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Originally Posted by well named
Sure. I've seen trade presented this way before.
I expect some criticisms of US trade policy towards China are warranted along the lines you present. But both here and also with this:
You seem to be oversimplifying the questions to the point of obvious absurdity. Trade is only one factor in GDP growth (or economic growth in general), both for China and for other countries as well. So presenting a simple GDP growth chart seems like a very silly way to attempt to falsify the theory of comparative advantage.
Not me; it's the loser in the article who's doing that.
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Maybe the article chytry linked is flawed despite being convincingly written, but this type of argument isn't even that. Of course it's also probably not necessary to disprove the entire general value of free trade in order to try to defend Trump's specific actions, and I think a more specific argument is likely to be more compelling.
The problem with the analysis is pretty simple: it's a snapshot, rather than an analysis of alternative possibilities*. Take this analysis:
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The US does indeed have a trade deficit with the EU, but is this the result of EU protectionism? The simple answer is no. Simple macroeconomic identities (that is, a relation that holds by definition as they are the result of accounting rules) argue that a trade deficit is the result of a lack of national savings.
As a country, the US spends more than it earns and the shortfall is financed abroad attracting savings from abroad, which are capital inflows. This puts upward pressure on the exchange rate, which causes the trade deficit.
This lack of savings can be caused by a public sector deficit and/or a private sector deficit: TB = (S-I) - (G-T). This is an identity (TB = the trade balance, S = private sector savings, I = private sector investment, G = public expenditures and T = tax revenues).
In fact, because the US is an attractive place to invest, with deep and liquid capital markets and well-defined shareholder rights, it tends to generate significant capital inflows, which are the real results of the trade deficit.
Despite the fact that he basically admits that the trade imbalance is causing more foreigners to profit from US capital, the issue with this is really simple. Rather than explain, I'll give you a clear thought experiment.
A country called OpenCountry allows anyone to sell in its markets. It has a free market, high innovation, high wages, some excesses of spending sometimes.
A country called ClosedCountry allows no foreign sales of any kind into its market. It's completely closed. 60% of its population are slaves, and it copies the factories of OpenCountry, using the slave labor, to undercut OpenCountry's factories and then sell the goods for OpenCountry's cash. All of this cash it plows into three things:
- Building more factories to compete with OpenCountry
- Buying up OpenCountry's land, buildings, knowhow, companies and collecting a 10% return on capital
- Loaning to OpenCountry's spendthrift, compassionate and free global policeman government to collect interest
If both markets were open, even the slave labor advantage would be overcome by OpenCountry's better energy efficiency and automation, and a natural trade balance would be reached. But CloseCountry keeps its country completely closed because it has a strategy of slowly draining the wealth of OpenCountry and making it dependent on ClosedCountry, for strategic and military purposes.
What would the analysis above look like for this highly anti free trading market that's harmful to OpenCountry?
It would look exactly the same. OpenCountry would appear to be spending too much relative to its means, appear to be an attractive place to invest, and the person who wrote that article would claim that it's OpenCountry's spending that's the reason for the trade imbalance, when it's actually that one country is closed and the other is open - to the detriment of the open country.
Do you see the problem? The analysis he does snapshots the situation and then wrongly attributes the cause, in exactly the same way he would if the above situation was true. The analysis is incapable of differentiating between a completely free trade situation that benefits both, and an anti free trade situation that eventually destroys one of them. Thus it is comical and worthless.
There is no analysis done of what things would look like if China followed WTO rules and didn't cheat on a massive scale (hint: The US would be far richer, and would still get cheap stuff). That's why the analysis is completely flawed in so far as it tries to identify a cause in the way it does.
*This is perhaps humanity's, and certainly academia's, most dangerous and destructive cognitive bias.