Authored by Charles Hugh Smith via The Daily Reckoning,
Defenders and critics of “free trade” and globalization tend to present the issue as either/or: It’s inherently good or bad.
In the real world, it’s not that simple. The confusion starts with defining free trade (and by extension, globalization).
In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage:
Nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently.
While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of the mobility of capital.
Capital - cash, credit, tools and the intangible capital of expertise - moves freely around the globe seeking the highest possible return, pursuing the prime directive of capital: expand or die.
Capital that fails to expand will stagnate or shrink. If the contraction continues unchecked, the capital eventually vanishes.
The mobility of capital radically alters the simplistic 18th century view of free trade.
In today’s world, trade can not be coherently measured as goods moving between nations, because capital from the importing nation owns the productive assets in the exporting nation.
If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.
In today’s globalized version of “free trade,” mobile capital can skim labor, currencies, interest rates, regulatory burdens and political favors by shifting between nations and assets.
Trying to account for trade in the 18th century manner of goods shipped between nations is nonsensical when components come from a number of nations and profits flow not to the nation of origin but to the owners of capital.
This was recently described in a Foreign Affairs article, (Mis)leading Indicators:
If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China.
The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country.
Thus, every time an iPhone or an iPad rolls off the factory floors of Foxconn (Apple’s main contractor in China) and travels to the port of Long Beach, California, it is counted as an import from China, since that is where it undergoes its final “substantial transformation.”
That is the criterion the World Trade Organization (WTO) uses to determine which goods to assign to which countries.
Every iPhone that Apple sells in the United States adds roughly $200 to the U.S.-Chinese trade deficit, according to the calculations of three economists who looked at the issue in 2010.
That means that by 2013, Apple’s U.S. iPhone sales alone were adding $6-$8 billion to the trade deficit with China every year, if not more.
Comments
Central Banks Have Killed Free Trade
My response: They just didn't kill it, they MURDERED IT!!!!!!!
Something else may be getting being killed around here, like maybe free speech or something. I posted earlier about ZeroSpam trying to get all the countersemite commenters identified as spam and banned, and now that section of comments has been deleted and I see both NumbersUSA and ZeroSpam have accounts restricted.
Be careful of the spam reporting function, since it seems like people have been weaponising it. Not sure what went down there.
In reply to Central Banks Have Killed… by GUS100CORRINA
Nah.... people confuse this with Stormfront. It's always been a blemish on ZeroHedge don't see it ending anytime soon.
Just like we have kids marching against guns when more of their friends will end up OD'ing on drugs. Here we have people afraid of JOOs when they're actually cattle about to be slaughtered by the Chinese.
In reply to . by Dindu Nuffins
Be careful with this article. One could easily draw the conclusion (if you buy their premise) that the solution to this is One World Government. It's a bit of a Trojan Horse.
In reply to Nah.... people confuse this… by Sabibaby
Sabibaby: Shutting down accounts that point out the incontestable domination of Jews in other news media is not the way to banish the idea that there is a jewish supremacist hegemony in the west.
Don't play dumb here, guy. You know you're deflecting and spinning.
In reply to Be careful with this article… by NoDebt
I don't know anything about accounts being shut down but I wouldn't click on any of those links regardless of your feelings on Jewish Supremacy they could've made their point without spamming their website(s)
You're right about China not interfering in the demise of the US, why would they? Instead they'll continue to militarize the East Pacific, Africa, and parts of South America.
In reply to Shutting down accounts that… by Dindu Nuffins
Okay, fair enough, but what I'm saying is that ZeroSpam was weaponising the abuse reporting systems and getting people he merely didn't like to be banned.
The only link NumbersUSA put in his post was RussiaToday's youtube account, and I'm willing to bet he wasn't associated with it.
In reply to I don't know anything… by Sabibaby
Missing the point.
Before 1971, the international reserve currency was gold. This meant, if you had no gold, you couldn't buy shit internationally. This meant no trade deficit.
If you wanted to import, you had to produce something of similar value and sell it.
Using an infinitely growing credit based currency as international reserve, means there is no limit to the trade deficit.
And you can now offshore everything to the cheapest places on the planet.
In reply to Central Banks Have Killed… by GUS100CORRINA
It was the dollar, backed by gold. And we didn't go away from a gold-backed currency by choice. We had already printed so many dollars since WWII there was no possibility of having even remotely enough gold to back them at the stated exchange rate. Rather than peg each dollar to a smaller amount of gold (which would have instantly devalued the dollar), Nixon signed on for backing the dollar by... nothing. Pure fiat was unleashed on the world.
In reply to "Nations would benefit by… by css1971
If only there were some kind of currency that could cross borders independent of bankers and governments instantly.
There was never free trade in the modern era
There was forced trade , that is the dynamic between the plantation and the moneyed urban center.
The author is talking the nonsense of the Austrian fairy capitalist godmother.
