From: mss2@quads.uchicago.edu (Michael S. Schiffer)
Subject: Re:  Free Trade
Keywords: free trade
Reply-To: mss2@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Distribution: usa
Date: Fri, 10 Apr 1992 01:09:41 GMT

In article <1992Apr10.003011.17372@leland.Stanford.EDU> whynot@leland.Stanford.EDU (William Shepherd) writes:

>Go to the library.  Find _any_ book on the post-war Japanese economy.
>Compare the _relative_ difference between our economy and theirs
>over the last 4 decades.  Yes, we're still ahead.  But not for
>long.

Debatable.  Yes, Japanese economic expansion has outstripped ours.
But then they were expanding from a near-zero base after the
depradations of the war, while we began with near total dominance
of world trade.  Now we have about the percentage of world trade
that we had prior to the war, which is to say the natural percentage
for us to have in a world which is not made up mostly of colonies
and war-devastated industrial powers.  Japan, meanwhile, has
become a major industrial power (again) from being mostly ruins.
However, it seems reasonable that their growth will slow down
just as everyone else's has when they've reached the point
that their citizens demand some of the benefits they've sacrificed
for in building an industrial economy.  There's some sign of this
in the younger Japanese generation right now; as high corporate
offices pass out of the hands of those who remember hunger
and deprivation in the war and postwar years, it is likely that
Japan will see some social changes which will lead to political
changes.  For that matter, there's some evidence that the Japanese
economy currently is or soon will be in a recession (that according
to last week's _Economist_) and the land market, which even
in Japan's supply-restricted conditions was a bubble, is declining.

>>The fact is that the Japanese spend too much for basic necessities and
>>are forced by high land prices to live in spaces which Americans
>>wouldn't use as closets, while the government spends the tax money of
>>Japanese citizens to ensure the position of Japanese corporations.
>
>This is mostly a function of lack of space in the country.

Not mostly.  It's true that if their land policies were directed
towards housing rather than maintaining agriculture in a land
unsuited for it, they still would not have land as cheap as the
US.  But the fact is that a great percentage of that sparse land
is made unavailable because the government protects Japanese
rice farmers-- the Japanese consumer is hit both ways, with
high food prices and high housing prices.

  Admittedly,
>the fact that their farmers are defended from competition is a contributing
>factor, though.  And contemplating my move to NY next year, I'll probably be
>lucky to have a closet at $1000/mo.

New York's housing prices are obscene, for the US, true (and are, of
course, in part a result of New York's own interference in the housing
market in the form of rent control, but that's a seperate issue).  But
compared to prices in a Japanese city, $1000/mo. for a tiny studio is
still less than the Japanese would pay, for less space.

>>Hardly a model to use in defending an industrial policy or
>>protectionism, as it puts the cart before the horse.  Americans favor
>>such policies only insofar as they believe that they would benefit the
>>citizenry, and in Japan that simply is not a major consideration or
>>they wouldn't _have_ the policies they do.
>
>Circular reasoning.

No.  I described the harm in the previous paragraphs.  While you might
argue that there are forms of protectionism which benefit the citizen,
Japan's are not them.  Or else, Japan does have the goal of benefiting
its citizenry and just fails miserably.  Either is possible.

>>In terms of purchasing
>>power, the US still has the world's highest standard of living, in
>>large part as a result of having low trade barriers.
>
>But it's falling relative to many other industrialized countries.  You
>just shot your own argument in the foot.

No.  Personally I don't _care_ if other economies are expanding faster
than ours.  It's not a race.  Economic expansion is good insofar as it
raises our standard of living.  If we have to sacrifice standard of
living to increase GNP growth then it's pointless.  And the US economy
is still growing, over the long term.  The recent recession was
neither particularly bad as recessions go nor particularly long, and
while our growth is still anemic and we have some basic structural
problems (the deficit being the #1 one) we are not in the sort of
crisis which requires messing with the one thing which is always good
for us: world trade.  If we get involved in a trade war by trying
to protect our industries, we'll be the ones to suffer for it, and
the fact that the Japanese economy is sufficiently tied into ours
that they'd suffer too is cold comfort, if any.

>Whoa!  Who said I was in favor of high tariffs?  I'm just suggesting that
>we move slowly, carefully, and deliberately in freeing new markets overseas
>and at home.  Over time, I'd like us to move toward freer trade - I just
>think it should be done cautiously.

Conversely, I never said we should drop all our tariffs unilaterally.
To my mind, there is only one use for a trade barrier: as a bargaining
chip to throw in the pot as quid pro quo for other countries
lowering theirs.  I think that totally free trade is an ideal goal,
and worth pressing for on every front (hence I'm for NAFTA and
a successful completion for the Uruguay GATT round, for example)
but I understand that trade negotiations are neither simple nor
quick.

>  Also, never forget that there are
>some cases where we might want to consider temporary tariffs.  Take
>Harley Davidson.  Back a few years ago, they were getting crushed by
>Yamaha, Honda, and other Japanese companies.  They went to Congress and
>asked for protection.  Several years later, re-armed with new plants and
>products, _Harley Davidson_ went back to Congress and asked that the
>tariffs be lifted.  This kind of _temporary_ tariff for "infant industries"
>or "rebuilding" companies should be allowed - although it is rare that
>a company will come along with the guts that HD had and ask for a lifting
>of tariffs.

I'll grant the exception (and there was another, recently, involving
the US steel industry).  But I'm not sure that it really mattered in
the long run, and I know that it meant several years of Americans
paying higher prices than they might have for motorcycles and steel.
Maybe such tariffs are useful, but they have a tendency to stick around
in more cases than not.  There was a recent article in the _National
Review_ pointed out by a friend of mine which noted that the
American textile producers constitute the nation's oldest infant industry,
with a history of protectionism dating back to the eighteenth century.
All of which ensures that we overpay for clothes.  (And also probably
contributed to the economic and political instability which led to
the coup in Thailand last year:  it seems that the then government
had convinced the army that the army couldn't deal with the Americans
like they could.  Then we slammed them with countervailing duties on
textiles, kicking their economy into a down spiral and convincing
the army that civilian government didn't have such advantages after all.
The rest, as they say, is history.)

Mike
-- 
Michael S. Schiffer, LHN, FCS	"Never let your sense of morality prevent
mss2@midway.uchicago.edu	 you from doing what's right!"
mike.schiffer@um.cc.umich.edu	 --Mayor Salvor Hardin of Terminus
mss2@usite-next.uchicago.edu     Isaac Asimov, _Foundation_
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