Rise of the Fair Trade Charlatans

A charlatan is defined as a person falsely claiming to have a special knowledge or skill; a fraud.  Synonyms?  Quack, sham, impostor, hoaxer, cheat, deceiver, double-dealer, swindler.  Take your pick in describing Commerce nominee Wilbur Ross.  Mr. Ross is claiming that he, and his soon-to-be new boss, President-elect Trump, are, by edict, going to bring prosperity to the country by prohibiting US consumers from purchasing high quality, low-cost, products from outside US borders.  The sheer audacity to make such a claim is only eclipsed by his disregard for the secondary impacts of his ill-designed doctrines.   You cannot create additional jobs or wealth by forcing innocent consumers to pay more for the products they purchase.  Statements contrary to this are the claims of a charlatan, a quack, a hoaxer and a swindler.

Free Trade, Managed Trade and Fair Trade

With regards to foreign trade, in particular, I have published several other posts listed here:

If I had to summarize the core issue, it would be that no government is able to help one citizen, family, business, industry, region, etc., without harming another citizen, family, business, industry, region, etc.  This applies to managed trade agreements like NAFTA and TPP or so-called “fair trade” policies that lead to tariffs, border-adjusted taxes and the like.  Basically, one mans gain; higher wages and returns on capital, for example, are another man’s losses in the form of higher prices on products or additional taxes.  This concept, incidentally, applies to any and every other form of government intervention including domestic trade, occupational restrictions and licensing, welfare, entitlements and more.  Government should be a protector of the people and ensure a tranquil and peaceful environment in which every citizen can pursue their right to life, liberty and happiness.  Government should not be taking sides.  It turns out that “fair trade” is not fair.

Competition vs Cooperation

Donald Trump, and Wilbur Ross types, are the stereotypical businessmen who, mistakenly, think that an economy is but a scaled-up-in-size business firm.  They mistake their knowledge for how to successfully operate a business firm for knowledge of how to successfully “operate” an economy.  When competing in business, it is accepted that you are fiercely trying to outdo your competition.  There are winners and losers.  Government, by taking sides, by altering competition and tipping the scales in favor of one can only be compensated for by someone else taking the loss.  This loss, in the final analysis, is typically unseen and, thus, goes unaccounted for.  Beyond picking winners and losers, by involving themselves in commercial and economic matters, the government serves to subsidize, with taxpayer money, those winners even further.

Externalization of Costs

The existence of any state or country and government, which presupposes a monopoly on violence, comes with a responsibility; that the state will not aggress against the people.  Government, of course, consistently violates this covenant in a number of areas, including the issue that involves our current study.  It is important to remember that in a voluntary, stateless, society, or under a Constitution which separates the state from all trade and economic matters, private businesses could not procure the same advantages that Mr. Ross and Mr. Trump wish to secure against other, non-privileged, private US businesses and consumers.

In a stateless society, it is impossible to “outsource” violence to the police or the military, since they are not funded through collective coercion. When there is a government, however, those who wish to gain the fruits of violence – i.e. tax revenues, the regulation of competitors, the blocking of imports and so on – can lobby the government to enforce such beneficial restrictions on the free trade and choices of others. They will have to pay for this lobbying effort, but they will not have to directly fund the police and the military and the court system and the prison guards in order to force people to obey their whims. This “externalization of costs” is an essential ingredient in the expansion of the use of violence. For instance, imagine you are a steel manufacturer who wants to block the imports of steel from other countries – how expensive would it be to build your own navy, your own radar system, your own Coast Guard, hire your own inspectors and so on? How would you convince all the shippers and dock owners and transporters to inspect every container on your behalf?
Molyneux, Stefan, Practical Anarchy, 2008 (Page 58).
Far from “Making America Great, Again!”, Mr. Ross and Mr. Trump simply want to double-down on Bush and Obama-era policies that privatized profits and externalized, or socialized, expenses and losses for those that are politically connected.  There is simply no place for this in any country, let alone the United States.

Playing by the Rules…who’s rules?

Unless otherwise noted, all quotes are from this CNBC article dated January 18, 2017.  See: Commerce nominee Wilbur Ross: Trade partners have to play by our rules

Wilbur Ross promised Wednesday that as Commerce secretary he would encourage trade on conditions that were favorable to U.S. interests.

