Posts tagged with: International Trade

SONY DSCJapan and Australia recently signed and passed a trade agreement that abolishes or reduces some tariffs on their highest grossing trade items: beef and dairy from Australia and electronics from Japan. State officials as well as the media have branded this a “free trade agreement;” however, this is actually an example of a “Preferential Bilateral Trade Agreement.” While this is not as desirable as free trade agreements are, it is certainly a step in the right direction. Trade is almost always mutually beneficial provided that neither party is coerced ­­­­­– if it were not, then trade would never take place. Because of the international success of free trade agreements in that region, China is being forced to keep up by becoming more competitive in the international market.

Early this month, China met with South Korea to begin drafting a new bilateral trade agreement. The result is the Won-Yuan trading market in Seoul, which will be complete by the end of the year. This will enable South Korea to trade with China and not rely upon the dollar to do so, thus accelerating trade between the two countries. Up until this agreement passed, the Korean Won was not directly convertible to the Chinese Yuan, requiring the two countries to find another currency as the medium of exchange, specifically, the U.S. dollar. The agreement illustrates that China is increasing the economic freedom of the country in an attempt to boost its wealth and trade efficiency. Acton’s director of research, Samuel Gregg recently discussed transitions to more economic freedom and the ensuing religious freedom that comes with that. Gregg states:

Once you grant liberty in one area, it’s hard to preclude freedom from spreading to other spheres. Economic liberty, for instance, requires and encourages people to think and choose freely. Without this, entrepreneurship is impossible. It’s challenging, however, to limit this reflection and choosing to economic questions. People start asking social questions, political questions, and, yes, religious questions. And many Chinese have decided Christianity is the answer to their religious ponderings.

China has the experienced benefits from economic deregulation experiments, such as in Hong Kong, and the country as a whole seems to be headed down a very similar path. Liberty in China has had a direct connection to economic improvement. The government seems to have had a proclivity to allow such freedoms in order to attain wealth. By lessening trade restrictions, they are crafting a tomb for their socialist regime.

Thanks to the trade act, China is allowing for religious freedom to take hold as Gregg points out. China is still one of the most religiously repressed countries at this time, which is continued only due to the government’s power over it.  With the wane of the Chinese government’s power, there will be a more vibrant religious and cultural exchange that comes naturally with trade.  When there are multiple faiths and ideals, ideas are challenged and thoughts are provoked. Truth is often the result, and liberty follows, whether it be economic, cultural, or religious. In this particular instance, North Korea sees the trade agreement as an attack.  One stratagem countries such as North Korea employ is isolation. The North Korean people know little more than what the government tells them, and they are only aware of the culture that the government deems appropriate.

The days of the Chinese socialist state are numbered. Chinese people are ready for change, as can be seen in their willingness to adapt to more Western methods of thinking and ideals such as the growing respect for personal liberty and free markets. If China is careful about the transformation, and realizes what is happening; it could become one of the wealthiest countries in physical capital, knowledge, culture, and liberty. It remains a country to keep a careful eye on over the next decade.

comparativeadvantageNote: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.

The Term: Comparative advantage

What it Means: The ability of an individual or group of individual (e.g., a business firm) to produce goods or services at a lower opportunity cost than other individuals or groups.

Why it Matters: There is a story of the distinguished British biologist, J.B.S. Haldane, who found himself in the company of a group of theologians. On being asked what one could conclude as to the nature of the Creator from a study of his creation, Haldane is said to have answered, “An inordinate fondness for beetles.”

When we examine creation to uncover what it reveals about the character of God, one of the things we discover time and time again is the Creator’s fondness for diversity. Like Haldane, we can see this by looking at biology (e.g., there are more species of beetle than birds or mammals combined). But we can also find it when we turn to economics.

A primary example of God’s enthusiasm for diversity is the concept of comparative advantage. While the definition of the them makes it sounds dull and wonky, comparative advantage is a beautiful, theologically profound norm of creation.

Fully appreciating the nuances of the ideas requires timely reflection. But understanding it can be achieved when a few minutes. In this brief video, economist Donald J. Boudreaux does a masterful job of explaining how, when combined with trade, comparative advantage improves human communities.
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On Monday, I linked a podcast that Ancient Faith Radio host Kevin Allen did with Metropolitan Antony, primate of the Ukrainian Orthodox Church in the United States, about the ongoing crisis in the Ukraine. Allen has followed up with another interview, this one with Ukraine expert James Jatras, a former U.S. diplomat, U.S. Senate staffer and a member of the American Institute of Ukraine. Jatras talks about a number of issues, including the legal basis — or lack thereof — of the current government in power, deep seated government corruption on all sides, the prospect for elections, Church-State relations, and insights into Ukraine’s trade relations with both the West and Russia. The current situation, he warns, is fraught with risks on all sides.

