• Tag Archives Free Trade
  • The fiscal benefits of free trade

    Western governments have an overriding problem, and that is they have reached or exceeded the bounds of taxation, at a time when legally mandated welfare costs are accelerating. Treasury departments in all the welfare nations are acutely aware of this problem, to which there’s no apparent solution. The economic recovery, so consistently forecast since the great financial crisis, has hardly materialised and has added to the problem.
    There is, if treasury economists could only understand it, a solution in free trade.
    One of the UK’s leading economists and Brexiteers, Patrick Minfordi, produced an interesting paper, which brought up this subject. It got little coverage in the press, and even that was extremely negative. Trading on the Future was the only economic modelling exercise that showed significant benefits for Britain from free trade.ii
    This is the headline from the Independent (19 April): ‘Only economic study showing benefits of Brexit debunked as ‘doubly misleading’.’ The establishment, which is not attuned to free trade, strongly disagreed and presumably felt bound to protect its position.

    This post was published at GoldMoney on August 17, 2017.


  • The German problem: Why Germany’s current-account surplus is bad for the world economy

    The battle-lines are drawn. When the world’s big trading nations convene this week at a G20 summit in Hamburg, the stage is set for a clash between a protectionist America and a free-trading Germany.
    President Donald Trump has already pulled out of one trade pact, the Trans-Pacific Partnership, and demanded the renegotiation of another, the North American Free-Trade Agreement. He is weighing whether to impose tariffs on steel imports into America, a move that would almost certainly provoke retaliation. The threat of a trade war has hung over the Trump presidency since January. In contrast, Angela Merkel, Germany’s chancellor and the summit’s host, will bang the drum for free trade. In a thinly veiled attack on Mr Trump, she delivered a speech on June 29th condemning the forces of protectionism and isolationism. An imminent free-trade deal between Japan and the European Union will add substance to her rhetoric.
    There is no question who has the better of this argument. Mr Trump’s doctrine that trade must be balanced to be fair is economically illiterate. His belief that tariffs will level the playing field is naive and dangerous: they would shrink prosperity for all. But in one respect, at least, Mr Trump has grasped an inconvenient truth. He has admonished Germany for its trade surplus, which stood at almost $300bn last year, the world’s largest (China’s hoard was a mere $200bn). His threatened solution – to put a stop to sales of German cars – may be self-defeating, but the fact is that Germany saves too much and spends too little. And the size and persistence of Germany’s savings hoard makes it an awkward defender of free trade.
    At bottom, a trade surplus is an excess of national saving over domestic investment. In Germany’s case, this is not the result of a mercantilist government policy, as some foreigners complain. Nor, as German officials often insist, does it reflect the urgent need for an ageing society to save more. The rate of household saving has been stable, if high, for years; the increase in national saving has come from firms and the government.
    Underlying Germany’s surplus is a decades-old accord between business and unions in favour of wage restraint to keep export industries competitive. Such moderation served Germany’s export-led economy well through its postwar recovery and beyond. It is an instinct that helps explain Germany’s transformation since the late 1990s from Europe’s sick man to today’s muscle-bound champion.

    This post was published at The Economist


  • “Clear As Mud” Brexit Negotiations Officially Begin: Here’s What To Expect

    Today Britain and the EU officially begin the first day of formal Brexit negotiations, “aiming for a constructive, orderly launch that avoids a noisy clash on the big policy differences over Britain’s exit”, according to the FT although the sellside reaction was decidedly less optimistic, as summarized by SocGen’s Kit Juckes who in previewing today’s events said that he expects “nothing because the UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on borer controls.”
    To be sure, no breakthroughs are expected on Monday, or indeed for some weeks and possibly months to come. The idea is for the EU and UK sides to meet, exchange views, plan practicalities and set agendas, all ahead of more detailed talks in coming weeks. ‘This is about building trust, nothing more,’ said one senior EU diplomat quoted by the FT.
    Looking at today’s main political event, DB’s Jim Reid writes that the Chancellor of the Exchequer Phillip Hammond suggested yesterday in a TV interview that a gentle departure from the EU should be targeted. The Chancellor indicated that ‘transactional structures’ would be needed to help smooth the process and that ‘we need to get there via a slope, not via a cliff edge’ – suggesting a softer tone in negotiations. In contrast to the PM, Hammond also rejected the mantra ‘no deal is better than a bad deal’. Hammond also said that his position was one of a ‘jobs first’ Brexit which is also a slight shift in tone compared to the PM. Separately, Hammond said that the UK government had ‘heard a message last week in the general election’ and that ways to soften austerity were being looked at with voters seemingly growing ‘weary’ of it.

