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Exploring the Unseen In Trade and Trade Policy

Here’s a letter to a new patron of Café Hayek:

Mr. D__:

Thanks for your e-mail in response to my criticism of calls to protect American aluminum producers from foreign competition.

You ask: “If we don’t protect our aluminum manufacturers against subsidized imports, what’s the good of low prices now if we wind up with no aluminum manufacturers in the future?”

Your question is fair, and I’ll answer it with some questions of my own.

First, if maintaining a domestic aluminum industry is worth sacrificing the opportunity to buy foreign-made aluminum at low prices, what difference does it make if the low prices of aluminum imports result from subsidies or from the genuinely superior efficiency of foreign aluminum producers? Aren’t subsidies largely a red herring?

Second, because U.S. government protection of American aluminum producers necessarily draws resources away from other American industries, how can you be sure that the resulting shrinkage – or even disappearance – of these other American industries is a price worth paying to artificially buoy American aluminum producers? Asked differently, what’s the good of protecting our aluminum manufacturers if doing so shrinks or even eliminates other American industries?

Third, because foreign-government subsidies of aluminum producers necessarily draw resources away from other foreign industries and, thus, benefit American producers that compete with the shrunken or even eliminated foreign industries, how can you be sure that the negative consequences of foreign aluminum subsidies on American aluminum producers aren’t outweighed by the positive consequences on those American industries that expand – or are even created – because of foreign aluminum subsidies?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Some Links

Eric Boehm identifies a 1906 protectionist statute – still on the books – that will slow the clean-up of the Baltimore harbor. A slice:

The Foreign Dredge Act is an older cousin to the more well-known and infamous Jones Act, which bans foreign-built ships from moving goods between American ports. As a result, it drives up shipping prices to places to Puerto Rico and Hawaii, adds traffic to American highways, and leaves sizable parts of the country without access to natural gas.

Like the Jones Act, the Foreign Dredge Act is a purely protectionist law that forbids foreign-built dredges—vessels built to remove debris from waterways and to deepen and widen shipping channels—from operating in the U.S. Any foreign dredge caught doing work in American waters is subject to immediate forfeiture.

Also reflecting on the collapse of Baltimore’s Francis Scott Key bridge is Allison Schrager.

With help from a new paper co-authored by Larry Summers, my intrepid Mercatus Center colleague, Veronique de Rugy, better understands why Americans remain unhappy with Biden’s economy. A slice:

As Summers, the Treasury Secretary under President Bill Clinton, noted on X, formerly Twitter, “Pre-1983, mortgage costs were in the CPI as were car payments pre-1998. Now, price indexes do not include borrowing costs. Thus, when interest rates jumped last year, official inflation did not fully capture the effects it would have on consumer well-being.”

Indeed, if we measured inflation as we did in the 1970s, the inflation that started in 2021 would have peaked at 18 percent—double its reported peak. That’s higher than the worst of the 1970 and ’80s. Inflation’s current annual rate would be about 8 percent.

Cato’s Chris Edwards decries “Biden’s corporate welfare bonanza.”

Jon Miltimore writes insightfully about Canada, incentives, and Robocop.

David Henderson remembers the late Daniel Kahneman.

Jeffrey Singer looks back 25 years to the murder conviction of Dr. Jack Kevorkian.

Nick Gillespie talks with Steven Pinker.

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Quotation of the Day…

… is from page 61 of William Easterly’s marvelous 2006 book, The White Man’s Burden:

Markets everywhere emerge in an unplanned, spontaneous way, adapting to local traditions and circumstances, and not through reforms designed by outsiders. The free market depends on the bottom-up emergence of complex institutions and social norms that are difficult for outsiders to understand, much less change.

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Protectionists’ Arguments Are Invariably Weak

Here’s a letter to Newsweek:

Editor:

David McCall and W. Brook Hamilton allege that the low aluminum prices we Americans enjoy as a result of Beijing and other governments subsidizing foreign aluminum producers are unjust because these subsidies harm workers in American aluminum plants (“Trade Cheaters Are Killing America’s Aluminum Industry Jobs,” March 27).

