The Case Against Neo-Protectionism

Source: https://www.youtube.com/watch?v=u1tih4LpfwA Duration: 3116.6s

Sudha Shenoy (00:02): Okay. Now what gave rise to this was reading things that is that legible there? Reading stuff that Paul Craig Roberts wrote, which is posted up on the Mises website and then the subsequent attempts to reply to him, which I thought very poor show. And so I thought someone should tackle it particularly when I found the time after time people are prepared to make grandiose statements without taking the slightest look at any facts or any figures or anything. So I thought that as an historian, it’s my job to set the record straight. Incidentally, if you have any questions or anything, just keep asking as we go along because there aren’t very many of us anyway, and we’re all friends. So just feel free to comment or whatever. Okay. We’ll start now with the things which I put up there, which are the elements of the argument. We begin by saying manufacturing employment in The US has fallen. You now import manufactured goods. You have trade deficits. Income flows out to those wicked foreigners. American assets are sold to pay for the trade deficit. Now foreigners, god bless them, own trillions of dollars worth of assets. More income flows out in rent, interest, dividends, profits. Manufacturing jobs have been exported as a result of investing overseas. Americans are now investing to sell goods inside America, dreadful thought. And now they’ve started importing services from Asian countries where you have low living standards, people live on the smell of an oil rag, excess supply of labor, marginal product, is not labor doesn’t get its marginal product. We cannot, the Americans cannot reduce our living standards to match. We have large and growing deficits and so free trade and goods is one thing, capital mobility is something else. You might have very sinister consequences. Okay. Now my initial reaction after looking at that is, first of all, apparently, we foreigners do nothing but sit around with folded hands waiting for the Americans to make a mistake and then we come rushing in with our manufactured goods. Okay? We’re just sort of sitting there passively. Second point is that the world should have stood still. If it had stood still when the American manufacturing employment was x million or whatever the magic figure is, everything would have been alright. It’s only because the world has changed, yeah, in this dreadful position. Third question, of course, why has US manufacturing employment fallen? In order to create trade deficits and problems, you know, it has to be a reason. So what you’ve got is something simply dropping from the sky, concentrating on a few fairly what appear to be fairly obvious things. US balances saving certain features in the late nineteen nineties and then carrying on as if, you know, it all simply occurred in a total vacuum. Okay. Now my response to that runs to about three pages, but we proceed step by step. Okay. Now I have another thing somewhere here. I can’t find where I put it. Oh, here we are. I’m taking everything out. Okay. So the first point, of course, is that the world does not stand still. There have been vast changes since the nineteen seventies, and what we want to do is have a look at what some of these changes are. Okay. The what the changes will add up to ultimately is simply vast increase in capital accumulation in the rest of the world, production in areas which hitherto had not had industrial production, and therefore everybody else obviously having to adapt. You can’t keep on doing what you’ve been doing for the last fifteen, twenty, thirty, forty, a hundred years and then expect to continue along those lines. Okay. So that the first thing is the new developments that we’ve got. First of all, we have continued capital accumulation, continued development in all the developed countries. Western Europe, Japan, all moving even further into industrial production, new types of industrial production, etcetera. Then what we also have is the the growth of industrial development in the East And Southeast Asian territories, South Korea, Taiwan, and the newly industrialized countries of Southeast Asia, Singapore, Malaysia, Thailand, Indonesia, etcetera. Okay. And therefore what we have is, as I said, also now China. And so therefore in consequence what we have is the need to adapt. And so what we have is adaptation in the developed areas. Developed areas adapting which has been occurring in all developed areas since the nineteen seventies. Okay. I might add that the growth in these countries is not new, and it is something which has been going on for a long time. Now finally, it’s reached the point where even The US has to take account of what’s going on. Okay. Japan, as we know, has been developing since at least the sixteenth century. It’s continuing. South Korea, seventeenth century onwards. And in the early nineteenth early twentieth century started developing as part of the development of the Japanese economy in relate as you might say the career sector of the Japanese economy. Southeast Asian countries, international growth of the international economy in the late nineteenth century produced growth there. Growth in both the economy and in populations. Huge increase in populations all around And that growth was of course export of commodities to manufacturing countries. And then on top of that you had further industrial growth in the twentieth century. Okay. I might add that the newly industrializing countries of Southeast Asia only developed after the late nineteen seventies because then government stopped protecting industries and open economies up. So that is in itself another example of the growth to market order. And of course China only developed after its rulers opened it up to the market economy. Okay. And so therefore, as a result, you have the growth in all these areas, therefore growth in exports from these countries. Okay. US therefore no exception also having to adapt. One method of assessing the growth of production in the outside world, and that is the proportion of foreign trade to aggregate output in The US. 11% in 1970, 26% in 2000. I might add that for all the developed countries, the proportions usually run from 35 to 60% and more. In other words, they’re all completely and fully integrated into, world economy. And most