Some stats on trade

The US has a shitty trade policy.

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4 Responses to Some stats on trade

  1. Handle says:

    It’s a common economic fallacy to equate the position of a good in the value chain with it’s capture-able value-added between steps. Everybody thinks countries always want to move up the value chain because, eventually, you end up in fields at the frontier of still-progressing innovation where future technological progress can be made (and also captured monopolistically). But it’s not always true.

    Here’s an example. Let’s say I’m a oil well-driller and you’re a refiner next door. Once I’ve established my well all I have to do is flood it with salt-water and keep my pump-going – which is pretty low tech. My finished “raw” product, crude oil, is practically useless for anything in its natural state.

    Refining, on the other hand is highly technologically advanced (though not quickly progressing) field, and it’s finished products (like Toluene), are profoundly useful and ideal for certain motor-fuel applications.

    But for every gallon you buy at the pump, if you ask “Of the portion of the purchase price which represents profit, how is it distributed in from original extraction to final distribution?” you would discover that almost all of it is captured by the raw material sellers because they have exclusive rights to something primary and scarce, whereas everyone else has tight margin in competitive industries.

    Of course, there are employment and trade-balance considerations to keep in mind, but being a “primarily raw materials exporting” country is simply not a de facto bad thing or result of an (otherwise completely) shitty trade policy.

  2. Fake Herzog says:

    “Of course, there are employment and trade-balance considerations to keep in mind,”

    Focusing on the “employment” part of that phrase, I think this is exactly the key to the counter-argument against free-trade. When you look at those two lists I suspect that the finished goods industries employ a lot more people and those who they do employ are low-skilled workers (e.g. think of all the low-skilled furniture and apparel workers who lost their jobs in the Carolinas over the past 30-40 years).

    The question always becomes, for a free-trade guy like me, is whether or not the resources freed up by free trade are being put to good use and whether those laid off workers are finding new jobs in new industries. I think the answer to the first question is yes, we generally are putting those resources to good use — most consumers benefit by being able to buy cheap goods made in Asia at Wal-Mart. The second part of the question is the problem — are there new industries for low-skilled workers?

    This is the Achilles heel of free-trade and I’ve tried to pose the question to the smartest free-traders in the blogosphere (e.g. Cafe Hayek) and I have yet to read a satisfactory answer.

    • Foseti says:

      Agreed.

      In addition, I continue to believe that this situations has implications for future growth. If you don’t produce any finished goods, you’re less well-situated for future innovation than another country that actually has the infrastructure and know-how to produce finished goods.

  3. Fake Herzog says:

    “In addition, I continue to believe that this situation has implications for future growth.”

    Now the argument really gets interesting because the U.S. does excell at innovation — the problem, from the standpoint of low-skilled employment, is that all our innovation is high-tech and high-skilled. There is a reason millions (billions?) of VC money is still trying to find the next big thing in San Jose and why Apple and Microsoft and Google, etc. continue to grow and produce jobs.

    So I’m not so sure I buy into the “finished goods = future innovation” argument. Although perhaps what you mean is that future innovation in manufacturing won’t happen unless we retain a base in making lower-end finished goods. Here I think you might have more of an interesting argument, although if you hang out at Cafe Hayek or Carpe Diem as much as I do, you’d know that the U.S. produces more manufacturing in terms of dollar value than we ever have before in the history of this country — we just do it with more sophisticated manufacturing plants that need fewer workers, because each worker is more productive than ever — and we are producing much higher end finished goods (e.g. industrial level seals, like my brother produces at his factory just outside of Chicago, which are used all over the world in oil and gas refineries).

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