    This post was published at Zero Hedge on Jun 19, 2017.


  • The end of the Anglo-American order?

    There has always been a shared conceit at the heart of the special relationship between the United States and United Kingdom that global leadership is best expressed and exerted in English.
    More boastful than the Brits, successive U.S. presidents have trumpeted the notion of American exceptionalism.
    Prime ministers, in a more understated manner, have also come to believe in British exceptionalism, the idea that Westminster is the mother parliament, and that the U.K. has a governing model and liberal values that set the global standard for others to follow, not least its former colonies.
    In the post-war Anglo-American order those ideas came together. In many ways, it was the product of Anglo-American exceptionalist thinking: the “city upon a hill” meets “this sceptred isle”.
    NATO, the IMF, the World Bank and the Five Eyes intelligence community all stemmed from the Atlantic Charter signed by Franklin Delano Roosevelt and Winston Churchill in August 1941.
    The liberalised free trade system that flourished after the war is often called the Anglo-Saxon model. The post-world global architecture, diplomatic, mercantile and financial, was largely an English-speaking construct.

    This post was published at BBC


  • Trump Talks Tough on Trade, but His Team Is Treading Lightly

    President Trump has called the Trans-Pacific Partnership deal a ‘rape’ of the United States. He has scolded Germany for being ‘very bad’ on trade because it runs a surplus. And in April he said that he was ‘psyched’ to terminate the North American Free Trade Agreement with Canada and Mexico, only to reverse course.
    Despite Mr. Trump’s incendiary talk, his top trade advisers are taking a more cautious approach to dealing with America’s trading partners, striking a more moderate tone than the president but still laying the groundwork for the changes he has promised.
    That more moderate tone has come as a relief to those who feared the Trump administration would swiftly usher in a wave of protectionism, while disappointing some people who hoped that a sweeping rewrite of trade deals would come in the administration’s early days.
    Signs of greater moderation were on display this week when Wilbur Ross, the secretary of commerce, suggested that the administration would actually try to build off some aspects of the Trans-Pacific Partnership trade agreement, or T.P.P., that Mr. Trump abandoned in January as NAFTA renegotiations begin this summer.

    This post was published at NY Times


  • Capitalism Is About Working Less to Earn More

    In 1800, you had to work, on average, one hour to obtain ten minutes of artificial light. Today, this same hour allows you to buy 300 days of light. In 1900, one kilowatt-hour of electricity cost one hour of work. This costs five minutes of our time now. Buying one cheeseburger in McDonald’s required 30 minutes of hard labor in 1950. This same sandwich now costs about three minutes of your life.
    According to British intellectual Matt Ridley, this evolution is the ultimate illustration of wealth in modern societies. In his book The Rational Optimist published in 2010, he evaluates our prosperity by outlining the goods and services we can purchase for the same amount of work. Thus, the main objective of economic development is to reduce the amount of time we have to work in order to produce what we need to live.
    This discourse may sound surprising in a world where it is often said that ‘job creation’ is the most important goal of economic policy. But a job is not an end in itself. It is just a means to live better. As Milton Friedman reminds us in this conference dedicated to free trade, we don’t want jobs per se but productive jobs: jobs which enable us to consume goods and services we produce at a minimum expenditure of efforts.
    In other words, if working is the price we pay to obtain things we want, then economic progress has always consisted of decreasing this price thanks to perpetual productivity growth. This explains our ability to create more wealth with less and less labor, in order to save time for more valuable activities.

    This post was published at Ludwig von Mises Institute on June 1, 2017.