developed countries are in a sense sectors, the British sector, the Australia sector, the German sector, etcetera of the world economy. Okay. Another example of increasing capital accumulation in the early nineteen sixties, as I if you’ve got a I haven’t put it up there, but if you looked at the world’s largest banks, insurance companies, chemicals producers, car manufacturers, etcetera, most were American. But by the early nine early nineteen eighties, the majority were non American. Japanese, German, Canadian, French, Swedish, what have you. In other words, capital accumulation elsewhere produces results which everyone has to adapt to. Okay, as capital accumulation grows and diversifies, we have labor moving into those occupations where labor is the chief import. Therefore, you find growth of services. And that has been true of all the developed countries. I don’t know if any of you remember this, but I do. Back in the late nineteen sixties, and this was first observed, the chancellor of the exchequer imposed his notorious selective employment tax in Britain to try and reverse the process. And what happened? Manufacturing employment declined by 38.5% between 1975 and 2001. Okay? Even in Japan you find the decreases. Now the decreases are first proportional. And then in more recent times, can have a look, there are absolute declines. So that again, The US is not exceptional. Everybody has been experiencing decline in manufacturing employment. Even in the newly industrializing countries, you find there’s a slight relative growth in services. Okay. Now I’ve got I don’t know if I’ve mentioned there the I’ll come to that later. Anyway, if you have a look at the direction of trade for The US, what you find is that, of course, the bulk of the trade is with the developed countries. In other words, its trading main trading partners are the ones whose manufacturing employment is also falling. Okay. Right. Now if we go on from there and tackle next question, And that is capital exports and imports. Capital exports and imports. Now I would like to underline the point that US capital exports have been going on since the late nineteenth century. So capital exports are not new. And the, operations overseas or in foreign countries have been exactly virtually this, in the same category throughout manufacturing. Particular kinds of manufacturing at which the Americans are best, mass production, high technology, capital intensive, relatively little labor, relatively little skilled labor, and producing again the kinds of mass production goods. A range of things, cars, of course, obviously, goods, adding machines, office machinery, lifts, all the lifts in the world are probably American elevators and so on. They’ve been doing this since, you know, late ‘18 late nineteenth century. US inward investment into The US again unchanged. Going on since the nineteenth late nineteenth century, exactly the same, people as who invested in the late nineteenth century are still chief investors today. And more or less, again, broadly the same lines, the kinds of things which they are best at doing, French producing cars, tires, Italians also producing tires, and certain sorts of highly specialized goods, which in fact, these companies produce for the world market. So they’re simply add also producing for the for The US market. Okay. So that it’s no use looking at capital exports or capital imports. As I said, these things have just been going on. Okay. So we now come therefore to the other points that were made. The actual figures for US balance of payments. Now one reason why I again raised that issue is because again we have lots of economists who are prepared to say, of course, it’s really foreign central banks and others holding US dollars. Therefore, we can run a trade deficit. In other words, the rest of the world gives us the goods, free in order that they might have the privilege of holding US dollars. Okay. Well, let’s have a look at the numbers then to try and see, exactly what sorts of numbers are involved. I’ve also, looked at separating the private transactions from government transactions for a particular reason. And what we see okay. Have a look at all these numbers anyway. Yeah. Might be useful. Okay. There we are. I’ve just pointed out that the FDI in The US comes mainly from the developed countries. And if you have a look, it’s exactly the same countries that were investing at the end of the nineteenth century. Japan is in fact minor proportion of the total and all the others have in fact declined again proportionately. Alright. Now what I did there for the next two tables, if you’ll have a look, please, is classified according to the inflow and outflow of foreign exchange. That is probably the simplest way of putting it all together because then put in both capital and current account transactions. And I did that for 2001. You can do the same for all the other, years. Right. Now, if we look at private transactions, we find exports of goods, exports of services, and imports of services, and we’ll come back to this. We have, you know, import of services increasing, etcetera, etcetera. You notice that there is still net export of services. Income in, income out, there’s still net income inflow. Capital inflow which provides foreign exchange, and you’ll notice at the end that the private sector has not only been providing all of its own foreign exchange requirements, there’s even a surplus which can go to government if government wants it, probably always does. Okay. And if you look at government transactions, you’ll notice a very small inflow, very large outflow. And in fact, I don’t know why that’s happened there but the income out has been a huge increase in more recent years and possibly someone who knows what’s going on would be able to tell me but that is a major outflow on a government account. Okay. And as you can see, it’s in deficit and the deficit has been made up by private sector earnings. Okay. Now what does this mean? This means that again the sky is not falling. Exactly, you know, perfectly normal situation. From various sources, private sector has been obtaining foreign exchange from various sources, and it’s been using it for various purposes. Okay. Now before I let me go on to have a look at the overall picture, and then we’ll go back to see about capital inflows and outflows, what exactly they do.

