One more step in the right direction: Cuba

Even though it was a Democrat (Kennedy) who put in the Cuban Embargo Act, it has been a Republican supported issue. The embargo is not gone but President Obama has taken a step into the right direction. He has lifted restrictions of travel. This from the Financial Times:

“President Barack Obama on Monday took a big step towards relaxing sanctions on Cuba, lifting all travel and remittance restrictions on Cuban-Americans and permitting US telecoms companies to offer services directly to the island.

The end of the restrictions, which Mr Obama promised during his campaign, means Cuban-Americans will be able to travel to the island state when they like, as opposed to once a year, and send as much money as they want to relatives, as opposed to $75 a month. Mr Obama also said he would permit Cuban-Americans to pay for US-provided telecoms services to relatives living in Cuba.

“Clearly, the Obama administration is re-examining US policy towards Cuba,” said Peter DeSchavo, analyst at the Centre for Strategic International Studies. “It would be an understatement to say that the embargo has not achieved what it was supposed to achieve.”

It is good that we are finally recognizing that it is free trade and not embargos that actually further freedom and liberty. Trade restrictions have done nothing but give Castro a reason to blame us for their economic woes. This blog hopes that even though Obama believes that Socialism is the best course for us that he will recognize trade is the best course for them (to become less socialist).

The rest is here.

~PCCapitalist

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Book Review: War, Wine, and Taxes by John V.C. Nye

In doing some of my research on imperialism, I ordered this book authored by a Mason Economist John Nye. This book is about the political economy of Anglo-French trade from 1689 to 1900. This may seem boring to you but as you can see in the title, it definitely is not. The purpose for my research in the book is how the British empire raised their revenues . As Nye shows, they partly did this through excise taxes that are also known as indirect taxes. He mainly focuses on the taxes of wine and alcohol.

I could not better sum it up than he has here at the beginning of his book:

“Why do the British drink beer and not wine? How did commercial tariff policy designed to protect domestic interests help the British state raise revenues to the point where Britain emerged as the leading European power of the eighteenth century? These two seemly unrelated issues are at the heart of one of the most important and underexplored cases in modern economic. history.”

Obviously, this is what he explores throughout his book. Nye explains that the reason why the citizens of Britain drink beer and not wine is because of tariffs on French wine. This shows the competitive nature between both Britain and France during this time. Nye also busts the myth that Britain was all about free trade at this time. They in fact had many tariffs to protect domestic industries and were plagued by rent seeking activity. This means that the parliament would create these tariffs in exchange for stuff from the domestic industries.

There really isn’t any bad stuff to say about this book.  I just wish he went into more about imperialism, but that is my research program so I am being a purely self interested.  This book is well researched and not to hard for the layman to understand. There are some graphs and at the end of his book, Nye runs his model and his regression. Anyone who loves history and economics will love this book.

Rating 9.5/10

~PCCapitalist

Published in: on April 7, 2009 at 12:42 pm  Leave a Comment  
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A staunch advocate of globalization and trade

The article of the day comes from the International Herald Tribune:

Friday, March 20, 2009

PARIS: Victor Fung has a simple message to the global leaders who will soon try to set a new path for the economy: “Please deliver.”

As chairman of the International Chamber of Commerce, or I.C.C., since last year, Mr. Fung, a Hong Kong businessman, is eager to restart global trade, which has been hobbled by the crisis.

He also has personal interest in the march of globalization, having transformed, with his brother, the family business Li & Fung into a power in the sourcing and export of Chinese textiles and manufactured goods.

In Paris recently to celebrate the 90th anniversary of the I.C.C., which represents businesses and helps arbitrate disputes, Mr. Fung was at pains to warn leaders — before they met in London April 2 representing the Group of 20 industrialized and emerging economies — against a drift toward protectionism.

“If we take away what we’ve nurtured all these years in the multilateral trading system, then we do so at our peril,” he said during an interview at the I.C.C. offices.

Mr. Fung has been concerned by recent messages sent by Western leaders, like President Nicolas Sarkozy of France, who has called for auto jobs to stay in France, and the notorious “Buy America” provisions introduced, and later modified, in the U.S. stimulus bill.

He says the current crop of leaders need to reflect on the past before reacting in haste. “Go back to the 1920s,” he said. “They, too, had a financial bubble that burst and the problem was after the busting of the bubble.”

Then, as protectionism spread, jobs were lost across the world, he said. Now, given the interdependence of economies globally, the ramifications could be even more acute. “Protectionism, actually serves to destroy jobs in the economy,” he said. “Things are so interconnected, you lose jobs immediately.”