“Will they be able to hold elections?” he asks. “Will violence break out in other parts of the country? Let’s hope not. I think ultimately a lot of this may be decided by the economy … Whom do you even send the aid to in Ukraine? I don’t think there will be much aid coming to Ukriane from the West. At some point they’re going to turn back toward Russia.”

Jatras continued: “I think somehow, the Europeans especially, and the Russians need to work out some understanding between themselves and … see if they can help promote reconciliation among Ukrainians. And that’s going to be a very tall order.”

Listen to “Ukraine – Another Perspective” on Ancient Faith Radio.

If you’ve raised multiple children, you’ve dealt with sibling bickering, particularly if said children are close in age. With a three-year-old boy and a two-year-old girl, both just 13 months apart, our family has suddenly reached a stage where sibling play can be either wholly endearing or down-right frightening. Alas, just as quickly as human love learns to bubble up and reach out, human sin seeks to stifle and disrupt it. If that’s too heavy for you, “kids will be kids.”

twotoddlersfightingThe areas of contention vary, but most of it comes down to that age-old challenge of sharing, or, as others might frame it, the classic economic problem of scarcity. There is only one fire truck, one soccer ball, and one Buzz Lightyear, even when, in reality, there may be two or three or four. If Toddler X wants to play with Toy Z, no matter how many alluring gizmos and gadgets sit idly by, Toddler Y will all of a sudden long for Toy Z as well. Did I mention the Fall of Man?

My wife and I have done our best to teach proper behavior, maintain order, wield discipline accordingly, and love and hug and encourage along the way. When it comes to sharing, it’s no different. We promote generosity, emphasize patience, teach to inquire politely about the prospects of “collaborative consumption,” seize items when peace is rendered impossible, enforce property rights and ownership where fair and applicable, and so on.

Yet, as any parent knows, toddlerhood is characteristically suited to making a mockery of one’s parenting philosophy, whatever it may be. Just when you think you’ve trained your child to sit quietly when silence is appropriate — teaching manners, establishing authority, setting boundaries, padding the circumstances with (sugary) incentives, etc. — junior will kindly decide that he’d rather forget about all that and shout something about lavatories or Dad’s big bald head. (more…)

Samuel Kampa recently reviewed Victor Claar’s monograph, Fair Trade? Its Prospects as a Poverty Solution. Kampa begins by commenting on how quickly the “fair trade” moment has gained popularity, especially among the college and post-college aged, but also in the church community. He says that young people “are doing one thing right: expressing sincere concern about world poverty.  If this concern can be channeled into effective action, great things can happen.  Of course, effective is the key word.”

First, he offers a short list of reasons, given by fair trade advocates, why the fair trade movement is necessary:

1) Many farmers and workers in the international community receive very low prices for foods and commodities and are forced to live on less than $2 a day.
2) Many of the foods that Western consumers eat have been harvested by grossly underpaid farmers and workers.
3) The fact that Western consumers benefit at the expense of impoverished farmers and workers is both unfair and morally undesirable.
4) Agencies like Fair Trade USA guarantee fairer prices for crops and commodities, vastly improving the quality of life of farmers and workers.
5) Fair trade products are more expensive than non-fair trade products, but fair trade farmers and workers are receiving fairer prices.
6) Fair trade materially benefits the lives of impoverished farmers and workers at little cost to the consumer.
7)  Therefore, consuming fair trade products is morally preferable to consuming non-fair trade products.

Kampa explains Claar’s conclusions about fair trade: “Far from improving the lot of the poor, fair trade actually hurts non-fair trade farmers, keeps fair trade farmers in relative poverty, and diverts money from more efficacious charitable endeavors.” Kampa offers the two main critiques against the movement from the monograph as: “(1) Fair trade economically damages non-fair trade farmers. (2) In the long term, fair trade does more harm than good to fair trade farmers.” He then points out that “if true, [these two critiques] damage premises 4-7 in the pro-fair trade argument outlined above.” (more…)

Today at Ethika Politika, I critique David Bentley Hart’s recent (non-)response to the critics of his attack on natural law in public discourse last month, appearing in the most recent issue of First Things. My article, “Hart’s (Non-)Response to His Critics: Trying to Have It Both Ways?” is a response to Hart’s recent article, “Si Fueris Romae.”

