A "nova" anti-politica comercial de Trump e as oportunidades para a China - Alasdair Macleod

What Trump Means for Brexit, China, and the EU
by Alasdair Macleod
Mises Daily, January 31, 2017

The easy pattern of prolonged trade negotiations has been rudely interrupted by President Trump. Even before he had become president, his anticipated presence in the White House changed global attitudes and expectations. In Europe, EU officials are wrong-footed, while British trade officials cannot believe their luck.

EU officials were prepared to punish the UK knowing they could prevaricate for ever, because the EU should never, in its view, be challenged by a member state. The UK has been a disruptive member, and other members must be discouraged from following Britain’s exit at a time when there are increasing signs of rebellion by Europe’s "deplorables." Britain, having shocked its own establishment by voting for Brexit, faced the prospect of protracted negotiations with the EU that could, in the words of one British official who has since resigned, take a decade or more.

President Trump has dramatically changed the balance of power in Britain’s trade negotiations with the EU. It is probably no accident that the British approach was finally declared after Trump won the presidential election, and his attitude to trade with Britain was more friendly than Obama’s. The British negotiating strategy is remarkably sensible from a government that hasn’t until now believed in free markets, at least to the extent that it is prepared to back genuine free trade as a policy. Effectively, the EU has been told by Prime Minister Theresa May that Britain will propose, and they can take it or leave it, because Britain’s focus is now to trade relatively freely with the rest of the world. And if they don’t agree, Britain will cut corporation taxes to compensate British-based businesses from EU intransigence.

The threats from members of the European political establishment sound increasingly desperate, signaling they are waking up to the weakness of their position. They claim Britain will be cut out from the EU’s existing trade agreements. But when you look at them, you see there are only two of them with other G20 members — South Korea and Mexico. The rest are with small states, damning evidence of the failure of the EU to interact with the rest of the world. Big businesses in Europe are now switching sides, having unsuccessfully argued against a hard Brexit. They are now lobbying European governments instead for tariff-free trade with the UK.

Trump and Trade

Donald Trump apparently sees himself as bringing business priorities to government. He intends to run America in the manner of a nineteenth century mercantilist, where the priority is that America Inc. must become great again, with every able-bodied person regarded as potential contributors to the national enterprise. With respect to trade agreements, he will tear up the rules agreed between long-winded diplomats in favor of more effective business-driven resolutions, favoring America. Business negotiating strategies will be implemented, as we can see with the early signs of public negotiations between mercantilist Trump and China’s mercantilist Xi.

Britain’s free traders are likely to be at odds with Trump. He is signaling he is not interested in free trade. His attitude to the EU also marks a major change in American geopolitical thinking. Europe is now regarded as a leach, sucking America’s blood, not paying its way in NATO. Its socialism is alien to Trump. That’s the new world, as proposed by Trump, but the reality can be expected to turn out somewhat differently.

Trade Fallacies

All this would be fine, if President Trump based his understanding on the economics of trade imbalances. Like most people, he appears to think a trade deficit is the result of unfair foreign competition. It is not. It is the result of monetary expansion. In a sound money environment, everything is paid for out of real money. If I buy a foreign good, it must be matched by a fellow citizen’s export. If people change their preferences for real money, there will be a temporary surplus or deficit, but prices will rapidly adjust to find a new balance, the flows stop, and trade balances again.

In a sound-money environment, permanent or semi-permanent trade surpluses and deficits cannot exist. With unsound money, in other words if extra money is conjured up out of thin air and spent into the economy, excess demand is created, which either drives up prices domestically, or it is spent on imported goods. And given a country’s total production usually matches its total consumption, that extra money is certain to lead to an increase in imports.

It’s the cheat factor of fiat currency that’s responsible for trade imbalances, not unfair competition from foreigners. And because all countries cheat with their own fiat currencies, untangling the trade surpluses and deficits becomes a fruitless task.

We can conclude that however Trump’s trade policies turn out, America’s trade deficits will not go away. He will need to take a firm grasp of the budget deficit, and the Fed must take tighter control over the expansion of bank credit and money, both of which are unlikely.

Unintended Consequences

The Trump administration appears to be set to discourage imports by the introduction of a border tax, or discriminatory corporate income taxes. We know this will not achieve its objective, unless bank credit fails to grow. And if bank credit fails to grow despite the Fed’s desire for it to do so, a reduction in the trade deficit would be part and parcel of a contracting economy. America would then risk triggering a rerun of the depression of the 1930s, which was given an extra spin from the Smoot-Hawley tariff signed into law by President Hoover. In those days, both the dollar and sterling, as the two leading currencies, started the decade on the gold standard, which continued for the dollar after sterling abandoned it in 1931. This meant that commodity prices priced in both gold and dollars collapsed, impoverishing miners and agricultural producers worldwide. If the same thing happened today, the dollar would go down with commodity prices, because we know the Fed would expand money supply to avoid a slump. But measured in gold, commodity prices would still fall.

For now, this outcome is regarded by markets as a low risk, but given Trump’s contradictory statements on trade, it would be wrong to dismiss a Smoot-Hawley rerun. Trump’s rhetoric is indeed frighteningly similar.

China would be justified in taking the view that Trump’s intentions are protectionist, and therefore represent an escalation of the financial war between the two countries. That will depend on the outcome of negotiations between Presidents Trump and Xi. China could equally console herself with the knowledge that the dollar will become less important if gross American trade (as opposed to the net balance) diminishes because of protectionist measures. For the moment, the dollar is riding high, partly due to the declining use of the euro. But a higher dollar could be regarded as an opportunity for China to sell more Treasuries to invest in commodity stockpiles, before the dollar declines. And when the dollar declines, the yuan is likely to stabilize and become more attractive as a global trade settlement currency.

