Mathias Hasselmann

Rant: Trade Imbalance Penalties

Barack Obama on CNN: "We can't go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we're taking out a bunch of credit card debt or home equity loans, but we're not selling anything to them".

Found this quote when searching for stories supporting Financial Times Deutschland's story about US and UK officials having tried to establish trade penalties for export nations like China, Germany and Japan during the Pittsburg G20 summit. Either that story is just wrong, or US and UK turned into communistic dictatorships when I was sleeping under some rock. On the other hand FTD is considered one of the more reliable papers. At least Reuters seems to confirm the FTD story.

So what's about "just" fixing your industries and producing desirable products again? Weren't US and UK usually the first with praising capitalism, competition, challenges? High wages cannot be the reason for your trade problems: German and Japanese industry workers are well paid.

Well, now trying to calm down again.


James commented on September 22, 2009 at 4:29 a.m.

Holy crap. Does he not understand protectionism helped extend the great depression?

Jeff Walden commented on September 22, 2009 at 4:31 a.m.

I agree, inasmuch as companies should have no expectation of being propped up when they can't compete successfully, but I think you take it too far when you tell them to "produc[e] desirable products again". As a general rule American companies produce desirable products; however, they may not produce them as efficiently or sell them at as low a price as their competitors do. I see a difference in degree (notwithstanding that I recognize your opinion as a rant :-) ) between making things nobody wants and making things people want, but not as much as they want other things with more features or lower prices.

But anyway, I broadly agree -- the US government does not exist to prop up failing automakers, to protect the unionized tire-making industry (let's be sure to acknowledge the real reasons for recent protectionist moves), to bail out financial companies for their poor investment decisions (or, more importantly, their investors who performed too little due diligence, at a minimum by not diversifying much), or to punish other countries for not buying our stuff.

ethana2 commented on September 22, 2009 at 5:27 a.m.

They should have given given control of GM to Steve Jobs for 5 years.

Jeff Walden commented on September 22, 2009 at 8:22 a.m.

Also, protectionist moves in all flavors distinctly lack the flavor of multilateralism. I thought we were done with unilateralism with a new administration; didn't the time come to set aside such childish things?

Cyrille Berger commented on September 22, 2009 at 10:15 a.m.

At least the Reuter didn't confirm what you say in your blog post (can't tell for the German link, it's too early in the morning for my brain to be able to process German). I agree that Obama's quote can be interpreted that way, but if you read the other part of the article, they speak of changing where good are bought, currently, goods are bought in the US, and made in Asia, which then "invest" its money in US loan that is used to buy goods from Asia. Europe is a bit separate of this, since so far it has a rather even trade balanced (with the exception of Germany).

Now the question is indeed how you move to make the world economy more balanced, and I do agree that protectionism isn't the right call (and the trade penalty on tires isn't a good sign...), but so far the Western countries call to China to encourage their population to consume more has been rather inefficient.

Murray Cumming commented on September 22, 2009 at 3:48 p.m.

I agree that protectionism, like all abused monopolies, generally just helps bad products to stay bad, and stops other countries from developing. But it's not always so straightforward - neither opinion is 100% correct. It's entirely rational to also worry that some countries have unfair trade advantages because their workers are in worse conditions. Personally, I'd like to solve that by ending barriers to personal movement and employment so those people can go where life is better, increasing the cost of unpleasant work.

Ian commented on September 22, 2009 at 4:35 p.m.

Trade penalties against China, Germany, and Japan? If you take Germany off the list, the idea is not quite as bad. Both China and Japan have heavy, indirect subsidies on their export industries. Germany does not. I believe penalties against subsidized exporters are an acceptable way to reduce those subsidies. Because the "Free" in Free Trade is a lie as long as those subsidies exist.

ethana2 commented on September 22, 2009 at 4:37 p.m.

Oh, email address only needed if you wish to subscribe. Didn't see that. How do I unsubcribe?

Mathias Hasselmann commented on September 22, 2009 at 4:57 p.m.

@ethana2: By asking me. Seems I never came arround implementing a web UI for unsubscription. Well, but you are removed now.

Adam Williamson commented on September 22, 2009 at 6:32 p.m.

As Cyrille pointed out, you're adding two and two and getting five. The quote from Obama is not contextualised in any way which suggests he's talking about protectionism. The statement taken by itself is a perfectly sensible one, and one that just about all economists internationally have agreed on for ages: the severe trade imbalance the U.S. suffers from is a major problem for the world economy. The question of what to do about it is a tricky one, but nothing I can see from the article suggests that he's proposing wide-scale protectionism as the solution.

J├Ârgen commented on September 22, 2009 at 8:01 p.m.

There is nothing about trade penalties in that FTD article afaict.

Anyhow, both the EU and the US have import taxes already, which do not apply to inner-state/union trade and thus give members a unfair advantage compared to the rest of the world.

That's always a two-sided sword. On the one-hand it makes third-world products chanceless on our markets, on the other hand it is potentially stupid to rely on other countries to provide you with essential stuff like food.