  • Scandal At China’s Grand Silk Road Summit As India Skips, Warns Of “Unsustainable Debt”

    It was supposed to be China’s day of celebrating massive infrastructure spending for the sake of spending (read ghost towns, only now outside China’s borders) as Xi Jinping pledged $124 billion on Sunday for his new Silk Road plan to forge “a path of peace, inclusiveness and free trade” while calling for the abandonment of old models based on rivalry and diplomatic power games. However, it did not go quite as smoothly as expected.
    A celebration years in the making, Xi hosted dozens of world leaders – including a piano-playing Vladimir Putin – on Sunday for the country’s biggest diplomatic showcase of the year, touting his vision of a new “Silk Road” that opens trade routes across the globe. Xi used the summit to “bolster China’s global leadership ambitions” as U. S. President Donald Trump promotes “America First” and questions existing global free trade deals.
    In total, leaders from 29 countries attended the forum, including some of China’s close allies and partners such as Russian President Vladimir Putin, Cambodian Prime Minister Hun Sen, Kazakh President Nursultan Nazarbayev, Turkey’s quasi-dictator Tayyip Erdogan, as well as the heads of the United Nations, and the CapEx leeches from the IMF and World Bank.

    This post was published at Zero Hedge on May 14, 2017.


  • IMF Drops Pledge To “Resist All Forms Of Protectionism”

    One month after a startling reversion by the G-20 finance ministers and central bankers, who during their latest meeting in Baden-Baden dropped a decade-long tradition of rejecting protectionism and endorsing free trade, pressured by Trump’s delegate Steven Mnuchin, the IMF has done the same, and according to a communique from the IMF’s steering committee released on Saturday in Washington echoed the G-20 reversal, and said that officials ‘are working to strengthen the contribution of trade to our economies” while omitting a call from its last statement in October to ‘resist all forms of protectionism.”
    The International Monetary and Financial Committee – which is the IMF’s top advisory panel, composed of 24 ministers and central bankers from nations including the U. S., China, Germany, Japan and France – released the statement during the spring meetings of the IMF and World Bank. Since joint statements at gatherings such as the G-20 and the IMF require assent from members, the change in the U. S. position on trade from the Obama administration is forcng modifications in language that was previously uncontroversial.
    While the trade language was drastically changed, some positions remained the same: the IMFC statement reiterated pledges from October to ‘refrain from competitive devaluations’ of currencies and to avoid targeting ‘our exchange rates for competitive purposes.’
    There were other changes: in addition to the trade stance, the latest communique omits language from October that welcomed ‘the entry into force of the Paris Agreement on climate change.’ Trump is contemplating whether to make good on his campaign promise to withdraw from the deal, as Bloomberg notes.

    The shift in the trade “plege” was due to the Trump administration’s persistent threats to raise tariffs if US trading partners don’t agree to renegotiate trade agreements and create fairer conditions for U. S. goods; in the past week Trump fired the first shot in what may be upcoming trade wars when he signed an executive order looking into curbing steel imports under the guise of “national security” concerns.

    This post was published at Zero Hedge on Apr 22, 2017.


  • Doug Casey Says the E.U.’s Collapse Is Now ‘Imminent’

    Nick Giambruno: Doug, you predicted the fall of the European Union a few years ago. What has changed since then?
    Doug Casey: Well, what’s changed is that the entire situation has gotten much worse. The inevitable has now become the imminent.
    The European Union evolved, devolved actually, from basically a free trade pact among a few countries to a giant, dysfunctional, overreaching bureaucracy. Free trade is an excellent idea. However, you don’t need to legislate free trade; that’s almost a contradiction in terms. A free trade pact between different governments is unnecessary for free trade. An individual country interested in prosperity and freedom only needs to eliminate all import and export duties, and all import and export quotas. When a country has duties or quotas, it’s essentially putting itself under embargo, shooting its economy in the foot. Businesses should trade with whomever they want for their own advantage.
    But that wasn’t the way the Europeans did it. The Eurocrats, instead, created a treaty the size of a New York telephone book, regulating everything. This is the problem with the European Union. They say it is about free trade, but really it’s about somebody’s arbitrary idea of ‘fair trade,’ which amounts to regulating everything. In addition to its disastrous economic consequences, it creates misunderstandings and confusion in the mind of the average person. Brussels has become another layer of bureaucracy on top of all the national layers and local layers for the average European to deal with.
    The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway.