If, and it is an if, the Chinese take this view, they will not worry too much about Trump and his aggressive stance. He might be surprised that the Chinese give in on very little in the trade negotiations due to take place later this year. Their view could be that Trump is fighting yesterday’s trade war. Instead, China will be content with free trade agreements between the Pacific nations cut out of the Trans-Pacific Partnership. South-East Asia will manufacture the cheap goods China used to make, because China is already upscaling her economy into services and technology, redeploying capital from the manufacture of cheap goods.

Where are Europe and Britain likely to end up in all this? The will for a rapid resolution of an Anglo-American trade agreement is there at both the White House and Downing Street. However, under the terms of Brexit, a deal cannot be signed before March 2019, which is a long time in politics. The threat of a US/UK agreement is more important as a lever to pull the EU into line, than its eventual reality. Additionally, Britain can easily sign agreements with Commonwealth members, comprised of 52 countries and a third of the world’s population. Importantly, these are the growing economies of the future. South Korea, Mexico, and the minor nations that have existing agreements with the EU should also be ready signatories, assuming the EU does not successfully pressure them not to enter agreements with the UK. The ASEAN (Association of Southeast Asian Nations) countries and China total another two billion, again growing more rapidly than the advanced nations, taking the potential total to well over half the world’s population.

The opportunity for Britain presented by Brexit, and facilitated by Trump’s election, is truly extraordinary, but that’s not reckoning with the politics. Politicians do not define free trade in the way that free trade should be. To politicians, free trade is a complex agreement, regulating every provision of goods and services. Free trade without politicians is simple: we can all get on with buying and selling with each other what we truly desire.

The greatest threat to world trade comes not from the break-up of the EU, nor from China. It appears to be Trump’s lack of understanding of why trade imbalances exist, and his wrongheaded policy of American protectionism.

Alasdair Macleod is the head of research at GoldMoney.

Tratados de "livre comercio" sao inuteis; basta o Livre Comercio - Mises Daily

Concordo com os autores: tratados supostamente de livre comércio são uma aberração. Eles na verdade são de comércio administrado.
Se os países querem de fato livre comércio, basta declarar o livre comércio universal, e se desarmarem, unilateralmente.
Quem for liberal que me siga, gritaria o mais ousado deles. O resto vai atrás...
Isso vai acontecer?
Não acredito, mas não custa sonhar...
Paulo Roberto de Almeida

No More "Free Trade" Treaties: It's Time for Genuine Free Trade
Ferghane Azihari & Louis Rouanet
Mises Daily, OCTOBER 7, 201

It is erroneous to believe that free traders have been historically in favor of free trade agreements between governments. Paradoxically, the opposite is true. Curiously, many laissez-faire advocates fall into the government-made trap by supporting “free-trade” treaties. However, as Vilfredo Pareto stated in the article “Traités de commerce of the Nouveau Dictionnaire d’Economie Politique” (1901):

If we accept free trade, treatises of commerce have no reason to exist as a goal. There is no need to have them since what they are meant to fix does not exist anymore, each nation letting come and go freely any commodity at its borders. This was the doctrine of J.B. Say and of all the French economic school until Michel Chevalier. It is the exact model Léon Say recently adopted. It was also the doctrine of the English economic school until Cobden. Cobden, by taking the responsibility of the 1860 treaty between France and England, moved closer to the revival of the odious policy of the treaties of reciprocity, and came close to forgetting the doctrine of political economy for which he had been, in the first part of his life, the intransigent advocate.

In 1859, the French liberal economist Michel Chevalier went to see Richard Cobden to propose a free trade treaty between France and England. For sure, this treaty, enacted in 1860, was a temporary success for free traders. What is less known however, is that at first, Cobden, in accordance with the free trade doctrine, refused to negotiate or sign any “free trade” treaty. His argument was that free trade should be unilateral, that it consists not in treaties but in complete freedom in international trade, regardless of where products come from.

Chevalier eventually succeeded in obtaining Cobden’s support. But Cobden was puzzled by the complete secrecy surrounding the negotiations and, in a letter to Lord Palmerston, he attributed this secrecy to the “lack of courage” of the French government. Similarly, today, the lack of transparency concerning free trade negotiations is problematic and it is often hard to know what the content of a treaty will be.

Today, while some of these treaties are currently being negotiated, there are already examples of similar agreements enforced. One could refer to the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) or more regional agreements like the North American Free Trade Agreement (NAFTA) or the European Economic Area (EEA).

But why would protectionist governments who spend their time hampering markets by giving monopolies and other kinds of privileges at national level, open markets at the international level? The very fact that governments are negotiating in the name of free trade should be suspicious for any libertarian or true advocate of free trade.

Intergovernmental Agreements Enhance Government Power

Murray Rothbard opposed NAFTA and showed that what the Orwellians were calling a “free trade” agreement was in reality a means to cartelize and increase government control over the economy. Several clues lead us to the conclusion that protectionist policies often hide behind free trade agreements, for as Rothbard said, “genuine free trade doesn’t require a treaty.”

The first clue is the intergovernmental and top down approach. Intergovernmentalism is nothing more than a process governments use to mutualize their respective sovereignties in order to complete tasks they are not able to accomplish alone. Nation-states are entities which rarely give up power. When they finalize agreements, it is to strengthen their power, not to weaken it. On the contrary, free trade requires a decline of governments’ regulatory power.

Also, free trade does not require interstate cooperation. On the contrary, free trade can be and has to be done unilaterally. As freedom of speech does not need international cooperation, freedom to trade with foreigners does not need governments and treaties. Similarly, our government should not rob their population with corporatist and protectionist policies just because others do. Anyone who believes in free trade does not fear unilateralism. The simple fact that bureaucrats and politicians do not conceive of the international economy outside of a legal frame settled by intergovernmental agreements is sufficient to show the mistrust they express toward individual freedom. This reinforces the conviction that these agreements are driven by mercantilist preoccupations rather than genuine free trade goals.

