… villages in the lower Yangtze became congested hives of small … factories, attracting workers from other parts of China and spewing (wintercow: nice choice of words, huh) out goods at frightening (wintercow: nice choice of words, huh) volume. Yuengang merchants sold this (stuff) … making profits of 30 to 40 percent.

…

(other) merchants doubled, tripled or even quadrupled the price and still sold their goods in America for a third the cost of European (products). Incredibly, they sold manufactured goods from China – that had crossed two oceans – in Europe for less than it cost to produce it in Europe. So much raw material poured into Mexico (a way station from China to Europe) that a secondary industry sprang up there, with thousands of weavers and dressmakers making clothes from Chinese fabrics and exporting them throughout the Americas and across the Atlantic.

…

Alarmed Europeans saw their textile (and other) mills threatened — and fought a covert regulatory war against Chinese competition. They importuned the government to restrict fabric imports to bolts of fabric rather than finished clothing. They insisted that they block direct travel between the exporting cities and any place in the world except CITY (the way station in the trades) so that Chinese imports could be monitored. They demanded that the government set import quotas by restricting incoming fabric to a given number of containers of a specified size. Chinese merchants evaded every trade barrier, often aided by Europeans. They built special containers with false bottoms and sides to conceal pre-made clothing. They sent agents to CITY to facilitate smuggling on the CITY side of the trade. They designed special presses to mash huge quantities of fabric into the containers, packing them so tightly that according to Li, … “a single container could not be picked up by a simple machine.”

Read the US trade rules and you can see very similar responses, right down to the finest details, or how some items may be exchanged today. Of course, the passage above is a modified version of Charles Mann’s account of the 16th century Chinese silk trade between the Phillipines and Spain, with a stop in Acapulco along the way. The more things change …

Or how’s this story, about 100-pages later in the book:

In 1635 the city’s Spanish barbers petitioned the municipal council to stop the chinos’ “excesses” and “inconveniences.” The complaint was artfully worded, but one detects the real cause of grievance: the Chinese were willing to pay higher rents for space in the center of town, even at the risk of lowering their profits, because that brought them closer to their customers. And they spent long hours on the job, forcing European barbers to work equally hard to compete. To Spaniards, the solution was obvious: expel the Chinese from the city center and restrict hair-cutting hours so that they wouldn’t have to work so hard and accept such low profits. Six months later the viceroy banned Asian barbers from the Plaza Mayor. Twisting the knife, he restricted the number of razors they could possess, thus ensuring that their shops couldn’t grow too large.

Despite the ban, the government kept approving applications for chino barbershops in the Playa Mayor – perhaps, one is tempted to speculate, because influential customers didn’t want to have to travel long distances to have their hair cut and teeth cleaned. European businesses again complained about the competition. In 1650 the government created a barbershop czar, empowered to extract hefty fines from bootleg hair salons. The post was ineffective: Chinese barbers proliferated by the score.

That was Mexico City which had the first Chinatown in the Americas. Maybe this Spanish mindset can help us understand a little better why their unemployment rate stands at 20% today.

GUEST POST: The following article is authored by current University of Rochester Senior Alex Armlovich.

From Bloomberg Businessweek

…Eizenstat and his fellow negotiators faced a barrage of lobbying from U.S. companies and trade groups that wanted specific language written into the agreements to protect their products or give them an edge over their rivals.

