People Trade, Not Countries

In a short post on EconLog, Pierre Lemieux points us to the flawed thinking of many scarcityists.  In the article, he quotes Trump:

“Their consumer habits,” [Trump] explained about Europeans, “are to buy their cars, not to buy our cars.”

What the scarcityists don’t understand, even with their fancy models, is that trade is ultimately and everywhere a microeconomic phenomenon.  It is people’s preferences that shape the pattern of trade, and merely imposing some tariff here to removing some tariff there may not be enough to create “balanced” trade.  In a world of free trade, people will be free to make their own choices.  In this case, the people have spoken: Europeans prefer European cars to American.  And to a tyrant like Trump, that is unacceptable.


8 thoughts on “People Trade, Not Countries

  1. I went to my wine store and asked how they feel about the balance of trade with California, given that we have lots of really good Washington wines. He was rather puzzled. Shouldn’t we tariff California wines?, I asked. He looked even more puzzled.

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  2. “In this case, the people have spoken: Europeans prefer European cars to American.”

    That’s very true, but why is that so? Could it be that is what the government made attractively available to them through some type of regulation or price that ultimately impacted their buying decision? For buyers to make choices, they have to have readily available and comparable choices.


    • On a related note, I think the 25% tariff on trucks imported in the the U.S. should either be lowered or removed.

      Except for discussion purposes, lowered is sometimes the best you can actually get, so that has to be the immediate goal (it might have to be lowered or removed incrementally over time). I know this does not fit the black-and-white, all-or-nothing, right-and-wrong blog crowd, but that’s how it works in the real world when closer to the goal is the best you can get at the time and is deemed better than going home with nothing at all.


        • My opinion, Ron? Because tariffs should be targeted to solve current problems and expire when those problems no longer exist. Giving a hand through a tough time should not mean a forever subsidy. A tariff that is necessary to solve a short-term problem should not be allowed to eternally exist simply because it’s there.

          Things change. I know that’s probably a tough sell to those people with a right-or-wrong, black-and-white mentality. If GM, Chrysler, and Ford can’t compete with foreign imported trucks in their strongest and most profitable vehicle platform after all these years, that just tough.


          • So, Walt, do you think there was a time in the ’80s when those (sarc) infant auto companies (/sarc) Gm, Chrysler, and Ford needed protection from those upstart foreign manufacturers?

            I wouldn’t expect someone with a union background and a mindset of “might makes right” to understand the economic damage done by tariffs, but it’s very real, and includes damage to the inefficient, protected firms.

            What about the unprecedented, extralegal bankruptcy assistance offered to GM in 2009? Why was GM unable to maintain a profitable business at that time? The 25% tariffs on imported trucks was still in force then.


          • I think tariffs over a no-action choice might be useful at times–hopefully short-term. Ron, I don’t expect you to agree with about tariffs (all bad, all times, never judged on their own individual merits, right?).


  3. That’s some pretty faint support for tariffs, Walt. And you’re right. Tariffs are all bad all the time. They reduce consumer choices, raise prices for everyone, and create dead weight losses like all taxes. What’s to like?

    There have been suggestions floating around that tariffs can influence the behavior of foreign political entities, which of course is true, but I doubt you can provide a single example of a positive outcome. So far in the current trade war and in historical examples of political sabre rattling, all the results have been negative.

    There are theoretical situations that could produce positive results, but they aren’t found in the real world, only in test tubes and Petri dishes. You say you like to deal with reality, and there you have it.

    But don’t just take my word for it, ask our highly qualified host for his view on tariffs..


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