Batchelor Interviews Henderson on Adam Smith and Chinese EVs

From what I understand, EVs from China are hit with the standard 2.5% tariff and on top of that an additional 25% tariff that Trump added for a total of 27.5%. We also have very high trade restrictions on solar panels.

It looks like the election in November will be between a reckless protectionist and a cautious protectionist.

Trade detractors will often bring up mobility of capital to say that comparative advantage no longer applies. Arnold Kling destroys that argument uniquely (the bolded part is Kling’s reply):

Charles Schumer and Paul Craig Roberts rewrite Ricardian trade theory.

Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today’s case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains – some countries win and others lose.

This is absolutely false. Ricardian comparative advantage can exist within a country. It can exist with mobile factors of production.

Getting Ricardo Wrong

Here’s an example of comparative advantage within the US, where of course factors of production are mobile:

Tiger is a great athlete. One of the best golfers to have every lived. Most likely he is better at other activities too. Tiger is probably in better shape than most: He can run faster, lift more, and work quicker. For example, Tiger can probably mow his lawn faster than anyone else. But just because he can mow his lawn fast, does this mean he should?

To answer this question we can use the concepts of opportunity cost and comparative advantage. Let’s say that Tiger can mow his lawn in 2 hours. In the same two hours he could film a television commercial for golf clubs and earn $100,000. By contrast, Joe, the kid next door can mow Tiger’s lawn in 4 hours. In that same 4 hours he could work at McDonald’s and earn $24.

In this example, Tiger’s opportunity cost is $100,000 and Joe’s is $24. Tiger has an absolute advantage in mowing lawns because he can do the work in less time. Yet Joe has a comparative advantage because he has the lower opportunity cost. The gains in trade from this example are tremendous. Rather than mowing his own lawn, Tiger should make the commercial and hire Joe to mow his lawn. As long as Tiger pays Joe more than $24 and less than $100,000, both of them are better off.

The Principles of Comparative Advantage: Why Tiger Woods Shouldn’t Mow Your Lawn