From: nelson_p@apollo.hp.com (Peter Nelson)
Subject: Re: Trade War?
Date: Tue, 17 Nov 1992 14:47:40 GMT
Organization: Hewlett-Packard Corporation, Chelmsford, MA

In article <thompson.721887315@kiyotaki.econ.umn.edu> thompson@atlas.socsci.umn.edu writes:
>nelson_p@apollo.hp.com (Peter Nelson) writes:

>>  To the contrary, France is Europe's biggest food producer.  By
>>  subsidizing French farmers with their taxes the French are 
>>  keeping prices artficially LOW for other Europeans.   Of course
>>  this may not help *other* European farmers but this is no concern
>>  of the US.
>
>Perhaps I don't know how the EC system works.  I thought that it is
>roughly equivalent to the old U.S. agricultural price support system.
>That is, a minimum price is maintained by having the government be the
>buyer of last resort, with the excess production that is purchased by
>the government stored, destroyed, given away, or dumped on the world
>commodity markets.  Is France allowed to dump its excess production
>in, say, Germany?  If so, then I should have said "French" instead of
>"European" in my comment.  It is still the case that _some_ European
>consumers are indirect victims of the policy.

  There have been repeated clashes between the French and their EC
  trading partners over exactly this sort of issue in recent years.
  The US is not the only country which has run afoul of France's 
  economic experiments.


>>   But how does it make sense to penalize US
>>  consumers or even French wine makers (who are not subsidized)
>>  over this?  The US is the one who is escalating this into
>>  a dangerous game of economic chicken.
>
>This is a different issue.  I agree that it is probably not wise to
>risk a trade war, and that the current policy is very risky.  But I do
>believe that the complaints against the EC are legitimate.  You appear
>to oppose the U.S. retaliation policy in large part because you feel
>that we have no basis for complaint.  That is the part that I take
>issue with.
  
  Oh I think they're legitimate, and GATT agrees; GATT has twice
  in recent months found France to be in violation of the agreement
  and signatory states *do* have the right to retaliate in the manner
  that the US is threatening.     But that doesn't mean that I think
  it's smart for the US to take this action.


>>  If we have a problem
>>  with their dumping cheap oilseed on the market then we should
>>  limit our response to that. 
>
>And how are we supposed to do that?  We do not buy their cheap
>oilseed.
 
  We could adopt a policy of subsidizing our oilseed exports to match
  the French policy -- since our producsers are more efficient than 
  theirs to begin with it would require a smaller subsidy on our part
  and since we're a wealthier nation to begin with (i.e., our economy
  is stronger than the French one) the French government could not
  long afford to compete in this manner and would be brought to 
  the bargaining table.   This is still a kind of trade war but it
  is limited to oilseed.

  Or . . .  we could simply accept the fact that subsidies are just
  another aspect of "unfairness" in the economic world (along with 
  all those othe things I mentioned: labor costs, cost of capital,
  regulatory environment, labor relations, etc, etc, ETC) and do the 
  best we can under the circumstances.  (i.e., do nothing)


>follow from the former.  And you fail to address the former.  Do you
>deny that U.S. farmers have a vested interest in European agricultural
>policy?

  Not at all.  But as I said, We ALL have a vested interest in ALL 
  kinds of disparities in the world.   I'm a software engineer.  Do
  I have a vested interest in the fact that there are software
  engineers in India who can do every bit as a good a job as I can
  for a tiny fraction of what I cost, and that US companies are 
  rapidly exporting many such US jobs to many such nations?  
  Does this justify punitive action on my part?    We are living 
  in a small world where not everybody lives by our standards or
  plays by our rules.  We can't go lashing out every time we 
  rediscover this.


>>  bankrupt themselves with a stunt like that because it would 
>>  artificially lower the price of their laser printers so much
>>  that their sales volume would go way up and at $10,000 a pop
>>  the Japanese taxpayers would go broke trying to keep up.
>>  Notice you don't see them doing this.
>
>Bankrupt them?  The whole country?  I think not.

  It would cost them an enormous amount of money.

>  But you apparently miss the point.  (Lower the support price if you
>  have trouble thinking about my example as originally posed.  Anything
>  above the competitive price will do.)  This is a hypothetical example
>  of a country hurting itself economically in order to support a (hypothetical)
>  cultural objective.
 
  But economics is a powerful force which tends to place limits on
  how far nations are willing to go in support of cultural goals.
  Look at Sweden's recent cutbacks in their social welfare state 
  after their largest exporters have become awash in red ink and
  their unemployment rate climbed to (an uprecedented for them:) 
  6%!    I'm saying that if we leave well enough alone basic eco-
  nomics will place limits on how far nations will be willing to go
  in these pursuits.   Europe's protectionist policies have made
  their companies fat and inefficient and they are losing out to
  US and Asian firms in world trade.   So now they are rethinking
  their policies.  Economics has a way of doing that.   


---peter