Extending Regulatory Control Beyond Your Own Borders

The second clue concerns the intense conflicts between governments on these agreements characterized by a high degree of technicality. History shows that multilateralism leads toward deadlock. The failure of the Doha Round is the cause of the proliferation of bilateral and regional initiatives. The contentious relations between governments come from the will of some states to dictate their norms to other countries’ producers through an international harmonization process. But this is the exact opposite of free trade. As economic theory shows us, exchange and the division of labor is not based on equality and harmonization but rather on differences and inequality. Furthermore, the technicality and secrecy surrounding free-trade agreements favor mercantilism and protectionism to the extent that technical regulations are used to favor producers who are politically well connected.

The Trans Pacific Partnership (TPP) is a good illustration of this balance of power. It was at first an agreement between four countries (Brunei, New-Zealand, Singapore, and Chile.) which tried to resist some neighbors’ commercial influence, especially China. Then the United States came and convinced more countries (Australia, Malaysia, Peru, Vietnam, Canada, Mexico, and Japan) to join the negotiations. Let’s also notice that most of the countries invited are already bound by regional or bilateral agreements with the United States. China remains excluded from the process. This governmental drive toward regulatory hegemony is obviously the complete opposite of free trade. Indeed, free trade supposes letting consumers peacefully choose what products they want to promote rather than determining what is available through bureaucratic coercion.

Consolidation of Monopolies

The third clue concerns the vigor with which governments have tried over several decades to impose at the international level a more constraining legal framework for so-called “intellectual property.” The first initiatives appear in 1883 and 1886 with the Paris Convention for the Protection of Industrial Property and the Bern Convention for the Protection of Literary and Artistic Works. Amended several times during the twentieth century, the initiatives embrace, respectively, 176 and 168 states. These conventions are placed under the auspices of the World Intellectual Property Organization (WIPO), an international bureaucracy which joined the United Nations system in 1974. A turning point came in 1994 with the signature of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) administrated by the World Trade Organization (WTO). It is now incorporated as an essential part of the administration of international commerce and benefits from the WTO’s sanction mechanisms.

In 2012 we endured a fresh attempt by our governments to reduce our freedom to create and share intellectual works with the Anti-Counterfeiting Trade Agreement (ACTA). And, if we look at the negotiations mandates of these trade agreements, we can see they all include a chapter on the reinforcement of “intellectual property” rights. Intellectual property has become a key concept of the international economy. But this must not hide its illegitimacy.

As Vilfredo Pareto remarked, “From the point of view of the protectionist, treaties of commerce are … what is most important for a country’s economic future.” Each time a new “free trade” treaty is enacted, what is seen is the attenuation of tariff barriers, but what is not seen is the sneaky proliferation and harmonization of non-tariff barriers impeding free enterprise and creating monopolies at an international scale at the expense of the consumer. It’s time for genuine free trade.

Nafta, 20 anos depois: nem sucesso, nem fracasso - BusinessWeek

Nafta 20 Years After: Neither Miracle nor Disaster

By Mark Glassman BusinessWeek, December 30, 2013

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Photograph by David Maung/Bloomberg

Cargo trucks entering the United States from Mexico in 2011

Bill Clinton made the North American Free Trade Agreement a cornerstone of his 1992 presidential campaign, saying it would help level the playing field for U.S. businesses trying to sell their products abroad. Candidate Ross Perot predicted Nafta would result in “a giant sucking sound going south”—the sound of American manufacturing jobs and factories being funneled into Mexico.

Nafta went into effect on Jan. 1, 1994, which now gives us 20 years’ worth of data on economic growth, trade volume, and employment to figure out who was right. The bottom line? Nafta has been neither as good as Clinton promised nor as bad as Perot warned.

Let’s start with the most basic measure of economic growth: gross domestic product. Since 1993, the year before Nafta was enacted, U.S. GDP has grown about 63 percent, while Canadian and Mexican GDP have grown 66 percent and 65 percent, respectively, according to data compiled by the Organization for Economic Cooperation and Development. Those tightly clustered growth rates are significantly better than the industrialized nations of the Organization for Economic Cooperation and Development as a whole; their composite GDP has grown about 53 percent since Nafta.

Of course, plenty of factors have contributed to North American economic growth, and Nafta’s direct impact on GDP is difficult to measure. However, the Congressional Budget Office estimated (PDF) in 2003 that the impact had probably been positive, if slight, and that it had grown consistently since the agreement was enacted.

BLOG: The U.S. Needs Tourists. Why Make Visiting So Hard?

Let’s move on to what Nafta was specifically designed to do: encourage trade. In the early ’90s, the Clintonites promised that free trade would create a more favorable environment for the U.S. to sell its goods and services. Since 1993, U.S. exports to Canada and Mexico have climbed 201 percent and 370 percent, respectively.

Exports are only half of the trade equation. Nafta’s supporters said it would also trigger a rise in imports, leading to lower-priced goods and services for consumers and more competitive companies. Since 1993, the value of imports into the U.S. from Canada and Mexico has jumped by 194 percent and 621 percent, respectively.

Protectionists argued that the disparity between imports and exports was cause for concern because it could put pressure on U.S. companies to lower prices in order to compete in an oversaturated market.

The U.S. trade deficit with Mexico has grown dramatically since Nafta—from a trade surplus of $4 billion in 1993 to a deficit of $54 billion in 2012. Yet in most industries, corporate profit margins have risen over that period. Recently, the U.S.’s deficits with Mexico and Canada have contracted as export growth has accelerated.

As with economic growth, it’s difficult to say with certainty how much of the rise in trade between the U.S. and the other nations is directly attributable to Nafta. Trade liberalization among the U.S., Canada, and Mexico was already underway, and economists say the economic cycle plays a significantly larger role in determining trade volume than Nafta does. In its 2003 report, the CBO found Nafta’s effect on trade had been positive and that had grown in each year since the agreement was enacted. The CBO also concluded that Nafta had wielded a larger effect on U.S. exports than imports.

So what about Perot’s big fear, the labor market? Estimates of Nafta’s effect on U.S. payrolls vary wildly and depend on methodology. Here’s an unfavorable statistic: Today, there are 12 million manufacturing jobs in the U.S., down from about 17 million when Nafta was enacted.

