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Comment by frockington | Hacker News Reader

I believe nobody should have tariffs. Understanding that is never going to happen, it should at least be a starting ppoint

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I'm glad that you believe it, but it's not a reasonable position. The primary reason for some U.S. tariffs is the legitimate reason of national security. We provide tariffs on certain foods, mineral resources, and military products because we want to guarantee that we do not loose production ability. Should we suddenly find ourselves in a world war, we would not be creating these production lines from scratch. Therefore, tariffs are always a balancing act between being nice to our friends and ensuring we keep some level of production available.

Wouldn't strategic reserves be a solution to this? Hoard enough to cover ramp-up time for domestic production.

Food spoils and we can't predict how long a war will last.

Well, frankly I don't think it's a disadvantage. It's difficult to move out from the equilibrium of countries mistrusting each other, but I think what you describe is actually an utopia. If we manage to destroy all tariffs and make countries lose parts of their production abilities, we'd make war unthinkable, which is a net good. The US would never start an all-out war because it would starve, and whomever specialized in the agricultural products supplanting the US productive capability would never start a war because they cannot build weapons.

Of course there are huge problems with this -- what happens if whomever makes your food goes tits up, involuntarily (natural disasters, coups, ...) or voluntarily (maliciously attacking)? Who guarantees the system? How? Etc... --, if there weren't I wouldn't call it utopia. But I think raising the costs of war beyond the unreasonable is a net gain.

Note: I'm fully aware that this is an extremist and probably next to impossible position, no one has to remind me that. I just contest the fact that the objection "but then we could not go around and kill people" isn't a particularly good counter-argument for no trade barriers.

The European Union is an attempt at this utopia.

There are no tariffs on food, steel or similar between the member states. All states subsidise food production, but not steel.

You did not mention that since the founding of the EU, there has not been a single war between member states. Compare that to european history and you see the most important thing about the EU. I can live with all the things there are rightfully to be criticized about the EU, in exchange for peace in continental europe.

The only winning move is not to play.

Wait, so your first step is for other countries to remove their subsidies/tariffs but the US doesn't do the same? How well do you think that will fly in those countries?

If you mean you'd like to see the US and those countries both drop tariffs and protections, I can see you argument - but that's the opposite of the direction things are going today so I don't see the relevance. Even if it were not, it's hard to argue against a countries legitimate security concerns in some areas, although clearly that argument can be abused (again, cf current rhetoric).

That will work as soon as we have a single currency.

The EU is a really good example here of how a single currency puts everyone on the same economic accounting basis and so eliminates the ability of a country to 'fudge' the numbers through either internal subsidies or currency manipulation.

The reason you need a single currency is that if you're going to sell barrels of wheat from country X to country Y, and country Y buys televisions from country X. How many units of currency is a television worth relative to a barrel of wheat? If those values are tied to the same currency, then the economic incentive to grow wheat or build televisions will be on the same footing.

The inability to devalue currency is why greece cant recover. The Euro is idiotic.

Even worse: Germany, an already very strong nation, gets to free ride the Euro for its export machine at the cost of its Eurozone rivals (and other competitors in Europe broadly). If Germany had its own currency, it would be considerably more expensive than the Euro is today, which would make German exports more expensive. As you note, countries like Greece, Spain, Italy, Portugal would do better because their exports would be cheaper under less expensive national currencies (unique to their individual economic circumstances), enabling them to compete better against Germany's exports. This artificial prop can be seen in the fact that Germany has the world's largest trade surplus as a percentage of its economic output.

But that is exactly the point right? If you devalue the common currency then the amount you pay Greek farmers goes "up" effectively, and the price you pay German farmers also goes "up" so the relative costs of things stay the same and nothing changes. Whereas with a translation layer (currency exchange) you can "adjust" what it costs Greece and what it costs Germany to the advantage of one or the other.

A tariff is a way to adjust this economic cost externally which takes it out of the market's hands and put it into a political realm and one step removed from the actual economy that should be adjusting.

Greece can't recover because its exports are too expensive. Devaluing the currency in which those exports are sold in order to spur exports doesn't solve the underlying problem, which is Greek productivity. Imagine that the German economy is a Prius and the Greek economy is a truck hauling a ton in a trailer behind it, and the Greek truck is complaining that it costs more in fuel than the German Prius to get from the same point A to the same point B. Devaluing the Greek currency is like making fuel cost less especially for the Greek truck with no change in cost for the German Prius; sure, if the fuel is cheap enough for the Greek truck then maybe the Greek truck will be price-competitive in getting you from A to B, but the real solution is "how do we get the Greek truck to first dump the ton it's hauling behind it and then how do we make it more fuel efficient".

In a single-currency market, it is the responsibility of strong players to shore up the economies of weak players, or risk popular discontent in the weaker economy and the democratic dissolution of the common currency. German politicians have paid lip service to this but have not really put German resources to use in building up the PIGS economies because such a policy is unpopular with the German voting public, which wants to see those resources stay in Germany and to the nearsighted benefit of German taxpayers. This is the real root of the Euro crisis. There were always going to be weaker players in the EU, and it doesn't matter if it's Greece, it could very easily have been some other country. The question is what do stronger players do.

The US doesn't suffer from this issue because, to use an oversimplified example, California voters aren't discontent with FEMA funds used in hurricane disaster recovery areas. Californians are Americans before they're Californians, by and large.

> There were always going to be weaker players in the EU

This is true, however there were quite strict criteria (the Maastricht criteria) put in place to try and prevent this from being too bigger problem. In hindsight, those criteria weren't sufficient, in one way or another.

I believe it's correct to say those weaker economies benefited from adopting the Euro the short term, and that they wanted to join the Euro.

As a twist, the Euro was somewhat unpopular in Germany when it was introduced, because it made things more expensive. So there is a feeling that Germany "paid" the price of adopting the Euro - whether this is true or not is irrelevant for the sake of policy-making.

And at the same time, the Euro is fantastic. It is just a question of your viewpoint.

Say bye to Italy.

EDIT: Sweden and Hungary too.

This is incorrect understanding of how currencies work. Same currency works only when the area satisfies optimum currency area criteria well enough. Euroarea is in constant trouble because it is not good currency region as it is now. You need at least common fiscal policy to fix it.

In general, freely floating currencies fix all problems you mention.

FWIW, I'm not a big fan of OCA theory. Or perhaps a better way to say it is that I think the case for making the entire planet with its next day transport of goods and immediate delivery of services would nominally qualify as a single OCA. Note that Mundells criteria are focused primarily on sovereignty and not economics per se (see the Greek comment in peer comment).

Tariffs and currency manipulation are a sovereign response to prevent efficient markets that would render local labor noncompetitive.

And as I mentioned earlier, a single currency makes such manipulations ineffective and you get Greece. They can't bring their productivity up to the level of Germany or France and their economy suffers for it because all of the capital goes elsewhere.

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