Saturday, April 07, 2018

Ying and yang

You could call cooperation and competition the ying and the yang of economics. Donald Trump and other protectionists only see competition whereas the fundamental lesson of economics is cooperation. Buyers and sellers cooperate; both want a deal. Sellers compete with other sellers, not with buyers.

Protectionists, including Fox's Lou Dobbs and many others, confuse the trade balance with a profit-loss statement.  "Nothing, however can be more absurd than this whole doctrine of the balance of trade" (Adam Smith).

The fact that buyers and sellers eagerly seek each other is not changed by the facts of their addresses, whether in the same nation or region or not. The fact that data are reported by geographic units ("trade gap"), mixed with the usual political grandstanding, gives many people the impression that the trade balance idea is useful.

So, as usual, everything is upended by politics. This where public choice economics helps. When sellers in country X fear the competition from sellers in country Y, and if they are politically potent (and economically impotent) they can win political points and elections. Small bands of buyers out-organize and out-vote much larger groups of consumers.

Many people are seemingly worried that China does not abide by WTO trade rules and out-mercantiles the U.S.  Again, some U.S. industries would be impacted. The WTO should police its own rules.  But short of that, China is moving towards greater state control (their crony capitalism); if the U.S. and others do not follow the same path, they will remain the more formidable. Many U.S. people and entities (not "the U.S.") will win.

Timothy Taylor makes a similar point.