Mr. Fung noted that the Chinese word for crisis was a compound of the characters “danger” and “opportunity,” and said economies and businesses should be positioning themselves for the rebound, whenever that comes.

Ever the optimist, Mr. Fung also found reasons to be positive about the outlook for the so-called Doha round of trade talks at the World Trade Organization, which have all but collapsed amid disagreements over agriculture subsidies. “I won’t write off Doha,” he said. But if it is declared dead, “think of the knock on confidence that would have. I don’t think the world could stand it.”

Mr. Fung is encouraging I.C.C. members to lobby governments to bolster export credit insurance programs to make up for the collapse in the trade financing in recent months. “There’s some talk now about countries pooling the risk,” he said, citing a pilot program to share the burden of backing trade financing among Japan, South Korea and Malaysia. He hopes that idea will spread.

Mr. Fung, 63, is married with three children. An avuncular figure who intersperses his conversation with hearty chuckles, he now ranks 12th on the Forbes magazine list of wealthiest Hong Kongers, one place behind his younger brother William, who as managing director of Li & Fung, takes a more hands-on role in the business.

Mervyn Davies, the British trade minister, knows Fung from his time in Hong Kong as chief of the bank Standard Chartered. “He is an outstanding Asian business leader and as chief of the International Chambers of Commerce can make a real difference,” he said.

Li & Fung was founded in Canton in 1906 by Fung Pak-liu, Victor’s grandfather, and Li To-ming. It was one of the first companies to export from China financed solely by Chinese capital, competing with the British-backed trading houses known as hongs.

Today, the group is a combination of listed and privately held companies. It has three core businesses — export sourcing, distribution and retailing. It has set a revenue target of $20 billion by 2010; Mr. Fung thinks that is still attainable.

As well as his work with the I.C.C. and the company, Mr. Fung has worn a number of other hats, including running an education foundation and heading the Hong Kong Airport Authority and the Greater Pearl River Delta Business Council. Crucially in Hong Kong, he is trusted by Beijing.

What, then, about entering politics, as is sometimes rumored in Hong Kong? “It’s absolutely furthest from my mind,” Fung said, a smile lighting up his face.

Published in: on March 25, 2009 at 7:31 pm  Comments (2)  
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China and Trade during a Recession

Free trade brings growth to all nations but most of the time only in the long-term. Due to political situations that policy makers face, they often only care about the short-term. Most of the time during a recession people turn protectionist. This is because they begin to worry about unemployment and instead of blaming the government, people blame corporations. They then look to the government for protection. Most people expect the United States to lead the protectionist movement but an interesting article from the International Herald Tribune argues that it is in the hands of China:

“Just like the U.S. in 1930, China has massive foreign-exchange reserves and starts the recession in a very strong trade position. Thus, at the broadest level, Beijing has least excuse for measures to protect local employment by artificially curtailing imports. Indeed, China has, in theory at least, the most leeway to stimulate domestic demand and imports.

So far, such stimulation appears to be its principle response – but that will not be easy for structural reasons. Failure to get quick results could easily lead to protectionist responses, of which some glimpses have already emerged.

Competitive devaluations are perhaps the most dangerous. These measures start in Asia and eventually lead to formal trade barriers as protection against “unfair” trade practices. The post-September rise of the dollar against the Chinese yuan and most other Asian currencies (excluding the yen) caused concerns that the region would attempt to sustain exports with currency manipulation. In an unusually tart comment, the Asian Development Bank warned countries against buying dollars to depreciate domestic currencies. Some Asian currency declines have reversed, nonetheless the Asian instinct for currency undervaluation to boost exports is alive and well. China matters particularly because other countries such as Malaysia, Thailand and Taiwan have taken to following its lead.

India, Brazil and Russia have to greater or lesser degrees followed China on the liberalization path but now find that commodity exports are dropping dramatically while their domestic industries remain under pressure from Chinese imports. For the time being, protectionist measures by such nations have been isolated and industry-specific but more barriers will probably rise, particularly if China continues to run massive surpluses with them. In turn, these may provoke copy-cat moves by trade partners in regional arrangements.”

This is the prisoners dilemma of trade barriers. This means that it is in the best interest of all nations to have free trade but there will always be an incentive for one country to deviate. They will do this with trade barriers causing everyone to move that way and everyone will end up worse off.

