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The Forum > Article Comments > Free trade's not free, bring back the tariff > Comments

Free trade's not free, bring back the tariff : Comments

By Gilbert Holmes, published 1/12/2011

The theory of comparative advantage suffers some practical problems.

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Excellent article. Indiscriminate trade is also reckless because:

* Can we trust China to become a superpower? Apparently not, according to our own Defence White Paper. We have to spend big arming ourselves for potentional conflict, not to mention the existing cyber war. Ergo, Chinese goods are not cheap, and we are insane to make China rich with our trade. We should find an alternative source of manufactured goods or make them ourselves.

* The ravages of global supply and demand makes it a very unstable environment e.g. the mad demand for minerals is sucking the life out of our manufacturing industry through a high exchange rate.
We need an economics that values more than just the price of goods. It must value existing communities rather than sacrifice them to the whim of the invisible hand, and it must generate the type of work we want to do (do we all want to work down a mine?).

Who will capture the protectionist vote? Perhaps the new APP (Australian Protectionist Party):
http://www.protectionist.net/

Here's another good article, by Steve Barber:
http://australianconservative.com/2011/01/we-must-re-industrialise-our-economy/

As sure as night follows day, protectionism will return. Let's hope it's sooner rather than later.

The "religious zeal" comes from the combined emotional sedative of simplicity and passivity. Such intellectual prostration was demonstrated by Julia Gillard in her recent statement: "There is a simple equation at work here: trade equals growth, equals jobs".

Actually, there's no simple equation, just a simple Prime Minister with no two brain cells to connect together.
Posted by mralstoner, Thursday, 1 December 2011 9:07:50 AM
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Of Gilbert’s five points, only the first - the transition costs of economic change – is valid.

It is extremely simple to factor costs such as transport into comparative advantage calculations, and it no way undermines the substance of the theory.

It’s true that Ricardo’s theory assumed that capital is immobile. But much trade theory in the past 50 years has relaxed this assumption and also taken into account a range of other effects of trade – competition, technology transfer, economies of scale, productivity differences, labour mobility etc. The results are more complex but by and large they point the same way – societies gain from freer trade:

http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2c_e.pdf

Free trade may well encourage large-scale production processes, and indeed economies of scale can be another source of gains through trade. But large-scale production processes do not necessarily concentrate wealth. Most readers of this site probably have indirect ownership through superannuation of companies like Telstra, Ford, Microsoft, BHP etc. Very few of us will be business owners in our own right.

Free trade does not generate a “race to the bottom”. This is the most persistent fallacy about free trade, the “pauper labour” fallacy. Rich countries can compete with poor countries where labour is cheap because in rich countries productivity is higher – that’s why they are rich.

Paul Krugman wrote an excellent article on the persistence of ideas such as those in this article – it’s still well worth a read:

http://web.mit.edu/krugman/www/ricardo.htm
Posted by ClaireC, Thursday, 1 December 2011 4:26:18 PM
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We should be talking about fair trade, not free to rape trade.The cuurent labour rate in Vietnam is 30c per hr.The other issue is all the pollution caused by low grade bunker oil of our 80,000 commercial ships.They are many times more pollutive than all the motor vehicles on the planet.

We need to get back to domestic production and consumption.Many of the products coming from China are inferior and end up in land fill.Why not produce a product like a car, house,furniture,that has longevity and quality.You'll pay a bit more but it saves on energy and resources.
Posted by Arjay, Thursday, 1 December 2011 7:37:00 PM
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Completely forgotten here is that one company's protective tariff
becomes a higher input cost for another company, making them
less competitive in the global market.