While Hart’s most recent article may seem unrelated, it starts to sound remarkably similar to his article on natural law from last month about half way through. It is this convergence between the two that I examine and critique.

Ultimately, Hart seems to be trying to “have it both ways” when it comes to natural law. I find this to be particularly evident from his conclusion, in which he criticizes US policy toward China, writing,

Decade upon decade, we hear of the arrest, imprisonment, torture, and murder of China’s religious minorities (house-church Christians, Tibetan Buddhist monks, and so on), of the cruel measures taken to enforce the nation’s one-child policy, and of countless other chronic atrocities, but our response consists in little more than a sporadic susurrus of disapproval, just loud enough to flatter ourselves that we have principles but not so loud as to allow those principles to interfere with fiscal or trade policy. We try to shame the ruling party with pious panegyrics on “human rights,” as though the concept had any appreciable weight outside the cultural context that makes it intelligible, but we buy and borrow from the party, and profit from its policies, without hesitation or embarrassment. I think the government of the PRC might be pardoned for concluding that our actions, and not our words, indicate where our true values lie.

While at Ethika Politika I critique his reliance upon the concept of natural rights even while claiming that only our “cultural context … makes it intelligible,” there is another point to consider here. Putting aside the inconsistency of his principles, would his recommendation — more restricted “fiscal or trade policy” — really have the effect that he hopes? (more…)

Trade and Mutual AidIn the forthcoming issue of Comment magazine, I examine how free trade orients us towards the good of others. In doing so, I argue against the value of pious banalities and cheap slogans. I include examples like, “Go in peace; keep warm and well fed,” or, “When goods do not cross borders, armies will.” The latter is often attributed to Bastiat, and while it captures the spirit, if not the letter of Bastiat’s views, the closest analogue is actually found in Otto Tod Mallery: “If soldiers are not to cross international boundaries on missions of war,” wrote Mallery in 1943, then “goods must cross them on missions of peace.”

I was struck by the disconnect between ideology and reality, or between idealism and realism, in an anecdote from a recent foreign policy speech from Sen. Rand Paul. As Paul notes,

In George Kennan’s biography, John Gaddis describes President Clinton asking Strobe Talbot “why don’t we have a concept as succinct as ‘containment.’” Talbot’s response [was] “that ‘containment’ had been a misleading oversimplification; strategy could not be made to fit a bumper sticker. The president laughed… “that’s why Kennan’s a great diplomat and scholar and not a politician.”

I guess that’s also the reason that I’ll never be a politician, either. As Lord Acton observed, “Every doctrine to become popular, must be made superficial, exaggerated, untrue. We must always distinguish the real essence from the conveyance, especially in political economy.” The key for responsible governance is not to lose sight of the complexity that lies behind popular exaggerations and conveyances.

As I argue in “Trade and Mutual Aid,” the temptation to rest easy with simple formulas to complex problems is common, but must be resisted: “Divorced
from a more comprehensive conception of the human person and social flourishing, an uncritical reliance on free trade to solve the world’s problems can well become destructive.” Even so, I conclude, “Free trade is a system that imperfectly, and yet with some measure of success—as Bono and countless others are beginning to recognize anew—orients us toward the good of others.” In the course of this piece, I draw on a variety of sources, including Frédéric Bastiat, Adam Smith, John Calvin, Johannes Althusius, Abraham Kuyper, Herman Bavinck, Pope Paul VI, and Friedrich Hayek.

To get your copy of the Comment issue on the topic of persuasion, including my piece on the fundamental persuasive nature of exchange, “Trade and Mutual Aid,” subscribe by March 1. You’ll also find content from new editor James K.A. Smith, Anne Snyder, Jim Belcher, Ashley Berner, Jonathan Chaplin, Marilyn McEntyre, Janet Epp Buckingham, D. Bruce Lockerbie, Calvin Seerveld, Natalie Race Whitaker, and Nicholas Wolterstorff.