The plantation sometimes erupts and issues script but in the case of London and its colonies it's cronies have always succeeded in stopping the issuing of script
Central Banks will be killed by crypto and blockchain. Gone will be counting the same dollar several times, piling debt on people, waiting 2-3 days for a wire to clear, paying thru the nose for Western Union, skimming of credit card companies. And the list of a broken legacy system, about to meet the asteroid that obliterated the dinosaurs, goes on and on.
And not a thing the fucking banksters can do about it.
I was a bitcoin millionaire when it was at $20,000. It felt good to have something worth a million dollars. I could have sold that bitcoin and had a descent chunk of purchasing power; after taxes of course. What do you think bitcoin will be worth in a year?, $8000 maybe, $60,000 maybe? This mindset is not adoption, yet it is the mindset of most who have claimed to have adopted it or are involved in the space. Watch the new tickers for bitcoin on the financial channels, just don't hold your breath waiting for the asteroid, it's very 2009 of you.
In reply to Central Banks will be killed… by Nuclear Winter
Rubbish. National governments have damaged free trade and free enterprise. Central banks merely do those governments' bidding.
What a load of bullshit. When was there a Golden Age of Free Trade. It has always been marked by quotas, embargoes, restrictions, and tariffs.
18 the century perfection...."goods shipped between nations "
Total Bollox
What historical unreality does this guy come from ?
Why did he think the colonists of America attempted (unsuccessfully) to break away from England ??????
I recommend zeros read Fred Anderson's "Crucible of War" and not this charlatan.
England prohibited industrial development in the colonies so they could sell finished goods to them. In India they were prohibited from producing their own cloth. It was a form of economic slavery.
In reply to 18 the century perfection… by THE DORK OF CORK
There was very little industry in 18 th century England.
All England did was absorb luxury goods such as tabacco from the colonies .
Why do you think there was a American push westwards despite your land abundance and low population density relative to Europe .
You were a colony baby , the land was used for somebody else other then Americans.
Mercantilism is a hidden slavery.
Ps
Only large scale high technology industry in 18th England was the activities servicing the Royal Navy .
It's purpose was to keep the real goods flowing in and not to pay you back with toys ....
In reply to England prohibited… by Blue Dog
You forget that there was no colony, it was the same country, that was expanding. Canada benefited far more staying with the crown.
In reply to There was very little… by THE DORK OF CORK
It was a functional colony with a army of puritan debt slaves and real honest to goodness slaves working to ship goods back to England.
That is why the hidden hand worked to foster puritanism during the early capitalist period.
Their unknowing slaves never consumed so the usury class absorbed the subsequent surplus.
In reply to You forget that there was no… by perkunas
You can't have free trade with China when they pay slave labor wages and don't have pollution restrictions.
It's funny when China threatens retaliation over tariffs when they buy so little from America. They could buy food elsewhere but that won't change how much America can sell. Only where it goes.
Exploitation of labor and lax or non existent restrictions on pollution or whatever along with cheaper government bribery isn’t properly accounted for
I'm not sure what the catalyst will be, but the BOJ is FUBAR.
At some point, in the not so distant future, the yen isn't going to be a reserve currency anymore.
It's absurd that traders flock to the yen, when the markets get tempestuous.
flashback to the early 80s before the Plaza Accord... I still remember changing money at 280 yen to the dollar
full circle is not so hard to imagine.
BOJ has destroyed Japan.
In reply to I'm not sure what the… by Yen Cross
This was posted on ZeroHedge about a month ago, but I consider it one of the most important discussions anyone could read on the subject of economics. And it's free of the gobbledygook spouted by mainstream economists.
The ultimate in free capital flow is Bitcoin, Ether, Monero etc.
It's about freedom.
So is free trade.
Since when, there is digital trace on you when you buy and sell. Just try and open an account, to buy and sell under "Its none of you business". Bit scam is the end of real freedom once you stoped using cash.
In reply to The ultimate in free capital… by youshallnotkill
If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.
The bottom line is, China effectively owns the plant and has Apple by the throat. All they need to do is stop supplying Apple and Apple's stock will drop like a rock. Apple produces nothing here. Might as well move their HQ to China as well and be done with it.
"God's Work" notwithstanding the psychopaths can't control their greed.
Econ101 today is different than Econ101 back in Adam Smith's days. Things evolve, this is always true. We need to evolve with things or face Darwinism.
This article captures the reality of today's Econ101. I call our time the financial warlords (USD, Yuan, Euro) era.
Hedge accordingly so that we don't have to fall under any financial warlord. If you can use those financial warlords to your benefit, you will be at least not dead immediately.
Best Wishes :)
1.) Capital doesn't vanish. It gets transferred or destroyed in war.
2.) Charles Hugh Smith is a simpleton more concerned about writing drivel for clicks than with understanding that nations don't trade. PEOPLE TRADE. Pretending that China sells to USA is like being a sports fanboy taking credit for what others accomplish.
3.) There is so much more wrong with this article that it's not worth even reading. E.g., research comparative advantage. And fuck nations. Remember that PEOPLE TRADE.