The smallest tweak to the wording in some buried passage can mean the difference between tens of millions of dollars in sales or being shut out of a foreign market altogether…Take the humble candy bar. Sugar growers lobbied trade officials for a rule that would stop U.S. candy makers from getting around U.S. import quotas and using too much imported sugar in their products. Eizenstat says that was a deal breaker for big chocolatiers such as Hershey’s and Mars, which buy ingredients, including cheaper sugar, from all over the world. In the end, the negotiators devised a compromise: At least 65 percent of the sugar in products containing cocoa powder must be from U.S. growers to be considered American-made. Otherwise tariffs will apply, which could make the product prohibitively expensive. But no such restrictions apply on sugar that’s used to make candy bars. In other words, a packet of instant hot chocolate that contains 64 percent U.S.-grown sugar is not considered American under the deal. But a chocolate bar made with 100 percent foreign sugar is.
…
For decades, Korea went out of its way to make it a hassle for its citizens to buy foreign-made vehicles. The government taxed them heavily and audited Koreans who bought them. It restricted the square footage of dealerships, enforced fuel efficiency standards that American manufacturers could not meet, and even tried to change the size of Korean license plates to make them too big to fit on American bumpers. “It was always one thing or another,” says Representative Sandy Levin (D-Mich.), the ranking member on the House Ways and Means Committee. The more serious barrier to trade, says Levin, was South Korea’s constantly shifting regulations: Government officials would make sudden changes to the nation’s safety and fuel economy standards, requiring U.S. manufacturers to adapt on the fly with costly engineering changes to make their cars fit for sale in Korea. “From one year to the next, you find out the rules have changed,” says Stephen Biegun, vice-president for international governmental affairs at Ford Motor (F).

The tactics were effective. In 2009, the Congressional Research Service says, automobiles accounted for nearly three quarters of that year’s $10.6 billion U.S. trade deficit with South Korea. In 2010, U.S. automakers exported fewer than 14,000 cars to South Korea, while South Korea exported 515,000 cars to the U.S.

Ultimately, the two sides worked out a head-scratcher of a compromise. The U.S. agreed to something the Koreans wanted—a removal of the 2.5 percent tariff on Korean auto imports. Korea will withdraw its tariffs on U.S. cars. What American car companies really wanted, though, was an end to Korea’s practice of unexpectedly changing auto standards. The Korean negotiators wouldn’t agree to that. Instead, they will allow each foreign automaker to sell 25,000 cars per year in Korea that don’t have to meet the country’s safety regulations.

Consider the latter – the fear, incorrectly of course, is that trading with foreigners hurts domestic wages and employment opportunities. But later in the piece we learn that Graeber’s influential work in his field surrounds his study of the “gift economy.” In many older societies, trade as we know it and money as we know it did not seem to exist, nor did barter. Rather, people seemed to give gifts for a variety of reasons.

This, of course, strikes me as interesting and romantic and a nice lesson in how we’ve evolved. But from the way that piece was written and from my observation at various seminars I’ve attended, it sounds like many of those studying the gift economy wished our modern world were organized in that same way. And in some places it seems to be. But it is simply ludicrous to believe that we could ever have anything resembling a modern standard of living if we survived on reciprocal altruism.

The reason for the post is the following. I wonder how the folks protesting at the WTO meetings, or anti-traders in general, would feel about a country who decided it wanted to be really generous and provide gifts regularly to Americans? Seriously, imagine if the 1.3 billion Chinese citizens woke up tomorrow feeling a tug in their hearts for the good ol’ Red, White and Blue and feverishly began to make solar panels, wind turbines, clothing, iPods, computers, and other goodies, and just shipped them over here free of charge, and even organized for the random delivery of baskets of goods to every American, day after day, week after week, and year after year.

What would our WTO protesters think of such a stream of gifts? Would they celebrate it as an example of how a true gift economy could work? Or would they condemn the practice as somehow exploitive of the Chinese and damaging to the labor market prospects of Americans who now find themselves unable to compete by working in solar, wind, clothing, etc. sectors here in the US. Inquiring minds want to know!

Indeed, the world of globalization is one that is not too far off from the mythical modern “gift economy.” Motivations for the exchanges aside, when we trade with others, we end up getting stuff really cheaply. That’s not free, but it’s close and it’s awesome in my view of the world. Does it really boil down to motivation mattering? And if not, then what does matter and is there any aspect of commercial society that such gift economy supporters would support? After all, it’s a lot easier to give gifts when a massive worldwide division of labor and application of technology can get stuff produced cheaply and efficiently.

1. There is a folk belief then when a rich nation trades with a poorer nation, that the income of workers in rich countries is reduced.
2. There is yet another popular folk belief out there: that when a rich nation trades with a poor nation, that the income of workers in poor countries is reduced.

