Bad Questions

I was trying to look something up about public opinion on trade issues, and particular recent trends in opinion, and saw this paragraph in a Public Agenda survey:

Attitudes have also become more negative about international trade. In previous rounds of the Index, the public showed great uncertainty over the benefits of trade—fully half said they were unsure who benefited more from trade, the United States or other countries, compared with about one-third who thought other countries benefited more. Now roughly as many say other countries benefit more (42 percent) as are unsure (41 percent). Only 14 percent think the United States benefits more from trade.

That's just a terrible way of looking at the situation. My read of the way the world works is that the United States has a much larger economy than do most countries. Consequently, trade is just a much bigger deal for other countries than it is for the United States. For example, if all US-Canadian trade ceased that would be terrible for us but much worse for the Canadians. Consequently, I'd say that other countries benefit more from trade than the United States does. If the world ever shifts to autarky, that'll suck for everyone, but it'll suck less for us than it does for, say, tiny subarctic Iceland.

But that's not me having a "negative attitude" about international trade. But in Public Agenda's conception of how trade works, it seems to be a zero-sum activity such that if some other country benefits more from trade than we do, then we're getting ripped off.

Comments

Now, that is just stupid.

Canada is not a small economy, and the US's economy gets *much* of its strength from Canada. Not only that, there is a good chance that Canada would actually *grow* in the absence of the US sucking up all the investments outside of extractive products.

*we'd* be the ones in deep shit.

Posted by shah8 | June 8, 2008 6:45 PM

This is the wrong way to look at the trade question, as it presumes that nations are the actors in trade. In real life, the actors are the multinationals, smaller local companies, and workers.

It also presumes that the choice is between more trade, less trade, and no trade, when the real question is what the rules of the game are going to be and who gets to write them.

Right now, international trade agreements are largely written by corporate lobbyists and other wealthy or politically influential actors, and they set up the rules for their own benefit. In particular, while it's gotten easier and easier for capital to move across the US/Canadian border, it's gotten harder and harder for individual people to move across, alone or with goods that they buy on the other side.

Posted by Joe Buck | June 8, 2008 6:46 PM

Tiny, subartic Iceland has a GDP per capita of $39,400 (2007) and ranked #6 in the world (2004, $33,000).

But I suppose it doesn't change your argument.

Although the argument seems to define 'export' pretty loosely and ignores the huge amount of products which are produced overseas for US companies.

"Consequently, I'd say that other countries benefit more from trade than the United States does"

This is just plain wrong.

can you let Tyler Cowen on Marginalrevolution to have a shot at this?

Posted by James | June 8, 2008 7:02 PM

It would be interesting to survey on whether or not people would us the same word "trade" if one were talking about having one company split up the heavy labor parts of its manufacturing to other countries.

I would guess that most people think of "trade" as something different -- you know, one company in one country making something and then shipping it to compete in the U.S. consumer market.

That sort of old-fashioned definition.

Posted by El Cid | June 8, 2008 7:31 PM

"In 2006, the exports and imports to and from Iceland and the US accounted for 8,4% and 9,3% respectively of total exports/imports."

http://www.iceland.org/us/the-embassy/trade-economy/

I know it was only an example, it's just the sloppiness of these posts sometimes.

Posted by James | June 8, 2008 7:42 PM

I agree that Canada is America's most important trading partner and the US would definietly suffer if that trade ceased. However Canada would not do well either, as the US is also Canada's most important trading partner.
As far as investments go, a whole lot of US corporate money is invested in Canada and no, not just in extraction. Due in part to its healthcare system and good schools, Ontario has replaced Michigan as the automotive capital of North America.

Posted by JonF | June 8, 2008 7:43 PM

Tiny, subartic Iceland has a GDP per capita of $39,400 (2007) and ranked #6 in the world (2004, $33,000). But I suppose it doesn't change your argument.

No, it doesn't change his argument. The point is that the economy of Iceland is far more dependent on trade than the economy of the United States.

Because of its vast size, wealth and population, the U.S. has a huge domestic market and a highly diversified economy. Iceland, in contrast, needs to import virtually everything it consumes. It pays for those things mainly by selling fish. And the main reason its people have such a high average GDP is that there are so few of them.

And it has a horrible climate to boot!

Posted by Mixner | June 8, 2008 8:00 PM

I personally think it's about time someone besides the US benefited from anything.

Posted by brenna | June 8, 2008 8:04 PM

"And the main reason its people have such a high average GDP is that there are so few of them."

I guess if average GDP is in inverse correlation with population size, then Pitcairn Island with 50 inhabitants must have a GDP in seven figures. Anyway, they don't have figures, but Montserrat with a population of 5,000 has a per capita $3,400, so perhaps correlation is not causation.