Of course, to lay all the blame on Nafta would be to ignore a fundamental shift in the makeup of the global labor force. Relatively lax labor laws and lower wage requirements have moved a significant portion of the world’s factories to China and India since Nafta.

The Economic Policy Institute, a left-leaning think tank based in Washington, estimates that Nafta was responsible for the loss or displacement of more than half a million American jobs, mainly in manufacturing. Some Nafta supporters say certain job losses were inevitable but that the agreement was so broadly stimulative that the net effect on employment was either negligible or positive. (For what it’s worth, total U.S. employment is up about 22 percent since Nafta was enacted.)

What do you think? Was Nafta good or bad for the U.S.? Share your thoughts in the comments below.

David Ricardo redivivo: uma aula sobre o livre comercio

Um livro fascinante (do site da Amazon):

The Choice: A Fable of Free Trade and Protection
Russell Roberts
Paperback: 144 pages
Publisher: Prentice Hall; 3 edition (October 8, 2006)
Language: English
ISBN-10: 0131433547
ISBN-13: 978-0131433540

Editorial Reviews
Written as a novel, the book makes the complex concepts, issues and terminology of international trade understandable for students. Professors complain that their students cannot grasp the nature of how some economic tools are used or how they work in life. This novel bridges the gap of concepts with applications by use of a fictional story.

David Ricardo comes to life to discuss international trade theory and policy with Ed Johnson, a fictional American television manufacturer seeking trade protection from television manufacturers. Their dialogue is a sophisticated, rigorous discussion of virtually every major issue in trade theory and policy. To illustrate the positive and normative effects of international trade and trade policy, Ricardo takes the reader and Ed Johnson into the future to see an America of free trade and an America of complete self-sufficiency. The fictional element brings these topics to life so that students gain the intuition and understanding of how trade changes the lives of people and the industries they work in. The fundamental intuition of how international markets function including general equilibrium effects and policy analysis is provided.

Wish "It's a Wonderful Life" were more like this
By Ryan Alger (U.S.A)
August 24, 2007

This review is from: The Choice: A Fable of Free Trade and Protection (3rd Edition) (Paperback)
I don't really consider this a work of fiction, and neither does the author. It is in a fiction format, but its primary purpose is to make the case against protectionism, and for free markets. Roberts does this beautifully, raising and dismissing almost every argument for protectionism, and doing this with charm, wit, and almost a complete lack of venom.

The story follows the time-traveling journey and conversation of Ed Johnson (a businessman looking for protection form Japanese competition) and his guardian angle David Ricardo (modeled after the little-known economist.) Together they travel to the future, back to the past, and through alternate timelines to demonstrate Robert's point.

Through this journey, Ricardo corrects some critical mistakes in economic theory; such as the `zero-sum theory', misconceptions on the nature of supply and demand, the role and meaning of wages and `real' wages, the mythical "dangers" of a trade deficit, what imports and exports really are, and most of all, dismisses the myth that trade with other countries hurts the American worker overall (which he admits, in a smaller sense, it sometimes does.)

The book takes some leaps of logic, which the author fully admits in the back of the book; such as the town of Star (Ed's hometown) being unchanged in the `protectionist' universe. These little plot devices are not meant to represent reality, but demonstrate more abstract points, in that sense, it is more like a metaphor.

Overall, the book makes one of the strongest cases ageists the practicality of protectionism that I have ever heard. He also fits some talk as to the moral case against it, that it is really an issue of freedom, and no one person has the right to force another in to a certain kind of behavior (A.K.A., buying American products) and that "America" is all about dreams and growth, something not very possible in the protectionist world

My only complaint would be that I wanted more elaboration on some sections of the `conversation'; such as the `dumping' segment. Robert's makes a good case that dumping is not really practical for anybody, that the `dumper' would have to make up for lost profits from lowering their prices. What I don't understand is....what if a company could cover their lost profits in profits from another product, or section of their company (Such as a department store lowering prices on televisions and allowing the produce-department to cover the loss.) I wish Robert's would have gone in to slightly more detail.

There are several section of the book like this; but I want to make clear is that Robert's never claims that this is the ultimate source for `anti-protectionist' arguments, he even suggests further reading in the back of the book, something all reasonable people should do if they are truly interested in understanding the complexities of economics.

I love Robert's style of writing, his books are not just informative, but entertaining, something very hard to achieve for this subject matter. The book was good enough that I ordered His other book, The Invisible Heart, form Amazon. After seeing what he did to It's a Wonderful life, I can't wait to see what he does for a romance novel.

How free trade benefits us all
By Janet K. Marta (Platte City, MO USA)
November 28, 2006

This review is from: The Choice: A Fable of Free Trade and Protection (3rd Edition) (Paperback)
This is the third edition of Roberts' novel about the benefits of free trade, using "It's a Wonderful Life" as his template. David Ricardo "touches down" from heaven to earth (like Clarence), to help convince Ed (George Bailey) that he should not support protectionism. The previous versions focused more on threats that were perceived from Japan and Nafta. Here, Roberts uses India and China as his examples.

To me, one of the most appealing things about Roberts' work is his honesty. He doesn't pretend that economic change doesn't hurt, but he also focuses on the benefits in the longer term. He writes in such a pleasant style that economics becomes accessible to people who are "math phobic."
His other book, The Invisible Heart, is at least as good as this one.

Free Trade made easy
By Zachary Palen (Minneapolis, MN, USA)
February 26, 2009

This review is from: The Choice: A Fable of Free Trade and Protection (3rd Edition) (Paperback)
A great narrative of Free Trade. Lays the argument in support for free trade out in one of the simplest ways it's hard not to understand this topic that so many have trouble understanding. The examples and story surrounding the benefits of free trade and the detriments of protectionism are kept simple, so one can understand the logic behind Free Trade. Sticks to the basics and stays away from the advanced theories behind International Trade and Economics, but still provides significant empirical evidence. Easy read and a great book.

Free Trade - Livre Comércio: uma ideia antiga, uma trajetoria erratica...

