The Upside of Protectionism

by Serban V.C. Enache

While everyone is bemoaning the US Administration raising tariffs on the ‘usual suspects’ and placing new tariffs on new players, like India, nobody’s talking about the situation’s upside or the upside’s potential to grow over time.

We constantly hear the mainstream bang in our heads the importance of trade, international trade in particular – bilateral agreements being seen as out of fashion. But we rarely hear the domestic market being brought up at all. Aren’t countries exposing themselves to numerous risks of varying degrees and different natures by allowing the unhindered flow of international capital to dictate their fate? Aren’t we, the people at grassroots, tired of politicians apologizing to trans-national companies about how they can’t give them sufficient tax breaks and other privileges in order to sway them to dismantle operations somewhere else and open them up here? Aren’t we tired with corporations outsourcing every little thing? Aren’t we tired of the narrow-minded focus on lowering costs while completely ignoring the necessity of giving people good jobs that pay big wages, from which workers can spend enough to secure better lives [without needing to use credit cards] while also allowing them to leave some money idle on their balance sheet for rainy days? [i.e. to postpone consumption into the future].

The home market is the most important of any nation, and for decades the prevailing orthodoxy is that capital knows best, that capital subservient to the Globalist outlook of world affairs. It’s dangerous to allow people to vote on their own fate. It’s dangerous to give people bargaining power, because then the State will surely become tyrannical as a result, will ‘oppress’ big capital, and that tariffs and Government industrial subsidies just end up raising prices, hurting the poor the most. I’m tired of this false empathy. The same analysts who are shedding [crocodile] tears for the poor and slamming tariffs are the same ones who, for decades, have relentlessly tried to conflate the stock-market with the real economy. Manufacturing jobs are vanishing? That’s great for the country, because the stock-market’s going up. Wages are stagnating, while big corporations have record profit? That’s great, because the stock-market’s going up and you can import very cheaply from China. Who decides international trade? Some democratic, accountable, and transparent forum? Of course not.

Richard Wolff, a Marxian economist, often tries to confuse the audience by conflating tariffs with economic warfare, citing WW1 and WW2 as the byproduct. It’s nothing short of sophistry. A tariff is slapped on foreign goods meant for the domestic market, with the aim to protect the market share of domestic firms and thus grow domestic industry, in both size and specializations [diversification]. It’s not the same as economic warfare. It’s not the same as stopping foreign economic agents and states from doing business [buying and selling] with third parties. It’s not the same as freezing or confiscating assets owned by foreign entities. It’s not the same as denying foreign shippers the right of passage or the right to dock, or seizing their cargo.

The argument about how much revenue tariffs can or can’t bring in is a red herring. The purpose of Government money taxation is threefold: a) to create permanent demand for Government currency, giving it thus extrinsic value, and allowing the Government to provision itself with labor and materials b) to drain income out of the economy, regulating thus the levels of Aggregate Demand and keeping prices in check c) to penalize and or incentivize various socio-economic activities and behaviors.

With the right type of taxation in place, economic agents pursue productive [wealth creative] activities, as opposed to unproductive ones [wealth extractive], and they are thus able to meet their tax obligations. The State’s goal should be wealth creation, full employment, and price stability. Real constraints for a sovereign state are: available land, available labor, available materials, and technology level. There will always be enough Government funds for this project or that program, so long as there’s political will for it.

Aren’t we tired of demand leakages at home, which make the country run far below maximum capacity? Aren’t we tired of exporting net aggregate demand, so that foreign actors can use those funds to bid up our asset prices? Aren’t we tired to compete against foreign enterprises who underpay and overwork their labor and rape the environment? Aren’t we tired of eroding national sovereignty by surrendering more and more of the country’s economy to trans-national, foreign interests? Let’s have businesses, large and small, invest in capital equipment and labor training, instead of expecting the State to do all the heavy lifting by itself, so that capital can get away with higher and higher markups while investing less and less. Let’s promote an economy in which land and labor are placed before finance – and in which finance serves public purpose, instead of subverting it.

Comparative advantage is a state of affairs that works for the wealthy. So-called free trade has worked out great for those at the top, but not for those at the bottom. Mainstream media and mainstream think tanks portray less educated workers as stupid and dangerous [dangerous for the well-to-do woke], because they favor tariffs. They never mention the fact that this particular trade policy falsely touted as “free” has been used as a most proficient weapon against them in class warfare. Offshoring and outsourcing didn’t lower total production costs. More so, the national system of production was rendered more vulnerable and risky [in civilian and martial terms] when we take into account the loss of critical manufacturing facilities and know-how.