Speaker 1 (17:07): The number at the bottom

Sudha Shenoy (17:08): there Mhmm. 94,000,000,000. Yep. Is that trade debts? No. No. No. No. No. No. What is it’s simply inflow foreign exchange, outflow foreign exchange. Ignoring everything. Just whichever things brings in the exchange and takes it out. And as you can see, the US government overall is in deficits and someone else has we had to supply the foreign exchange. That’s for 2001. Now I haven’t done all the years. It could be done. I work better at using computers. What I’ve done there is simply looked at these one two three four five years. Now I haven’t actually looked further into these figures, would like to, but you’ll notice that so far as the private sector is concerned, in general except for two years, it’s been providing itself with its own foreign exchange. So the earnings of foreign exchange and outcurve foreign exchange more not just balanced, but in 2001 you provided the US government with some money. 1990, there was a small surplus. And in the two years in which apparently US government has been supplying the foreign exchange, you’ll notice that practically all went straight into private sector transactions. The important thing really is the extent to which the US government has been met, demanding foreign exchange with someone else has to supply and that someone else being either other central banks which means that the poorer populations of poorer countries are providing goods for free so that their governments can hold US dollars so that US government can run a deficit on its own account. Alternatively, in some years, as I said, you’ve had the inflows. Now as I said, I want to go into these further, but I suspect that in the years in which I haven’t had a look, you’ll have pretty much the same sort of pattern. Okay. Now capital imports, capital exports, what do capital imports and capital exports do? If you’re going to be a net capital exporter, you have to save the foreign exchange, and that means you have to run a capital current account surplus. This is first your economics, sir. And, therefore, you can run a capital account deficit. Vice versa, if you’re a net capital importer or net, then you have a surplus in capital account and because people are investing in your country, your territory, you can now get in extra goods from abroad over and above your own current earnings. So you have extra goods coming in. And if it’s on capital account, it means that in, in effect, you’re you’re, getting in extra capital goods from somewhere without reducing your own domestic production of consumer goods. Okay. Now The US before 1981 ran a capital account surplus, deficit in the current account surplus. In other words, it was a net capital exporter. Since then, things turned around and The US is now capital importer and therefore runs the current account deficit. It is in a position to import effectively, increase its supplies of capital goods without, reducing consumption because other people are wanting to invest in here. Okay. Now it’s consistent. That picture is consistent because clearly you’ve got far greater capital accumulation elsewhere, therefore, they’re investing here. It is not a case of individually outrunning your own budget and therefore having to borrow and therefore having to sell your house, etcetera, etcetera. The great fallacy of treating the nation as if it were a single individual, it is not. Your balance of payments is a summary of what millions of people are doing. And that’s the way it has to be analyzed is what millions of people are doing, the net result. And that shows up because someone somewhere collects an estimate. So balance of payments figures. Okay. What else can I go on to talk about, which I had a note, to talk about? Oh, yes. The growth in capital flows, again consistent with increasing capital accumulation everywhere. In, China as I said, investment has come from Hong Kong, from Taiwan, the overseas Chinese. The Japanese have not only been investing in Western Europe and The US, they’ve also been investing in South Korea and in the newly industrialized countries. Most of the growth in Southeast Asia is to a large part due to Japanese capital exports. And South Koreans now exporting to Southeast Asia etcetera and therefore obviously part of all this you’ve got, increasing flows from The US to Western Europe and increasing flows from Western Europe to The US. If you look at the figures, you have, what appear to be two away flows, what is really simply increasing production of specific kinds of goods as a result of capital accumulation, complementarity if you want. Okay. Import of services, I’ll go back to that argument. People in the underdeveloped areas have very low living standards, live on the smell of an oil rag, Americans have mortgages to meet, we can’t reduce our living standards and therefore it’s