Why we still should be optimistic about free trade

That is the topic of my latest Bloomberg column, here is one bit:

A lot of the recent cross-border migration is planting a hugely positive, pro-trade legacy that will yield dividends for decades to come. The Chinese, Indians, Nigerians and many other groups around the world will continue to build economic connections, even when the countries involved aren’t always so geographically close. I expect the positive trade gains from these connections and personal networks will outweigh the downside from some higher tariffs in the meantime. Ultimately the opportunities are there, and the biggest problem is the lack of human talent to execute on them.

I do however see one big problem:

The internet shows some signs of breaking down into separate networks, connected only imperfectly. The Chinese “Great Firewall” has proved robust, and recently the European Union has moved toward creating its own set of stringent privacy and data protection laws, such as the new General Data Protection Regulation standards. Sitting here in Norway for a conference, I find I am unable to access many American websites, such as the Chicago Tribune, which are not (yet?) GDPR-compliant. There is thus a danger that the internet will become carved into three or more separate systems, to the detriment of trade, data flows and eventually personal  connections.

Do read the whole thing.

Comments

I am not sure why the Middle East was not mentioned and China was singled out.

Having dealt with both, I know where freedom is actually curtailed and where people just like to project their own insecurities about a rising superpower.

Hey server farm Chicom-welcome the the superpower club. you get judged harsher it's just the way it is. The USA has been dealing with it for 50 or so years. Granted we aren't as touchy as you guys so maybe it was a little easier for us to take.

A little harsh, but agreed. No one really cares about closed internet in small, petulant places whose only globally viable products are energy. China's closed internet hurts the entire world.

Wohh just what I was looking for, thanks for posting.

"Having dealt with both, I know where freedom is actually curtailed and where people just like to project their own insecurities about a rising superpower."

I am pretty sure people said it about Nazi Germany, too.

Thanks, Godwin

It's also be a recipe for foreign concessions, colonization and independent city states.

Best news I've heard all week.

Trade in goods and services is mutually beneficial. Trade in values and ideas is dangerous. That will be the 21st Century in a nutshell.

Far more likely to be people aren't widgets. Far better to exchange widgets than people. That way everyone can do their best to establish nice countries amenable to their own distinct cultures. People are different that's why countries were invented.

People are more similar than they are different.

Funny, I figured people couldn't easily travel far, that's why countries were invented.

Other tribes wanted to take your stuff, so you banded together with a few you own bigger, nastier tribe and took their stuff first. Then you killed their men, raped their women, and claimed their land for yourself.

That's why countries were invented.

"a few you" should be "your"

Internet is eventually going to be reduced to to a shadow of its former self by governments wanting to control it. The technology itself is pretty anarchistic and the governments hate it. One government wants to control privacy, another dissident opinions and a third one wants to enforce copyright laws; all these things go very much against of everything that the internet stands for and thus it must be destroyed.

覚悟しろ!

"Sitting here in Norway for a conference, I find I am unable to access many American websites, such as the Chicago Tribune, which are not (yet?) GDPR-compliant."

Easy to fix -- get a VPN service. Works for me. Useful for other things, too.

Just imagine when Prof. Cowen discovers that YouTube has regional restrictions too, which have nothing to do with the GDPR.

Good article Tyler.

We gave you David Frum (thanks by the way) and we get steel tariffs.

So far I think we are ahead.

There's a flip side to the interconnectedness Tyler describes. As more companies do business overseas and are subject to overreach by foreign governments and arbitrary foreign laws, regulations and taxes, the governments of their home countries will inevitably perceive that the foreign government is using its authority to favor its own companies over the foreign companies operating there. For example, Trump tariffs were defended by a lot of people in the administration as a way to exert pressure on China to stop by the policy of forced technology transfer from US companies to their Chinese competitors. Another example, the European Commission has been aggressively fining U.S. technology companies, like Google and Qualcomm, billions of dollars under pretty questionable and legally dubious antitrust claims. The U.S., and any other country, would be foolish to sit idly by and let foreign governments essentially steal from their citizens who are the shareholders of these companies.

I too have wondered about those very same points. But perhaps the US should retaliate in kind. The tariff's seem much too broad and economically in-efficient.

Russia too is building its own internet directory. https://www.defenseone.com/technology/2017/11/russia-will-build-its-own-internet-directory-citing-us-information-warfare/142822/?oref=d1-related-article This is a good thing. Alternate webs and local control add resilience, encourage innovation, and will deter aggression. And frankly, anything that undermines the Google/Amazon/Facebook hegemony is desirable.

