Let's Ban Exports of Dow Chemical Products

I have written before that trade policy is generally ALL corporate cronyism -- tariffs or restrictions that benefit a narrow set of producers at the expense of 300 million US consumers.

Mark Perry has yet another example, though with a small twist.  Most corporations are looking for limits on imports of competing products and/or subsidies for their own products exports.  In the case of Dow Chemical, they are looking for limits on exports of key inputs to their plants, specifically oil and natural gas.  CEO Andrew Liveris wants to force an artificial supply glut to drive down his input prices by banning the export (or continuing to ban the export) of natural gas.  If gas producers can't sell their product?  Tough -- let them try to out-crony a massive company like Dow in Washington.

But here is the irony -- there is absolutely nothing in his logic for banning natural gas exports that would not apply equally well to banning the export of his own products.   Like natural gas, his products are all inputs into many other products and manufacturing processes that would all likely benefit from lower prices of Dow's products as Dow would benefit from lower natural gas prices.

So here is my proposal -- any company that publicly advocates for banning exports for its purchases must first have exports of its own products banned.

  • bigmaq1980

    "any company that publicly advocates for banning exports for its purchases must first have exports of its own products banned."

    May not need a law for that...it may happen naturally, given Dow's target. The O&G industry is just as adept at cronyism.

    Liveris is foolish to even talk about it, as he may create a crony war that he cannot win (and we all lose)

  • marque2

    I have actually heard this argument from many lefties, who don't look at the total wealth angle, just the price of oil/gas. They say even if we do drill more, then it will be exported, or we will just purchase less from overseas - therefore we should not drill more, or should ban oil exports.

    Trying to explain that net imports is what matters, if net imports go down our country becomes wealthier doesn't seem to get through to them.

    And yes, if we shouldn't export gas/oil because it would just increase the price at home than we shouldn't export anything that can be used domestically - Oranges, corn, aircraft ...

    I always thought if you could get more money by selling it elsewhere it helps everyone by bringing more value within the system which can be traded for evermore useful goods.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    Absolutely. If Dow Chemical thinks it can out crony Exon Mobile, I would like to know what they are smoking and are they going to share.

  • marque2

    How is wanting to export in a free market cronyism? Other than conspiracy theories that never pan out I have not seen an example of Exxon Mobile - or even Exon-Mobile engaging in wildly anti-competitive actions. The best I ever hear is about some actions taken say 50 years ago. And accusations that Exxon and GM got rid of rail in cities, which also did not happen. Here is a list of the top NG producers in the US. E-M is at the top, but with only about 12% of the total supply in the US. http://www.ngsa.org/Assets/top%2040%202012%202nd%20quarter.pdf

  • bigmaq1980

    You are right, banning more drilling, or banning o&g exports is definitely not the way to go.

    Where we have open trade, it usually means the exchange was a "win/win" one. The buyer (importing country) gets more value for their money, the seller (exporting country) gets more money for their product, ceteris paribus.

    I'm not sure I'd boil it down to if net imports go down (trade deficits become surpluses), our country becomes wealthier.

    Where it gets messy is...

    The $US as the Reserve Currency for much of the world, major currency manipulation from various countries with "mercantilist" policies (i.e. China), QE from the Fed, and the continued view of the US as a "safe haven" (i.e. "cleanest dirty shirt"), all contribute to distorting today's trade deficit figures (i.e. they don't reflect a "market determined equilibrium").

    Some school of thought maintains that a capital account surplus (i.e. a trade deficit) reflects a competitive edge with regards to efficient resource allocation. Others talk about all the goods we get for "mere paper". Some say the trade deficit can persist for a very long time as it is funded by borrowing against the wealth created (measured as net assets). Some fear that the imbalance can be used by a rogue nation to inflict some pain on the US (e.g. sudden massive currency devaluation by flooding with their reserves), but this is countered by the "symbiotic" nature of trade (i.e. they'd shoot themselves in the foot as demand for their goods plummets). Some point to jobs lost (e.g. manufacturing), but others show overall unemployment decreasing for most of the last 20 years (notwithstanding recent US experience - which seems to have other causes).

    Paul Krugman (leading leftist, Nobel winning economist), as I understand from his articles, says they do and that, by implication, we'd be better off with a trade surplus. Given his stance on several other economic issues that I disagree with, I am hesitant to follow him in on this one.

    I tend to land on the "trade deficits don't matter in 'normal' times, but really wonder about the distortions and what impact the resulting long term accumulations may have" point. I've not studied this heavily, to say the least.

    I could be convinced that net imports matter, but I think it'd take more than a post here to make the case.

  • marque2

    As long as the Dollar remains the "World currency" we will never have a surplus. Other countries need to give us goods for free to get the paper to trade with their neighbors. If the deficit goes down, then the dollar will be bid up relative to its natural value until the effective deficit continues at the same pace - and making our domestic goods less competative - so they get manufactured overseas - and so the cycle goes. No world currency and all of a sudden manufacturing would come back.

    Still I don't understand the lefts logic that there should be export restrictions on anything. Take oranges. Yes if we banned exports the price would drop tremendously for a few years, then farmers would exit, not take care of crops - since they were unprofitable, and the supply would drop and we would be at the same price point as before, but poorer for the lack of exports.

  • Rob

    Comparative advantage is nice in theory except for those pesky mercantilist nations.

    I tend to think the trade deficit in the "current account" is good for the USA because its balanced by lots of investment into the "capital account" and hopefully not balanced by spending your reserves.

    Personally I never really bought into the whole idea of tariffs, if for no better reason than it impedes the flow of capital.

  • bigmaq1980

    Actually, there is another reason to oppose tariffs and import restrictions, etc....

    It opens the door to cronyism. Justifications are easily found for new ones. It favors one group over another. The "benefits" flow to a concentrated group while those affected are likely rather dispersed and, therefore, unlikely to have the political clout to oppose.

  • bigmaq1980

    "pesky mercantilist nations"

    Agree. One could also argue that the world has become more "stable" with China having some "skin in the game" vs 20-30 years ago. Imperfect as it is, some of the trade-offs are not purely economic.

  • http://www.cleaningchemicalproducts.com/ Chemical Products Supplier

    I read your article with great interest.Thanks for you sharing.