“Free” trade was quite good in transferring income from labor [direct human production factors] to the managerial classes. The lower working classes aren’t stupid or insane. They recognize the changes of the last two decades haven’t helped them and wish for a new deal. China’s admission to the WTO, in spite of it not meeting the criteria, was a big factor in the decline of manufacturing jobs.

Liberals and SJWs who insist the Trump phenomenon was caused by the racism of white, straight, men in the US are lying through their teeth. While much focus was put by Trump, Sanders, and others on NAFTA for its negative impact on US jobs, the major culprit was China. Many US factories that moved to Mexico did so in the logic of matching prices from China.

Professor Brad DeLong explained how the Ricardian [mythology] view is unrealistic and why it favors the rich.

“[…] comparative advantage is the ideology of a market system that works for the interest of the wealthy. For comparative advantage is the market economy on the international scale, and the market economy is […] a collective human device for satisfying the wants of the well off, and the well off are those who control the scarce resources that are useful for producing things for which the rich of the world have a serious jones [fixation].”

In the early ’90s, more and more manufacturing jobs in the United States went overseas. The trend amplified, as entry-level jobs in some white-collar professions like the law now share the same fate. In the realm of software, few positions are left in the US, which will be ceded to experts in India, because the ideological consensus holds that the training of a new generation of specialists at home is untenable. Meanwhile, countries like China, South Korea, and Japan – who practice protectionism – don’t have to worry about such issues. “Protectionism causes depression” is nothing short of fear-mongering. People at grassroots recognize this scam without being savvy in trade and econ theory. They vote on instinct and their instinct is correct.

Mainstream economics, the foundation of policy-making in most countries, isn’t grounded in scholarship. It’s propaganda, highly valued bs because its proponents put out fancy equations when challenged. There’s nothing wrong with their math, but everything’s wrong with their assumptions. See one stark example here.

Tariffs are one way to strive for economic and geopolitical independence, but they’re just an instrument. The larger scheme has to rest on investment, training, diversification, and development. A nation’s true wealth rests in the full and multifaceted development of its productive powers, not its current exchange values. A nation must never sacrifice the former for the latter, for the promise it will be assured an important and comfy role as a mere cog in the grand scheme of Globalization. Autarky or efforts toward autarky have been described by the mainstream and the wannabe anti-mainstream as the goal of racists, nazis or fascists, and misanthropes.

The hypocrisy is telling, no? It’s good for a household to be independent from the grid [from everyone else] in terms of electricity; but when countries attempt economic independence [through their State institutions and policies], it’s bad and dangerous – it’s a case of tyrannical Government, led by racist extremists. According to these enlightened Globalists [some of whom are capitalists, some socialists, and others, mixed – like DiEM25], a country, any country, should always be dependent on another’s labor, another’s equipment, another’s fuel, another’s know-how, another’s military. To try and minimize those relations of interdependence is a crime… a declaration of war against civilization itself. To these humanist jackals I say, don’t worry, you’ll all get comfy, prestigious jobs as controlled opposition in the next paradigm; so spare us the hyperbole, the doomsday scenarios, and your demonization of independent, national, political economies.

Hong Kong Protests & the CIA

My comment: Even if the protests have CIA money behind them, the central grievance is shared by many people in HK. They don’t wish to be extradited to the mainland to face trial and sentence; and their motivations are completely reasonable, given the oppressiveness and lack of transparency of the Chinese state. The Communist Party will have to make serious reforms before the people of HK will trust their law enforcement, their magistrates, and prison conditions. I’d like to praise the people of HK for their civic spirit, which far surpasses anything in the West. That same civic spirit [principle and discipline] was displayed a few years ago in South Korea and it was called the ‘candlelight struggle.’

I find it interesting that Trump didn’t have much to say about the protests, other than deeming them “very sad to see.” I also disagree with Rick Sanchez on trade with China. Trump didn’t lose with Xi, neither did Xi lose with Trump. Huawei received some space to maneuver in commercial operations, and so did US farmers. The fact that the trade war between China and the US did not escalate after the G20 summit is a victory for both countries.

The Duran: US-Mexico Deal

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the tariff deal reached between the United States and Mexico to “stem the tide of migration”. Donald Trump announced that the tariff threat in response to a surge in illegals from Mexico to the US has been suspended. Both men emphasize this fine detail. For its part, the Mexican Government has agreed to restrain migration through its territory and toward the Southern Border. House leader Nancy Pelosi had her own thoughts on Trump’s big PR win, saying: “Threats and temper tantrums are no way to negotiate.” Christoforou and Mercouris also discuss the past trade relationship between the US and China, pointing out that while American blue collar workers suffered as China’s trade surplus with the US grew, the US political establishment saw this and did nothing.