Publiquei, recentemente, um artigo sobre o livre-comércio, como abaixo:

O argumento a favor do livre comércio
Portal de Economia do iG (28.06.2010).

Tomei conhecimento, hoje, da publicacão em 2009 deste ensaio de William Graham Sumner datado de quase cem anos atrás, como indicado no rodapé.

What Is Free Trade?
William Graham Sumner
Mises Daily: Tuesday, August 11, 2009

There never would have been any such thing to fight for as free speech, free press, free worship, or free soil, if nobody had ever put restraints on men in those matters. We never should have heard of free trade, if no restrictions had ever been put on trade. If there had been any restrictions on the intercourse between the states of this Union, we should have heard of ceaseless agitation to get those restrictions removed. Since there are no restrictions allowed under the Constitution, we do not realize the fact that we are enjoying the blessings of complete liberty, where, if wise counsels had not prevailed at a critical moment, we should now have had a great mass of traditional and deep-rooted interferences to encounter.

Our intercourse with foreign nations, however, has been interfered with, because it is a fact that, by such interference, some of us can win advantages over others. The power of Congress to levy taxes is employed to lay duties on imports, not in order to secure a revenue from imports, but to prevent imports — in which case, of course, no revenue will be obtained. The effect that is aimed at, and that is attained by this device, is that the American consumer, when he wants to satisfy his needs, has to go to an American producer of the thing he wants, and has to give to him a price for the product that is greater than that which some foreigner would have charged.

The object of this device, as stated on the best protectionist authority, is: "To effect the diversion of a part of the labor and capital of the people out of the channels in which it would run otherwise, into channels favored or created by law." This description is strictly correct, and from it the reader will see that protection has nothing to do with any foreigner whatever. It is purely a question of domestic policy. It is only a question whether we shall, by taxing each other, drive the industry of this country into an arbitrary and artificial development, or whether we shall allow one another to employ each his capital and labor in his own way.

Note that there is for us all the same labor, capital, soil, national character, climate, etc., — that is, that all the conditions of production remain unaltered. The only change that is operated is a wrenching of labor and capital out of the lines on which they would act under the impulse of individual enterprise, energy, and interest, and their impulsion in another direction selected by the legislator. Plainly, all the import duty can do is to close the door, shutting the foreigner out and the Americans in.

Then, when an American needs iron, coal, copper, woolens, cottons, or anything else in the shape of manufactured commodities, the operation begins. He has to buy in a market that is either wholly or partially monopolized. The whole object of shutting him in is to take advantage of this situation to make him give more of his products for a given amount of the protected articles, than he need have given for the same things in the world's market.
"If any governmental coercion is necessary to drive industry in a direction in which it would not otherwise go, such coercion must be mischievous."

Under this system a part of our product is diverted from the satisfaction of our needs, and is spent to hire some of our fellow citizens to go out of an employment that would pay under the world's competition, into one that will not pay under the world's competition. We, therefore, do with less clothes, furniture, tools, crockery, glassware, bed and table linen, books, etc., and the satisfaction we have for this sacrifice is knowing that some of our neighbors are carrying on business that according to their statement does not pay, and that we are paying their losses and hiring them to keep on.

Free trade is a revolt against this device. It is not a revolt against import duties or indirect taxes as a means of raising revenue. It has nothing to say about that, one way or the other. It begins to protest and agitate just as soon as any tax begins to act protectively, and it denounces any tax that one citizen levies on another.

The protectionists have a long string of notions and doctrines that they put forward to try to prove that their device is not a contrivance by which they can make their fellow citizens contribute to their support, but is a device for increasing the national wealth and power. These allegations must be examined by economists, or other persons who are properly trained to test their correctness, in fact and logic. It is enough here to say, over a responsible signature, that no such allegation has ever been made that would bear examination. On the contrary, all such assertions have the character of apologies or special pleas to divert attention from the one plain fact that the advocates of a protective tariff have a direct pecuniary interest in it, and that they have secured it, and now maintain it, for that reason and no other.

The rest is all afterthought and excuse. If any gain could possibly come to the country through the gains of the beneficiaries of the tariff, obviously the country must incur at least an equal loss through the losses of that part of the people who pay what the protected win. If a country could win anything that way, it would be like a man lifting himself by his boot straps.

The protectionists, in advocating their system, always spend a great deal of effort and eloquence on appeals to patriotism, and to international jealousies. These are all entirely aside from the point. The protective system is a domestic system, for domestic purposes, and it is sought by domestic means. The one who pays, and the one who gets, are both Americans. The victim and the beneficiary are amongst ourselves. It is just as unpatriotic to oppress one American as it is patriotic to favor another. If we make one American pay taxes to another American, it will neither vex nor please any foreign nation.

The protectionists speak of trade with the contempt of feudal nobles, but on examination it appears that they have something to sell, and that they mean to denounce trade with their rivals. They denounce cheapness, and it appears that they do so because they want to sell dear. When they buy, they buy as cheaply as they can. They say that they want to raise wages, but they never pay anything but the lowest market rate. They denounce selfishness, while pursuing a scheme for their own selfish aggrandizement, and they bewail the dominion of self-interest over men who want to enjoy their own earnings, and object to surrendering the same to them. They attribute to government, or to "the state," the power and right to decide what industrial enterprises each of us shall subscribe to support.
"The protectionists speak of trade with the contempt of feudal nobles, but on examination it appears that they have something to sell, and that they mean to denounce trade with their rivals."

Free trade means antagonism to this whole policy and theory at every point. The free trader regards it as all false, meretricious, and delusive. He considers it an invasion of private rights. In the best case, if all that the protectionist claims were true, he would be taking it upon himself to decide how his neighbor should spend his earnings, and — more than that — that his neighbor shall spend his earnings for the advantage of the men who make the decision. This is plainly immoral and corrupting; nothing could be more so.

