23 March 2012

Spot the Fallacies, Free Trade Edition

From Mises.org, in response to Obama’s claim that international trade isn’t always fair:

Here we see the view, commonly held by the media and non-economists in our universities, that international trade is a competition, analogous to sports or military competition (sometimes, “trade competition” is compared to the Cold War). If the playing field is not level, then the trade is not fair. Economists, and this view is not limited to Austrians, understand that international trade is the fruit of cooperation, not competition. America and China are not trade competitors. Paul Krugman thoroughly demolishes this fallacy in “The Illusion of Conflict in International Trade” (reprinted in Krugman’s Pop Internationalism). Krugman explains that in international trade “it is the illusion of economic conflict, which bears virtually no resemblance to the reality, that poses the real threat.”

There are two main fallacies in this paragraph.  The first is that of a false dichotomy.  The second is the blatant ignorance of domestic economic policy as it relates to trade policy.

Regarding the former, it is wholly fallacious to say that trade is either analogous to competition or to cooperation.  The truth is that there are elements of both.  An automobile manufacturer, for example, must cooperate with its suppliers, distributors, and customers.  It must also compete against other automotive manufacturers, as well as any company that manufactures substitute goods.  Both comparisons can be correct, depending on how they’re applied, and it is thus fallacious to claim that trade is comparable to one or the other when it can be comparable to both.

Regarding the latter, it is quite fallacious to ignore reality when discussing policy.  The fact of the matter is the US economy is quite hindered by regulations in ways that many foreign countries are not.  It is not at all fair or free to allow foreign companies to compete with domestic companies when domestic companies have been hamstrung by the federal government.  I’ve written extensively on this before, so I will not repeat myself here.

In all, the case for free trade is often predicated on focusing on theory at the expense of reality, and building arguments on obvious fallacies.  If this is the best free-traders have to offer, in the way of argumentation, perhaps they should reconsider their position.

4 comments:

  1. international trade is both competative and cooperative.

    In teh sense that Cina and the USA are both trying to sell similar products to South Korea, they are competitors. In the sense that Chine is selling stuff to the USA, we are cooperative. in teh sense that an American company is buying somethign from a Chinese company instead of buying it from an Anericam company, we are competitors again. But there is nothing unfair about it. The customer is chosing to benefit from the unfair advantage one company has instead of the different unfair advantage of the other.

    The fallacy is in thinking that there can be such a thing as a level playing field or that such a thing is beneficial to the total economy. What is normally means is that you want to eliminate the competative advantage your pompetition has, while retaining your own competative advantage.

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  2. @Prof. Hale- If the field has to be tilted, why not tilt in favor of domestic producers? I agree that a level playing field is impossible, and is not likely to be beneficial. As such, the focus on fair trade is more of a side show than anything else.

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  3. Why do I owe loyalty to domestic producers? And just how "domestic " do I need to be? Do I need to buy only things produced in my hometown? In my state? Only by people with white skin or ancestors the British Isles?

    My preference is to buy whatever I like from whoever offers me the best deal. If that is some guy who traveled all the way to the other side of the planet to set up a trade route and took the risk that I would want to buy one of those things, then so be it. Any any other bastard, domestic or otherwise, who wants to tilt the field in his favor AGAINST ME is not my friend. The consumer benefits when one side has a competitive advantage. When some local guy is using law to compel me to buy his product instead of the one I choose, then screw him.

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  4. @Prof. Hale- You don't owe anyone any loyalty. However, the federal government (and state governments, and municipal governments, etc.) should act in the citizens' best interests, particularly if said governments claim to represent said citizens, as would generally be assumed in a democracy. Given that there are two sides to every sale (supply and demand), it behooves the government to consider a policy that benefits both sides, particularly in the long run. Since production is, by definition, less destructive than consumption, the better policy is one that favors production more than consumption, assuming neutrality is impossible.

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