My Comment: Alexander Mercouris is exactly right that US elites [republicans and democrats] did nothing to protect blue collar workers from cheap Chinese imports. This graph clearly illustrates this, and, like Mercouris pointed out, it wasn’t China’s fault. Big US capital was happy to profit.

As the Chinese were selling more and more net wealth to the US in exchange for US dollars, this not only impacted the quantity of trade, but also the composition of trade, the makeup of domestic industry, its associated labor segment and remuneration. It’s also important to note that, even with fewer labor inputs, US manufacturing output did grow over time.

And despite Trump’s bogus claims that the economy is booming like never before, the country’s output capacity has yet to recover to pre GFC levels. This next graph shows us that.

The relative good economy now is due to private debt growth, not anything else. By the by, dollar reserves obtained by China [earned through trade and unearned via interest from US treasury bonds] even though being owned by the Chinese central bank, these dollar accounts sit at the Federal Reserve’s ledger. In case of serious conflict or just whim [like in the case of Venezuela], the US central bank can freeze these accounts or delete them outright, which would deny China’s ability to use these funds to purchase output [from vendors legally allowed to sell to Chinese firms]. No amount of tariffs, however, can replace domestic investment in infrastructure, R&D, and education.

Many people think the Chinese got the competitive advantage because they allowed foreign capital to come in, rape the environment, neglect workers’ rights and labor conditions and pay them slave wages. But there are other countries on the globe that do the exact same things, yet they are not manufacturing powerhouses. The key difference is that the Chinese state invested in education and infrastructure, including hospitals. And at long last, it seems the Chinese leadership is determined to focus more on domestic consumption, rather than exports.

Follow the Duran website, their youtube channel, their iTunes Podcast, their Soundcloud, on Minds, on Facebook, on Twitter, and on Instagram for future videos and great discussions. If you like their content and are able to spare a few bucks, visit their Shop, their Patreon page, their Paypal to show your support.

Syrian Tariffs Must Fall!

by Serban V.C. Enache

In November of last year, the Naseeb border crossing between Syria and Jordan was reopened, providing Lebanese exporters a land route for their output. Despite this, political quarrels between Damascus and Beirut and high tariffs rendered the border crossing unusable or unprofitable to say the least.

Syria is key for Lebanon’s access to foreign markets. The tiny country is confined between its neighbours: the conflict-weary Syria and the sealed border with a hostile Israel. Thus, border crossings into Syria and then out into other countries are required for land-bound exports. Lebanon’s exports collapsed from a peak of 78 percent of GDP in 2008 to as low as 36 percent in 2017, as the [outside-manufactured] Syrian civil war raged on. Exports by land would be cheaper and faster, a five day trip as opposed to a trip lasting 25 days. According to customs officials, before the Naseeb border crossing was closed, over 250 trucks a day headed out from Lebanon to markets in Syria, Jordan, Iraq, and the Gulf. When it closed, that volume dropped to about 300 trucks a month, and that was on a good month, bound only for Syria.

Sadly, the Naseeb crossing’s reopening last year brought with it high transit tariffs, imposed by Syria and Jordan on trucks heading to the Gulf – thus making Lebanese sea-bound exports more appealing via the Suez Canal, despite the longer route, for the Lebanese Government also provides subsidies to merchant ships.

Lebanon’s political leaders are divided between supporters and opponents of President Bashar al-Assad. This month, however, fruitful talks were held. The Syrian Government agreed to lower tariffs on Lebanese products entering Syria, and to reactivate [accords signed in 2010] and establish new agriculture agreements between the two countries. While the announcement comes as good news, the Syrian government has yet to disclose its new tariff rate.

The Future Movement, along with the Lebanese Forces, and the Progressive Socialist Party, strongly reject direct ties with Assad’s regime until a political solution to the conflict is reached. While Hezbollah, the Amal Movement, and the Free Patriotic Movement support direct talks with him in order to establish the return of Syrian refugees and improve the Lebanese economy.

The country’s president, Michel Aoun, visited Moscow last month to have talks with Putin on geopolitical subjects and to discuss bilateral business agreements. Since the end of the Syrian occupation of Lebanon [Assad withdrew remaining troops from Lebanon in 2005], Michel Aoun has been seeking to improve his country’s relationship with Syria. He has treated all Lebanese parties as potential partners, including Hezbollah.

It makes no sense for Assad to reopen the crossing and then to impose punitive tariffs on transit. Either you want to reopen trade or not. Keeping such a high tariff is not good policy, it’s not even in the category of protectionism. I wish to invoke the wisdom of Vattel’s The Law of Nations concerning the matter of trade. Every word Vattel writes conveys precious meaning, which should be put in practice.