The free trader also denies that the government either can, or ought to regulate the way in which a man shall employ his earnings. He sees that the government is nothing but a clique of the parties in interest. It is a few men who have control of the civic organization. If they were called upon to regulate business, they would need a wisdom that they have not. They do not do this. They only turn the "channels" to the advantage of themselves and their friends. This corrupts the institutions of government and continues under our system all the old abuses by which the men who could get control of the governmental machinery have used it to aggrandize themselves at the expense of others.

The free trader holds that the people will employ their labor and capital to the best advantage when each man employs his own in his own way, according to the maxim that "A fool is wiser in his own house than a sage in another man's house" — how much more, then, shall he be wiser than a politician? And he holds, further, that by the nature of the case, if any governmental coercion is necessary to drive industry in a direction in which it would not otherwise go, such coercion must be mischievous.

The free trader further holds that protection is all a mistake and delusion to those who think that they win by it, in that it lessens their self-reliance and energy and exposes their business to vicissitudes that, not being incident to a natural order of things, cannot be foreseen and guarded against by business skill; also that it throws the business into a condition in which it is exposed to a series of heats and chills, and finally, unless a new stimulus is applied, reduced to a state of dull decay. They therefore hold that even the protected would be far better off without it.

William Graham Sumner was one of the founding fathers of American sociology. Although he trained as an Episcopalian clergyman, Sumner went on to teach at Yale University, where he wrote his most influential works. His interests included money and tariff policy, and critiques of socialism, social classes, and imperialism.
See his article archives.

This essay was published in The Forgotten Man and Other Essays (1918)

Free trade debate - The Economist

A The Economist promoveu um debate sobre o livre comércio, como sempre com críticos e defensores da ideia, do conceito e da realidade do livre comércio.
Transcreo abaixo os materiais.

Free Trade: Pro, Against
A motion against
The Economist, May 9, 2010

Defending the motion
Ngaire Woods
International Political Economy Prof. and Director, Global Economic Governance, Oxford University

Free trade is not always in a country's interest. Jagdish Bhagwati's argument assumes that trade liberalisation will expose protected industries and the crony capitalism which goes with them, causing them to disappear. So far so good, but that does not ensure growth.

Against the motion
Jagdish Bhagwati
Economics and Law Professor, Columbia University and Senior Fellow, Council on Foreign Relations

Ngaire Woods is sympathetic to allegations that free trade is a malign force. Try telling that to the nearly 500m people who have been pulled up over the poverty line in the last two decades of rapid growth in India and China, in part because of changed policies that included exploiting trade and inward investment opportunities.

Featured guest
Simon J. Evenett

Don't vote for what you can't fully understand. No one can know what fair trade really stands for. Between our proposer and opponent at least half a dozen notions of what fair trade were advanced. Who knows what alternative notions others subscribe to? These two points should be warning enough: even if you favour one aspect of fair trade don't think that a government or an international organisation committed to promoting fair trade supports the same things. Be careful what your fellow travellers want. Emotive terms like fair trade provide a false sense of unity.

Nor is fair trade a reliable guide to constructive policymaking. Whether it's China's fixed exchange rate regime, the current bête noire in Washington, DC, or Japanese or Korean industrial policy, bugaboos from the past, often subtle and complex matters are reduced to sound bites about the fairness of trade. These emotive appeals are a deliberate attempt to shift attention from those domestic interests that will be hurt if punitive measures be taken against whichever cheating foreigner is being criticised today. Intelligent citizens should not be fooled by the strategic use of the language of unfair trade.

It would be far better to have a debate about the specific rights and wrongs of the ends and means of trade reform and the integration of national economies into the world economy. There are no rhetorical short cuts here: cross-border transactions have become so much a part of daily life for consumers, employees, firms and governments that the only honest option for the analyst is to lay out the full picture. Indeed, such an open approach can reveal important surprises. For example, one of the background papers for the Copenhagen Consensus 2008 project showed that the benefits of further trade reform paled in significance besides the benefits of allowing greater migration from developing countries. More such evidence-based policymaking is needed.

None of this is to imply that the world trading system is perfect; far from it. Rather, that we stand little chance of fixing it with shoddy thinking and emotive rhetoric. The term fair trade is almost always employed in cheap attempts to mislead voters and policymakers alike. Cheap because the issues are typically more nuanced than presented. Misleading because the nature of global interdependence is such that firms’, consumers’ and employees’ welfare cannot easily be sorted into neat camps for and against free trade. Every child of the Enlightenment should repudiate the notion of fair trade and demand better of policy analysts, policymakers and NGOs.

The moderator's rebuttal remarks
May 7th 2010 | Mr Saugato Datta

Simon Evenett, one of our invited guests, notes that we have had about half a dozen definitions of fair trade being advanced by either side so far. Ken from Ohio writes: "What seems fair to one, may be unfair to another. And so universal 'fairness' is an impossibility. All we can do is maximize freedom—and let the issues of fairness work themselves out between all of the participants". But Ydoodle says: "'Free trade' is a rhetorical term that means whatever you want. Bearing little relation to actual agreements in which special trade relations are spelled out … At best, it is a convenient analytical fairy tale like the ball that rolls friction-free down an inclined plane."

Our participants, however, are valiantly attempting the seemingly impossible. One set of ideas about fairness relates to the rules of international trade, which are seen to be set by rich countries and stacked against poorer ones. Jagdish Bhagwati counters this by pointing out that in manufacturing, which has been the focus of the multilateral trade negotiations for much longer than agriculture, barriers are actually much lower in rich countries than in developing ones. He also argues that developing countries have more say in multilateral negotiations than in bilateral ones with rich countries.

Another set of ideas about unfairness revolve around unequal market access. Ms Woods, for example, cites American reluctance to unilaterally reduce US subsidies "when the economic benefits to the USA from such policies were clear", because America would not want to reduce what it could offer other countries in return for more access to their markets. Equally, she gives the example of developing countries clinging to high bound tariffs even as they reduce the actual tariff rates they apply, because "they know that they need weapons in their long-drawn out battle to gain access to industrialised country markets such as in agriculture".