Blog author: mhornak
posted by on Monday, April 30, 2012

Is ‘fair trade’ more fair or more just than free trade? While free trade has been increasingly maligned, The Fair Trade movement has become increasingly popular over the last several years. Many see this movement as a way to help people in the developing world and as a more just alternative to free trade. On the other hand, others argue that fair trade creates an unfair advantage that tends to harm the poor.
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Acton’s director of research Samuel Gregg is up at Public Discourse, with a piece titled “Monetary Possibilities for a Post-Euro Europe.” With his usual mix of sophisticated economic analysis and reference to deep principles, Gregg considers European countries’ options should the eurozone fail. If that happens, he says, “European governments will have a once-in-a-lifetime opportunity to rethink the type of monetary order they wish to embrace.”

One such scenario is a three-way monetary division within the EU that reflects the differing political commitments and economic priorities of different nations. Germany and the more fiscally responsible eurozone members such as Austria, Finland, and the Netherlands could, for instance, decide to reconcile themselves to being the only ones with the necessary fiscal and monetary discipline to maintain a common currency.

Alongside this bloc would be two other groups. One would consist of those EU countries such as Britain, Sweden, and Denmark that have maintained their own monetary systems because of reservations about the euro’s implications for national sovereignty. Another group would include EU nations such as Greece, Portugal, and Italy that are simply unable or unwilling to embrace the disciplined monetary and fiscal policies required by a common currency; these nations would consequently find themselves outside the eurozone and reverting to their national currencies.

A more radical monetary opportunity for a post-euro EU would be currency competition. This was once proposed by Britain’s Margaret Thatcher as an alternative to the present common currency. Contemporary proposals for currency competition, such as that advanced by Philip Booth and Alberto Mingardi, involve the monetary authorities of different countries authorizing the use of currencies alongside the euro in domestic settings other than their own. Consumer choice rather than state sovereignty would thus ultimately determine which currencies were used.

Yet another option would be the embrace of what might be called a European gold standard. In the 1950s and 1960s, the German economist Wilhelm Röpke argued that European monetary integration could occur via a nucleus of countries agreeing to adhere to a gold standard, much as had happened somewhat spontaneously in the nineteenth century through a process of unilateral decision-making by individual countries. Once this had occurred, adherents of such a gold standard would have to insist upon all members maintaining monetary discipline as well as freedom and stability in foreign exchange markets.

The stability of the European currency would be assured not by EU bureaucrats, but by the gold standard itself, and by allowance for the expulsion of countries that abuse their big-boy privileges.

Britain just rejected an EU treaty because the Conservative Party decided Brussels was trying to capitalize on the Mediterranean crisis by grabbing more power. The three proposed currency models, Gregg argues, would maintain countries’ freedom by yanking monetary power from central bureaucrats who exercise political power. He reflects further on the composition and history of the eurozone, on the countries’ political and economic freedom, and on what Röpke would have to say in the rest of the piece.

Congress insults our intelligence when it tells us that Chinese currency games are to blame for our trade deficit with that country and unemployment in our own. Legislators might as well propose a fleet of men-o’-war to navigate the globe and collect all its gold: economics is not a zero-sum game.

An exchange on yesterday’s Laura Ingraham Show frames the debate nicely. The host asked Ted Cruz, the conservative Texan running for U.S. Senate, what he thought about the Chinese trade question. Said Cruz, “I think we need to be vigorous in dealing with China, but I think it’s a mistake to try to start a trade war with them.”

“The trade war is on, and we’re losing it,” Ingraham responded. “[China is] subverting the principles of free trade.”

We blockaded the ports of the Barbary pirates when they subverted the principles of free trade — is Ingraham looking for a similar response now? No, she wants weenier measures: just some punitive sanctions here and there to whip China back into shape (because those always work).

Conservatives who are looking through the Mercantilist spyglass have got to put it down, because it distorts economics in the same way Marxism does. Economic growth and expansion of the labor market don’t come by the redistribution of wealth; they come by allowing man to exercise his creative talents, to innovate, to produce.

Protectionists also tend to ignore the inverse relationship between the trade deficit and the inflow of capital to a country. We are a nation of entrepreneurs, and entrepreneurs require investment. All business requires investment. If it’s Chinese investment, then Chinese investors see long term value in the U.S. economy. Sorry I’m not sorry about that.

Our leaders do the country a disservice by proclaiming that unemployment is caused by a trade deficit, and that a build-up of retaliatory tariffs is the way to fix the trade deficit. And they do other countries a disservice also, because U.S. protectionism hurts our trade partners (or potential trade partners). Holding back U.S. economic progress by artificially retaining manufacturing jobs, for example, means that workers in China or Vietnam are denied employment opportunities. It’s mindless selfishness.