But even granting validity to Messrs. McCall’s and Hamilton’s invalid insistence on judging trade by its effect on workers, these authors’ case for restricting Americans’ access to foreign aluminum not only fails, it backfires. Indeed, the authors themselves blow up their case by boasting that aluminum is used by U.S. manufacturers of “appliances, cars, patio furniture, window frames, and many other items.” Because the number of American workers in these numerous aluminum-using industries is multiple times larger than is the 30,000 Americans employed to produce aluminum, foreign subsidies that lower the prices Americans pay for aluminum stimulate far more employment in aluminum-using industries than they destroy in aluminum-producing ones.

Rather than complain about foreign subsidization of aluminum production, we should instead send crates loaded with Dom Perignon and Beluga caviar to Beijing and other capitals as warm ‘thank you’s for the generous gifts they bestow on us.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Some Links

Writing in the Washington Post, Adam Lashinsky eviscerates the DOJ’s antitrust suit against Apple. Two slices:

To this day, it is easy to buy a book from Amazon on any device and then seamlessly switch among iPhones, Kindles, PCs or whatever device you prefer, reading the same book. If Apple tried to “force” users onto its platform, as the document lamely suggests, it failed to keep them there.

The complaint is full of such rhetorical oddities and other flimsy legal arguments. It references Apple’s “astronomical valuation,” which, while accurate — Apple’s market value exceeds $2.5 trillion — lacks precision, particularly of the legal sort. If Apple’s market capitalization were merely “planetary,” would Justice deem the company less of a monopolist?

Or take the infamous “green bubble” debate, the exclusion of non-iPhone users from coveted blue-bubble message threads. The complaint references the “social stigma” Android users experience, which might be real but is hardly grounds for an antitrust case. Besides, Apple already has capitulated on this, so it isn’t clear what remedy is needed now. Also, services such as WhatsApp, Signal and Discord work just fine on the iPhone. Use those instead.

…..

The complaint also editorializes on Apple’s fledgling entertainment business, nothing that the company “is rapidly expanding its role as a TV and movie producer and has exercised that role to control content.” Yes, Apple has spent money on successful and acclaimed programs such as “Ted Lasso,” “The Morning Show” and “Shrinking.” But it’s nowhere near the biggest Hollywood studio or streaming platform, which, by their very definition, do everything they can to control the content they produce.

Finally, the government let its ideology show. “It is not surprising,” it wrote, that in 2023 “Apple spent more than twice as much on stock buybacks and dividends as it did on research and development.” The complaint helpfully supplies the data: $77 billion on buybacks, $30 billion on research and development. Yet it said nothing about why that’s illegal, because it isn’t, or that Apple is the fourth-largest U.S. spender on R&D investments, after Amazon, Alphabet and Meta.

Also writing wisely about the DOJ’s unjustified persecution of Apple is my Mercatus Center colleague Alden Abbott. Two slices:

The lawsuit, which could drag on for years, has a low probability of success. At the heart of the plaintiffs’ case is that “Apple has consolidated its monopoly power not by making its own products better—but by making other products worse,” said Attorney General Merrick B. Garland in a statement yesterday. What the case overlooks, however, is that Apple consumers choose to pay a premium for iPhones because they find them to be superior products.

…..

The U.S. Supreme Court has long held that the Sherman Act’s touchstone is promoting consumer welfare. Apple could easily argue that its actions benefit Apple consumers. That they’re willing to pay far more for iPhones than for Android phones indicates that they value them far more. Interfering with Apple’s practices that create this value would harm Apple consumers, make iPhones more like Android phones and degrade dynamic competition, Apple could maintain.

Ted Cruz and Phil Gramm rightly decry the Biden administration’s effort to put AI on a leash. Two slices:

The arrival of a new productive technology doesn’t guarantee prosperity. Prosperity requires a system, governed by the rule of law, in which economic actors can freely implement a productive idea and compete for customers and investors. The internet is the best recent example of this. The Clinton administration took a hands-off approach to regulating the early internet. In so doing it unleashed extraordinary economic growth and prosperity. The Biden administration, by contrast, is impeding innovation in artificial intelligence with aggressive regulation.

…..