Ms Woods' point is one about the reality of trade negotiations and the otherworldliness of unilateral liberalisation. But my reaction on reading this was to ask: if the United States would clearly benefit from reducing its subsidies but won't because it will reduce its bargaining power in trade negotiations, and developing countries want more access to rich-country markets, then it appears that both eventually want freer trade. * Zhouzhou_1* writes: "The arguments brought against free trade actually … are targeted at instances when trade is actually not free … it is unclear how trade can be made fair without making it free". I would like to see this point addressed by our debaters. It may be scandalously unfair that rich countries shield their farmers using enormous subsidies, but isn't the way to remedy this unfairness to remove those subsidies, thus making trade freer?

Our debaters also disagree on the benefits of trade liberalisation. Mr Bhagwati cites middle-income countries like China and India, where "nearly 500 million people have been pulled up over the poverty line … in part because of changed policies that included exploiting trade". Ms Woods points out that countries like China or Korea "carefully managed their export-led growth using exchange-rate policies, government investment and industrial strategies, and access to markets in other countries". But does this example show that reducing trade barriers is bad? Or do these cases show that reducing trade barriers is more useful when a country has other policies that make the opportunities that trade opens up valuable? Presumably Mr Bhagwati does not believe that the only thing that countries need to do to develop is drop trade barriers (after all, he mentions successful developing countries exploiting trade "among other reforms"). But I would like to know more, including whether Mr Bhagwati believes that opening up to trade can sometimes be harmful. I am also struck by the absence of much discussion of how consumers are affected by trade.

Ms Woods also cites the de-industrialisation of African economies after they lowered their barriers. What happened to growth, I wonder? It is not clear, after all, that the share of manufacturing in output must always rise as countries develop. Comparative advantage need not lie in manufacturing. Or in growing bananas, as a reader, Latintrader, points out: "(I)t's harder to produce bananas on the hills of Trinidad than in Ecuador, hence the price difference. … Trinidad really shouldn't be producing bananas." Mr Bhagwati mentioned the effects of trade liberalisation on growth and poverty, but we could do with more detail.

Another area where our speakers disagree is about what trade policy should be trying to accomplish. Thea Lee, one of our invited experts, argues that "external pressure can be helpful in including treatment of workers in developing countries and the linkage of trade and worker rights need not devolve into simple protectionism". But Mr Bhagwati opposes using trade negotiations to impose "all kinds of trade-unrelated demands" on developing countries. Meanwhile Mr Evenett says that "emotive terms like fair trade provide a false sense of unity". Ah, but that's why having this debate is important. I look forward to the final round of arguments, which I hope will provide us with more evidence and more nuance.

The proposer's rebuttal remarks
May 7th 2010 | Ngaire Woods

Free trade unleashes unambiguously positive results in any country choosing to liberalise, or so Jagdish Bhagwati would have us believe. It is a very tempting argument. Free trade could be the silver bullet of economics. It could be the policy which at one stroke of a pen restructures an economy, unleashing new forces of entrepreneurship and competition. It does not seem to require other policies, nor other countries' cooperation. Why would we eschew it?

Professor Bhagwati argues that removing all barriers to trade is in every country's interest, regardless of whether other countries reciprocate. Neither part of this proposition is universally true.

Free trade is not always in a country's interest. Professor Bhagwati's argument assumes that trade liberalisation will expose protected industries and the crony capitalism which goes with them, causing them to disappear. So far so good, but that does not ensure growth. Next it is assumed that new sectors will magically emerge, creating non-traditional exports and accelerating a country along a path of comparative advantage towards rapid growth.

Is this what happened in China, Korea, Taiwan, or Japan? Not quite. Each carefully managed their export-led growth using exchange-rate policies, government investment and industrial strategies, and access to markets in other countries. The rest of the world still complains that each of these countries is protectionist. If trade liberalisation is a silver bullet, these cases show that it needs a special kind of gun and a carefully selected target.

Some contrary examples reinforce the point that trade policy must be integrated into a country's overall economic strategy. In Africa several countries liberalised trade in the 1980s and 1990s. For many, this was seen as an antidote to the protectionist, import-substitution industrialisation of the 1960s and early 1970s. But what came next was a disappointment. New export industries did not magically emerge. To the contrary, what mostly occurred were rising unemployment and deindustrialisation.

Across African economies, manufacturing dropped as a share of GDP from 10-15% (between 1960 and 1975) to less than 5% in most countries by the end of the 1990s. This is bad news for countries that need to diversify. Too many African countries are locked into producing one or two commodities or raw materials for a small clutch of dominant global companies at prices which are volatile. To escape the trap they are in, they will need more than free trade to catalyse growth. Hence the case some economists are not making for new kinds of protection (applied by industrialised countries) which could foster growth and opportunity.

Professor Bhagwati also argues that free trade does not need to be reciprocal to be beneficial. A small matter of politics mucks this up. In the real world of trade negotiations, reciprocity is the name of the game. Powerful countries dismantle their trade barriers only when offered reciprocal reductions by others. I recall interviewing a US Senator, Chuck Grassley, for a BBC documentary a few years ago. I asked him whether he would support unilaterally reducing US subsidies and protectionism when the economic benefits to the United States from such policies were clear. His answer was an emphatic "no". Why reduce your armoury before going into war?

Unilateral trade liberalisation weakens what a country can offer in exchange for getting access to other countries' markets. This is the logic behind developing countries clinging to high-bound tariffs, even when in practice the tariffs they apply are much lower. They know they need weapons in their long drawn-out battle to gain access to industrialised country markets such as in agriculture.

So much for the case for free trade as a fix-all. What about the case against fair trade made by Professor Bhagwati? He reminds us that in the name of fair trade, US labour unions try to impose US standards as a form of protectionism. But he skips too quickly over examples such as the US-Cambodian free trade agreement which embedded incentives (greater trade access) for improvements in labour standards, bringing in not just the ILO as an international monitor, but workers' groups and Cambodian government officials into a dialogue with one another.