impossible for us to compete with suppliers of services elsewhere. Two comments, one, these were exactly the arguments that are put forward for objecting to import of goods from the poorer countries. The workers live on the smell of an oil drag and therefore they’ll be able to sell their goods dirt cheap and therefore we will all suffer and we can’t allow these imports to come in. Exactly the same services. Three comments actually. Second comment, this is a very insulting attitude to take towards peoples of the undeveloped areas because the peoples who supply these services represent the investments of their families. You have to have long training periods in order to provide computer services, bookkeeping, whatever services are being imported. Lots of people fail, fall by the wayside. So what you’ve got are people who have large debts to pay, who owe their families, sums of money and therefore to say that, of course, you could afford to reduce your living standards. This is I said pure insult. Lots of people now who could not otherwise get high incomes are now able to do so. Again, you know, for a rich country like The US or rich Americans to complain is I think very poor show. Third point, of course, the great Ricardian principle of association which, which Mises enunciated. It doesn’t matter even if someone is better at doing everything than someone else, they can still gain from specialization and exchange. And that is precisely the situation here. Okay. So the people some people in the underdeveloped areas are specializing in providing certain sorts of services that opens up opportunities for providing other sorts of services. And that is the same argument of course for goods. If they provide certain sorts of goods, it opens up opportunities for providing other sorts of goods. Okay. Another point is that in India, in particular, which is where most of these services come from, not China. Again, you couldn’t even be bothered to look at the facts. The in in India, why has the computer industry developed or why have these exports of services developed precisely because the planners in their wisdom did not get there. Planners in their wisdom have been concentrating on industrial production centrally planning it and therefore killing it. On the other hand, two things which have really developed in India and taken off the two viable exports which have occurred more recent years, polishing of gemstones. Diamonds and so forth are imported into India from all over the place Israel and so on. Polished and set and so on, highly skilled labor, very little capital, highly skilled labor and then the gemstones are sent out. And the plan is of course never thought of this therefore they could not interfere therefore it developed. Similarly with services, this is the one thing the planners can’t control. Therefore, it developed and as you can see developed, to the extent to which, you have Indian computer companies now floating themselves on, the New York Stock Exchange no less. And again, it’s because they’ve managed to somehow get around what otherwise the planners would have loved to stop. Okay. Various other points which I noted. Bear with me and I’ll find where they are and get at them. Oh, yes. Incidentally, again, more patronizing and insulting comments from Gephardt no less. He says the minimum wage, we should have a minimum wage imposed in various countries according to each country so that the Americans do not have to import goods produced by slave labor, child labor, sweatshop labor, Thank you very much. There’s 29,000,000 people employed in factories, modern factories doing far better than they would have done otherwise throughout South Korea, the newly industrialized countries of Southeast Asia. And, you know, I mean, it’s I can’t imagine a greater insult. I find it very insulting and patronizing to say this. Okay. Oh, yes. Now there are some economists who are prepared to say that exports increase jobs, imports reduce jobs. Capital exports increase reduce jobs, capital imports increase jobs. Okay. The other side of capital imports is import of goods. I can’t have it both ways. If the capital imports increase jobs, the corresponding capital imports imports of capital goods have to reduce jobs. Conversely, if capital exports reduce jobs, the other side of capital exports is of course the export of capital goods, other goods correspondingly. That therefore increases jobs. And let us proceed now. We haven’t done this before, but I think we should do that. Let us proceed to the reduction ad absurdum of exports creating jobs and imports reducing jobs. Okay? We will ban all imports because they reduce jobs. We export every single thing that we produce. We have no goods in the country but we have a very high level of employment indeed. The poor foreigner, all of his goods are at home. No exports. He’s unemployed. What’s