We've tried all this before in Australia and it was a dismal
failure. Just read Keating's latest book, its available from
Amazon as an ebook download, much cheaper. Oops, there is me,
benefitting from free trade again and even saving a tree or
two in paper and energy as well.
Posted by Yabby, Thursday, 1 December 2011 7:42:50 PM
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How can one have free trade with a centrally controlled economy like China? You can be sure that if at any time China perceives that national or local interests are at risk then bureaucratic obstruction will occur. In Japan the nationalistic ethos of favouring their own and the old boy betwork serves the same purpose.
Posted by Outrider, Thursday, 1 December 2011 8:52:33 PM
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*Many of the products coming from China are inferior and end up in land fill.Why not produce a product like a car, house,furniture,that has longevity and quality*

Take a look at the numbers, Arjay. Only 25% of our imports come
from China. 75% come from elsewhere, including Europe, Japan, Korea,
USA etc, hardly low wage countries.

From Miele kitchen appliances, Thermomix - 2000$ French kitchen gadgets,
Mercedes and BMW cars, Boeing and Airbus planes, high
priced US drugs, medical equipment from Japan and elsewhere, we
import them all. All based on quality, not price.

Meantime the value of China cannot be underestimated. Before
they became manufacturers, we sold our iron ore for a few $ a tonne,
the price has quadrupled. They buy 30'000 tonnes of lamb a year,
compared to zilch. The list goes on.

All of us are consumers and all of us benefit from trade.
Posted by Yabby, Thursday, 1 December 2011 9:16:19 PM
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Some of the points about the "unfairness" of free trade have nothing to do with free trade and everything to do with the corrupted political process. There are NO international free trade agreements at all in Australia, so how does one analyse or critique something that does not exist, even with NZ we have all sorts of protections in place ? Genuine free trade would take two people 10 minutes to sort out internationally, it's when the unfortunate reality of politics gets involved the process is corrupted. Perhaps look to the real villain in the process ?

That aside, The Greens want a bet each way if they're advocating protectionism. Of course, that's no different then any other political party. As one example, look to the Gunns Pulp Mill for an example of that. Proposed manufacturing at home in Aus, stringent developed world environmental standards, objected to, paper imported from "overseas" instead, with the diabolical impact of shipping pollution thrown into the equation ? Taking the entire process into account, I put it to Bob Brown that anyone objecting to the Mill is an environmental vandal, thus the logical conclusion is it's simple NIMBY-ism covered in the thinnest veneer of environmental protection.
Posted by Valley Guy, Saturday, 3 December 2011 8:35:06 AM
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We have a very strong belief in free trade. Is it mythical or scientific? Economics theories are historically conditioned as almost everything else. If Ricardo had lived in the second half of the 19th century, he would have added some modifications to his theory, because Germany was catching up.

"The most obvious feature of American economic discussion in the years after Ricardo and Malthus, for a near half century, in fact, was its absence in any formal sense. Or...the feeling that economics was a subject on which no one needed superior guidance...As the nineteenth century passed, as the frontier disappeared and as American farmers in particular came to sense their own adversity under the system, economic discussions would enlarge and extend in the United States(Kenneth Galbraith, A History of Economics)." American economics is most individualistic, belligerent and social-Darwinian. It is easy to see why it is so.

Myrdal, a Swedish economist, said more than twenty-five years ago that Sweden needed to take a sort of protectionism, in order to preserve its welfare, against the onrush of exports from Asian economically rising tigers.

If I may make a guess, our blind faith in free trade will not go on. I can think of at least two reasons. First, the universe is expanding but Stephen Hawking does not say that the earth is expanding, too. Second, Mr. Holmes say, "all parties can benefit, if each trading party focusses on producing what they are relatively best at, and they trade freely with one another for the rest of what they neee." But all parties are made up of not only Australians but also Americans, Chinese, Philippines, Indonesians and so on. If all parties can see eye to eye in economic matters, they cannot be expected to do so in political affairs. I doubt, at least for the moment, if the United States would entrust the Chinese with the production and manitenance of missiles and jet fighters because of economically, not politically, lower wages there. Unnan City, Japa
Posted by Michi, Wednesday, 7 December 2011 5:26:37 PM
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This has been so gratifying to read.

