Thoughts on free trade

[HSTEd]

Free trade only works as advertised if everyone else also practices it - but no-one actually does.

 

[anme]

Free trade only works as advertised if everyone else also practices it - but no-one actually does.

Please could you explain what you're trying to say?

 

[WatcherZero]

Without treaties and rules to enforce both sides practise what they preach its a race to the bottom of protectionist trade practises by politicians looking to save local jobs.

 

[HSTEd]

Please could you explain what you're trying to say?

The idea that free trade is always beneficial is dependant on the idea that the system will reach equilibrium and will remain at equilibrium, with that position changing only gradually.

Realistic geopolitical models have numerous economic shocks that can cause extreme problems over short timescales.
For instance if all of Country A's coal and oil was provided by Country B - this not being considered problematic by Country A's government since free trade is always the optimum solution, then Country B can cripple A's economy by disrupting the supply of fuel.
Even if Country C is willing to provide fuel to replace Country B's production - this will likely be at much higher cost on spot markets, if it is even available on short notice at all.

 

[WatcherZero]

That's got nothing to do with free trade, what your talking about is Supply Chain Diversification and Strategic Sourcing. The emphasis is that price is only one factor, speed of delivery, identifying alternate sources, securing the necessary import/export paperwork in advance, risks and other factors are considered to ensure that a company does not run the risk of being over exposed to a single market.

To give you an example of proper supply chain management. I buy sprockets from a supplier in Country B for 10p each, they take two weeks to arrive and the country has an antagonistic neighbour who may blockade it. I also source a small amount of my stock from a local supplier in Country A to keep them in production, they cost 15p each but they only take a day to arrive and I can surge my order to a limited degree if I suddenly got a large order or if something happened to my supplier in Country B they can tide me over for a short time. I also have an agreement with a supplier in country C. They can start supplying me as many as I need with four weeks notice but they will cost 12p. I am therefore covered against risk to my suppliers and able to meet unexpected demand.

Some companies like Toyota take this to extremes, they essentially maintain rather than limited number of suppliers and centralised production plant an internal market for supply and production, a hundred subsidiary workshops of varying size from man in a shed up to virtually unlimited production capacity factory that compete against each other for orders from a central procurer. It keeps the prices low through competition, keeps production dynamic, encourages innovation and allows work to quickly shift and gear up or down to meet demand.

 

[HSTEd]

That's got nothing to do with free trade, what your talking about is Supply Chain Diversification and Strategic Sourcing. The emphasis is that price is only one factor, speed of delivery, identifying alternate sources, securing the necessary import/export paperwork in advance, risks and other factors are considered to ensure that a company does not run the risk of being over exposed to a single market.

If you actually believe in Free Trade you can take no actions to alter how the market choses to source its fuel and other resources, to encourage secondary sources or similar is to act in a Protectionist manner (Tarrifs and subsidies or similar).
Business has shown itself to be horrendously bad at anticipating future supply constraints. (And why would it? These days it is very unlikely for shareholders or executives to be around for when it all comes crashing down).

 

[WatcherZero]

Your still conflating different ideologies, this time Free Trade and Laissez Faire Capitalism. The former is the belief in bringing down barriers that hinder the movement of goods and capital to increase economic efficiency, i.e. not charging import duties and not restricting foreign investment. The latter refers to an hands off approach by states to the management of their economies believing the market always knows best and intervening minimally only to ensure health/quality and prevent monopolies developing.

For instance in the Free Trade European Union it is perfectly acceptable to invest in start up assistance setting up a factory in a deprived area to ensure supply of a good or service your country requires more of, or to intervene in a one off way to prevent a manufacturer going bust by supplying a one time order, bridging capital, or helping to reorganise to return to profit. Another example of allowable intervention is to provide financial assistance through loans, grants or tax breaks to bring a new product or production technique to market as long as that financial assistance is repaid. It is not acceptable however to provide ongoing assistance to help the company compete. Laissez Faire Capitalism however would oppose these kind of state interventions as meddling in the market.