I understood the point, US is bigger than Iceland. But the fact is that if you tally up the imports and exports, it's not a huge amount, and most of it could be obtained from non US countries, most likely the EU.

It was more the let's use Iceland because it consists of puffins and Bjork laziness which miffed me. Their economy is a bit more complex than that, and Icelandic companies have been buying major European companies recently.

And as for the trade issue, yes, in nearly every case, country by country, the other country possibly does worse than the US if there is no trade. But if the US was to not trade with any country, then the US would be far, far worse off than the individual countries would.

That might be obvious, but its hard to tell with Matt's post.

The US is much bigger, sure, but not the biggest when EU is counted as one entity when comparing GDP (14,712,369 vs 13,843,825, IMF 2007)

As for one specific country, ignore the obvious (China) I would also imagine not trading with Saudi Arabia might damage US more than Saudi Arabia, but that's another argument.

Posted by James | June 8, 2008 8:24 PM

Yglesias is quite right, both in his (specific) claim about the relative benefits of international trade and about the fact that it's not zero-sum. Both are very important things to understand before discussing this topic.

But he's wrong that Public Agenda is at fault in this survey. Most Americans probably are wrong about both of his points, and thus the survey is an accurate report of a misunderstanding, not an inaccurate report of an understanding.

Comparative Advantage is the key concept for the non-zero sum part.

This argument is really about semantics because we haven't clarified by what we mean when we say "benefits from trade".

In terms of being vital for economic growth and survival, small countries with only a few resources are the chief beneficiaries of international trade. They simply couldn't be developed(ing) economies without it. The US, in contrast, could still be reasonably wealthy without trade (with "reasonably wealthy" meaning by historic standards, not necessarily current world standards, and certainly not by current American standards).

That doesn't mean that the big countries with large and diversified economies aren't profiting greatly from trade. Nor does it mean that these big economies aren't doing so unfairly. Nor does it mean that the ways in which the small countries profit short-term from trade won't lead to impoverishment further down the road.

Obviously, if the metric is total wealth, then obviously the US is the chief beneficiary of trade. Not only that, but a large economy with many resources that has extensive trade ends up with synergistic effects which amplify the wealth creation across the whole economy. So even in terms of how much it amplifies growth potential, large economies like the US's may benefit more greatly from trade than smaller ones.

Personally, I am saying that Yglesias is right about the comparative benefits because the most intuitive reading of this casual use of language would be the "otherwise would be grubbing among rocks for worms to eat" metric of evaluating how much different economies benefit from trade. But the "total wealth" viewpoint is not an absurd way to read this, and that the US gets a larger portion of the created wealth than anyone else is also true.

Not that I think this will always be true. I think this will shortly be true of China. China, though huge, is undergoing the transformation of an economy like a small country's (which has been merely exploiting its low labor by exporting it) to a large country's (which is building a huge base of expertise to capitalize on its resources and greatly leverage that through trade), like the US has been doing for a long time. The best possible thing to happen to both the US and China would be to continue to freely (but fairly) trade heavily between each other. The US restricting trade with China is now, and especially in the foreseeable future, a terribly self-destructive idea. Selling that burgeoning huge market what we've been selling the rest of the world is the best way to do that—and buying things from them more cheaply than we can make ourselves, is the best way to make sure this is possible.

Posted by Keith M Ellis | June 8, 2008 9:10 PM

James,

I guess if average GDP is in inverse correlation with population size, then Pitcairn Island with 50 inhabitants must have a GDP in seven figures.

Since I didn't make any statement about a general correlation between GDP and population size, I don't understand why you think it's relevant.

I understood the point, US is bigger than Iceland. But the fact is that if you tally up the imports and exports, it's not a huge amount, and most of it could be obtained from non US countries, most likely the EU.

I don't understand this. What does the "it" refer to in "it's not a huge amount?" Size of imports and exports? Share of economy from imports and exports? Something else?

It was more the let's use Iceland because it consists of puffins and Bjork laziness which miffed me. Their economy is a bit more complex than that,

No one suggested it wasn't more complicated than that. The point remains that Iceland's economy is extremely small and homogenous in comparison to that of the United States. It has to import virtually everything. And it pays for those imports mainly by selling fish.

and Icelandic companies have been buying major European companies recently.

What "major" companies would those be? The entire GDP of the country is only about $12 billion.

And as for the trade issue, yes, in nearly every case, country by country, the other country possibly does worse than the US if there is no trade. But if the US was to not trade with any country, then the US would be far, far worse off than the individual countries would.

I'm not sure what this means, either. If all you're saying is that if the U.S. stopped trading with all other countries, but all other countries continued trading with one another, then the U.S. would be worse off for that change than some of those other countries, that might be true, but it's not what Matthew was saying. He's talking about international trade in general, not a unilateral withdrawal by the U.S. from the global market.

