Monday, September 14, 2009

Chicken and Tyres

Ah, yes, the Brits call them 'tyres'. No matter; the Economist is right that the Obama administration is making a big mistake in imposing "punitive tariffs (35% for the first year, falling by five percentage points a year, to 25% in the third year) on Chinese-made pneumatic tyres." The Chinese are considering imposing their own tariffs on US chicken meat and auto parts (One assumes that auto parts made from chicken meat would be unaffected).

Tariffs are popular with that those voters who believes their economy will grow if the country closes its doors to trade. The US has also tried to impose bans on all "foreign steel" used in stimulus building projects, which as you can well imagine pissed off people in our fair Canadian steel city. Politicians support these sorts of things because they gladden American workers, and especially union members, who can be counted on to believe that everything would be better if America had a closed economy. Keep out foreign workers and products. Buy American, etc.

Nevertheless, nearly all economists will tell you that imposing tariffs and restricting trade in a global economy is monumentally stupid, especially if you're also trying to grow your economy. Starting trade wars in the tail end of a recession is suicidally stupid. The Economist: "Global co-operation has been crucial amid efforts to encourage economic recovery. It would be a tragedy if it that were derailed by posturing over tyres and chicken."

There is often talk in democracies about letting the wisdom of the people decide. In my experience, the average person's understanding of economics is low; I remember watching the passersby at a local open air market grumbling conspiratorially about the merchants, "You know they're going to get their money, they'll make sure of that!" Sometimes, the will of the people is dead wrong, and in situations in which two centuries of economic wisdom says one thing, and "the people" want something that is the polar opposite, a wiser leader would tell the people to cram it.

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