more, all these imports that have come in from elsewhere sitting there on the walls. He’s even more unemployed. Just sitting there wistfully looking at all these goods, which you can’t get. And, you know, I mean, there’s clearly something wrong. It’s that’s the kind of reasoning. Now the superficial plausibility is, of course, that if you have tariffs or in other words subsidies, what you’re doing is preventing those incremental adjustments which would occur day by day, month by month, year by year. And then when you remove the tariffs, you then have to do everything all at once. And therefore, you know, remove tariffs, free trade, dreadful things happen. Let’s go back to the old regime. Okay. Another point which I’d like to make is that many of these points we already see in the rest of the world. And the kinds of arguments which I’ve been mentioning here, which have been being put forward seriously. My serious papers like the Christian Science Monitor and so on. My second year students in Australia would laugh at them, because we’ve had the experience and we know positively that with growth in real incomes and output in Southeast Asia and elsewhere, we can now sell them goods. With the import, cheaper goods, living standards have increased. The other question which isn’t asked, everybody says how nice, imports reduce prices. Okay. But what do people do with the extra income which they save? Stick it under the mattress, sit on it. You can now buy not only what you had before, you can buy other goats. I mean, very homely example. Before we reduce tariffs in Australia, we had to buy Australian made jerseys, woolen jerseys. They cost $50.60, $70 a piece. After the tariffs were removed, Chinese send in jerseys. You can buy them for $10 apiece. So now I can buy two two jerseys for tennis and I still have $30.40, $50 leftover which I can spend on other things. Of course, I do. Now the real problem, of course, is that that expenditure is diffused. Because it’s diffused, there’s no way anyone can actually see it. You don’t have other other outputs increasing and then coming with little labels tied on their neck saying, you remember those tariff reductions? Well, I am the increasing output that resulted. Okay. Your steel tariffs here. Okay. The lesson here is the conclusion which I will be reaching is that laissez faire is best, not because this is the best of all possible worlds, because anything you do is going to make things worse. Therefore, do nothing. Okay. Your government in its wisdom has imposed steel tariffs. What is the consequence inside the country? Higher costs and therefore reduced output. People doing exactly working as hard as they did before but getting less in return because output has fallen. And the other consequence, you start importing cheaper goods from elsewhere and therefore surprise surprise, your trade deficit gets worse and, you know, everybody jumps up in and says, you know, terrible, terrible. Okay. Now, the Franco German Empire imposes restrictions on US exports. In its wisdom, what happens? Real income falls inside the EU. People are working just as hard as before, they’re getting less. Both sets of populations are suffering because they’ve got governments. And therefore, as I said, laissez faire is the best policy. The US government had done nothing when in when steel import cheaper steel imports were coming in, then you would have had the adjustment which is necessary. Capital and operating losses in the steel industry, people having to move out and find somewhere else to work. Painful for them. Yes. But eventually, things would have settled down. If the EU had not imposed restrictions on US export, what would have happened? Okay. Steel exports are reduced, but at least you don’t suffer further reduction in real income. And now what’s happened is as a result of the so called retaliation, both countries have suffered double reductions in real incomes. And the only people are better off, if anyone is better off, these bureaucrats who can now hit the headlines of politicians and, you know, saving the economy and blah blah blah, etcetera etcetera. Okay. I think that’s about all the thoughts that I had after reading Craig Roberts. As I said, I was infuriated. Kinds of things he was saying, and no one was answering you properly. Yes. Well, he didn’t actually write out say that government should do something but the implication was clearly left hanging there. Somebody has to do something sometime at some point and the real villain in the piece is capital export. I mean, if you think that’s true again, it’s garbage because you cannot ever have balanced trade. You’re going to have some capital movements one way or the other. And of course, with the kinds of changes you’ve had going on in the real world, growth of capital accumulation, you’re going to have increasing capital movements.