If by US interests he is referring to US consumers, hard-working Americans, senior citizens, Millennials just getting started in life, and everybody else in between, the only favorable condition is low-cost, high-quality, products.  That is not what Mr. Ross wants.  Mr. Ross wants to enrich himself, his business partners, local, state and federal government bureaucrats and Trump supporters, at the expense of every other American.

Those who violate trade rules, he said during his confirmation hearing, should be “severely punished.” More specifically, he said dumping of steel and aluminum will be a key focus, with tariffs slapped on violators.

Mr. Ross and Mr. Trump are turning on their own people.  They are traitors.  “Dumping” is what thieves call low-cost imports that they could, but do not wish to, compete against.  Inefficient, high-cost capital and labor would rather hire politicians like Ross and Trump to protect them.  In no way are they protecting the average US consumer.  These so-called public-private partnerships, between steel and aluminum companies and the federal government in this case, have a long history in the US, and other countries, and invariably end up producing not more wealth, but small pockets of elite labor, capital and government bureaucracies.

“So I am not anti-trade. I am pro-trade,” he said in remarks prepared for his hearing before the Senate Commerce, Science and Transportation Committee. “But I am pro-sensible trade, not trade that is detrimental to the American worker and to the domestic manufacturing base.”

The entire, “Mexico and China are not being fair”, meme propagated by grown men, let alone millionaires and billionaires, is pathetic and embarrassing, .  Can you picture a Major League Baseball manager flying out of the dugout and complaining that the opposing pitcher is throwing over 90 MPH and it is simply not fair?  A commander of an army calling his mommy and complaining the opposing force brought to many men?

To help with other domestic issues, Ross said he expects President-elect Donald Trump to roll back business regulations. He also on several occasions cited the virtue of low interest rates to help the U.S. solve its problems.

The government should not be in the business of stealing from savers by artificially lowering interest rates.  In the US, a kid shop-lifts a $10 item from a Walmart and gets arrested while the Federal Reserve monopolizes money and uses its police-backed position of privilege to siphon off real claims to wealth from its owners with no negative consequences.

Yes, rolling back regulations would be a great benefit, but Mr. Ross’ partners in government will not warm to such a suggestion.  Mr. Ross is part of the problem.  He has, in no way, elevated himself to a higher moral ground from which he can preach lower costs when his entire life has been spent lobbying government for protections that serve to increase costs for Americans.

Ross detailed instances where his companies have had to offshore some jobs due to manufacturing requirements. However, he said those have been exceptions. He included “saving the American steel industry” as one of his proudest achievements.

“I believe if you add or subtract we have been a very large net creator of jobs during this whole period in the United States,” Ross said.

Mr. Ross, by maintaining high cost manufactured steel in the US, has not only not created jobs, he has, on net, decreased the amount of jobs in the US, and reduced the wealth of a majority of Americans.  Mr. Ross, by all accounts, has become wealthy by saving over-bloated and high cost business structures through lobbying government.  What Mr. Ross fails to see, or ignores, is that millions of jobs have been lost in other domestic industries, primarily through a loss of exports, as a direct consequence of the very policies he advocates.

Promoting exports, which are about 13 percent of the U.S. economy, is his “No. 1 objective.”

Higher manufacturing costs do not increase exports, they decrease them.  Higher costs in the US will lead to lower foreign demand.  Tariffs and other trade restrictions enable, and even encourage, higher prices on domestically produced goods.

“I think I’ve probably had more direct experience than any prior Cabinet nominee has had with unfair trade in the steel business, in the textile business, in the auto parts business and other sectors,” Ross said. “I am very well aware of the issues many companies face, and I’m sensitive to both the issues abroad and the issues here at home.”

Mr. Ross is guilty of spreading false doctrines.  His predatory trade practices have harmed the United States.  He is conflating his own experience and success, and the success of his partners in labor, industry and government, with success of the country as a whole.  If I were to draw a parallel between Mr. Ross’ business career and his soon to be political career, it would be to imagine him the owner of the New York Yankees, who bribed the umpire union to ensure 25 straight World Series championship seasons, who has now been asked to head up the umpire union.  That would no more benefit the other teams in the league than Mr. Ross’ trade positions will benefit most Americans.  I wholeheartedly understand the dissatisfaction with the liberal Democrat world order, but the trade positions taken by President-elect Trump, Mr. Ross, and others in the incoming Trump administration, and claims to producing jobs, are both faulty and fraudulent.  This is the rise of the fair-trade charlatans.

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