Government should not turn to trade barriers to secure jobs in their country. All this does is support inefficient domestic jobs and at some point technology will overpower them and those people will have to lose their jobs. This will currently prevent labor and capital from moving to more efficient industries.

China has had a very short history of liberalized trade and their Communist government used to keep them closed off to the world. With the ever-slow move to political freedom, we should expect China to be very susceptible to political pressure. All we can do is continue to educate people on the benefits of the trade and hope that politicians choose trade freedom.

The rest is here.

~PCCapitalist

Published in: on December 30, 2008 at 3:52 pm  Comments (1)  
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“I am for free trade, except with when it’s free.” – Barack Obama

Union Loving Hilda

Okay, so the post title isn’t exactly a quote but his actions are showing this nonetheless. As it is important for the President to choose people who will support his views, Barack Obama may not have any views on this. Either that or he wants to be politically popular on both sides. This from Financial Times:

“Barack Obama on Friday promised to promote free trade as US president, but said that future trade deals must benefit all Americans – not just big corporations.

The commitment came as the president-elect nominated a supporter of open markets as US trade representative, while choosing a champion of workers’ rights as labour secretary.

The choice of Mr Kirk sent a reassuring signal to supporters of trade liberalisation because he was an advocate of free trade as mayor and backed the North American Free Trade Agreement. He was elected as the first black mayor of Dallas in 1995 and served for six years before stepping down to make an unsuccessful run for the US Senate.

The president-elect hailed Ms Solis’s work in Congress to protect workers’ rights and promote strong unions and said she would bring the same approach to her new job. Mr Obama was under pressure from union leaders, who provided key support in the election campaign, to appoint one of their allies to the labour department.”

Now tell me if this makes any sense. I think the first paragraph sums it all up. He is for free trade except when it is free. Free trade never benefits just the corporations. It may benefit them more in the short term because they are provided with cheap labor. In the short term for workers it is not as easy. For centuries families have moved from farming to manufactoring to now service sector. With that wages have gone up. The pain is when the worker has to retrain from the different stages.

If you are looking long term, free trade helps everyone. So President-Elect Barack Obama should be more clear with his intentions instead of playing both sides with fuzzy rhetoric.

The rest is here.

~PCCapitalist

Free Trade Vs. Protectionism: Japan and Cuba

The debate of free trade vs. protectionism is something that will always be a part of history. Political forces will never allow free trade to reign. Politicians are re-elected so often that the long term industrial adjustment it takes would cause the people to vote the politician out. Instead, the benefits of free trade and the costs of protectionism only goes to those in the long term and they do not vote.

A good example here is Cuba vs. Japan. As most people know, we have relatively free trade with Japan and we have an embargo with Cuba. The purpose of the Cuban embargo is to force them to form a democracy. The purpose of free trade with Japan is that after World War II we rebuilt them and we enjoy the fruits of their labor. Which policy has produced the most democracy?

These two countries are somewhat hard to compare because of the World War II relations with Japan. Some could argue that they got a democracy when we took it over, but regardless, trade has ensured wealth that in turn has assured democracy. On the other hand, Communism has kept the Cubans poor and have assured that democracy will only be followed by economic freedom.

Republicans are pro-free trade and pro-Cuban embargo while the Democrats are anti-free trade and anti-Cuban embargo. Both parties are for democracy. This shows that Republicans do not understand the relations between trade and democracy, while the Democrats don’t understand the relation between trade and wealth.

So to the new President and the future of America, look at these examples over history. I have searched for numbers and cannot find them over time but the human and democracy indexes are much higher in Japan.

~PCCapitalist

Published in: on November 23, 2008 at 10:04 pm  Comments (3)  
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To be against Free Trade is like being against technology…

Originally posted on Red Virginia:
When we saw the Ohio Primary come around for the Democrats there was a large movement for renegotiating NAFTA. It was believed that U.S. jobs were being shipped over seas and it was making us worse off. This was an important political move because Ohio, like Michigan is known to be full of factory union workers.

The idea of Protectionism is as about as old as nations. The very first bill that came through Congress was a tariff on imported goods. Many Conservatives do not know where they stand on Free Trade vs. Protectionism. John McCain claims to be a free trader but also claims to not understand Economics. Pat Buchanan is a Protectionist because he doesn’t understand Economics. It was Adam Smith, the father of Economics, that first believed without a doubt that trade is good.