    This post was published at International Man


  • Is Trump About To Flip Again: Ryan Says “TTIP Good For Global Order”

    From Obamacare to NATO, and from Ex-Im Bank to Chinese currency manipulators, President Trump has shown he is comfortable changing his mind ‘bigly’. Today’s exuberant support for “TTIP as good for global order,” from Speaker Ryan, following VP Pence’s meetings in Japan, raises questions about whether Trump’s executive order withdrawing from the Trans-Pacific Partnership (TPP) free trade agreement is the next big flip-flop.
    ***
    During his presidential campaign, Trump often criticized the TPP agreement and called it a “terrible deal,” which is harmful for US workers. On January 23, Donald Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership (TPP) free trade agreement and promised to renegotiate the North American Free Trade Agreement (NAFTA). The Trump administration was expected to at least delay talks on the TTIP deal, according to media reports.

    This post was published at Zero Hedge on Apr 19, 2017.


  • Two Common Objections to Unilateral Free Trade

    In spite of centuries of sound economic theory describing the benefits of free trade, we continue to hear two objections to free trade. We even sometimes hear these from friends who consider themselves generally to be in favor of free trade, even unilateral free trade.
    The first objection I will call the Donald Trump objection – the claim that imports have cost Americans good paying jobs, from which the nation has never recovered and cannot recover as long as we allow imports to replace American made products. The second I will call the essential industries objection – the claim that there are some products that America must produce itself, no matter what the cost or inefficiency, in sufficient quantities to ensure access to these products in time of war.
    Objection Number One: Free Trade Causes Unemployment
    The first objection is easiest to dismiss, for it attempts to refute the “Law of Comparative Advantage,” postulated exactly two hundred years ago by the great English economist David Ricardo. Peaceful cooperation among peoples of the earth has no limit. Just as we Pennsylvanians find it advantageous to import pineapples from Hawaii rather than attempt to grow them, Americans find it advantageous to import many goods from people who just happen to live in foreign countries. Absent government intervention to restricts one’s own citizens from entering into peaceful cooperation to produce any legal product or service, all will find employment and all will be wealthier.

    This post was published at Ludwig von Mises Institute on April 7, 2017.


  • China May Import Its Workers To Canada As It Seeks “Total Access” To Canadian Market

    China’s ambassador to Canada, Lu Shaye, told the Globe and Mail that Beijing is seeking full access to Canada’s economy ahead of free trade talks, a move that could result in Chinese state-owned companies bringing their own employees to work on projects in Canada. Charles Burton, an associate political science professor at Brock University, said bringing their own workers abroad is ‘normal practice’ for Chinese companies. ‘It’s not as if [the Chinese] would be asking something of Canada that they don’t expect from other countries,’ he said.
    Earlier this year, Canadian and Chinese officials held exploratory talks on a free trade deal and another meeting is set to take place this month, Lu told the Globe, just as the US prepares to renegotiate NAFTA with Canada and Mexico.

    This post was published at Zero Hedge on Apr 2, 2017.


  • This Is The 6-Page Letter Delivered From The UK To The EU Triggering Article 50: Full Text

    Moments ago, the UK Prime Minister’s office posted the 6-page letter that was delivered by the UK to the EU, triggering Article 50 and officially starting the 2 year Brexit process.
    In the letter, Theresa May proposes ‘bold and ambitious’ Free Trade Agreement between the United Kingdom and says the agreement should cover important sectors, including financial services and network industries. Some of the key highlights from the letter, courtesy of Bloomberg:
    U. K. Seeks to Minimize Disruption in Brexit Talks U. K. Seeks Technical Talks on Policy Details ASAP U. K.’s May Wants to Avoid Return to Hard Irish Border U. K. Seeks Implementation Periods to Ease Transition to Brexit U. K. Seeks Free Trade Agreement That Includes Finance

    This post was published at Zero Hedge on Mar 29, 2017.


