On Vox’s and Miller’s Free Trade Debate.
I thought it was rather interesting debate, however there are a few points I want to mention that I thought were not fully spelled out.
Protectionism isn’t a Lack of Trade
First, it is important to note that free trade is not necessarily the same thing as no trade. Which means many of the benefits, or at least some of them can be realized with a somewhat protectionist stance. I certainly believe that we should start with free trade and then move protectionist as needed.
Free Trade and the Movement of People
It is important to note that Dr. Miller is wrong about the movement of people. The example in this case is robotics. Vox made the point that if you want to specialize in robotics you need to move to South Korea or Japan. Dr. Miller rebuttal was that if a bunch of people wanted to not move to Korea or Japan, then they would have a competitive advantage in terms of wages. However this is irrelevant because there will be a technological advantage–mainly a knowledge advantage which will be different to catch up. My rule of thumb is that it takes 4 times less time to learn something when someone else is teaching you. So even if the engineers and manufacturers in, let’s say, Boston want to participate in robotics, they are still many years behind technologically. The difference in wages in high skill jobs cannot make up for technical knowledge. In order to make up the difference, either people from Japan and Korea neeed to immigrate to Boston to bring that knowledge. Or someone in Boston has to be willing to spend a lot of money reinventing the knowledge that exists in Korea and Japan. Note that however, if the investor were to spend the capital in Korea and Japan, it could be used inventing new technology. That is essentially the cost of getting Boston up to speed in robotics technology is economically wasted in terms of free trade. So truly free trade requires people who specialize to move to places where everyone else specializes.
It is worth noting, however, that there is a benefit as having many people in the same area encourages innovation and progress. Examples include Vienna and Berlin as hotspots of physics and mathematics in the early 1920s and 1930s and Silicon Valley and Hollywood today.
Protectionism is a form of national defense
Perhaps the biggest argument, in my mind, is national defence. Without getting into a discussion on the theory of war, I contend that the ability to make guns, bombs, ammunition, ships, communication devices, and other instruments need for war are necessary for winning a war. It could be that you can purchase them, however the best way to assure that you can acquire them is to produce them yourselves. As such, having a huge manufacturing bases at home allows these tools to be redistributed for war more quickly and readily than building new facilities. That is the production of cell phones can be readily converted to military grade communications systems, however the production of social services or tourism cannot be readily converted into production. So every country has a desire to specialize in manufacturing for national defence reasons. This means countries are incentivized to subsidize these industries either through tariffs or direct capital injection. Free trade should therefore, quickly, develop into unfair trade.
Free Trade isn’t Necessarily Fair
One of the assumptions for free trade is that everybody plays by the same rules. However this is, in general not the case. There is a difference in IP laws, labor laws, environmental and regulatory laws from location to location. These differences will have an effect on each area to be competitive in different industries, and can have additional negative externalities. Below I see two practical issues that occur today.
IP issues with free trade discourages innovation. There have been many reports of China stealing intellectual property. This discourages innovation because reverse engineering takes significantly less time than engineering. Without proper intellectual property protection and enforcement, free trade could stand in the way innovation.
All the arguments for free trade assume fair trade, however this isn’t necessarily the case. For instance in the lumber industry, we cut trees down in America then ship them across the Ocean to Russia to be processed instead of converting them to lumber and paper here. The reason is primarily a difference in environmental and labor laws (primarily environmental). Specifically Russia and Japan allow their factories to use chemicals which the EPA has deemed harmful to the environment. As such we cut trees in the U.S. ship them half way across the world and then ship the paper back to the U.S. (As an aside this may no longer be the case. I heard it from a friend who used to work in the pulp and paper industry 30 years ago).
A better example is that the U.S has bought one quarter of the world’s supply of mercury to drive the cost of mercury up. This is because their is a reaction which will cheaply filter out gold from water, but it involves dumping lots of mercury into the water. This process is legal in many parts of the world, so the U.S. has made it economically infeasible by buying up the supply of mercury. While this is a clear case of economics working, it is also a very clear case of possible negative side effects of differing environmental laws.