Most trade barriers are not tariffs

Jul 8 JDN 2458309

When we talk about “protectionism” or “trade barriers”, what usually comes to mind is tariffs: taxes imposed on imports or exports. But especially now that international trade organizations have successfully reduced tariffs around the world, most trade barriers are not of this form at all.

Especially in highly-developed countries, but really almost everywhere, the most common trade barriers are what is simply but inelegantly called non-tariff barriers to trade: this includes licenses, quotas, subsidies, bailout guarantees, labeling requirements, and even some environmental regulations.

Non-tariff barriers are much more complicated to deal with, for at least three reasons.

First, with the exception of quotas and subsidies, non-tariff barriers are not easily quantifiable. We can easily put a number on the value of a tariff (though its impact is somewhat subtler than that), but this is not so easy for the effect of a bailout guarantee or a labeling requirement.

Second, non-tariff barriers are often much harder to detect. It’s obvious enough that imposing a tax on imported steel will reduce our imports of steel; but it requires a deeper understanding of the trade system to understand why bailing out domestic banks would distort financial flows, interest rates and exchange rates (even though the impact of this may actually be larger—the effect on global trade of US bank bailouts was between $35 billion and $110 billion).

Third, some trade barriers are either justifiable or simply inevitable. Simply having customs screening at the border is a non-tariff barrier, but it is widely regarded as a justifiable security measure (and I agree, by the way, even though I am generally in favor of much more open borders). Requiring strict labor and environmental standards on the production of products both domestic and imported is highly beneficial, but also imposes a trade barrier. In a broader sense, differences in language and culture could even be regarded as trade barriers (they certainly increase the real cost of trade), but it’s not clear that we could eliminate such things even if we wanted to.

This requires us to look very closely at almost every major government policy, to see how it might be distorting world trade. Some policies won’t meaningfully distort trade at all; these are not trade barriers. Others will distort trade, but are beneficial enough in other ways that they are still worth it; these are justifiable trade barriers. Still others will distort trade so much that they cannot be justified despite their other benefits. Finally, some policies will be put in place more or less explicitly to distort trade, usually in the form of protectionism to prop up domestic industries.

Protectionist policies are of course the first things to get rid of. Honestly, it baffles me that people even want to impose them in the first place. For some reason they think of exports as the benefit and imports as the cost, when it’s really the other way around; when we impose protectionism, we go out of our way to make it harder to get cars and iPhones so that we can stop other countries from taking our green paper. This seems to be tied to the fact that people think of jobs as something desirable, when really it’s wealth that’s desirable, and jobs are just one way of getting wealth—in some sense the most expensive way. Our macroeconomic policy obsesses over inflation, which is almost literally meaningless (as long as it is not too unpredictable, really nothing would change if inflation were raised from 2% to 4% or even 10%) and unemployment, which is at best an imperfect indicator of what we really should care about, namely the welfare of our people. A world of full employment with poverty wages is much worse than a world of high unemployment where a basic income provides for everyone’s needs. It is true that in our current system, unemployment is closely tied to a lot of very bad outcomes—but I maintain that this is largely because unemployment entails losing your income and your healthcare.

Some regulations that appear benign may actually be harmful because of their effects on trade. Yet I should also point out that it’s possible to go too far the other direction, and start tearing down all regulations in the name of reducing trade barriers. We particularly seem to do this in the financial industry, where “deregulation” seems to be on everyone’s lips until it causes a crisis, then we impose some regulations that fix the worst problems, things look good for awhile—and then we go back around and everyone starts talking about “deregulation” again. Meanwhile, the same people who talk about “freedom” as an excuse for removing financial safeguards are the ones who lock up children at the border. I think this is something that needs to be reframed: Which regulations are you removing? Just what, exactly, are you making legal that wasn’t before? Legalizing murder would be “deregulation”.

Trade policy, therefore, is a very delicate balance, between removing distortions and protecting legitimate public interests, between the needs of your own country and the world as a whole. This is why we need this whole apparatus of international trade institutions; it’s not a simple matter.

But I will say this: It would probably help if people educated themselves a bit more about how trade actually works before voting in politicians who promise to “save their jobs” from foreign competition.

Saudi Arabia is becoming a problem.

