We've all been hearing a lot about tariffs lately. To the untrained ear it would seem like we're all closing port like one bad game of Civilization, and you're not entirely wrong. Sovereignty has its cost. I would like to start by saying that I don't believe either trade ideologies is viable or even practical. Certain industries should be nationalist and some should be globalist.
It's important to distinguish globalism from imperialism which is just global fascism. Trust me I hope this all makes sense by the end of the article. Okay... So what do these words ACTUALLY mean?
Nationalism is putting the nation first. Nation-alism. Globalism is putting the global nations first. Globe-alism. One is focused on domestic trade and the other is on foreign trade. Both are very important.
No one knew this better than David Ricardo, a british economics, most notable for his study on trade between nations outlined in his essay on Corn prices during the controversal corn laws of 1815. In his essay he outlines that placing tariffs on corn trade had adverse effects that negate the benefits of the tariffs. More or less it would cost the people more money than they would gain, and during a bad harvest season towards the end of the 18th century made this abundantly clear with food riots placing pressure on parliament.
I've found it easier to ignore the cause and effect relationship to explain why this all works the way it does when explaining a complex topic, but in case I am wrong please let me know in the comment section and I'll be happy to explain. I don't want to distract from the fundamentals with boring technical economic jargon.
Thank you for asking that question. I need it to move the narrative forward. The United States has magically forgotten about the ingredients that it desperately needed to exist. "Hey thanks france! Go fuck yourself. We appreciate your help against the brits. Wait.. what about Germany?"
Let's get hypothetical. We need some data for our model. A domestic company called XYZ and a foreign company called ABC. Both companies work in textile industry. XYZ company sells the shirts online and ABC company produces the shirts overseas.
XYZ needs to sell the shirt for a profit and ABC company needs to produce the shirt for a profit. The overhead of producing the shirt is cheaper when ABC produces it then if XYZ produces it. This is because the average wages in ABC's company is much much lower than XYZ's country. It doesn't matter why that is all we need to know is that its an unconditional fact for this example. We also ignore external data like the quality of the shirt, where the resources for production came from, or extra data that makes our model messier than it needs to be.
XYZ is an American country. ABC is a South American country. America needs to consume. Consumers will consume if they have purchasing power. Textiles are a staple product which will be autonomously consumed AKA consumed regardless of fluctuation in wages. We can express purchasing power as P in this model. In a macroeconomic model we would express textiles as Consumer Price Index, but since we are industry focused on foreign trade we will use textiles instead.
For our model we need some maths WARNING: This portion is entirely skippable!
Purchasing Power expressed as C = Wages - Cost of Living
Profit expressed as P = Revenue - Cost of Production
Change in Purchasing Power = C1 - C2. The Difference between last years purchasing power and this years purchasing power.
Change in Profit = P1 - P2. The Difference between last year's profit and this years profit.
Externalities are cause effects that increase or decrease our results.
Results are the total outcome of both XYZ and ABC companies. Both companies wish to achieve higher profits through higher levels of consumption from consumers. Positive Externalities increase consumption and negative externalities decrease consumption.
We can further make a ratio expressed as N = (XYZ Profit / ABC Profit) * 2 - 1. If this ratio equals 1 then both companies are making the same profit.
If this number is more than 1 then we can assume XYZ is making more profit than ABC. If this number is less than 1 then we can assume ABC is making more money than XYZ.
If N equals or is less than 0 we can assume ABC company is making many times more than XYZ. If N equals or is more than 2 we can assume XYZ company is making many times more than ABC. For a sustainable model let's assume N = 3 which means that ABC, an American company, is making twice as much profit than XYZ, a South American company, the producer.
TL;DR: More profit good. Less profit bad. Got it? Okay.
I honest to god think I have autism because I am terrible at explaining anything. Whos idea was it to even let me be a blogger? Anyways... Remember how we said wages in foreign countries need to be lower than wages in our country in order for companies to exploit... I mean squeeze... profits? We are helping them with their economy by exploiting them. In case you think I'm kidding look at the entirety of China. If we didn't constantly consume products that they produce their economy would crumble. If they didn't allow exploitation of their workers we wouldn't be able to have sustainably low cost goods to stock our shelves. We need shitty countries to remain shitty in order to continue buying things for cheap and companies to profit.
So how do we not exploit other countries? We need increasing wages in order to retain enough purchasing power to continue with our current consumption. How do we increase wages though without having a negative externality? Well... we can't. At least not suddenly. Crashing the economy historically is the only only method to actually allow change to happen. Capitalists have a tendency to be myopic.
What a lot of our politicians forget, and I'm referring to Trump directly, is that the outsourcing of labor is caused by companies squeezing profits. If the cost of production is cheaper to produce domestically then we will see companies start to bring production jobs back home assuming we ignore the contractual agreements that don't allow this to happen. More employment = consumers can consume more. If consumers can consume more than we will see profits increase which means companies can expand and hire more. This create a positive feedback loop which we can call a Long Term Positive Externality. Unfortunately it will be a very expensive cost in the beginning.
How do we allow domestic companies to compete with foreign companies for wages then? Well... I can tell you it won't be solved by using taxes to punish them. Companies are really good at avoiding losing money and making profits especially if they're controlled by shareholders. If we continue using tariffs in the way we are then we will start to see major erosion of profits and thus employment. When companies can't make enough profit they have a tendency to fire employees and cut costs. When employees stop being employees they lose purchasing power and stop consuming.
America can't be a nationalist company because it is propped up by exploiting other countries economic and political systems in order to achieve unsustainable levels of growth. Other countries know this which is also why in the 70's OPEC decided to use the US Dollar as their benchmark currency to price oil. America needs this liquidity in its currency to keep it from crumbling. Any Negative Externalities that would give OPEC the idea to switch it's benchmark currency would hurt our economy so we literally can't allow this to happen.
Posted from my blog with SteemPress : https://lifestonellc.com/forex/why-america-cant-be-nationalist-with-trade/