You are aware of the fact that multiple DNS systems actually exist right now, free for you to use? Like this one - 'Cloudflare's mission is to help build a better Internet. We're excited today to take another step toward that mission with the launch of 1.1.1.1 — the Internet's fastest, privacy-first consumer DNS service. This post will talk a little about what that is and a lot about why we decided to do it. (If you're interested in the technical details on how we built the service, check out Ólafur Guðmundsson's accompanying post.)' Learn more here - https://1.1.1.1/

And in case you were not aware, the Google/Amazon/Facebook hegemony has nothing to do with DNS.

Well, shamefully, I was unaware of the 1.1.1.1 DNS. I was vaguely aware that commercial applications use an alternate system and that there is a dark web. I was under the impression that ISPs and Google can and do block certain web addresses:https://www.usnews.com/opinion/articles/2016-06-22/google-is-the-worlds-biggest-censor-and-its-power-must-be-regulated 1.1.1.1 looks interesting and I will try to install it. So ,thank you for the information. And if I may importune you further, what web-browser and email service would you recommend?

Who knew that free markets required freedom?

Even with a "trade war" the US will remain the world's largest importer of goods and services and will still have tariff rates that are among the lowest in the world. More than half of US imports will still continue to go completely untaxed. If Tyler were in the least interested in free trade he would recognize that the US does not impose a VAT on imports as do all other countries. Ironically, we are locked into this hideous arrangement due to "free trade" agreements. Even the new "Trump Tariffs" rates will in many cases be far below the VAT imposed upon US exports. VATs are the single greatest impediment to free trade. And VAT rates are increased regularly without a peep from US academics who remain irrationally obsessed with attacking President Trump. Too bad McCain-Feingold is not around so that we could expand it to eliminate state university sponsored academic meddling in our elections.

Sample VATs: https://www.vatlive.com/vat-rates/european-vat-rates/

I don't think this is correct. A VAT doesn't create a trade barrier anymore than a sales tax does.

That being said the implementation of a VAT is often very complex and opaque.

Well I am pretty sure that VAT is applied to imports. For example see this explainer from the Netherlands:

"In addition to import duties, you normally have to pay VAT. The VAT rate is the same as that which applies to supplies of goods and services in the Netherlands."

https://www.government.nl/topics/export-import-and-costums/taxes-on-imported-goods

Sure it is. But the VAT of a country is applied to anything that is sold for consumption in the country, wether imported or not. So it is completely different from a tariff, which is only applied to imports.

But shifting the tax load from corporate tax (which applies only within a country jurisdiction) to VAT (which applies also to imported goods) isn't the same as a tariff ?

When a car is sold in Virginia, a sales tax is applied. Where that car is made, and who taxes the corporate parent, is irrelevant to that sales tax.

A sales tax being applied to all purchased items within a jurisdiction, regardless of origin, is not a tariff, and never has been.

Lurker, I think you are right that this change will have the same effect as introducing a new tariff. But it is only because in the starting situation, the domestic producer were at a disadvantage with respect to foreign producers exposing to their countries, since they had to pay the corporate tax.

I am not an economist, and my thinking of this issue is blurred. Trump has more or less convinced me that a VAT tax (or a sales tax) did indeed give an advantage to local producers, albeit indirectly. The VAT tax is neutral as for market shares and price determination between local
and foreign producers, but it has also another role: raising money for the (local) government. With that money the government will (or should) improve infrastructures, which will help and make cheaper the production process of the domestic industry. So in a sense, the VAT tax for a foreign company amounts to a entry right it has to pay to access the local market, while for a domestic company it it, in part, the buying of a public good (infrastructures, plus more indirect benefits, such as the social peace government can buy with its tax money, etc.) Or am I making a gross logical mistake?

That's it Joël.

Thank you for clarifying my point.

For a while, digital goods have respected borders more than physical ones.

I bet you could have the Chicago Tribune delivered to your hotel in Norway without any legal issues (maybe at high cost and a week late, but no legal issues there). But try to access it through the internet and you have to resort to workarounds (which are technically illegal, but rarely enforced in either the EU or China).

Similarly, I can legally get a physical book or DVD delivered from China to my house, but Netflix will restrict what it lets me watch depending on which EU state I am physically in (no EU common market there).

Protecting people from ruthless companies and governments is somehow similar to authoritarian censorship?

And the internet is somehow destroyed by protecting privacy and data?

In Prof. Cowen's view, it is also threatened whenever an ISP has to treat each data packet equally.

in China the state owns online data
in the US companies own online data
in Europe citizens own online data

we should follow the example of Europe

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