  • Why free trade is officially dead

    G20 Finance ministers meeting in Baden Baden last weekend agreed, on America’s insistence, to drop the long-standing commitment to free trade from the final communiqu. It is hard to know to what extent America’s position is driven by her autarkic view on world trade, or to what extent it is an acknowledgement of the fruitlessness of paying lip-service to an ideal which is never delivered. Doubtless, it’s a bit of both.
    It is certainly true that finance ministers in the advanced nations have always shown a protectionist attitude towards international trade, protectionism that has intensified through attacks on American international corporations, which to a large extent can choose where to pay their taxes. The thrust of research by international NGOs, particularly the Paris-based OECD, has been to decry tax competition; however, even though it has bullied tax-havens to supply tax-related information to revenue-hungry states, it has failed to stop multinationals, armed with teams of tax lawyers, from complying with their statist demands.

    This post was published at GoldMoney on MARCH 23, 2017.


  • The G-20 Was Never Serious About Free Trade

    There is much hand-wringing in the financial media this week after Treasury Secretary (and Lego Batman producer) Steve Mnuchin helped push the G-20 to remove its long standing language to ‘reject protectionism’ from its annual statement. While the Trump administration’s embrace of anti-trade policies is a very real concern for the global economy, it is worth noting that the G-20’s desire for free trade was every bit as sincere as the UN’s commitment to human rights. What the G-20 members call ‘free trade’ is really government managed trade, complete with complex multinational trade agreements that Trump is right to oppose.
    After all, if the G-20’s criticism of protectionism was worth more than the ink it was written with, then there could have easily long been an agreement dropping all trade restrictions – or at the very least anti-trade policies between member countries. Yet instead every single member of the G-20 engages in a variety of protectionist schemes.

    This post was published at Ludwig von Mises Institute on March 22, 2017.


  • America Is Hardly a Bastion of Free Trade

    Rhetoric has recently trumped reality. It has become a misconceived bit of common ‘knowledge’ that the United States of America is a bastion of free trade. Little could be further from the truth. The ‘freest’ nation on earth, as we are taught to believe, imposes a staggering number of tariffs, import and export bans, sanctions and embargoes. Yet somehow ‘free trade’ is blamed for the financial ills of the unemployed in the formerly industrial Midwest. Instead of taking a serious look at our existing trade policies, and maybe reducing some of the regulations, President Trump promised Midwesterners that their inefficient factor jobs that have been outsourced to the ‘right to work’ south and overseas will be brought back by imposing new import taxes on specific companies. It is a nave and ignorant notion that singling out countries and taxing the goods they import into the US will somehow help the unemployed while having absolutely no effect on the country’s general productivity and standard of living. Besides, we’ve already been doing that for far too long.
    The US imposes tariffs on over 12,000 different goods and services. No that is not a typo – over 12,000. Some of these tariffs are so significantly prohibitive that they are effectively outright bans. Sugar, for example, is one product that Americans get gouged on, paying an average of $277 million more per year than they should. That is $277 million per year that would otherwise be used to consume other goods, invested in growing businesses, creating jobs, and raising real wages. This is nothing new. The original tariff was imposed as a ‘temporary’ protection for US sugar farmers, that was more than 80 years ago. It has protected US sugar farmers, but has also decreased the productivity of the sugar farmers’ land. The laws of absolute and comparative advantage would dictate that the land on which sugar cane and sugar beets are grown and harvested should be used to produce goods in which these particular regions can more (cost and time) efficiently produce.

    This post was published at Ludwig von Mises Institute on March 20, 2017.


  • Trump Wins: G-20 Drops ‘Anti-Protectionist, Free-Trade, & Climate-Change Funding’ Commitment

    After delays and hours of discussions amid tensions over ‘trade’ comments between the United States and the rest of The G-20, it appears President Trump has ‘won’. While China was “adamantly against” protectionism, the finance ministers end talks without renewing their long-standing commitment to free trade and rejection of protectionism after US opposition.

