Principled trade

The failed Doha Round has set an uninspiring precedent for world trade policy as we encounter a global recession. The next important chapter on this matter will be the U.S. Presidential election. The McCain-Obama debate is one that divides the ASI office, but when it comes to trade, it's clear that McCain has the better policies.

Though Barack Obama asserts foreign trade is paramount to stimulating the American economy, he talks of only doing so to support American jobs. While this is an obvious attribute to desire, his populist rhetoric over the last 8 months (i.e. condemning NAFTA) leads me to believe his short-termism may shine through, and he will be too ready to adopt a protectionist and insular policy. He made this patent in the unpassed Patriot Employers Act which he co-wrote in 2007. In it, Obama attempts to use tax credits to coax American firms into increasing the ratio of workers in the US to workers outside of the US. By distorting the market, he would prevent American firms from hiring labour in countries that have the comparative advantage.

At the same time, Obama supports the subsidising of corn-based ethanol, which has been a significant factor in the escalation of food prices. John McCain, by contrast, has long been sceptical, and opposed the $300 billion farm bill approved by Congress this year. It was government intervention such as this which deterred India and China from making concessions at the Doha round after all.

McCain has even earned the praise of Karl Rove, being called ‘gutsy’ for championing the fundamentals of free trade in manufacturing states. For this principled position – at times when bashing trade would be politically expedient – McCain deserves our applause.

Higher interest rates needed to pat for free trade
written by Tony Makara, August 08, 2008

Those who advocate unfettered free trade never address the fundamental problem of free tade, namely that a strong currency is required to keep the cost of imports cheap. That it is impossible to increase liquidity without weakening the currency and thereby importing inflation. This leads to continual boom and bust. The only solution to this dilemma is to have a world currency running alongside national currencies with fixed exchange rates that can be periodically upgraded depending on economic performance. A world central bank would be required to make such a system work, it would have to be fully independent of political imput. Otherwise well-intentioned people like John McCain wil be fighting a losing battle in trying to balance stimulating the economy with trying to ward off imported inflation.

Currency Exchange Rate Manipulation
written by Anonymous, August 08, 2008

One must remember the fact the Chinese Yuan (CNY) is pegged to the US Dollar (USD) at sub-pair value, thereby effectively preventing US Businesses without using offshoring to compete with Chinese Businesses.

The so-called "comparative advantage" is only monetary.

Response to Anonymous on Comparative Advantage
written by Michael Fisk, August 11, 2008

Comparative advantage is a term relative to your opportunity costs... it's not in nominal terms. If it costs Chinese workers $10,000 to make a car and $400 to make a computer (hypothetically), and it costs American workers $12,000 to make a car and $700 to make a computer, the US has a comparative advantage in making cars (17.1 computer-units of work to make a car versus 25 computer-units to make a car in China). In a free trade situation, regardless of the costs in nominal terms, it's better off for the market as a whole for the US to focus on making cars and China to focus on making computers, and to freely trade with each other.

Written by Yohan Sanmugam
Friday, 08 August 2008
The failed Doha Round has set an uninspiring precedent for world trade policy as we encounter a global recession. The next important chapter on this matter will be the U.S. Presidential election. The McCain-Obama debate is one that divides the ASI office, but when it comes to trade, it's clear that McCain has the better policies. Though Barack Obama asserts foreign trade is paramount to stimulating the American economy, he talks of only doing so to support American jobs. While this is an obvious attribute to desire, his populist rhetoric over the last 8 months (i.e. condemning NAFTA) leads me to believe his short-termism may shine through, and he will be too ready to adopt a protectionist and insular policy. He made this patent in the unpassed Patriot Employers Act which he co-wrote in 2007. In it, Obama attempts to use tax credits to coax American firms into increasing the ratio of workers in the US to workers outside of the US. By distorting the market, he would prevent American firms from hiring labour in countries that have the comparative advantage. At the same time, Obama supports the subsidising of corn-based ethanol, which has been a significant factor in the escalation of food prices. John McCain, by contrast, has long been sceptical, and opposed the $300 billion farm bill approved by Congress this year. It was government intervention such as this which deterred India and China from making concessions at the Doha round after all. McCain has even earned the praise of Karl Rove, being called ‘gutsy’ for championing the fundamentals of free trade in manufacturing states. For this principled position – at times when bashing trade would be politically expedient – McCain deserves our applause. Bookmark Comments (3) Subscribe to this comment's feed Higher interest rates needed to pat for free trade written by Tony Makara, August 08, 2008 Those who advocate unfettered free trade never address the fundamental problem of free tade, namely that a strong currency is required to keep the cost of imports cheap. That it is impossible to increase liquidity without weakening the currency and thereby importing inflation. This leads to continual boom and bust. The only solution to this dilemma is to have a world currency running alongside national currencies with fixed exchange rates that can be periodically upgraded depending on economic performance. A world central bank would be required to make such a system work, it would have to be fully independent of political imput. Otherwise well-intentioned people like John McCain wil be fighting a losing battle in trying to balance stimulating the economy with trying to ward off imported inflation. Currency Exchange Rate Manipulation written by Anonymous, August 08, 2008 One must remember the fact the Chinese Yuan (CNY) is pegged to the US Dollar (USD) at sub-pair value, thereby effectively preventing US Businesses without using offshoring to compete with Chinese Businesses. The so-called "comparative advantage" is only monetary. Response to Anonymous on Comparative Advantage written by Michael Fisk, August 11, 2008 Comparative advantage is a term relative to your opportunity costs... it's not in nominal terms. If it costs Chinese workers $10,000 to make a car and $400 to make a computer (hypothetically), and it costs American workers $12,000 to make a car and $700 to make a computer, the US has a comparative advantage in making cars (17.1 computer-units of work to make a car versus 25 computer-units to make a car in China). In a free trade situation, regardless of the costs in nominal terms, it's better off for the market as a whole for the US to focus on making cars and China to focus on making computers, and to freely trade with each other. Write comment This content has been locked. You can no longer post any comment. Powered by Azrul's Jom Comment for Joomla!