JDN 2457394

There has been a lot of talk lately about what’s going on in the Middle East, particularly in Syria, Iran, and Iraq, where Daesh (I like to call them that precisely because they don’t like it), also known as ISIS or ISIL, has been killing people and destroying things–including priceless ancient artifacts.

We in the United States actually have little to fear from Daesh. Pace Ben Carson and Lindsey Graham, Daesh is absolutely not an existential threat to the United States. We have them completely outnumbered and outgunned—indeed, we have the world outgunned, as we ourselves account for 40% of the world’s military spending and a comparable portion of the world’s nuclear missiles, naval tonnage, and air fleet.
The people who need to worry are those living in (or fleeing from) the Middle East.

Some 17,000 civilians were killed by warfare in Iraq in 2014, the plurality killed by Daesh and only a small fraction killed by US or NATO forces. Contrary to the belief of people like Noam Chomsky who think the US military is comprised of bloodthirsty genocidal murderers, we actually go quite far out of our way to minimize civilian deaths, up to and including dropping pamphlets warning of bombing raids before we carry them out (I love the “admits” in that headline. You keep using that word…). Then there’s Syria, where there have been over 200,000 deaths, though actually more attributable to Bashir al-Assad than to Daesh.

Daesh, on the other hand, has no qualms about killing anyone they consider not a “true Muslim”, which basically means anyone who doesn’t support them—it certainly doesn’t exclude all Muslims. Daesh is so brutal and extreme that Al Qaeda has condemned their tactics. Yes, that Al Qaeda, the one that crashed airplanes into the World Trade Center in 2001. If you really want to know the sorts of things Daesh has been doing (and have the stomach for it), there are plenty of photos and video footage, many of them openly promoted by Daesh itself, including on their Twitter feed which also shows lots of (I am not kidding) kitten photos called “Mewjahideen”.

But today I’m not actually going to focus on Daesh itself. I’m going to focus on a country that is ostensibly our ally in the fight against them—yet the way they’ve been behaving is a lot more like being an ally of Daesh. As I gave away in the title, I mean of course Saudi Arabia.

Between the time that I drafted this post as a Blog From the Future on Patreon and the time that you are now reading this, Saudi Arabia did another terrible thing, namely executing an important Shi’ite cleric and triggering the possibility of war between Saudi Arabia and Iran. (I think it helps support the point I’m about to make shortly that the focus of this article is on the effect on oil prices.)

First, remember what Saudi Arabia is—namely, an absolute theocratic monarchy founded upon the same Wahhabi Islamist ideology that drives Daesh. They teach Wahhabi Islam as their state religion in schools. This by itself should make us wonder whether they are really our allies—they after all agree a lot more with our enemies than they do with us. And indeed, while they speak of joining the “war on terror”, they are actually the leading source of funds for global Islamist terrorism. In theory, with their large, powerful military and a majority-Muslim population (which would help avoid the sense that this is some kind of Christian/atheist versus Muslim neo-Crusade, which it absolutely must not be), Saudi Arabia could be a valuable ally in this war—but they don’t particularly want to be.

Saudi Arabia is now paying to support refugees, but they aren’t actually accepting any refugees themselves. It would make sense for the US to do this, because we are very far away and it would be very difficult to transport refugees here. It does not make sense for Saudi Arabia to do this, except in order to look like they’re doing something while actually doing as little as possible. (Also, I’ve read conflicting reports as to whether they’ve pledged $10 million to Jordan or $10 billion—which is kind of like saying, “The car was either $1,000 or $1,000,000, I’m not sure.” The most credible estimate I’ve seen is $300 million, $10 million to Jordan. In my favorite unit of wealth, they’ve donated a romney. It’s a whopping… 0.04% of their country’s income in a year.) They should be doing what Turkey is doing, and taking on hundreds of thousands of refugees themselves.

As is fairly common among tyrants (look no further than North Korea), Saudi Arabia’s leaders often present some rather… eccentric beliefs, such as the claim that Daesh is actually secretly a wing of the Israeli military. Maybe this is Freudian projection: Knowing that they are secretly supporting Daesh and its ideology, they decide to accuse whomever they most dislike—i.e., Israel—of doing that very thing. And they certainly do hate Israel; Saudi Arabia’s state-run media frequently compare Israel to Nazis because apparently irony is completely lost on them.