Let’s put this together. When “we” trade with a poor country, it reduces the wages of workers in both the United States and in the poor countries. Now, I can actually conjure up a scenario where this is true in a nominal sense, but is it not a tad bit inconvenient for someone to hold both of these views at the same time? What model of trade is one operating under where-upon this outcome can be predicted as a result? Please do share!

Suppose we concede that point to trade opponents. Let us ask what is unique about taking this position on trade? I suspect many people have no problem with having “open borders” when it comes to marriage and dating. But why would not oppose free-trade in spouses too? After all, if a young woman from the US meets and marries a smart guy from Japan, this means that “we have lost” one potential mate for an American male. Is this tragic? Should we outlaw it? Should we institute “marriage adjustment assistance” for the man who now finds himself out of a relationship (to dramatize it, suppose he was dumped by our American women expressly to marry the Japanese man).

After all, think of the emotional devastation the loss of a relationship imposes on people. Think of how hard it is to meet new people, find some with compatible interests, find one that wants what you want, and having to go through the entire awkward (and perhaps  expensive) process of learning about her and teaching her about you, and all of the things that go into building a relationship. I would argue that these are far more serious costs imposed on people than the loss of a job, even of a very good job. After all, if you are willing to capitalize on the basic skills you have, there is virtually an unlimited number of things you could do in the labor market to at least earn enough to feed, clothe and house oneself. You can do it almost anonymously and probably with one-hundreth the effort it would take to find a new mate.

Again, I emphasize that I am not talking about the economics of trade here, rather I am asking a question about logical consistency. And if one does not get all worked up about free-trade in spouses, why is it that free-trade in goods is special? After all, I have heard for years about how crass materialism corrupts us and that we need to appreciate the deeper things in life – … like spouses. Are there other examples you can think of? As per the title of the post, my prediction is that if you asked a layperson if they were worried about free trade in spouses causing distress, I bet their answer would look like, “well, there are lots of other fish in the sea,” which resembles the argument that free traders like to make, even if it wholly avoids the human side of the debate (which again, is something free traders should emphasize not shy away from, but that’s for another post).

You don’t have to drive very far from where we live in Western, NY to see them (more on this below). I’ve spent a good deal of time in the last year studying the natural gas boom in the Eastern US but rather than talk about supplies, prices, what fracking is, etc. I wanted to remind folks of a few basic points.

For the uninitiated, the term “fracking” is short-hand for “hydro-fracking”, a natural gas recovery procedure that saw its birth just after WWII, and that is enjoying a renaissance in the Eastern US and parts of the South-Central US. It basically involves sending a slurry mixture of water and a whole host of chemicals, which may include diesel fuel, benzene and a host of other things, down into the rock formations where natural gas is thought to exist. The slurry is sent under very high pressure and this pressure is used to fracture the rock formations and make it easier (or releases it) to extract the gas from wells once thought to be uneconomical to pull gas from.

Now I will NOT discuss the relative safety of this or just how abundant gas is or even what developing gas resources could do the local economies,  I want folks to think about a couple of even simpler things that few folks have mentioned. First, if “we” really need a cleaner energy source to avert a climate catastrophe it is abhorrent to see the knee-jerk anti-development sentiment surrounding natural gas. While natural gas is, itself, methane, a greenhouse gas known to be 20 times more “greenhousy” than Carbon Dioxide, when it combusts it breaks down into carbon dioxide and a few other things. We know that burning natural gas as fuel, instead of burning coal or oil, is much cleaner for the environment. In other words, per BTU of energy generated, natural gas releases much less harmful stuff into the air. For every million BTU of energy generated from gas 117 pounds of carbon dioxide are produced while for oil that figure is 160 pounds and for coal that figure is 200 pounds. When was the last time you saw a fractivist (my term for them) say anything about what natural gas fuels would be replacing? As always, to be a good economist or a good environmentalist the question that has to be asked is, “compared to what?” So even if fracking does have some negative side effects (again which I will not get into here), pure utilitarian calculations have to weight the net costs of using gas with the net costs of using more carbon intensive fossil fuels. I would argue that gas is cleaner under almost any conceivable arrangement. What the fractivists seem to be arguing is this:

“before fracking, the world was pristine and pure, and fracking is a bit of an ugly procedure, so we should not allow it.”