Posted by Mixner | June 8, 2008 9:15 PM

James,

According to Iceland Review, the largest company in Iceland is the investment bank Kaupthing, which comes in at the dizzying heights of number 795 on the Forbes list of the world's 1,000 largest companies.

Posted by Mixner | June 8, 2008 9:27 PM

>...For example, if all US-Canadian trade ceased that would be terrible for us but much worse for the Canadians....

Don't bet on it. The simplest rebuttal simply cites 15 per cent of U.S. crude oil and natural gas supplies that come from Canada. Not to mention other trivial items like nickel and uranium.

But that's almost beside the point. On the broader question of world trade, Americans would quickly wake up to the costs of protectionism if the prices for everything at Wal-Mart, from lawmowers to TVs to cell phones, doubled overnight.

I'm in favor of reasonable labor and environmental standards in trade arrangements, but there's a lot of ignorance abetted by Lou Dobbs et al. that ignores realities cited by Tom Friedman et al.

Posted by bobskis | June 8, 2008 9:42 PM

"And the main reason its people have such a high average GDP is that there are so few of them." - that's why i (fatuously) brought up population/gdp correlation.

As per the export import, I meant that if Iceland ceased trading with US, it would be nothing to the US, but it wouldn't crush Iceland.

I should have said 'buying into' instead of 'buying major European companies'. However, it's not a complete joke - from the London Times:

June 17, 2007
The new Viking invasion
The Icelandic bank Kaupthing is taking big stakes in firms in Britain and abroad, reports Grant Ringshaw

I wasn't expecting, nor wanting to defend Iceland any more than this, or claim its a economic powerhouse - really it was just annoyance with using a (admittedly tiny) western democracy with a very high standard of living - the highest according to the Human Development Index.

The point might have been better made with an African country which is dependent purely on supplying a very limited range of (probably agricultural exports than Iceland. I wish Matt had just said Svalbard or somewhere, and I wouldn't have bothered mentioning it.

My comments in the second post were in relation to your post - what I was actually originally commenting on, and disagreeing with, on Matt's post was this statement:

"I'd say that other countries benefit more from trade than the United States does."

Posted by James | June 8, 2008 9:48 PM

James,

You keep saying things about Iceland that are utterly irrelevant to Matthew's point. The fact that it has a high standard of living is irrelevant. The point is that it is much more dependent on trade than the U.S. In fact, Iceland is especially vulnerable to changes in global markets because its economy is so heavily dependent on just one class of export--fish. Iceland is a great example of Matthew's point because it is so vulnerable.

Posted by Mixner | June 8, 2008 10:20 PM

Matt, you're making specific and broad claims about how trade effects the United States, and this is really outside your areas of expertise. As others have pointed out before me, Canada is the biggest exporter of oil and natural gas to the US. If they were to sell that elsewhere, the cost of our oil and natural gas would go up, possibly by a significant amount. Their prices of oil and ng would...stay the same. In fact, when Obama and Clinton were talking stupid about rethinking NAFTA and maybe withdrawing, the only response I saw from Canadian officials amounted to, "If the US leaves NAFTA, we won't be obligated to sell our oil and natural gas to it, and we won't because we can get better prices elsewhere."

You're just writing what you think, but where is the foundation for it?

Posted by Mitch Schindler | June 8, 2008 10:35 PM

The way the question was phrased, it appeared to invite looking at "other countries" collectively, as opposed to one by one. And all "other countries" when taken collectively have a bigger and more diverse economy than the United States.

Incidentally, I also think Matt's other implied reframing of the question (as if it asked what would happen if all trade ceased), was unwarranted.

Posted by DTM | June 8, 2008 10:43 PM

Matt, you're making specific and broad claims about how trade effects the United States, and this is really outside your areas of expertise. As others have pointed out before me, Canada is the biggest exporter of oil and natural gas to the US. If they were to sell that elsewhere, the cost of our oil and natural gas would go up, possibly by a significant amount.

No it wouldn't. Or, rather, there's no good reason to believe it would. Selling it elsewhere would free up an equivalent amount that the U.S. could then purchase from another supplier.

But this is yet another irrelevance, anyway. Matt's not talking about the effects of a particular trade action by one specific country against another specific country. He's talking about the importance of international trade in general to different countries. And for the reasons explained, trade is much more important to the economies of other countries--and hence to the living standards and welfare of their citizens--than it is to the economy of the United States. Being Number One has lots of advantages, and reduced dependency on foreign trade is one of them.

Posted by Mixner | June 8, 2008 11:04 PM

Seems like the question is not only irrelevant, but also very poorly specified. I can think of at least two (potentially conflicting) ways to look at who benefits "more" from trade:

1. The way Matt seems to have chosen, quantitatively approximated by something like exports/GDP. Larger, more diversified economies like the US probably benefit 'less' on this measure than smaller, less diversified countries like Iceland or Saudi Arabia.