Professor Bhagwati goes further in his argument against universal standards, arguing that different countries have different histories and economic circumstances. These shape their capacities to compete. It may be legitimate for air polluters to pay less in Kenya than they do in the United States because there is abundant fresh air in Kenya. How far would Professor Bhagwati take this?

What if US or European companies set up their production in Kenya to avoid air-pollution charges in their own countries? (And, by the way, they will then use the case politically to press for lower pollution charges at home.) The first part of this could be good, since it brings more industry to Kenya. But what if those companies are exploiting more lax or ineffectual safety regulation? In Bhopal in 1984 this led to one of the world's worst industrial accidents, with poisonous gas leaking from a Union Carbide pesticide plant and killing some 3,800 people and affecting hundreds of thousands of others. More recently, Lehman Brothers were apparently setting up their most risky financial instruments in London to avoid US regulation. The fall-out of that affected all of us. A shrug of the shoulders in the name of free trade is not enough.

Sometimes people need protecting. International trade and commerce can either help to make their lives better or make their plight worse. The fact that protectionists use fair trade arguments does not render illegitimate all efforts to make the effects of trade fairer. People get this. All those who pay that little bit more for fair-trade coffee (and they are doing so in increasing numbers) are not undermining free trade. They are simply doing their bit to make it fairer.


Jagdish Bhagwati
The opposition's rebuttal remarks
May 7th 2010 | Jagdish Bhagwati

Beauty is in the eye of the beholder. Fairness in trade also is the way you choose to define it.

In my initial statement, I had taken, and taken apart, three fashionable concepts of fair trade which are pitted against free trade today. My most distinguished friend, Professor Ngaire Woods, is concerned with altogether different notions of fair trade, reflecting her specialisation in political science rather than in economics, her interest in international governance, and her proximity to the activist anti-trade movements and charities such as Oxfam that dominate the English landscape. But even when arguing against free trade because it is unfair according to her notions of fair trade, Professor Woods fails to persuade me.

She claims at the outset that "free trade has a bad name". She believes this, not because of unfair trade notions she cites (which I address below), but also because she seems to be sympathetic to the allegations that free trade is a malign force. She quotes Oxfam, whose writers on trade claim: "Trade robs poor people of a proper living, and keeps them trapped in poverty." Try telling that to the nearly 500m people who have been pulled up over the poverty line in the last two decades of rapid growth in India and China, in part because of changed policies that included exploiting trade and inward investment opportunities that earlier policies had shied away from.

The Report on the Future of the WTO by the expert group chaired by Peter Sutherland addresses many such allegations against free trade that are circulating today and is best consulted directly. My 2004 book, "In Defense of Globalization", also addresses the allegations that trade undermines social objectives such as gender equality and democracy and concludes that trade generally advances, rather than handicaps, these agendas as well.

Moreover, it is inaccurate to assume that free trade is rejected by the majority of people in many countries. The polls in the United States, even in the middle of the current crisis, did not shift a majority against free trade. In today's interdependent world economy, many seem to understand that exports sustain their jobs and that protectionism may save a few thousand jobs in terms of its direct impact on the protected activity but, when retaliation kicks in, the country could lose hundreds of thousands of jobs instead. It would be a policy of "penny wise and pound foolish". When my team and I recently debated three of America's staunchest protectionists, with hundreds in the audience, I had been persuaded by pessimistic statements such as that by Professor Woods that we would lose 55:45%. But the vote went 80:20% in our favour.

But then are we who favour freer trade in danger, not because freer trade causes harm rather than good or that the majority think so, but because of the charge that trade today is widely considered to be unfair? Of course, if you ask in the polls, should trade be fair, without elaborating what you mean by fairness, you are going to get a majority saying it should be. You would have to be a knave or ghoulish to say otherwise. The important question is: if people are exposed to proper debates, like the one I described or the one that Professor Woods and I are having, and understand both what is meant by fairness and what are the arguments for and against that specific notion of fair trade, what would be the vote? In that spirit, which alone can contribute to an informed democracy, let me now consider Professor Woods’ concerns.

In essence, she produces three arguments. First, that (again quoting Oxfam) the "rules of the trading system" are "rigged" against the developing countries. Second, the rules of the trading system are made by the developed and not by the developing countries. Third, the distribution of the gains from trade is skewed against the poor countries.

On the first argument, let me briefly say that "Part II and Special & Differential Treatment" have long been applied to the developing countries at the GATT. Little was demanded by way of reciprocal trade concessions. This is also why the frequent allegation that trade barriers are higher on the average in the developed than in the developing countries is incorrect for manufactures, which were the principal focus of GATT until 1995, since agriculture was excluded by the 1955 waiver.

On the second argument, I certainly agree that several institutions, such as the IMF and the World Bank, need more voice from the developing countries. It is scandalous that Dominique Strauss-Kahn and Robert Zoellick were more or less nominated by the EU and the United States respectively. By contrast, the WTO smells like roses. Pascal Lamy had to fight hard to gain his first term. Also, the WTO works by consensus; there is almost no voting by financial contribution. In fact, it is the free trade agreements with hegemonic powers that Professor Woods seems to celebrate, which are the vehicle for the asymmetric exploitation of the developing countries. All kinds of trade-unrelated demands, driven by lobbies in the hegemonic power, are imposed on the developing countries in one-on-one negotiations, under the cynical pretence that these demands are good for them: see my 2009 book, "Termites in the Trading System: How Preferential Agreements Undermine Free Trade".

For the third argument, Professor Woods turns to Oxfam again, citing its assertion that the gains from trade had accrued almost entirely to the developed and middle-income developing countries. But the middle-income developing countries often ceased to be "poor" countries because of changed policies that exploited trade better, among other reforms. Oxfam created a "stir", according to Professor Woods, maybe among other British charities and the singing troubadours whose electric guitars seem to drown out the voices of scholars effectively in Britain. But elsewhere, the 2002 Oxfam report is seen to be the rank nonsense that it is.