Murphy in the Library of Economics and Liberty

Here is a link to my latest column at the Library of Economics and Liberty.  A slice:

One last point on the national defense argument. If China, a national security threat and military threat for influence in the region according to President Trump’s economic advisor Peter Navarro were dumping steel in the U.S. market to gain some military advantage, the logical thing for the U.S. government to do would be not to encourage U.S. exports but, rather, to encourage Chinese imports. Since steel is a scarce resource, sending it abroad (i.e., encouraging exports) necessarily reduces the stock of steel in the United States, whereas imports increase it. If China is dumping, then it means that the product is being sent to the United States rather than being used in Chinese markets; for every unit of steel sent to the United States, that is one less unit that could be used for a Chinese war machine and one more for a U.S. war machine. The logical action for the U.S. government would be to purchase a lot of low-cost steel from China and simply stockpile it, thus depriving China of war materials while maximizing U.S. steel stockpiles. In the event of war, the United States would have a large stockpile from which to draw, while China’s would be reduced.

8 thoughts on “Murphy in the Library of Economics and Liberty

  1. Nice work on your Econlib article.Jon.

    As hard as I try, I can’t think of a reasonable counterargument to the post above. It just makes perfect sense.

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  2. Well done Jon. I really like the way the conclusion was written, especially this, “However, it is a plausible exception, not necessarily a probable one.” Too often people think that just telling a plausible story is proof that that story really happened. It isn’t.

    As for Ron’s comment about counterarguments to free trade, I can think of some but I can’t develop much enthusiasm for them. It may be the case that well chosen tariffs could make the difference for developing industries in a country but it’s hard to believe that any political process would select for those tariffs rather than ones that would simply help those with the most political power which would tend to be the already more developed industries.

    I think the best argument for tariffs is the astonishing economic success of China in lifting so many people out of poverty in such a short time. It’s not easy to explain how they did that if tariffs are really so inimical to the interests of their own people. Those of us in favor of free trade (and I count myself among that group) need to admit we can’t explain that. As always, we could argue that they would have done even better in some counterfactual where everyone listened to us but that is a very weak argument for a couple reasons. One is that it is always available to everyone. The other is that none of us would have predicted in advance that such an economic miracle was possible even if we had been guaranteed we could dictate policy.

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    • I disagree. I think we can explain that: the increase in wealth has been accompanied by a dramatic reduction in Chinese tariffs. Since 1992, Chinese tariffs have fallen from about 32% to about 3.54% today. China has rapidly liberalized trade. It seems to me China isn’t a mercantilist success story, but rather a trade liberalization success story.

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      • Jon,

        I had no idea that Chinese tariffs were that low. Is that simply an average of tariffs on all items that could be imported into China or a weighted average of items that actually are imported into China? And do we know if those two are very different?

        Regardless of tariffs alone, (I realize I am drifting far afield of your original post here) I think you would agree that there is a level of central planing in the Chinese economy that remains well in excess of anything in the west or anything that the west did use to get where it is. That includes many ways in which Chinese companies are favored over foreign competitors that go far beyond tariffs.

        Free market theory predicts that all these state interventions should be bad for Chinese consumers yet no other country’s consumers in history have enjoyed a comparable jump in their standard of living in such numbers in such a short time. Yes, I know they started from a place of extreme poverty and even more Draconian state interventions where it was easy to make big percentage gains. Even so, there are countless other countries that started in extreme poverty and stayed there both with and without a lot of state intervention in the economy. I am not pushing any economic theory that I prefer to free trade but I do still think that the Chinese example stands as a challenge to some of the economic theories that we prefer. It’s at least a little bit awkward that the regime that engineered the biggest economic leap forward in history still calls itself Communist.

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    • Hi Greg

      While I can’t think of any reasonable counterarguments against free trade in general, my comment more specifically referred to the ‘national security” argument addressed by Jon above.

      It may be the case that well chosen tariffs could make the difference for developing industries in a country …

      Oh sure they could, but then an explanation would be required for why those industries should be nurtured in any particular country if the products or services are cheaper to import. Surely the subject of comparative advantage would come up.

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