2. One could also think of the total economic surplus from trade, and relative portions received by each party (or between the US and the sum of all its partners). Here you might guess that the size and diversity of the US often gives it a superior bargaining position, so it may get the larger half of the pie, and thus benefits 'more' on this measure.

Of course both measures are equally irrelevant, but the survey question is even more meaningless, as the answers arbitrarily depend on which interpretation respondents choose.

Posted by jack lecou | June 8, 2008 11:37 PM

Jeez, Matt's claim is perfectly sensible. Would it matter more for New Hampshire if the US stopped all trade at the US border, or if all trade were stopped at the *New Hampshire* border? Surely, any small country is much more dependent on foreign trade, just because the domestic market is smaller.

Posted by cure | June 9, 2008 12:12 AM

"No it wouldn't. Or, rather, there's no good reason to believe it would. Selling it elsewhere would free up an equivalent amount that the U.S. could then purchase from another supplier."

Not exactly. Going across town to buy something versus going next door to buy something still has to include costs of spending time going across town and the expending the energy to go across town.

I'd say it is kind of daft to argue that we'd be in the exact same position buying oil and gas from the Middle East rather than both the Middle East and Canada.

Posted by Jack | June 9, 2008 2:31 AM

I'd say it is kind of daft to argue that we'd be in the exact same position buying oil and gas from the Middle East rather than both the Middle East and Canada.

Obviously not. The US would have to buy more oil from more distant sources such as Saudi Arabia, Nigeria, etc., and pay the extra shipping costs.

But remember the original point is not that the US would be unscathed, merely that Canada would be yet worse off. And while the US gets over 10% of its oil from Canada, over 99% of Canada's oil exports are to the US.

If the US stopped buying, Canada would have to sell overseas, and they might have to discount it a bit to make it competitive after shipping. Of course, maybe not much, since their new potential customers now compete with the US to buy from, e.g., Saudi Arabia...

You're welcome to tell me how I'm wrong, but my intuition is that this all shakes out with the world price for oil essentially unchanged, while Canada and the US both bleed a bit of producer/consumer surplus to the oil shipping industry. But probably Canada bleeds a little bit more. Leaving Matt's original point...completely unscathed.

Posted by jack lecou | June 9, 2008 4:09 AM

"But probably Canada bleeds a little bit more. Leaving Matt's original point...completely unscathed."

True, and I would agree you addressed my original thought.

But now given a few hours of thinking, Matt's use of Canada and Iceland as trade partners is not reflective of the public's opinion when they think about trade. Most of the time when trade is regarded as 'bad,' there's rather a short list of countries that make the list:

Mexico, China, India, Russia, Saudi Arabia, Vietnam, Malaysia, and a few other NICs.

Rarely have I heard trade complaints about Western Europe, Canada, or even Japan these days. I believe the US would rather limit trade with countries like China and Mexico rather than Germany or Japan.

Also, given that Matt says that smaller countries (or rather those with smaller economies) benefit more than big countries, does he feel that the US will eventually benefit more seeing that China and India are projected to have larger economies in the US by the turn of the century? Or is there a threshold when a country becomes big or diversified and thus can arguably be self-reliant?

Posted by Jack Uphill | June 9, 2008 8:45 AM

Jack Uphill-

Yeah, as countries like India and China grow, they will probably become relatively less dependent on trade. IIRC, India's development has actually benefited from relatively large internal markets for years. China has recently sprouted something of a middle class, which is presumably buying Chinese mobile phones and so on. This'll be even more important in coming years as shipping costs increase.

To answer your other question, yeah, I think there's some point at which the fraction of your economy due to trade isn't really predictable from size. It's not a direct relationship anyway. For example, almost all of Saudi Arabia's GDP is from trade, but most countries with a similar population or GDP would have a much smaller share. Without looking it up, I have no idea if exports are a larger share of the German economy, for example, than the US economy. Another century is a long time, so I think it's hard to guess what that number will be for the US, let alone China.

The takeaway point, which can't be stressed enough, is that who "benefits more" from trade is a really ludicrous question.

Complaining that Iceland/Mexico/whatever benefits relatively more because trade makes up a larger portion of its economy is something like a very well-paid maitre d' complaining that a (far less well-paid) waiter earns a greater percentage of their income as tips.

Posted by jack lecou | June 9, 2008 10:58 AM

Another century is a long time, so I think it's hard to guess what that number will be for the US, let alone China.

Let me amend that to say that I would guess trade will continue to become more important to the US economy (rising shipping costs notwithstanding). In China, trade importance might grow, decline, or hold steady, depending roughly on whether its internal or external markets grow faster.

Where the US' share ends up relative to China's share after another century of that is anybody's guess.

Posted by jack lecou | June 9, 2008 11:15 AM