“Every nation ought, therefore, not only to countenance trade, as far as it reasonably can, but even to protect and favour it. The care of the public roads,—the safety of travellers,—the establishment of ports, of places of sale, of well-regulated fairs,—all contribute to this end. And where these are attended with expense, the nation, as we have already observed, may, by tolls and other duties equitably proportioned, indemnify itself for its disbursements. […]

Freedom being very favourable to commerce, it is implied in the duties of nations, that they should support it as far as possible, instead of cramping it by unnecessary burdens or restrictions. Wherefore those private privileges and tolls, which obtain in many places, and press so heavily on commerce, are deservedly to be reprobated, unless founded on very important reasons arising from the public good.
Every nation, in virtue of her natural liberty, has a right to trade with those who are willing to correspond with such intentions; and to molest her in the exercise of her right is doing her an injury.

The home trade of a nation is of great use; it furnishes all the citizens with the means of procuring whatever they want, as either necessary, useful, or agreeable: it causes a circulation of money, excites industry, animates labour, and, by affording subsistence to a great number of people, contributes to increase the population and power of the state.

The same reasons shew the use of foreign trade, which is moreover attended with these two advantages:—1. By trading with foreigners, a nation procures such things as neither nature nor art can furnish in the country it occupies. And secondly, if its foreign trade be properly directed, it increases the riches of the nation, and may become the source of wealth and plenty. […]

Nations are obliged to cultivate the home trade,—first, because it is clearly demonstrated from the law of nature, that mankind ought mutually to assist each other, and, as far as in their power, contribute to the perfection and happiness of their fellow-creatures: whence arises, after the introduction of private property, the obligation to resign to others, at a fair price, those things which they have occasion for, and which we do not destine for our own use. Secondly, society being established with the view that each may procure whatever things are necessary to his own perfection and happiness,—and a home trade being the means of obtaining them,—the obligations to carry on and improve this trade are derived from the very compact on which the society was formed. Finally, being advantageous to the nation, it is a duty the people owe to themselves, to make this commerce flourish.

For the same reason, drawn from the welfare of the state, and also to procure for the citizens every thing they want, a nation is obliged to promote and carry on a foreign trade.

[…] from all which it follows, that a nation has a right to procure, at an equitable price, whatever articles it wants, by purchasing them of other nations who have no occasion for them. This is the foundation of the right of commerce between different nations, and, in particular, of the right of buying. We cannot apply the same reasoning to the right of selling such things as we want to part with. Every man and every nation being perfectly at liberty to buy a thing that is to be sold, or not to buy it, and to buy it of one rather than of another,—the law of nature gives to no person whatsoever any kind of right to sell what belongs to him to another who does not wish to buy it; neither has any nation the right of selling her commodities or merchandise to a people who are unwilling to have them.

Let us only observe, that nations, as well as individuals, are obliged to trade together for the common benefit of the human race, because mankind stand in need of each other’s assistance: still however, each nation remains at liberty to consider, in particular cases, whether it be convenient for her to encourage, or permit commerce; and as our duty to ourselves is paramount to our duty to others,—if one nation finds herself in such circumstances, that she thinks foreign commerce dangerous to the state, she may renounce and prohibit it.”

Since Assad reopened the Naseeb crossing, he doesn’t view foreign commerce as a threat. The tariff in my opinion should be slashed to zero for a simple reason: Jordan and Lebanon and Syria are on equal grounds in terms of economic development. It’s a case of comparing apples to apples, rather than oranges to apples [say, the US vs Mexico]. And the cost of maintaining roads and safety can be successfully borne by the Governments involved without such taxes or tolls being levied. Friedrich List, an exponent of the Historical School and a protectionist, did not oppose free trade among nations with comparable levels of development, more so, he supported it.

The punitive Syrian tariffs are hurting Syria and they’re hurting Lebanese farmers and businesses the most. I’ll end this article with this magnificent performance from 2003 by Julia Boutros. Two songs with English subtitles that inflame the soul with hope.

Trump’s Art of the Deal – Trade Wars

Tariffs are a means to an end

by Serban V.C. Enache

China vowed to counter Trump’s announcement of 200 billion dollars worth of tariffs on Chinese exports to the US. If the US loses less than China, that’s called “winning” in Trump’s view. I have written in the past about protectionism, the Historical School, and the role tariffs played as a policy instrument for the development of manufacturers and overall industrialization. However, I always stressed that context is the ultimate factor in decision making. There is no policy to be followed religiously irrespective of circumstance. Continue reading “Trump’s Art of the Deal – Trade Wars”