Speaker 2 (35:34): In his testimony before congress, you kindly did that the other shoe drop and proposed a a kind of regional a global system of regional autarky.

Sudha Shenoy (35:48): Oh, yep. Another point. Yes. Another point we said with, again, economists have been bringing up, and that is that all the now developed countries developed first and then they removed their tariff barriers. Okay, garbage. The British had unilateral free trade from 1846 to 1931 and free trade was abandoned only with the very greatest reluctance because they felt they had no choice partly because of what The US was doing. And in that period of unilateral free trade, all its trading partners, of course, restricted did try to restrict British exports one way or the other, even the colonies did. And colonial office didn’t stop them. Nevertheless, of course, Britain as we know flourished as the green bay tree. You had, you know, huge increases in output per capita income rose, population rose, etcetera etcetera. The other twentieth century example is, of course, Hong Kong. You know, what’s Hong Kong going to do to anybody who tries to, reduce its exports, you know, send a popcorn out or something. So, again, you’ve had unilateral free trade throughout. And as you know, it flourished as the green bay tree. It now exports more than most developed countries. South Korea, by the way, is the world’s twelfth largest exporter and the world’s second largest producer of certain types of electronic consumer goods and so on. If anybody wants to talk about South Korea, I can say, definitively that it is in fact the result of free access to world markets. Because if you look at what South Korea has been doing, in effect, the inputs were purchased at world prices, capital goods and so forth were purchased at world prices. And if you look at their trading partners, the major trading partners for a long time were The US and Japan. So that in effect, what you had was a trilateral, you might say, free trade area. And then, of course, with the Southeast Asia developing, you started getting more multilateral trade. Okay. That’s the other thing that your US trade figures show, and that is growth in multilateral trade. In other words, trade not only with the developed countries, but growing trade, of course, with all these other countries, that are growing. Okay. Back to, the late the the nineteenth century. Even the French had very low tariffs. In the course of the nineteenth century, there was even a short period of free trade, the Cobden treaty, with Britain. Germany had relatively low tariffs. They had internal huge free trade area with the with free trade. And, of course, throughout free trade area except for where, you know, the colonies imposed tariffs. Even then, not all of them did in Australia and New South Wales is a free trade area, but Victoria, it’s always been a very bad state had, again, tariffs and protection. The Indian textile industry developed as a result under, precisely under this regime. In fact, we had the first textile mill in India before Japan got a textile mill. So the Japan the Indian textile industry is older than the Japanese. The Japanese were forbidden to impose tariffs as a result of the so called unequal treaties. And so the early period when you’re supposed to need the tariffs precisely when they didn’t have them. And tariffs in any case of subsidies, I mean, most are saying that if you subsidize something, it’s going to grow. But of course, it’s going to grow, but at which whose expense? You know, what’s really happening is that the growth has overtaken the results of the tariffs. And then you’re in other words, you’re peacocking around in borrowed feathers. That’s about what it amounts to.

