Tim Worstall

Schumer and Graham.

The two Senators, Schumer and Graham, are trying to get a tarrif against Chinese imports if China does not revalue the yuan.

Remember, a major tenet of free trade is that currencies need to be free to float in value against other currencies.

Really? I know it’s desirable but an essential part of the theory? Missed that lesson I did. Any comments? There also this nice pot/kettle moment:

China’s mercantilist approach

and

Since China artificially keeps the value of its currency low, American
companies are placed at a competitive disadvantage with their Chinese
counterparts.

Err, wouldn’t a non-mercantilist be applauding the increase in wealth offered to US consumers by the cheap imports this made available?

Still, the easiest refutation of the whole idiocy comes from history, that trade wars are a great deal easier to start than they are to stop. Or, in two words:

Smoot Hawley.

In

2 responses

  1. dsquared Avatar
    dsquared

    Taking this post together with the previous one, wouldn’t a non-mercantilist African be applauding the cheap imports of food that the CAP makes available to domestic consumers.
    (This is a serious point actually; everyone seems to agree with the conventional wisdom that the CAP has to be bad for Africa because … well because the nastiest thing you can do to someone is to give them cheap food. In actual fact, normal trade theory would suggest that the CAP is a straightforward welfare transfer from Europeans to Africans and you have to get into very very involved and fragile industrial organisation models to get a different result).
    Tim adds: I think I’ve made that point myself a few times. The correct answer to an offer of subsidised goods is “Thank You”. It does screw the local farmers and the welfare transfer is just as you describe, the non-farming sector benefitting. In terms of total utility this rather depends on how many farmers there are against how many non such.

    Reply
  2. rjw Avatar
    rjw

    EU and US dumping of food and other agricultural on world markets lowers market prices – thereby reducing returns to those African farmers that farm those products. That is a straight cost to African producers One might argue that the lower prices are good for African consumers. But even under conventional trade theory, to the extent that the countries are net exporters, the aggregate effect is a cost. And, normally, africa would be expected to have a comparative advantage in foodstuffs. So one one might expect quite significant net exports in an “undistorted” world (i.e if we hadn’t had a rigged world market for decades).
    But the issue here is not the comparative statics of welfare triangles. I think this is one of those cases where the comparative statics runs into limits very quickly because we are talking about something going on for a long time and the dynamics become more important. Essentially, we deprive them of fair access to one of the few sets of world markets where they actually have something we want to buy. How are they supposed to import capital goods, medicines etc etc to develop without a significant source of foreign earnings?

    Reply

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