Comment by AnthonyMouse
4 months ago
Let's have a quick recap of two of the things we've already tried:
Isolationism sucks. You have a domestic industry but it's not allowed to sell to other countries in retaliation for you doing the same to them, so it's small and consolidated and when the domestic providers are correspondingly terrible the trade barriers inhibit you from using the foreign ones.
"Free Trade" (but not actually) is even worse, because you take down your own trade barriers nominally in exchange for others doing the same, and then some of them don't. They subsidize their industries so that the global industry consolidates into one country and then if that country sucks you're in even worse shape because it's also a single point of failure and subject to foreign political forces.
What we should be doing isn't going back to trade barriers, it's creating sufficient tax incentives to sustain a domestic industry for strategically important products and then letting other countries do the same and consumers choose which company they want to buy it from. Because then you don't have trade barriers but you do have both domestic production and competition.
The price is that companies in those industries would essentially be paying lower taxes than they currently do or receiving some subsidies in order to make them competitive with the other countries doing something equivalent. But maybe that's not the worst of the three options.
> What we should be doing isn't going back to trade barriers, it's creating sufficient tax incentives to sustain a domestic industry for strategically important products and then letting other countries do the same and consumers choose which company they want to buy it from.
Trade happens because not a single country has or can produce all the (strategically important) products it wants, without trading with others.
Entities the size of the US or the EU are capable of producing most or all strategically important products internally, and then trade still happens because not all products are strategically important. Or because e.g. people in the Northeast buy oil from Canada because it's closer to them than Texas, even if both countries have that industry.
> Entities the size of the US or the EU are capable of producing most or all strategically important products internally
The US can internally produce: food staples, fossil fuels and nuclear fuel, most (but not all) industrial chemicals and construction material, defense systems and major military equipment, generic drugs and many medical devices.
However, vulnerabilities exist in: semiconductors, rare earth minerals, speciality chemicals and pharmaceutical raw materials.
Even if the EU were a country, it has high self-sufficiency for: temperature agriculture, industrial chemicals, some aerospace and defense components. However, it is import dependent for: energy, specialty metals and rare earths, pharmaceuticals, high-tech electronics and semiconductors.
Lastly, what about the remaining 167 countries in the world (195 - US - EU)? 90% of the world's population live outside the US and EU.
Trade is really really important for human flourishing.
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Most products are strategically important. You might be fooled into saying that toaster ovens aren't strategically important, but then if your country can't make its own toaster ovens, it turns out that it can't make dozens of other strategically important products either. Steel, ships, automobiles, semiconductors and computer infrastructure, food, clothing, aircraft, medical equipment, and on and on and on. It's difficult to name a manufactured product that isn't.
>Trade happens because not a single country has or can produce all the (strategically important) products it wants,
This is an interesting claim. What if instead, a single country could produce all the products it wants and needs, but that doing so would be less lucrative for a certain subset of the population that can take advantage of trade? In such a case, that single country might fail to do so and import a bunch of crap anyway, don't you think?
I don't see what the meaningful difference is between trade barriers (assuming by that you mean tariffs) and tax incentives for specific industries. Moderate, targeted tariff policies, especially ones that gradually decreased over time, can achieve the same effect of bolstering domestic industry while still allowing a healthy amount of foreign competition.
If a domestic industry is only surviving because of tariffs then it will lobby to keep the tariffs high and for the tariffs to be effective in sustaining the domestic industry they'll have to be enough to deter domestic consumers from patronizing foreign competitors when domestic producers are lacking. That means domestic customers get screwed and domestic companies don't have the incentive to improve as long as they can successfully lobby for continued tariffs.
If you only provide subsidies then consumer prices go down rather than up because the mechanism of operation is for the subsidies to make the domestic supplier more attractive rather than for tariffs to make foreign suppliers less attractive. Meanwhile the subsidy is paid by the government and then the legislators will be trying to keep it down rather than raise it because it reduces the money they have to spend on other things rather than increasing tariffs which do the opposite.