One of the things Daesh does to display its brutality is behead nonbelievers; yet Saudi Arabia beheads far more people, including for thoughtcrimes such as apostasy and political dissent, as well as “crimes” such as sorcery and witchcraft. The human rights violation here is not so much the number of executions as the intentional spectacle of brutality, as well as the “crimes” cited. In the summer of 2014, they beheaded about one person per day—in a country of 27 million people, it wouldn’t be that odd to execute 30 people in a month, if they were in fact murderers. That’s about the size and execution rate of Texas. The world’s real execution leader is China, where over 2,000—and previously as many as 10,000—people per year are executed. China does have a huge population of almost 1.4 billion people—but even so, they execute more people than the rest of the world combined.

I mean, one can certainly argue that the death penalty in general is morally wrong (it is certainly economically inefficient); but I never could quite manage to be outraged by the use of lethal injection on serial killers (which is mainly what we’re talking about in Texas). But Saudi Arabia doesn’t use lethal injection, they use beheading. And they don’t just execute serial killers—they execute atheists and feminists.

Saudi Arabia’s human rights record is one of the worst in the world. (And that’s from the US Department of State, so don’t tell me our government doesn’t know this.) Freedom House gives them the lowest possible rating, and lists several reasons why their government should be considered a global pariah. Even the Heritage Foundation (which overweights economic freedom over civil liberties, in my opinion—would you rather pay high taxes, or be executed for thoughtcrime?) gave Saudi Arabia a moderate freedom rating at best.

So, the question really becomes: Why do we call these people our allies?

Why did President Obama cut short a visit to India—which is, you know, a democracy—to see the new king—as in absolute monarch—of Saudi Arabia? (Though good on Michelle Obama for refusing to wear the hijab. You can see the contempt in the faces of the Saudi dignitaries, but she just grins smugly. You can almost hear, “What are you gonna do about it?”) Why was “cementing ties with Saudi Arabia” even something we wanted to do?

 

The answer of course is painfully obvious, especially to economists: Oil.

Saudi Arabia is by far the world’s largest oil exporter, accounting for a sixth of all crude oil exports.

The United States is by far the world’s largest oil importer, accounting for an eighth of all crude oil imports.

As Vonnegut said, we are rolling drunk on petroleum. We are addicts, and they’re our dealer. And if there’s one thing addicts don’t do, it’s rat out their own dealers.

Fortunately, US oil imports are on the decline, and why? Thanks, Obama. Under policies that really were largely spearheaded by the Obama administration such as expanded fracking and subsidized solar power investment, a combination of increased domestic oil production and reduced domestic oil consumptionhas been reducing the need to continue importing oil from other countries.

Of course, the “expanded fracking” and “increased oil production” part gives me very mixed feelings, given its obvious connection to climate change. But I will say this: If we’re going to be burning all that oil anyway, far better that we extract it ourselves than that we buy it from butchers and tyrants. And indeed US carbon emissions have also been steady or declining under Obama.

The sudden crash in oil prices last year has been damaging to both Saudi Arabia and other major oil exporters such as Russia and Venezuela, which are nowhere near as bad but also hardly wholesome liberal democracies. (It also hurt Norway, who didn’t deserve it; but they’re wisely divesting from fossil fuels, starting with coal.) Now is the perfect time to implement a carbon tax; consumers will hardly feel it—it’ll just feel like prices are going back to normal—but oil exporters will have even more pressure to switch industries, and above all global carbon emissions will decrease.

Ideally we would also combine this with what I call a “human rights tariff”, a tariff applied to the goods a country exports based upon that country’s human rights record. We could keep it very simple: Another percentage point added to the tariff every time you execute someone for political, religious, or ideological reasons. A percentage point off every time you go at least a month without executing anyone for any reason except murder.

Obviously that wouldn’t deal with the fact that women can’t drive, or the fact that hijab is mandatory, or the fact that homosexuality is illegal—but hey, it would at least be something. Right now, every barrel of oil we buy from them is basically saying that we care more about cheap gasoline than we do about human rights.