For those who are not familiar with the real impact of free trade on Australia, a quick read of the static site http://www.oziz4oziz.com/ will bring you up to speed, and also assist you to join the expanding campaign to restore tariffs.

Briefly, free trade has eliminated around 90% of domestic food production and a similar percentage of manufacturers; creating unemployment... not at the 5.2% of official claims, but 14% recorded in October 2010, and 13% homeless, who we can presume, are also unemployed.

How do politicians, journalists, social scientists, and academics come up with a figure of 5.2%? Easy: the definitions game. If you work, study or train for one hour per week you are deemed employed. If you are Aboriginal (ie CDEP), on work for the dole, or on a refugee or migrant sponsor list, or any other proscribed list of which there are hundreds, then you are employed. Also, if you are unemployed and on the job network lists you are employed. And so on.

Currently, there is an attempt to launch a campaign to conjoin manufacturers, domestic food producers, in a campaign to restore tariffs. Politically, this is not a difficult task, but manufacturers appear to want to die bravely rather than fight. Yet hundreds of thousands of Aussies are represented by a multitude of disparate organisations prepared to fight for tariffs.

Anyone who wants to know more about this can contact me on tonyryan43@gmail.com

And those who are skeptical about the above unemployment figures should Google back to the Bulletin survey of 1999; which first blew the whistle on corrupt science and politics.
Posted by Tony Ryan oziz4oz, Sunday, 18 December 2011 6:48:51 PM
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Deary me Tony, not that old broken record yet again.

If people had to pay 8000$ for an Australian made computer, few
could afford to be on the internet and so on. Fact is our standard
of living would drop dramatically.

There are plenty of jobs for those who bother to learn a skill and
those who bother not insisting living by the seaside or Byron,
where the surf is good.
Why does our fruit and vegie industry need to rely on backpackers
to pick their produce? Aussies don't want the jobs. Just ask
the meatworks how difficult it is to find labor. Many rely on 457
workers.

Trade has not only dramatically increased the price of our minerals,
its also opened up all sorts of new markets for our agricultural
products. China for instance, has gone from buying zilch lamb, to
becoming a significat market of thousands of tonnes. We export huge
volumes of milk powder, it keeps our dairy industry going. Farmers
would be the big losers through tariff barriers. Higher input costs
and export markets closing.

If you want to damage farmers, put up tariff barriers, as you
suggest. Talk about shooting yourself in the proverbial foot.

Sheesh...
Posted by Yabby, Sunday, 18 December 2011 7:33:25 PM
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Bob Katter's Australian Party actively advocates protectionist policies, and getting back to Australian values. One of The Australian Party's core values is also that "Australia needs to increase its population to achieve acceptable levels of economic, scientific, strategic and personal development. Government must develop immigration and birth rate policies consistent with these principles". They want a return to Australian values and businesses, but also support ongoing population growth and mass immigration? What about our environmental carrying capacity, and the risk of overpopulation? How does this protect Australia, and enshrine sovereign values? They are a contradiction!
Posted by VivKay, Monday, 19 December 2011 3:15:23 PM
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Who was it who said that 97.73% of statistics are made up on the spot?

>>... free trade has eliminated around 90% of domestic food production<<

Ok, you have my attention Tony Ryan oziz4oz.

Now back it up with some numbers, eh?

I have some for you to have a look at. And I haven't had to make a single one of them up.

"Australian farmers produce almost 93% of Australia's daily domestic food supply. Food imports contribute 7.5% of the total value of Australian retail food sales"

And...

"Australia exports a massive 60% (in volume) of total agricultural production. In terms of value, this represents around 76% of the total gross value of Australian agricultural production"

http://www.nff.org.au/farm-facts.html

Ok, I've shown you mine. Now you show me yours.
Posted by Pericles, Monday, 19 December 2011 4:11:38 PM
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