What’s clear is that the Biden regulatory policy on AI has little to do with AI and everything to do with special-interest rent-seeking. The Biden AI regulatory demands and Mr. Schumer’s AI forum look more like a mafia shakedown than the prelude to legitimate legislation and regulatory policy for a powerful new technology.

Some established AI companies no doubt welcome the payment of such tribute as a way to keep out competition. But consumers, workers and investors would bear the cost along with thousands of smaller AI companies that would face unnecessary barriers to innovation.

Joakim Book finds timely insights in Edward Chancellor’s The Price of Time.

As Jacob Sullum explains, the growing burden of ‘entitlements’ cannot be wished away.

Here’s Han Eicholz’s and Bill Tulloh’s short biographical essay on Ludwig Lachmann for the Concise Encyclopedia of Economics.

Patrick Eddington justly criticizes the Wall Street Journal‘s Editorial Board for supporting renewal of Section 702 of the Foreign Intelligence Surveillance Act (FISA).

Now this chilling effect is one worth celebrating.

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Quotation of the Day…

is from page 58 of the 5th edition (2020) of Douglas Irwin’s excellent book Free Trade Under Fire:

Trade strengthens high-productivity firms and eliminates those that are low-productivity firms.

DBx: Yes. It follows that protectionism eliminates high-productivity firms and increases the prevalence of low-productivity firms. And yet a slew of American protectionists nevertheless call themselves “progressive” while others thoughtlessly insist that high tariffs will “make America great again.”

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Some Links

GMU Econ alum Paul Mueller explains to NatCons and others on the ‘new right’ why their ethical objections to free-market capitalism fail. Three slices:

Free enterprise capitalism within a constitutional order is not purely instrumental, a mere tool without any moral worth. Rather, it constitutes the body of society. And so, we shouldn’t pejoratively label free enterprise capitalism “zombie Reaganism” or “market fundamentalism.” Instead, we should recognize the goodness of our social body, just as we recognize the goodness of our natural bodies.

Free enterprise capitalism is the most natural structure and ordering of human society. It respects moral agency, individual autonomy and responsibility, the rule of law, and voluntary and civil association. Within free enterprise capitalism we find abundant opportunities to pursue vocation and to fulfill the cultural mandate in creation. More broadly, we tend to find greater religious liberty and toleration too.

…..

Advocating a free enterprise capitalist social order does not mean we must reduce everything to economic exchange – far from it! This order creates the means and space for us to engage in non-economic, non-market behavior – not only with greater leisure time, but with greater scope for family, education, health, worship, and caregiving. Using philosophical language, free enterprise capitalism expands our capacities as individuals and as communities. Our social and cultural problems arise not from free markets increasing our capacity, but from our abuse of that increased capacity.

…..

Free enterprise capitalism isn’t haunted by the higher things. It embodies them.

Who’d a-thunk it?: “California Restaurants Cut Jobs as Fast-Food Wages Set to Rise.” [DBx: Of course, determined number-crunchers will publish yet more papers deploying pyrotechnical econometrics, such as the differences-in-differences-in-differences-in-differences-in-differences-in-ad-finitum-differences method, to show that headlines such as this one are incorrect – to show that the law of demand does not apply to low-skilled labor employers of low-skilled labor enjoy monopsony power, rendering minimum-wage legislation a costless boon to low-skilled workers.]

Erec Smith testifies that “DEI is built upon a foundation whose very mission is to perpetuate racism.”

Elizabeth Nolan Brown decries “the absurd Apple antitrust lawsuit.” A slice:

There hasn’t been a ton of outrage over the suit’s radical premises yet, perhaps because it’s a tech company being attacked. The relative novelty of the topics this lawsuit deals with—apps, interfaces, etc.— allows authorities to portray Apple’s actions as uniquely nefarious.

Applying the government’s arguments to a physical retailer helps highlight how crazy they are. Let’s use a popular chain store like Target as an example.

When I walk into Target, I know I’m going to be presented with a finite number of products that Target bigwigs somewhere have approved for sale. Not just anyone can walk into Target and start selling their own stuff. Nor are rival retailers like Walmart or Kohl’s able to set up shop within Target stores.