This is, of course, not right.

Second, here is a government energy web-site directed at educating children:

Many of the areas that are now being explored and developed for natural gas production are relatively pristine and or are wilderness areas, and development of these areas have large impacts on the area’s environment, wildlife, and human populations.

There is absolutely no evidence presented for any of this, nor do I think folks would care. The same exact point applies to wind, solar, biomass and other “green” energy sources. In fact, one virtue of fracking is its relatively small “footprint” as compared to other new energy sources (the same is true of oil, which has an incredibly small footprint). So “E”nvironmentalists don’t think that needing solar panels the size of the state of Delaware to power the US has any impact whatsoever, but putting a well is akin to paving over pristine wilderness? Here is an image from a non-friendly site. Tell me how that compares to growing millions of acres of corn, or “planting” silicon panels on millions of acres of land?

Here is another quote similar in spirit:

“When geologists explore for natural gas deposits on land, they may have to disturb vegetation and soils with their vehicles. A gas well on land may require a road and clearing and leveling an area to make a drill pad. Well drilling activities produce air pollution and may disturb wildlife. Pipelines are needed to transport the gas from the wells, and this usually requires clearing land to bury the pipe. Natural gas production can also result in the production of large volumes of contaminated water.

Ahh, right. So when we erect windmills all around rural America, no vegetation (or bats or birds) or soils are disturbed. And of course, no new electric lines are needed, and those non-lines that are not needed to get electricity from North Dakota to Cleveland certainly do not require any clearing of land. And there are certainly no roads that have to be built to any other “blessed” technology. Again, see point #1 above. It is really an infantile line of argument to say, “well, we cannot frack, because to do so requires, you know, someone to actually be there doing the fracking.” Incredibly, that sort of argument really does persuade people these days.

Now look, there is certainly a possibility that fracking will spell the end of the world. But remember, we are being told that the end of civilization is looming from our use of oil and coal, and now when we have a marginal improvement right on our doorstep, and an improvement that also respects this quaint idea, and one that is very good for local economies, it is being dismissed out of hand. I had the pleasure of watching an actor say this to Keith Olberman the other day, “This is an industry that is the dirtiest, slimiest, most arrogant, and negligent that you can imagine.”  Maybe it is, but I’ve seen this same actor give several speeches and the most he can get himself to say is, “you know, we have other technologies and they are better and more cost-effective than they (who they is, he never says) are letting on.” Oh yes, wind and solar are just so cheap and it is the influence of the oil and frackin companies that are preventing Americans, who are famous for wanting more for less and for getting stuff cheaply, from making those choices. These are the same Americans who are chided by “E”nvironmentalists and authors for buying “too many toasters” because they are now so darn cheap.

And remember, that for many of the renewable and green fuels that we apparently are just around the corner from using, we still need some backup or perhaps even base-load generating capabilities from them. And the candidates for those sources: coal, oil and gas. I don’t see the Fractivists in Albany waving around pictures of this:

Because, you know, mountaintop removal of coal doesn’t really impact the landscape as much as a some steel and some trucks for a gas well. Well, maybe the chance for contamination of water with oil drilling is smaller than for gas? I don’t see fractivists waving this picture around:

But they should. Because this is the sort of thing that natural gas would be supplementing and hopefully replacing. But let’s not be bothered by asking the most basic question of all – as compared to what – let’s just look at each way we use the planet on a case by case basis and condemn any and all uses that do anything to it.

And just some food for thought – suppose the claims of the fractivists are 100% correct, and they may be. After all, it is pretty compelling to see a glass of drinking water being waved around that looks more like liquid vaseline than it does water. I’ve never seen a study that shows the extent of the damage. And I’ve never seen a single study that does any cost-benefit about it. This might sound awful, but if 10 guys’ wells are contaminated because of a poorly constructed gas well (again, I am just granting all of the fractivist points, they are by no means unassailable in any way) that does not tell me the fracking should be stopped. And yes, I understand property rights issues, there certainly is a role for regulators to make sure people are made whole and that the gas companies clean the water up …