Technology and trade
Oliver Hime
In his thought experiment, the Iowa Car Crop, David Friedman tries to show that growing wheat is, in an important sense, just another 'technology' we can use for manufacturing cars, and in some circumstances a much more efficient one.
If international trade is thus a way of using less valuable inputs to produce more valuable outputs, why would governments impose trade barriers such as tariffs and quotas, thereby forcing producers to be more wasteful and less efficient?
The theory of comparative advantage and the manifesto of the WTO implores countries to take down trade barriers for the sake of economic efficiency and international co-operation. This harmonic global order is becoming increasingly fractured as a zeitgeist of anti-globalization sets in. An era of trust and mutualistic thinking has subsided into a world of zero-sum, antagonistic trading policies that seek to undermine and damage rival countries. In this world of tension, economic concerns are subservient to the political, and to the age-old battle for survival. Friedman’s Iowa Car Crop thought experiment presupposes frictionless, barrierless trade as if the trading partner is a machine that perfectly equilibrates imbalances in exports and domestic supply. However, there is a growing perception that this machine has been manipulated, and international competitiveness warped by non-market economies. Trade barriers are arguably necessary to protect the market economies of the west from the power of a non-market economy such as China, where the state controls half of all assets, 1 to transcend the need for profit, and sustain almost indefinite losses to crush competitors in industries of key strategic importance. Huawei’s ability to under cut competitors by 70% on network equipment on the back of $75bn of subsidies 2 is emblematic of how unfair Chinese competition threatens to undermine western resolve to conform to a free trading structure such as the WTO. In a typical case of game theory, if every country conforms to a trading agreement that ensures fair competition between countries, all countries benefit from increased economic efficiency. However, the first country to break this covenant benefits greatly, gaining a competitive advantage over all the other rule-abiding nations, incentivizing transgressive behaviour and other countries to follow suit. This is exacerbated by the failure of the WTO to resolve the free trade disputes between the USA and China. That failure is intrinsically linked to the nature of its creation as an organization designed to mediate trade between market economies with a shared desire to maximize free trade . Furthermore, the WTO’s failure provokes and arguably necessitates
1 Paterson, S. 2018. China Trade and Power , p.68 (London). 2 Council On Foreign Relations, 6/4/23: https://www.cfr.org/backgrounder/chinas-huawei-threat-us-national- security#:~:text=The%20Chinese%20government%20ensured%20Huawei,since%20the%20company%20was%20f ounded.
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