Speaker 1 (40:00): Yes. With Jobs business program on CNN?

Sudha Shenoy (40:04): Yes. Yes. I was horrified when

Speaker 1 (40:06): I No. No. He’s become from some unknown reason of being a protectionist. And I can’t quite figure that out unless he’s planning on running for president someday.

Sudha Shenoy (40:17): But

Speaker 1 (40:19): he turned his guns last week to the the export of service jobs to India

Sudha Shenoy (40:25): Mhmm.

Speaker 1 (40:26): And other countries. And he had a a professor, a business professor from New York. I think he’s a management professor from New York University of Columbia. And he made a very good argument that the export of these service jobs actually saves jobs in The United States because companies that basically were in the absence of these service jobs being exported abroad, that they would have to shut down or at least curtail operations

Speaker 3 (40:58): in The

Speaker 1 (40:58): United States so that our retail operations and finance and electronics can remain viable simply by exporting various categories of of service jobs.

Speaker 3 (41:15): I think it was a

Speaker 1 (41:17): good argument that he that he made it. Well, it actually was effective in encountering the docs. The only sad part of that was that they reported the the next night that the that that professor had died.

Sudha Shenoy (41:29): Oh, yeah. Overnight. Mhmm. All

Speaker 2 (41:31): of those were talking about.

Speaker 3 (41:33): Okay. Well, I don’t know. But it’s

Speaker 1 (41:36): it’s an interesting development.

Sudha Shenoy (41:38): Yeah. Well, I mean, it’s it’s common sense says if you can get something cheaply, a fraction of what it used to cost you, it’s a good thing. You know, you’ve got the extra income, output, whatever to do something else with. So that if the Asians can supply particular services, particular goods or whatever, anybody can supply it. A fact a fraction of the previous cost. You can now use your resources to produce the whole range of other things. As I said, the only trouble is that the other things which you produce will not come with these labels tied around their necks saying, you know, remember those cheap imports, we are the result of, you know, increased output. So therefore, one has to argue in a sense it is a completely abstract argument, which I think many people would find difficult to to follow through.

Speaker 2 (42:29): Can I ask about the the politics of these international trade negotiations? It seems that at at the Cancun that talks to World Trade Organization, the developing world represented on balance, of course, for free trade, and the industrialized world is all for harmonization of regulation, opening up tariffs, removing tariffs abroad, but keeping them on at home, and generally promoting a kind of regulatory protectionist program. Is that a new development, or is it just more visible now that we have these international trade talks? Is the developing world always been a force for liberalization?

Sudha Shenoy (43:10): Yes. The developing world would have been here long since if it hadn’t been for your blessed development economists who taught the policymakers there that you have to subsidize, you have to regulate, you have to plan, etcetera. The developing world is developed only after all that was dropped. And therefore, they are now discovering, of course, that, you know, all these things are a real problem now. Again, I think in these in these circumstances, given that all governments are going to be doing something nasty all the time, the best principle for everybody is unilateral free trade. Okay. So The US negotiators come out and say, open up your economies. We want to send goods and let them get the goods. The Americans by maintaining their tariffs are cutting off their nose to spite their face. They are busy buying things at higher cost than they need to. We can buy whatever Americans produce at world prices. Why should we you know, why complain?

Speaker 3 (44:20): I I have two questions. Strictly speaking true so that the trade deficit was not financed by dollars. And you printed okay, but I didn’t see — none of your figures seem actually to address this point.

