Free trade is crucial for developing countries. Both export and import tariffs must be eliminated. Import tariffs make the imports cost above the cost of production, resulting in more local producers. However, the tarrif malallocates the resources in favor of less efficient local production. Even if the tariff profits the government, it inhibits the low-price "signal" of the imports, resulting a lower opportunity costs of the producers.
Export tariffs, or export duties, are often enacted in resource-rich countries to extract revenue. An example is a tariff on oil exports in a oil-rich country that can produce oil cheaper than the other resource-poor countries. The tariff, however, even if generating revenue for the government, has unintended consequences such as damping economic growth. A tariff, like this one, would lower the supply of oil producers because the tax would make oil production less profitable. The lesser profits from the tariff would motivate producers to invest in alternative less-profiting activaties, which would result in overall decreased efficiency in production.
A tariff on farmers would make the excess farmers to invest in alternative, less profiting activaties.
Eliminating both kinds of tariffs would make the most efficient allocation, as the maximum number of entrepreneurs can invest in the most profiting areas first, which is crucial for economic growth for developing nations.
Freeing trade is an advantage, even if only one partner freed and the other partner has a heavy tariff. The elimination of both kinds of tariffs without any agreements would result in a comparative advantage for the nation. There exists a dominant strategy for a partner. It is to eliminate tariffs. In the payoff matrix, even if one partner cooperates, the partner would gain. Countries can improve without any agreements, but just eliminating both kinds of tariffs on all of its resources. "Free trade" "agreements" are bad.
"Trade deficits" and "trade surpluses" are not a problem. If the imports exceed the exports, then it signifies that the country is more self-sufficient: it does not need to export to earn money. Developing countries export more than imports because they are less self-sufficient. Developing countries must export to make money because they do not have many efficient capital goods. When they get more efficient, they get more self-sufficient then export less and import more.
Protectionism would raise the wages of the workers at the expense of the middle and upper classes. If a good costs B in a foreign country and costs A if domestically produced, the buyer would save (A-B) if there is free trade. If protectionism is involved, however, the buyer must buy the good priced at A and the difference (A-B) nominally goes to the workers. Let's say the ratio of money saved by buying traded goods in free trade over protectionism is R. Let's also say that if free trade is enacted, the workers' current job C would gain an alternative job that pays D to the workers. If there is free trade, the workers would benefit D. If protectionism is enacted, the workers would earn (C * (1/R)).[2] Let's say that if free trade is not restricted, the workers' pay decreased by (A-B), which is equivalent to (C-D). So [2] is equivalent to (((A-B)+D)*(1/R)). The middle class buyer would earn (1/R). This is flawed. A-B and C-D is not equivalent because the marginal cost of labor does not equal the product costs because of the overhead of raw materials. Welfare is more efficient than protectionism.
For example, if a imported good costs $3, and would cost $5 if domestically produced, the buyer would save $2 in free trade. However, if protectionism is enacted, the buyer would have to pay $5 and the workers earn an extra $2. However, forced welfare redistribution is more efficient, such as taking $2 from the buyer and giving it to the worker.
If free trade is not restricted and an alternative wealth redistribution law is enacted, then the workers may only earn $2, wealth redistribution from the buyer giving $2 to the worker and an extra $2 because imports are less expensive, then the worker would earn $6, which is higher than the protectionist $5.
Free trade is better for the nation. Wealth redistribution to the working class is better than protectionism.
Immigration Restriction
Free trade of commodities would equalize oneprice for the commodity.
Proof:
Example of highly tradable goods include commodities such as food and clothes. Non-tradable goods include goods and services such as education and healthcare. Because labor is relatively cheap in poorer countries, the cost of non-tradable goods would tend to cost less in poorer countries than in richer countries. This phonomenon is called the Penn effect.
Tradable goods, however, would tend to result in result in one price around the world. This occurs because products created by cheap labor in poorer countries would be exported to richer countries to sell. All countries would demand products from the same poor country that these cheap goods are produced, which would emerge in one price. Contrastingly, non-tradables cannot be exported and traded to richer countries, thus richer countries tend to use more expensive products from their own more expensive labor.
The emergence of one-price around the world for tradables is called the law of one price. The price of these tradable goods are proportional to the exchange rates of various currencies around the world.
Q.E.D.
So free trade would make things more competitive.
Some non-distributable goods such as education and barbars cannot be distributed to other countries.
So poorer countries would subjectively value education and barbars cheaper than richer countries. And richer countries would value these more expensive.
Purchasing power parity only measures redistributable goods, not non-redistributable such as rent expense barbars and education, etc. Non-redistributable goods cost differently in different
locations
But free immigration of teachers and barbars would
even the price of education and barbar fees throughout
the world. Therefore, free immigration would encourage these
non-distributable goods at one price,
and allocate them efficiently
So racial homogeneity by restricting immigration has a cost: encourage monopoly costs of non-redistributable goods.
(but the current trend of online education and machines
would minimize these disparities)
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