Saturday, July 02, 2005

Screw Africa, Japan, Europe and China; bring on the trade wars.

I am watching Live 8 on MTV and it seems to be a really cool concert and might actually push the G8 into lowering sending some aid to Africa and maybe even lowering tariffs on some agricultural products. Great you are thinking. There are people starving in Africa while the rich white farmers are making billions due to the trade protection and other subsidies given to them by national governments. The idea behind Live 8 is that they are not actually asking for your money, just your 'support'. Now, this is a bit misleading. When they are asking people to pressure the G8 into sending money to Africa, they are in fact asking the G8 to send money collected from everybody's taxes. This money is the citizen's money. They are also asking for a decrease in the protection granted to farmers in developed countries. This again is an appeal to redirect money that otherwise would cycle through the national economies towards the national economies of African nations. These are significant sums of money. In fact, unless we would like the abandonment of millions of acres of farmed land in the United States, France and Japan, these are steps that need to be avoided. The final effect of such steps in the United States would be the creation of a large country where there will be huge cities with huge suburbs and large stretches of abandoned land in between.

Pardon me, of course, but screw the poor African farmers. The national governments of Europe, America and Japan owe nothing to them. There is no social contract between rich nations and poor nations, and no responsibility for poverty or starvation can be placed on the doorstep of the G8 nations.

There is however a social contract between the national governments and their citizens. The governments have a duty to protect the economic well-being of their working citizens - be they farmers or industrial workers. Obviously, since their citizens also happen to be consumers there is a trade-off between the well-being of the producers and the well-being of the consumers. It should be noticed that as the wage-earning laborers are also the consumers, the destruction of the industrial wage-earning base limits the ability of the wage-earners to buy consumer products. In any case, the destruction of the industrial base through the free-trade export of industry produces higher profits for the owners of corporations, thus effectively redistributing wealth from wage-earners to those that own the capital. International corporations control almost all of the industrial production and the distribution outlets for consumer goods. Less than half of the US households own stocks, and of that the vast majority is in the hands of the top 5% of the population. This small minority benefits from globalizaton and free-trade. This is the explanation for the rising economic inequality that is prevalent in every country that does not protect its industry and its wage-earning base. A second problem is that the redistribution of wealth also should in the long-run have the effect of decreasing the size of the national market because people that make more money spend less of their income, as a percentage, on consumption than the middle class and the poor. They also have higher savings rates, but with the lack of controls on capital movement, are likely to seek higher returns on their assets and to send their savings for investment abroad. Why invest in a contracting national market with high labour costs when there are no barriers to imports when you can gain bigger advantages from investing in markets that are actually protected by their national governments? There is in fact no free-trade! The Japanese, the Chinese and others subsidize their own industries through the manipulation of their currency and through the limits placed on imports. The Europeans subsidize their own industries through giving money to unproductive industries only to make sure they stay afloat.

The current trade policy also effects the ability of the US government to collect taxes from its citizens and to fund its current spending commitments. The ability of the rich to use all the tax loop-holes at their disposal and the fact that long-term capital gains and dividends are also generally taxed at lower rates than middle-class incomes, mean that the taxes collected by national governments should be lowered by the redistribution of wealth thus further decreasing the ability of government to help its citizens.

Last, but most important is a misconception that seems to be common belief. This, the idea that the wealthy American national market is international public property is just plainly false. This vast market owed its wealth to the infrastructure created and maintained by the national government which paid for them using taxes levied on local taxpayers and on local tax-paying businesses. It seems reasonable to give those companies and citizens that created the infrastructure some advantages in access to the market in return for their contribution to its creation. It also makes sense to create national economic policy based on the interests of the majority that doesn't have significant stock holdings rather than on the interests of a large minority that owns the capital. This effectively means putting up trade barriers to protect whatever is left of American industry and to foster the reindustrialization of America. The protection of the US market will stimulate large investments by foreign and domestic companies that wish to continue to have access to the US market.

Proceeding from this point onwards on the path that has led to a situation where the US has a trade deficit of more than half a trillion is plainly insane. It should be understood that every dollar of the trade deficit is a dollar that is not cycling through the US economy. The impact of a half a trillion dollar trade deficit is in fact trillions lost to the national economy if you consider that money spent in a local economy circulates more than once through the economy. A trade deficit is one of the worst kinds of inefficiencies that a national economy can have. The only thing that has kept the US economy afloat is the fact that foreigners and foreign governments are still content buying up American bonds and companies thus ensuring that more and more money will flow out of the country in the future, and constantly undermining the ability of the US to pursue an independent economic policy.

Without reindustrializing through government protection of the US market for US-produced products, the United States is doomed to become a second rate power over the course of the next 25 years. Yes this is protectionism and there might be trade wars as a result. It might be about time we had a trade war. Who will be hurt more from this? The US economy, which is running a trade deficit of half a trillion dollars or the Europeans, the Japanese and the Chinese who are running a surplus? A trade war, or the threat thereof seems to be the only way of bringing US trade policy and economic relations between the US and the rest of the world back to a sane long-term policy. So, basically as I stated at the top, screw Africa, Japan, Europe and China; bring on the trade wars.

3 Comments:

Blogger E$ said...

What do you think of this article?

http://www.foreignaffairs.org/20050301facomment84201/david-h-levey-stuart-s-brown/the-overstretch-myth.html

It seems to argue the exact opposite of what you advocate.

12:25 PM  
Anonymous Dasha said...

I completely disagree with this paragraph:

" Pardon me, of course, but screw the poor African farmers. The national governments of Europe, America and Japan owe nothing to them. There is no social contract between rich nations and poor nations, and no responsibility for poverty or starvation can be placed on the doorstep of the G8 nations. "

There is a social contract between nations. Maybe it's not as strong as one between the nation and its citizens, but it is there by the merit that we all live on one planet, and socially and economically, this planet is shrinking.

Just like a nation can't ignore the plight of its poor, our planet as whole can't ignore the plight of its poor and who better to administer aid than the nations who can give.

12:36 PM  
Blogger Bubba said...

There is no social contract between nations. The only social contract that exists between citizens of a country exists because they participate in the elections of a single government, pay the same taxes and if need be fight in the same wars to defend the country. By undertaking these tasks the citizens in effect agree to undertake certain conditions as far as the well-being of their citizens and of their country. By the same rule that I have no right to participate in the public life of a poor African country, I have no responsibility to its citizens or their government. Since the government is only an extension of its citizens, the government has no such responsibility either.

Our nation does ignore and is ignoring the plight of it poor. It seems contradictory then to argue for a responsibility for the poor of other nations.

1:33 PM  

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