade are not necessary mutually exclusive.
When trade is balanced, all trading partners benefit. Countries can increase that benefit by reducing their barriers to imports, as long as trade remains balanced. Then they will exchange goods that are cheaper to produce in one country for goods that the other country can produce more cheaply. This is called the law of comparative advantage. Both countries benefit. David Ricardo pointed this out in the early 1800s.
But what happens when trade is not balanced? Is free trade still a good thing? Unfortunately, U.S. policy makers in Washington have thought so and so have most economists. They are wrong. The U.S. economy has been suffering annual trade deficits for decades that resulted in economic stagnation, slower than normal economic growth, and the loss of millions of manufacturing jobs. The Table below shows how the trade deficits for selected years during the period covered by the foregoing graph caused a reduction in Gross National Product and led to slow growth. The slow U.S. economic growth rate of the last 17 years is unprecedented. From 1999 through 2015, the average U.S. growth rate was just 2.1% per year, as compared with over 3% for almost every ten year period during the previous 5 decades.
The following table shows how negative net exports reduced Gross National Product during selected years from 1960 to 2015 ...
Getting the moderators out of the presidential debates
I recently wrote a piece on presidential debate format for the Washington Post Monkey Cage blog. Here's how it begins.
Donald Trump recently picked up a suggestion that I made last year, a suggestion that was also made by a blue-ribbon, bipartisan group of campaign hands: Presidential debates be conducted without a moderator. It’s an idea worth thinking seriously about. Removing the moderator could well make debates faster, deeper, more informative, more interesting and more revealing...
The Case Against Free Trade
There is a very good case for international trade between two countries. Both countries can increase their welfare by exchanging goods that are cheaper to produce for goods that the other country can produce more cheaply. Both countries benefit. Historically, economists called this the law of comparative advantage. But for a country to benefit from international trade, its trade must be in balance with the rest of the world unless the imbalance is temporary; for example when the imbalance permits the import of capital goods that will enable it to produce goods that will enable it to balance its trade in the future.
Few goods are directly exchanged for other goods. Goods are usually exchanged for money. In international trade, goods are paid for in any currency the seller with accept. Historically, this meant exchange of goods for gold or other precious metal. For many decades, most currencies were on the gold standard, meaning their currencies could be exchanged for gold. From 1880 to World War I, most countries were on the gold standard and it was a period marked by economic growth in most countries. A so-called gold-exchange standard succeeded it in which the U.S. was on the gold standard and other countries could convert their currencies into U.S. dollars or gold. But it broke down when the U.S. abandoned the gold standard in 1971. Since then, most imports have been paid for in U.S. dollars, internationally accepted as a reserve currency. The U.S. dollar continues to be the preferred currency for paying for imports. But the U.S. dollar today has competition. Many international transactions are settled in other currencies, the Euro, or the currency of one of parties, the Chinese Yuan, for example, since China is a leading exporter and importer.
Most of the problems of international trade are related to the fact that a number of big countries have trade surpluses year-after-year, becoming international creditor nations. This has been described as a beggar-one’s-neighbor policy because it grows its own economy at the expense of lack of growth or slow growth in the economies of its trading partners. The U.S. has incurred annual trade deficits which became huge after conclusion of the GATT agreements and the creation of the World Trade Organization in 1995. The stagnation of the U.S. economy during the past two decades and the loss of millions of American manufacturing jobs can be attributed to the trade deficits. Today, China, Germany, and Japan are the leading creditor nations. And South Korea is becoming one.
Of course, countries do not need to balance their trade with every country but with the rest of the world. But this is not and has not been the U.S. recent experience. For two decades the U.S. has experienced rising trade deficits with the rest of the world. In 1980 the trade deficit was $13 billion or about 0.45 percent of GDP, less than one-half of one percent. As a result of the successive GATT trade agreements, the trade deficits grew enormously reaching $376 billion in the year 2000, diminishing GDP by 3.66 percent and contributing to the 2000-01 recession. The U.S. trade deficit grew to a record level reaching $723 billion in 2008 diminishing GDP by a record 4.91 percent and helping to precipitate the Great Recession of 2008-09. As a result of the Great Recession, international trade decreased and the trade deficit fell, recovering to $530 billion in 2015, reducing GDP in that year by 2.95 percent. ...
Answer to Prof. D. J. Boudreaux’s Questions for Trump’s Supporters
As an economist and a Trump supporter, I hasten to answer Prof. Boudreaux’s “Some questions for Trump’s supporters” (Trib-Review, 9/7/2016). Prof. Boudreaux is Professor of Economics at George Mason University.
First, he sets up a straw man that Trump is against immigration. He asks: "Do you believe that America would be a better place today had your ancestors been kept from immigrating?" Trump and this supporter of Trump are against illegal immigration and the immigration of Muslims who may become terrorists. So what is the question to be answered? Prof. Boudreaux as a respected professor who in asking a question should avoid innuendos that Trump is against legal immigration. He should at least have hie facts straight.
Second question, “If Mr. Trump is correct that NAFTA was a boom to Mexicans but a bust for Americans, why do you worry that Mexicans, in the absence of a “big beautiful wall,” will continue to flock to America in search of work and prosperity.” Because the Mexican boom does not benefit all Mexicans, just as American “prosperity” has left millions of American workers, both black and white but disproportionately black, without jobs or the hope of securing a job. So, many Mexicans and Central Americans who come to the U.S. via Mexico will continue to seek to migrate illegally to the U.S.
Third, Boudreaux asserts that Americans benefit from Chinese low prices. Some do, but many don’t. Some Chinese goods are sold in America at low prices, but the price of an Apple cell-phone imported from China is as high as it would be if it were made here. Competition from other cell-phone manufacturers limits the price Apple can charge here. Boudreaux does not mention the devastating effects that our trade deficits have had on our levels of manufacturing and employment. He seems to be unaware that the U. S. Department of Commerce statistics on national output show that our trade deficits with the rest of the world are a subtraction from Gross Domestic Product. The rate of economic growth would have been double during the past two decades had our trade with the rest of the world been in balance. The trade deficits have caused our economy to stagnate and caused the loss of jobs of millions of workers in manufacturing.
Fourth, Boudreaux writes, “Can you explain why – in a world with nearly 200 countries – we should expect with fair trade, that the Mexicans will each year buy from us exactly the same dollar amount amount of goods and services that we buy from them, and that the Chinese will do likewise?” Trump has not said that trade has to be balanced with every country and of course it does not need to be. We say that trade should be balanced with the 200 countries. Our trade deficits are huge with China, Japan, Germany, Korea, and Mexico. We need to start somewhere to balance trade. Should we start with the countries with whom we have a surplus? Of course not....
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