    This post was published at Zero Hedge on Mar 18, 2017.


  • Loonie, Peso Jump After Peter Navarro Says He Wants US, Canadian, Mexican Trade “Powerhouse”

    Peter Navarro is again making headlines, and moving markets, when moments ago Trump’s top trade advisor was quoted by Bloomberg as saying he wants the US, Canada and Mexico to form a trade “powerhouse”, supposedly one which is quite different from the existing “NAFTA” trade arrangement.
    Navarro is said to be “quietly working to forge an alliance with Mexico, even as U. S. plans to build a border wall and threats to withdraw from Nafta continue to inflame tensions with its third-largest trading partner.”
    Navarro, who as head of the White house National Trade Council will play a leading role in the effort to re-negotiate the North American Free Trade Agreement, said in an interview the U. S. wants Mexico and Canada to unite in a regional manufacturing ‘powerhouse’ that will keep out parts from other countries.

    This post was published at Zero Hedge on Mar 15, 2017.


  • 7 Steps Toward a More Sensible Foreign Policy

    For the sake of peace and prosperity in the world, the US should take the true leadership role in proving to the world that free trade and non-interventionism are all that is required. In other words, all nations should simply mind their own business and set good examples. Just as laissez faire policies work within a nation’s boundaries, free cooperation between individuals of different nations will quickly reveal which policies work and which do not. It is important to remember that there is nothing that a nation can do internally to force other nations to subsidize its economy. All subsidies, currency manipulations, etc. are self-defeating. Therefore, the US should take the following actions to remove government interference with peaceful, cooperative trade between its citizens and the citizens of other nations.
    One: Adopt unilateral free trade. Completely eliminate all restrictions on the importation and export of legal products. For trade purposes treat the rest of the world as if it were part of one’s own country; i.e., the freedom to buy and sell all legal products anywhere in the world. It is a mercantilist fallacy that a nation becomes wealthy by selling more than it imports, thereby accumulating gold (or, nowadays, a “trade surplus” ). On the contrary, mercantilist nations deny their citizens the right to become wealthy. They do not allow their citizens to exchange the product of their labor for the most goods and services. Rather they deny their citizens a higher standard of living by forcing them to purchase higher priced and/or lower quality domestic goods. If this were not the case – i.e., if a nation could produce all things that it needed at the lowest worldwide price – trade barriers would not be needed, since no one would wish to purchase inferior/higher priced foreign goods. Of course, this is not the case at all. The division of labor is a natural, beneficial process that knows no international, political boundaries. If Hawaii were not a state of the union, but rather a foreign nation under its own political system, would Americans be better off by denying themselves Hawaiian grown pineapples and instead grow inferior pineapples at higher prices somewhere in the remaining forty-nine states? Of course not. Free trade allows for the most efficient allocation of worldwide capital to produce the most goods and services for those who participate.

    This post was published at Ludwig von Mises Institute on March 13, 2017.


  • The State of US State Exports

    A domestic political battle is brewing in the United States between President Donald Trump’s administration and the Republican Party over the president’s economic plans. Trump’s key economic positions during his campaign included his opposition to free trade deals, his promise not to cut Social Security and Medicare, and his support of large-scale infrastructure spending. These are all positions that have clashed with general Republican orthodoxy. They were also the reason that some Bernie Sanders supporters found themselves nodding in unexpected agreement with Trump’s proposed policies.
    We can bring one key insight to this conversation as the battle lines are being drawn. It is extremely difficult to speak of the US economy as an undifferentiated whole. The US has varied economic interests at both the regional and state levels. This makes it extremely difficult to find a one-size-fits-all policy that can fix every problem.
    This is not only true for the US – almost all large countries (and even some small ones) are highly regionalized. It is also not to say that national economic statistics are useless – they can be used to make important observations about the overall performance of a national economy, especially in terms of the economic power of a given country. But too often, discussion of the US economy focuses disproportionately on the national level and not enough on the regional.

    This post was published at Mauldin Economics on MARCH 6, 2017.