Those subsidies may not in fact hurt the US economy overall because Americans who buy those products, whether consumers or import-consuming industries, benefit from the lower prices that come as a result of the practice. Moreover, the US government has plenty of tools to counteract foreign subsides if it chooses to act. Those tools include joining international agreements to limit or eliminate such subsidies, filing cases through the World Trade Organization WTO , or imposing countervailing duties to offset the price advantage foreign companies can enjoy because of domestic subsidies.
Intellectual property IP protection is an even more serious problem, most notably with China but also with other developing nations such as Brazil, Malaysia, Mexico and Turkey. IP theft costs US producers tens of billions of dollars a year in lost sales. However, the right response is not to impose punitive tariffs that hurt US producers and consumers, but to seek better enforcement of IP rules through trade agreements, by bringing cases in the WTO, and by directing sanctions against specific individuals and agencies, as was recommended in a Mercatus policy brief.
More broadly, trade critics complain that China and other nations are flouting global trade rules that the US scrupulously follows. But the reality is more nuanced. The WTO dispute settlement system has actually worked remarkably well in the 25 years since it was established in its current form. In fact, the United States has been the top user of the system in filing cases against other nations, and it has also been the top target of complaints.
In both situations, the complaining government wins about 90 percent of the time—so the US government has no grounds to complain that it is treated unfairly. The United States itself appears guilty of breaking the same global trade rules it helped to create and expects other nations to follow. And which trade policy, from strict protectionism to totally free trade is best for a given country?
Through the years of debates over the benefits versus the costs of free trade policies to domestic industries, two predominant theories of free trade have emerged: mercantilism and comparative advantage.
Mercantilism is the theory of maximizing revenue through exporting goods and services. The goal of mercantilism is a favorable balance of trade , in which the value of the goods a country exports exceeds the value of goods it imports. High tariffs on imported manufactured goods are a common characteristic of mercantilist policy. Advocates argue that mercantilist policy helps governments avoid trade deficits, in which expenditures for imports exceeds revenue from exports.
For example, the United States, due to its elimination of mercantilist policies over time, has suffered a trade deficit since Dominant in Europe from the 16th to the 18th centuries, mercantilism often led to colonial expansion and wars.
As a result, it quickly declined in popularity. Today, as multinational organizations such as the WTO work to reduce tariffs globally, free trade agreements and non-tariff trade restrictions are supplanting mercantilist theory. Comparative advantage holds that all countries will always benefit from cooperation and participation in free trade. Comparative advantage shares many of the characteristics of globalization , the theory that worldwide openness in trade will improve the standard of living in all countries.
Countries that can charge less for its goods than other countries and still make a profit are said to have an absolute advantage. Would pure global free trade help or hurt the world? Here are a few issues to consider. In the final analysis, the goal of business is to realize a higher profit, while the goal of government is to protect its people. Neither unrestricted free trade nor total protectionism will accomplish both. A mixture of the two, as implemented by multinational free trade agreements, has evolved as the best solution.
Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Our recent experience demonstrates what economists have been saying since Adam Smith: tariffs are a kind of quack medicine for the economy, including the manufacturing sector. Import taxes can temporarily boost employment in the protected sectors, such as steel or washing machines, but they cost jobs in other sectors as they raise the cost of production in more competitive industries.
For instance, protecting domestic steel or aluminum producers from foreign competition ends up increasing the prices of their products, increases ultimately born by other American companies who use steel and aluminum in their products, such as cars or airplanes. Further damage is done to American exporters because tariffs invite foreign retaliation against our more competitive export sectors.
Protected industries, such as steel, sugar, and shipbuilding, find themselves losing market share to alternatives in a limited domestic market. The protection may lift the compensation of their top executives , but to the detriment of the nation and eventually their own industry. Trade conflicts also stoke economic uncertainty , further depressing imports, exports, and foreign investment.
By contrast, expanding trade and growth of global supply chains have played a major role in lifting the well-being of US workers. Real hourly compensation, including wages and benefits, has risen for most American workers in the past 30 years. Real median household income is up. Workplace deaths and injuries are down. Foreign direct investment, the flip side of the trade deficit, has created 7.
0コメント