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  • You can’t ‘manage’ trade without huge costs

    Posted by Ralf Goergens on October 17th, 2006 (All posts by )

    A while back Richard North posted this at EU Referendum :

    Is there anything the EU has ever done that can be considered, unambiguously, an unalloyed success?

    Well, if you are to believe the hype, one such is the Asia-Europe Meeting, or ASEM to its friends, a “cooperation forum” for Asian and European countries. It was initiated in 1996 “to strengthen dialogue and interaction between the two regions” and to promote “concrete cooperation that aims at sustainable economic and social development”.

    Yet, via chron.com [the link doesn’t work anymore, the article can be found here, though] Associated Press writer Robert Weilaard puts a different spin on it. Normally, AP is the most Europhile of all the press agencies, but Weillaard is definitely not of the Kathy Gannon mould.

    Heading his piece, “Unhappy Birthday for EU-Asia Relations”, he tells us that at a summit in Bangkok in 1996, European and Asian leaders pledged to boost economic, trade and political relations to offset America’s disproportionate weight in global affairs. Today, he adds, both sides agree that has failed miserably.

    As so often, I disagree with Richard as to the merits or lack of same of the European Union, but I’ll leave that for another post.

    Either way, attempts to manage trade politically always fail. I replied in the comment thread to the post in the EU Referendum forum, just arguing on general priciples, without going into the details too much:

    It failed because the whole idea is wrong-headed, both in concept and in the idea “America’s disproportionate weight in global affairs” is a bad thing (I’m adding that last bit just for completeness’ sake, for it goes without saying).

    We talk about “global trade” all the time, but the importance of trading partners increases more or less exponentially the closer they are to your own country. Since Asia is so far away from Europe, other trading partners take precedence, meaning that European countries necessarily trade mostly with each other as well as the United States (oil imports from Arab countries aside).

    Conversely, trade relations to most of Asia are not nearly as close, except for those products we can’t do without, like South Korean memory chips made in bulk or Japanese and Chinese consumer electronics goods.

    For the most part Asia benefits us immensely by merely existing. Without Asian competition, European and American industry would have much greater pricing power, European and American consumers would have to pay through the nose for things like TVs, DVD-Players or PCs, provided that they even had disposable income under these conditions. Asian competition is right now mostly competition in potentia, so to speak, for any increase in prices in Europe would increase imports from Asia sharply, at much more affordable prices. It is exactly the threat of this sudden increase of imports that keeps prices in Europe at the current, relatively low, level.

    If we now tried to shift more of our trade to Asia at the expense of the US and others outside of Asia, we would lose the benefits and efficiency of trading with countries that are located closer to us, i.e., there would be considerable opportunity costs. As the same time the pricing power of European and Asian industry would sharply increase, for the products from the United States whose influence in global is to be reduced (not that such a measure could be forced on European industry and consumers) would no longer be available over here at current amounts.

    A lot of people think that trade should be ‘managed’, restricted or at least heavily regulated because it has something to do with foreigners. But in fact international trade is an economic activity like any other, and can only be regulated , let alone impeded, at disproportionate cost. Any time a politician is talking about interfering with trade for ‘the greater good’ he really wants you to pay inflated prices for somebody else’s goods or get paid less for your own, for the befit of some special interest group or other. Talk about ‘national interest’ or ‘saving our jobs from unfair foreign competition’ is just a smokescreen. There is no such thing as a benevolent or beneficial protectionism.

    That bit about � boosting economic, trade and political relations to offset America’sdisproportionate weight in global affairs� also had been nothing but empty rhetoric. The EU’s trade policy is pretty protectionist, but at least they aren’t hubristic enough to want to manage trade on this level. So I continued with this:

    In other words, there will be no move by the European Union to ‘offset America’s disproportionate weight in global affairs’. The only thing we could do to reduce the weight of the United States would be to push through some serious economic reforms so that we could grow faster than they do. I don’t have to pint out that this is simply out of the question for now, and most likely permanently. Then again, since economic growth and trade aren’t zero-sum games we don’t have to grow faster or even just as fast as America to be better off than we are now, but it certainly would be nice if we could at least solve some structural problems and grow somewhat faster than now.

    Well, you have to work with the Europe that you have, and not the Europe that you wish you had.

     

    2 Responses to “You can’t ‘manage’ trade without huge costs”

    1. Dave Schuler Says:

      I’m having difficulty making heads or tails out of this post, Ralf. Everybody manages trade. The United States manages its international trade. The EU does. And China and India do an enormous amount of managing of their foreign trade.

    2. Ralf Goergens Says:

      I’m having difficulty making heads or tails out of this post, Ralf. Everybody manages trade. The United States manages its international trade. The EU does. And China and India do an enormous amount of managing of their foreign trade.

      I can see where the problem comes from. My bad. With ‘managing trade’ I meant some5thing that goes far beyond what you are thinking of. Basically the kind of trade management that would result in the shifting of trade patterns the EU-Asean rhetoric of 1996 called for.

      I really should have made that clearer, thanks for pointing it out.