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Originally Posted by DGthe3

Currency devaluation is merely one method to attempt to improve your exports. And taxes/wages aren't really a form of protectionism in my mind. They're a cost of doing business in that country, sure I accept that. But the way to fight it is to try and raise the standard of living in other countries, not reduce your own or try to impede their growth.

I never said taxes or wages were a form of protectionism, but the difference between wages, such as the usual "inexpensive foreign labor," is cited as an argument for protectionism. Your last statement is curiously out of place with your other assertions; free trade raises the standard of all and not just one certain country. That is, as explained in your Microeconomics 101 class, trade is beneficial to both parties, or it simply would not occur. This is contrary to what was said by mercantilists, of whom asserted that one person "wins" and the other "looses." And as you'll notice, this is what is asserted everyday by the ones who believe a simple 25% tariff on Chinese goods will save our economy. Fortunately, Adam Smith put that argument to rest in 1776.

That said, there are plenty of other ways to protect a market,
import taxes/tariffs, tax breaks for domestics, quotas, subsidies.

I'm aware of them, considering I mentioned a few of them earlier. However, they only divert resources away from more competitive U.S. firms into inefficient firms being protected by some special privilege granted by government. It is these types of firms that would fail; it is these types of firms that must fail if your goal is increased employment, productivity, and standard of living.

- Tariffs/Quotas I have already been over.
- Tax breaks are yet another example of special privilege. Why is it that GM deserves a tax break and your small restaurant owner in Louisiana does not?Not only does this violate equality before the law, but it (coercively) redistributes wealth to GM.

And its absurd to argue that when a nation like South Korea or Japan has millions of guaranteed domestic auto sales it doesn't provide a competitive advantage in the global market place. Toyota, Honda, Nissan, and Hyundai/Kiacars are all clearly up to the standard of what buyers in the US and around the world want, so for them its not a case of propping up failures.

It's not absurd at all when taking into consideration the opportunity costs and how these jobs are kept afloat. Perhaps the Japanese government can answer, as you failed to in your response, the following:

Originally Posted by Robert Murphy

The crudest justification, namely that tariffs "save jobs," is incredibly naïve: A country ultimately pays for its imports with its exports, and so to "save jobs" in the steel industry by raising tariffs will only destroy jobs in other exporting industries when foreigners have fewer American dollars with which to buy our products. And having to pay the tariff—as with any tax—leaves fewer resources available for job-creating investment.

Not only do tariffs fail to create employment on net, they also channel workers into less productive lines, and hence reduce overall output and consumption. After all, Alaska could certainly "create jobs" in its agricultural sector by banning all imports of fruit. At the artificially high prices, it would then be profitable for firms to open greenhouses in Alaska in order to grow apples, oranges, and other fruits that were previously imported. But does anyone think that this policy would be good for the average Alaskan?

I would enjoy a response to the logical conclusion of protectionism I mentioned in my last post. That is, what about the "trade deficit" between the states, cities, or even individual? Finally, having a trade deficit with one country overlooks the fact that you can have trade surpluses with others to offset the aforementioned deficit.

Originally Posted by Robert Murphy

To see this, imagine a simplified scenario where Japan sells automobiles to the U.S., the U.S. sells software to Kuwait, and Kuwait sells oil to Japan. In this fictitious example, the U.S. would have a trade deficit with Japan but a surplus with Kuwait, Kuwait would have a trade deficit with the U.S. but a surplus with Japan, and Japan would have a trade deficit with Kuwait but a surplus with the U.S. In terms of currency flows, Japanese automakers would probably accept U.S. dollars in exchange for their products, and then sell these dollars on world currency markets against Kuwaiti dinars. Then the Japanese could use the dinars to buy Kuwaiti oil, while the Kuwaitis would use the dollars to import American software.

I can almost support protectionism when a nation is trying to establish its own industries and their own fledgling attempts to stand on their own without getting swamped by big international competitors.

I believe the argument for protection of infant industries would be stronger if those proposals defined what the duration of the "temporary" tariff is. To many economists, it shows how little thought proponents of the infant industry argument put into their proposal. The problem is that these tariffs almost never go away due to what I believe Friedman said best, "There is nothing as permanent as a temporary government program." Of course, the argument is a lot deeper than simple practicality and government inefficiency. Another very basic thing that is overlooked is the mechanism that the market has to adress this issue: loans. In the short-run, nearly all businesses lose money, but if they expect profit in the future then they can take out a loan and repay it with those future profits. The individuals of the market will decide rather or not these expectations are correct by choosing to invest in them or not. If not, then its current loss of resources is not sufficiently compensated by its future gains (assuming there are gains). Here is another analogy that illuminates the absurdity of the infant industry argument:

Originally Posted by Robert Murphy

The absurdity of the infant industry tariff can be illustrated by considering an "infant worker" tax, which would be a tax levied on experienced workers in order to encourage businesses to hire younger workers with less experience. After all, without giving the young workers such help, how would they be able to survive during the years of training in schools? Clearly we need to tax older workers in order to encourage the development of human capital in our infant workers!

But that hasn't been the case in Korea for years, or Japan for decades. Instead, you have Toyota selling more cars worldwide than anybody else, when there is only a single major market where they sell more than GM: Japan. Meanwhile, the JDM also allows smaller manufacturers like Suzuki and Mitsubishi to keep building cars.

It's no secret that Japan has played with what is known as "state capitalism," but this state capitalism falls short of lassiez-faire. Actually, I'm not sure I would trying to duplicate Japan's economic model as implied here; does the Lost Decade ring a bell to you? I wouldn't call economic stagnation for 10+ years progress. Also, the citizens of Japan are only being hurt by their government's refusal to let competition in.

Also, with my equal trade idea it would usually be in the other nations best interest to simply remove their own trade barriers.

History has shown very well what happens with the implementation of tariffs; there will be retaliation. For example, see the Smoot-Hawley tariff. Again, the market is the only form of equal trade, considering every tariff will eventually have to be paid by taxes. This leads to the well known "crowding out" effect on private investment that you also refused to respond to.

Afterall, the Korean auto industry would take a severe hit if they lost ~400,000 units of export to the United States, far bigger than what they would take by allowing the unimpeded import of US automobiles. Afterall, their market is at best 1/6 the size of the US market.

Assuming that the combined US automakers would have a comparable market share in South Korea as Hyundai/Kia have over here the 'trade rate' on cars would be somewhere around 6:1 (currently its something like 66:1). So Korea would stand to lose either 65,000 sales by allowing US automakers in or lose 400,000 by being shut out of the US. I would rather Korea open up, but I wouldn't be terribly saddened if they got shut out either. Same with China, Japan, or an number of other countries.

You're correct that the Korean auto industry would "take a big hit" if they opened up to competition. They would no longer be shielded by heavy subsidization and currency devaluation and would succumb to market forces. You would see the international division of labor at work and see their global market share decrease drastically. However, as I explained above, these methods don't protect them.

Another thing to take into consideration is GDP per capita. GDP by itself isn't really useful but combined with a "per head" count, then it's usually a good indicator of economic performance. So, what you will see the United States always in (at least) the top 10, while South Korea and Japan do its best to crack top 25. China? Usually in the 90s.