Sudha Shenoy (44:54): Ah, yes. Well, I didn’t want to do it the conventional way, which is, you know, balance on services, balance on goods and because that is just analytically meaningless. The trade deficit is huge. Huge. And as you can see, you also have very large capital imports. And that’s the link between the two. The link is between those two. The growth in capital in, capital accumulation elsewhere, and therefore, exported capital directly to the exporting of our goods. And again, if you import capital, it means you can import more goods than with your current earnings. And that’s what’s been happening. That’s why the, demonstration, I think, there or at least what the figures seem to show that the private sector earns all its own foreign exchange plus some, which means that none of this is being financed by somebody somewhere holding dollars. That trade deficit is being paid for by either capital imports or foreign exchange earnings of some sort. Because when you balance when you compare that to what you’ve got is at least in 2001, a small surplus for the private sector.

Speaker 3 (46:12): But, I mean, we we agree that if there are dollars being stockpiled in the Bank of China or Bank of India or wherever,

Speaker 1 (46:19): that has been used to finance

Speaker 3 (46:23): commodity imports in The US. Now the question the question is only how, what is the actual quantitative significance of this?

Sudha Shenoy (46:31): Quantitative significance is zero. That’s what the figure showed because if some of the deficit was being, some of the trade deficit was being financed by people holding dollars, then you would not be able to show that the private sector was earning all the foreign exchange which is spent. There would be a discrepancy in the figures, at least you would have some inputs coming in, some imports or something coming in, which is not paid for by foreign exchange earnings. Okay. You would be running a deficit. The only sector which is running a deficit is the US government. It’s The US Government’s expenditures that are being financed by central banks holding dollars or whatever, you know, however they they’ve been doing it, pulling others to pay for it or whatever.

Speaker 3 (47:21): My my second question would be, do you know what forfeit Robert’s views on immigration are?

Sudha Shenoy (47:28): No. I don’t. Does anyone other people might know if he has

Speaker 3 (48:35): and immigration. I mean, these people do not come just because they love so much the Alps or and and you know, that’s cheaper than that. Yeah.

Speaker 1 (48:48): The one there was an interesting possibility you sort of raised, which is when you said that in 1981, The United States had a trade surplus. But that now, of course, the trend seems to be upward ever higher, is that we have a trade deficit, a growing trade deficit. Of course the government deficits have also decreased during that period, but in 1981, you have the monetary decontrol act here in The United States, was a major regime shift Mhmm. Of the US dollar. Mhmm. We have ramifications

Speaker 3 (49:34): as we go forward

Speaker 1 (49:35): in terms of trade.

Sudha Shenoy (49:38): No. What have we been looking at really are these fairly long term changes, real changes. And basically, think what’s been driving the whole scenario is the growth in capital accumulation output diversification elsewhere. And that’s how the I mean, it’s these adjustments that are showing up in the trade figures. Now up to 1981, what happened was that The US as I said was a net capital exporter and therefore it had to have, a trade surplus. The rest of the world therefore by definition was a net capital importer from The US and therefore had a trade deficit with The US. Okay. Now that’s another point which we might perhaps make. If the Craig Roberts argument is correct, then before 1981, it was The US which was busy draining income away from the rest of the world to because they had a trade deficit with The US. In The US, it was which is busy, you know, obtaining trillions of dollars worth of assets from other people, because it was exporting capital to them and further draining away rent. That case, how did the rest of the world suddenly turned around and, start doing exactly the same to The US itself? You know, I mean, that is not what’s been happening. What it has been happening are these other changes. These other changes have been therefore showing up one way or the other inside, in the structure and competition whatever, balance of payments everywhere. And the these are, you know, solid long term changes, solid long term developments.

Speaker 1 (51:25): For the rest of

Sudha Shenoy (51:27): the For everyone. I mean, there’s no way we’re going to, you know, drive in Southeast Asian countries back to where they were 1861 or wherever. There’s no way Japan is going I mean, you know, they’re there. And already, I would you know, seriously, the rest of the world has adjusted. It’s just The US, which is now beginning to discover that even it has to adjust despite the size of its economy. Yep.