Monday, December 5, 2016

The Downside of Protectionism

CNN Why Protecting Steel Workers is Bad for America


This piece explains things pretty well. It is pretty well aligned to the comment I made on the Carrier post.
"Now raising the import fees seem like a good idea if we can do it without killing our exports.

That will force people who want to buy that foreign car to pay more. A Prius price may increase by $10,000 until Toyota fires up a factory in the US to avoid the fee. But then it may cost more because we pay people more.

Just imagine if the price of everything foreign made at Target, Walmart, Car Dealerships, etc jumped by 30%... How will the lower income folks make do?

The reality is that this is apparently what Liberals want. (ie higher wages) Now the question is are they willing to pay for it? "
Here is an interesting piece regarding car choices.  I'll never understand why the people who supposedly support American Workers, American Unions, Higher Wages for American Employees, etc (ie Liberals) consistently buy more foreign designed / manufactured vehicles than the people who are supposedly greedy, self centered, against Unions, etc (ie Conservatives) ...




By the way, please note the difference between my 2 most recent purchases.
  • 2010 Subaru Forester - Scored 1 out 100 for domestic content
  • 2010 Ford Mustang Convertible - Scored 80 out of 100 for DC
Due to my "Buy American / Support Jobs Here" bias I feel guilty about buying the Subaru, but there were complicating factors...  On the upside I will be getting rid of a Yamaha so it will net out.


Ps...  My 2004 Yamaha FJR1300 is for sale...



22 comments:

Anonymous said...

Protectionist trade policy may lead to a lower level of economic activity, but do we want to be all that active economically? Would you rather be rich or would you rather be comfortable?

==Hiram

John said...

Independently comfortable is good for me... That is why we have stayed in our current home for 21+ years now...

I still remember getting my MBA and then thinking... "Now What?" I looked at what the Big Bosses did to get the Big Bucks... And said "NO WAY..."

Anonymous said...

So...what I hear you say...in summary...is that your Motorcycle is for sale? I hope that is because you have a new one that you want to buy! -JMOE

John said...

Nah... I am trying to become a convertible guy so dog can come with...

Though the Mrs said I would likely price it so high that I may need to keep it indefinitely. :-) It seems like a good idea.

Anonymous said...

To understand a bit how protectionism works, think of it in terms of trade barriers. In colonial America, the trade barrier was lack of transportation. If you were a New England manufacturer, you found it very difficult to expand your business, because you couldn't reach markets easily outside your geographical area. Your business might prosper within it sphere, but it's growth prospects were highly limited. The development of transportation systems in the 19th century broke down those barriers by expanding the area in which people could do business. It is no accident that some of the wealthiest and most successful capitalists of the 19th century got their start in transportation. John D. Rockefeller, as a teenager, worked as a shipping clerk on the Cleveland docks. Rockefeller became rich because he understood how oil from the somewhat inaccessible oil regions of western Pennsylvania could be transported across America, by boat, and soon by trains. His wealth was directly related to the expanding economic base he could serve.

By cutting ourselves off from the world, we are limiting our prospects for growth, and in policy terms we need to think about the consequences of that. Other nations, historically, have isolated themselves or been isolated and it might be valuable to study and learn from their experience. As always with growth limiting strategies, the party limiting it's growth becomes increasingly vulnerable to those who don't, over time.

--Hiram

Anonymous said...

This is my favorite video about capitalism:

https://www.youtube.com/watch?v=2tw688Kbjy4&t=9s

Note the decision of the boss was not to expand because of uncertainty of the economic environment. What the video doesn't go on to talk about is the risks of this low growth strategy, specifically that her competitor will take the risk of expansion, and will use it to eat into her market share. That's the risk America is taking by raising protectionist barriers, in an increasingly global marketplace.

Note that these kinds of considerations related to expansion and growth, aren't particularly relevant to Donald Trump's business experience. Donald made his money as a Brooklyn and Queens landlord, and they aren't making much more of either Brooklyn or Queens. For Donald, market share meant dividing up a pie which itself would never grow very much. That helps to explain why he has such a transnational mentality based on a zero sum view of the world.

--Hiram

jerrye92002 said...

We think of tariffs as trade barriers against foreigners, but our problem is the barriers our government has raised to OUR businesses-- high taxes, regulations, and union power enforced by government. We could fix our trade balance overnight if government would get out of the way and let US businesses compete.

John said...

