Tuesday, July 05, 2022

Free Trade 70, Free trade should be separate from war

See June 2022 inflation rates:

Philippines, 6.1%, highest since Oct 2018.
Thailand, 7.7%, highest since 2008.
S. Korea, 6.0%, highest since 1998.

Switzerland 3.4%, highest since 1992.
France, 5.8%, highest since 1985.
Germany, 7.6%, highest since the 50s (was 7.9% last May).
Italy 8.0%, highest since 1985.
Austria 8.7%, highest since 1975.
Belgium 9.65%, highest since 1982.
Spain, 10.2%, highest since 1984.
Poland, 15.6%, highest since 1996.

Other major economies don't have June 2022 inflation yet.
The US' May 2022 inflation at 8.6% is 40-years high.

The sanctions "to impoverish Putin" is really working, very nice. When you try to punish someone who produces most of the impt commodities to modernize -- oil, gas, coal, wheat, ... -- you practically punish yourself.

Free trade shd be separate from war. Movement of commodities shd be separate from movement of bombs and troops.

Free trade means low inflation, even deflation for some countries. This is because the supply curve under free trade tends to become more flat, mildly upward sloping and moving to the right, expanding the supply of commodities to countries that need them more, making domestic prices more stable if not decline. Whereas the supply curve in a protectionist, trade restrictions due to politics and sanctions become more steep and moving to the left.

(chart source: https://courses.lumenlearning.com/wm-macroeconomics/chapter/demand-and-supply-analysis-of-international-trade/)

So people who support more politics-driven econ sanctions and trade restrictions vs major commodity exporting country/ies have no right to complain about high inflation. They indirectly support and embrace high inflation. They cannot separate movement of commodities from movement of bombs, they think politics should prevail all the time. When you politicize trade, you get more politics and less trade.

Those commodities from Russia especially oil and gas expand the global supply curve. By restricting or killing the free flow of those commodities, the supply curve moves to the left and global inflation goes up.

For many politicians and leaders of the US and EU, their attitude is something like -- damn inflation, who cares about high inflation? The public? Who cares about the public? What they care the most is their ego, macho image, that Putin is still there in Moscow and the Russians are still in Ukraine.  Damn inflation, keep the sanctions "to impoverish Putin". And keep the bombs flowing to Ukraine even if you keep borrowing. Prolong the war. Prolong the sanctions.

Some related materials.

1. Have the free trade agreements reduced inflation rates?
Noh-Sun Kwarka, HosungLim
Economics Letters  Volume 189, April 2020, 109054

"From the cross-country panel data analysis of 34 OECD countries over the period 19802014, the expansion of FTAs shows a significant negative effect on the Consumer Price Index inflation, which is more apparent than the traditionally used openness measure."

2. Sanctions on Russia: what are the ramifications of this new trade war?

3. The Benefits of Free Trade: Addressing Key Myths
Donald J. Boudreaux, Nita Ghei, May 23, 2018


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