This may harm rival brands, or random people who aren’t able to peddle their products in Target. And it means shoppers at this particular store see somewhat less choice and perhaps higher prices than they would otherwise—I can’t go into Target and buy a Macy’s dress or a thrift-store couch, for example. But these policies also add value for consumers, who can expect consistency across Target stores and have confidence that the products therein have been vetted in some way. And they benefit Target, too, in direct ways (like making it more likely that shoppers will buy Target-brand products) and indirect ways (like generating higher brand confidence and loyalty).

Writing in the Wall Street Journal, Judge Glock reports that

the Bipartisan Infrastructure Law of 2021 is reshaping how America builds—but not in the way its supporters hoped. Few big projects have been completed, and one little-noted aspect of the law, expanding mandates to use American-made products, has confused federal, state and local governments, and created new levels of bureaucratic waste.

…..

The law formally created a Made in America Office to review agency compliance and approve waivers. Considering the extent of the mandates, this has been difficult. The law put that office in charge of policing individual government purchases for domestic content. This has wrapped federal officers in minutiae. The Transportation Security Administration had to get a waiver to order “tactical pants” for air marshals. The Department of Veterans Affairs and other departments had to get a waiver to buy pills for the treatment of HIV. The Environmental Protection Agency got a waiver so that the North Unit Irrigation District of Madras, Ore., could use reinforced polyethylene liner for a canal when there were no U.S. producers for this niche product.

GMU Econ alum Julia Cartwright praises Jennifer Burns’s biography of Milton Friedman.

Wise words from Arnold Kling about inflation and government-caused strife.

Bob Graboyes makes clear “what Jane Jacobs and Robert Moses can teach us about healthcare today.”

It’s good to know that vandals will be punished harshly for their self-indulgent actions that harm others.

Wall Street Journal columnist Matthew Hennessey rightly disputes the progressive myth “of America as a land of random possibilities.” A slice:

No, Mr. Biden needs a subtler vision of decline that can sell in Democratic suburbs where parents talk bolshie but live bougie. So he’s decided to settle for America as a land of mere possibilities. It’s a place where good things happen but nobody deserves them and bad things happen but it’s nobody’s fault.

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Quotation of the Day…

… is from pages 108-109 of Thomas Sowell’s 2023 book, Social Justice Fallacies (original emphasis):

Arguing as if some people’s high incomes were deducted from some fixed or predestined total income – leaving less for others – may be clever. But cleverness is not wisdom, and artful insinuations are no substitute for factual evidence, if your goal is knowing the facts. But, if your goals are political or ideological, there is no question that one of the most politically successful messages of the twentieth century was that the rich have gotten rich by taking from the poor.

DBx: Before the advent of capitalism, the rich generally did get rich at the expense of others. One of the many excellent features of capitalism is that it reversed this ages-old reality: Under capitalism, the rich get rich only by enriching others – and the more someone under capitalism enriches others, the richer that someone becomes.

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Great Moments in Antitrust

In late 1944 and early 1945, before Congress approved the Bretton Woods agreement (which it finally did in July of 1945), the U.S. Treasury department – under the leadership of Treasury secretary Henry Morganthau – launched a public-relations effort to drum up support for the agreement. I turn the narrative over to Randall Bennett Woods (from page 230 of his A Changing of the Guard: Anglo-American Relations, 1941-1946 [1990]):

Winthrop Aldrich of Chase Manhattan and a bitter enemy of Henry Morgenthau … launched a full-scale public attack on the Bretton Woods proposals. Both the [International Monetary] fund and [World] bank were unnecessary, he insisted. London and Washington should work out a joint agreement to “shun totalitarian tactics in international trade and to adopt economic liberalism,” and then the United States would provide England with a grant-in-aid large enough to establish stability between the dollar and the pound. At this point Anglo-America could turn its attention to stabilizing other currencies.

The Treasury Department’s response to the Aldrich Plan was simple. On the day his report appeared, Morgenthau phoned the attorney general and pressed him to get busy on an antitrust suit pending against Chase Manhattan.

Ain’t government glorious? And isn’t antitrust useful?

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