This is a challenge that we as conservatives face with the current recession and the Democrat’s and some Republican’s move to Protectionism. If we allow a President to close the country off to trade, like we did in 1930 with the Smoot-Hawley Tariff, we could find ourselves falling deeper into a recession. We are seeing an economic crisis that looks a lot like the Great Depression but what is saving us is the diversification of our industries due to global trade.

As Conservatives we should support free trade because it not only helps us but helps countries across the world. It allows African farmers to compete in a fair market, when food and growth is a matter of survival. It allows our farmers to train their children to be engineers, scientists, and other high skilled workers. Think of this as a household and as people become more rich they outsource other things so that they have more time to work on higher skilled things. We pay Chinese and Vietnamese to build and assemble the plastic CDs because we are the ones creating the new programs for computers and music that will be put on that CD. It is all about letting the area that can make the good more efficient do it efficiently without barriers. This also happens with technology just substitute Chinese and Vietnamese with GM, Honda, and Toyota and CDs with cars. Now the horse and buggy maker is going out of business. Do we need a tax on the car companies to save this job? I don’t think so.

Most Conservatives get bombarded with the question of “What about sweatshops and holding these poorer countries to the same labor standards we have?” The answer to this is you get paid for how efficient you are. Since most people in poor countries have very little education and experience they aren’t worth as much as a technician at Microsoft. If you were to require these businesses overseas to increase the wages at the factories, it would make the businesses hire less people. What happens to those people? They starve.

You don’t have to be pro-sweat shop. You are anti-starvation. People are working their because it brings them more income than if they were to work in something else (assuming other jobs exist. Eventually, they will do like what we did in the U.S. and lift themselves out of poverty. We had sweatshops and those workers where low skilled because they came from farms where tractors “put them out of a job.” As they raise their wages, it will then become more cost effective to send their kids to school and not into the workforce.

Until then to require them to have the same standards of labor that we have is unfair and will do nothing but allow some to starve. And remember to be against trade is like being against technology.

~BarryAUH2O

Communist Countries teaching the U.S. about Capitalism

You know it is bad when a couple of days after we elect a new President the first people in line to give us advice is the two major Communist countries in the world. First you have China urging the United States to support free trade. This from Breitbart.com:

“China said Thursday it hoped the United States would adhere to free trade under Barack Obama, while defending exchange rate policies criticised by the president-elect during his campaign.”We will continue to follow a mutually beneficial foreign policy, we believe in free trade, and we believe America also believes in free trade,” foreign ministry spokesman Qin Gang said.

“We hope that the policy of free trade will continue to be adhered to. We must prevent trade protectionism, which is no good for either side,” he said, when asked if he thought Obama would be more protectionist.”

Then Cuba asks for the trade embargo to go away. This from ABC News:

“Cuba hails US President-elect Barack Obama’s presidential election victory and would one day welcome an easing of the 46-year-old US trade embargo, Foreign Investment Minister Marta Lomas said in a statement.”

So have we gotten to the point that we forgot how we beat the Soviet Union. That it was more than just one country beating another who both had nukes, without ever firing one? It was a fight against Capitalism vs. Communism. We used trade and free markets to show the Communists this is how things work better than what they had.

Now it seems we are going into the dark leftist cave, while the countries that were there are coming out and seeing the light. I do not know what the solution is. I just hope that Barack Obama one day realizes that trade protectionism is not the way to go. In fact, with out current financial crisis it will make things worse.

~PCCapitalist

Is there “Free Trade Imperialism?” Part II

This is the final part of a two part series asking the question, “Can free trade be used for Imperialism?” So far, I have said that the over arching thesis of the article discussed (information can be found on the previous post) is probably true. Britain at this time was still imperialistic. The authors define two types of Imperialism, formal and informal. Formal is exactly Imperialism and at this time is being cash in an anti-Imperialistic shadow. Informal is what we are now going to talk about. Do these countries that are agreeing to trade with Britain becoming economically dependent, thus becoming apart of an informal empire?

My argument here is no. Free trade is not imperialism. When countries become more dependent on each other it happens pretty evenly. Once the countries are engaged in trade, it will only hurt both of them to remove themselves from it. Therefore, one country even if more developed will not have any power over the underdeveloped country.

For example, if under developed country ‘A’ trades bananas to developed country ‘B’ which invests into building factories there they both are benefiting. This also plays into the idea of “Comparative Advantage.” If country ‘A’ feels like it is being taken over and losing it sovereignty to country ‘B,’ then they have three choices, tariff, embargo, or do nothing.

Since this post has “free trade” in it, we will assume they will not tariff as these can act like marginal embargoing. If you tariff incoming goods or tax foreign direct investment then the marginal business or investor will stop sending goods and money to this country.