Hiram's Link

Anonymous said...

We think of tariffs as trade barriers against foreigners, but our problem is the barriers our government has raised to OUR businesses-- high taxes, regulations, and union power enforced by government

We live in a country that pays workers decent wages. We don't employ slave labor. We do, on occasion, insist that companies not poison our environment. These are barriers to our trade that other countries do not employ. We do need to think about whether we want to change them.

--Hiram

Anonymous said...

The irony, of course, is that the Republicans have elected a president who is much more attuned to Democratic demagoguery than right wing orthodoxy. Trumpian protectionism is our default position, one that it took a great deal of econ 101 re-education to persuade us to abandon to the extent we have. And Trump's success among what should be our core voters demonstrates the problems of that strategic source.

Why aren't Democrats the ones threatening companies with sanctions if they move jobs abroad? Why aren't we forcing Republicans to make their traditional free trade arguments, which however right or advantageous they might be in econ 101 terms, would certainly alienate many voters than constitute the Trump base of support.

--Hiram

Sean said...

"The irony, of course, is that the Republicans have elected a president who is much more attuned to Democratic demagoguery than right wing orthodoxy."

Yep. President Obama has, in every budget he's ever sent to Congress, proposed a bunch of small-ball steps to limit offshoring of jobs. Republicans greeted those proposals with disdain and complaints about how he would meddle in the economy. But when Donald Trump threatens 35% tariffs that could spark a global trade war, Republicans are largely muted (or to the extent they react, are mildly supportive).

Anonymous said...

But when Donald Trump threatens 35% tariffs that could spark a global trade war, Republicans are largely muted (or to the extent they react, are mildly supportive).

This promises at least, to be one of the dynamics of the next four years with particular impact in the senate. While I probably have learned the lessons of econ 101 well enough, to not entirely favor a 35 percent tariff on foreign trade, measures like that do appeal to folks like me and will attract support from my side. It's Republicans, or at least Republicans who want access to crony capitalist cash who will balk at that sort of stuff.

It's the Trump view of economics. He never had to worry about a portion of Brooklyn decamping to Ireland.

--Hiram

John said...

It will be interesting to see how Congress acts...

Anonymous said...

It will be interesting to see how Congress acts...

I would like to see him get at least some Democratic support. And will the tea party types in both the senate and the house be able to explain to their members votes that seem to favor foreign trade over the jobs of American workers?

--Hiram

John said...

Will any of them be able to explain to the American consumers why prices jumped by 10%, 20%, 30% ??? And why they should be happy to be paying more for the same product.

Anonymous said...

Will any of them be able to explain to the American consumers why prices jumped by 10%, 20%, 30% ?

American labor costs more. Presumably the people who voted for Trump wanted that and were willing to accept that. That was, really, the whole point of the Trump campaign.

--Hiram

John said...

I think many Conservative working voters will be fine with that if they see their wages going up.

Not sure what the Liberal and fixed income voters will think of not being able to get such a good deal on those cheap and/or fashionable foreign new products.

John said...

I mean look at all those cool foreign cars that score under 50...

Anonymous said...

Not sure what the Liberal and fixed income voters will think of not being able to get such a good deal on those cheap and/or fashionable foreign new products.

All policies and all policy changes have their winners and losers. As a liberal myself, I have no problem in paying more for stuff if it means higher wages. Generally, speaking that's why we are historically more favorably disposed to various measures that have a protectionist tendency. Those were the liberal voters that Trump appealed to successfully.

I understand the problems of protectionism. I took Econ 101, and even got a C in the course. But those arguments are Republican arguments and not very attractive to voters whose jobs are put at risk. So why not leave it to Republicans to make those arguments?

--Hiram

John said...

Works for me. I am betting they will rebel against many of Trumps plans.

Sean said...

Maybe the guy who blames other people for buying foreign products (all while buying a car with a 1 on the Kogod index) should learn about their "complicating factors" before passing judgment.

John said...

Maybe, but since I don't blame businesses for moving overseas due to their complicating factors.. (ie staying competitive and in business) Probably not.

Now if Liberal consumers would start admitting that they are just as self centered as the businesses they vilify, maybe then I would be more interested.

Please remember that I am fine with people buying foreign made cars... Those manufacturers buy our equipment also. I only choose to make "Buy American" one of my selection criteria because if we don't hire Americans... Who will?

And being charitable in nature. I am willing to except some extra costs to do so.