If country ‘A’ chooses to embargo, then they lose all foreign direct investment (FDI) to build these new factories. This would cause job loss and physical capital would have been wasted. If country ‘A’ is wealthy enough it is possible that they could nationalize these factories and keep both the human and physical capital useful. Even though the country would be getting the factories at a discounted rate, it would still costs a lot to run. You would have to hire bureaucrats and government officials to keep it going. These people would have to be very skilled businessmen and more than likely would come with a high price tag.

Since country ‘A’ choose embargo, they also loose customers in their banana exporting. This would also cause a lost of jobs and domestic investment. Entrepreneurs would have seen that the market for bananas had opened up both with more customers and less tariffs. It could be easy to see how this would be a net loss for country ‘A.’ Country ‘B’ definitely loses here because they have lost all of their investments along with a stable and cheap importation of bananas.

Now if country ‘B’ wants to exert force upon country ‘A’ because they may be politically unstable. They could do the same three things, tariff, embargo, or do nothing. If country ‘B’ tariffs it would be the same as country ‘A’ by being a marginal embargo, so lets focus on that.

If country ‘B’ embargo’s country ‘A’ to try and gain political power then country ‘B’ must close down all the factories and stop buying bananas from country ‘A.’ If we assume that the investors of country ‘b’ were private, now country ‘b’ is going to have angry investors. Country ‘b’ has told them that they are no longer allowed to run their factories. Country ‘b’ citizens are not going to be very happy either because they are no longer provided bananas which could be a good and affordable food item. Country ‘A’ is losing here too. They have lost the factory jobs and the banana customers like in the previous example. In fact, country ‘B’ would feel more hostility towards country ‘A’ for doing this and would not cause them to beg country ‘B’ to come back. In fact, there would be more of a chance of war (Smoot-Hawley Tariff). The main reason why country ‘A’ could survive is because of the substitution effect. They could find foreign investors that would buy these factories and enter in the same agreement. Country ‘b’ would have to find a new substitute for bananas.

If country ‘a’ finds substitutes for their FDI then Britain did not gain any political power. In fact, one could imagine that they would lose much power. This is somewhat what we saw with Cuba and the United States. The United States has no more power than they had on Cuba before the embargo. If anything they have less and Fidel Castro has used the embargo as an excuse to his people to turn them against the United States. Japan on the other hand has had very open markets. Shouldn’t they be controlling the world?

~PCCapitalist

Published in: on October 30, 2008 at 9:13 am  Leave a Comment  
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Is there “Free Trade Imperialism”? Part I

After reading the famous article “The Imperialism of Free Trade” by John Gallagher and Ronald Robinson, which was published in The Economic History Review in 1953, I was upset to see that someone would even consider such a thing. This is a summary of their argument:

After the colonial age, most settlements were throwing British rule off. Britain used free trade agreements to continue to have influence upon these countries. The purpose of these agreements was to make the colonies dependent upon the home country. The have two different types of control, formal and informal. Free trade is an example of informal. This is the quote from the paper:

“By slackening the formal political bond at the appropriate time, it was possible to rely on economic dependence and mutual good-feeling to keep the colonies bound to Britain while still using them as agents for further expansion.”

Their over arching thesis that Britain wasn’t anti-imperialist nation at this time may have been true. This is not due to free trade and creating “economic dependence.” This would be due to government coercion that is just more stylized than direct invasion. They used India as an example and how the “laissez-faire” era was full of (British) government lead growth. They admit this and call this the “formal” version of Imperialism.

“Informal” Imperialism, to them, is the Latin America case. They believe this does the same thing by extending trade patterns overseas and migration of both investment and cultural things. I do not see where Britain got that much of an advantage here. They increased their trade and put more investment in the country. I see this as an all around good for both sides. Capital is being invested in Argentina and they are growing and creating jobs, while the investors in Britain are sitting back and receiving dividends.

In conclusion of this first part of the two part series, Britain at this time was still exerting imperial control over some countries. With other countries, it wanted to exert control but could not and took the commercial income instead. This does not discount that they had an incentive to keep the foreign country stable. In “Part II,” we will look at whether this trade and investment can create “economic dependence” and whether or not this is imperialism or not? If it is, then is it a more efficient way? And if it isn’t then what is it?

You can see it on Thursday. This is possibly a working paper for me to try and get published so if you have any comments or suggestions let me know.

~PCCapitalist