A Generation of Delinquent Teenagers

On today’s show we are talking about how some trade measures make no sense whatsoever.

If you have children who grow into adults, you know that if those children become overly dependent on their parents, they ultimately fail to launch. These are the children in their 30’s and 40’s still living at home with their parents and having their parents subsidize their lifestyle. There is no incentive for them to figure out how to become an adult because  they don’t have to. 

When countries overly coddle their industries under the guise of protecting domestic jobs, they are doing the same thing as coddling an adult child and not sending them out into the world to prosper. 

When an industry is protected, it’s the same as letting your teenager hang out in your basement for the next 20 years. They’re content with the status quo, but they’re not really achieving great things. This brings us to the walled gardens of protectionist economics. If you want to see what protectionism results in, look at the Ontario egg farmers and their quota system.

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Episode Transcript

(00:01):
Welcome to the Real Estate Special Podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. On today's show, we're talking
about some trade measures that make no sense whatsoever.
If you have children who grow into adults, you know that if
those children become overly dependent on their parents, they
ultimately fail to launch. These are the children in their
30s and 40s still living at homewith their parents and having

(00:24):
their parents subsidized their lifestyle.
There's no incentive for them tofigure out how to become an
adult because they don't have to.
When countries overly coddle their industries under the guise
of protecting domestic jobs, they're doing the same thing as
coddling an adult child, not sending them out into the world
to prosper. Sometimes children are forced to
grow up too fast. That happened to me.

(00:45):
My mother was sick from the timeI was five years old.
As a result, I was forced to take on a lot more
responsibility as an early teenager, and that made me a
responsible adult at a very early age.
Now, when an industry is protected, it's the same thing
as letting your teenager hang out in your basement for the
next 20 years. They're content with the status
quo. They're not really achieving

(01:05):
great things. And this brings us to the walled
gardens of protectionist economics. the US is imposing
tariffs on Canadian steel. Canada is not the problem.
The Canadian steel industry is the equivalent of 1.5% of
China's steel industry. China has so much excess
capacity in their steel industrythat very few countries can

(01:26):
compete with China in terms of volume or cost.
Chinese steel is about half the price of US steel or Canadian
steel. Now.
Tariffs have the effect of raising domestic prices to match
the import price plus the tariff.
That's as a minimum. In the short term, the desired
effect is to redirect the demandfrom imported products to
domestically produced products. But since domestic supply cannot

(01:48):
flex that quickly, the impact issimply one of rising domestic
prices. Now we could be talking about
steel, but frankly we could be talking about any commodity.
We're seeing duties being imposed on Canadian copper.
The average time for a new copper mine to go from concept
to production on a global basis is 18.7 years and it's over 29
years in the United States. Now, I know there's a new copper

(02:12):
mine opening in Arizona in the next couple of years.
They plan to enter production ona fast track over the next few
years. But but you need to bear in mind
that nothing happened this past year that brought that new
copper mine from concept to production in under three years.
US sources about 10% of its copper domestically.
Even the addition of a single mine is not going to move the

(02:32):
needle in a significant way. When the market conditions are
structural, international and the time constants are long,
political influence and regulations don't have a
measurable impact. Now Canada is about to introduce
tariffs in response to US tariffs with a view to keeping
competition from lower cost geographies like China at Bay.
But history has shown that erecting these artificial

(02:53):
barriers and fragmentation does not actually achieve the
intended results. Walled gardens are orderly and
they make it easy to predict whoyour customers are, but they
don't promote growth. Let's look at an example of a
mature closed market to see exactly what happens.
In Ontario, Canada, the market for eggs is controlled through a
supply management system. The system aims to provide

(03:14):
stability in the egg sector by balancing supply and demand, and
they say that it ensures consistent quality and provides
a fair return to farmers. So here's a breakdown of how it
works. The Egg Farmers of Ontario, it's
an independent self governing organization and it represents
about 500 egg farmers across theprovince.
They're funded by fees, levies that are paid by the egg farmers

(03:35):
on every dozen eggs that they sell.
There's three pillars to the supply management.
There's production control, effectively A quota system where
the egg farmers forecast the annual demand for eggs and both
table consumption and industrialprocessing.
And based on the forecast, they set production targets, they set
production quotas. Each farmer is allocated A
quota, which is essentially a right to produce a specific

(03:57):
volume of eggs. If you want to enter the
business and start a commercial egg farm, you have to acquire
quota first. That can be expensive, and it
acts as a barrier to entry for new farmers without significant
financial backing. The quota system matches the
supply of eggs and supply and demand of eggs from consumers.
And it's designed to prevent overproduction as well as
prevent shortages. Small scale producers who don't

(04:20):
hold a quota are typically limited to a small number of
hens, like 100, and they often cannot sell their eggs off their
own property without undergoing costly grading operations.
Next is the pricing mechanism. So the prices are set by the
board. And then finally, there is
import control. There are tariffs and quotas to
prevent cheaper imported eggs from undermining the domestic

(04:42):
supply. So very small predetermined
number of eggs can be imported at a low tariff or zero tariff.
And once that court is filled, then very high tariffs are
applied to any additional imports.
So let's look at the pros and cons of that particular
approach. Number one, in terms of
security, you've got a stable, consistent supply of eggs #2 the
farmers have predictable revenue#3 there's support for the rural

(05:05):
community. So these rural communities that
have been farming for generations continue to farm
eggs just like they have for years.
And of course, the standards arehigh from a food safety
standpoint. The problem, though, is that by
limiting supply and competition,prices are generally much higher
than they would be in a free market.
There's very limited innovation.There's really not much

(05:25):
incentive to improve the efficiency when prices are
guaranteed. And then, of course, the high
cost of the quota makes it difficult for new farmers to
enter the industry. And then of course, it's in
irritant in terms of international trade negotiations
with countries like the US and we're seeing that right now.
There's also not much opportunity for those existing
farmers to expand beyond that very closed market because

(05:46):
they're getting a much higher price than the market price
would be internationally for those eggs.
So there's no incentive for themto expand production and sell
outside the domestic market because they don't get the same
price. So it's a very stable status quo
type situation. If you take that controlled
market situation and apply to any commodity, steel, copper,

(06:07):
aluminum, potash, whatever it might be, whenever you erect a
trade barrier, you're coddling your industry, you're coddling
your teenager and you're not allowing them to grow up.
But more importantly, you're distorting the economics so that
your industries are actually notcompetitive on a global basis
and they never will be competitive.
It doesn't matter whether we're talking about steel in the

(06:27):
United States or egg farmers in Canada.
Building these walled gardens isa path to destruction.
Now, the folks that are confinedto that system don't know any
better. They don't know any different,
so they think it's normal. I know this is a real estate
podcast. It's not a steel podcast or a
egg farmers podcast. The same rules apply and they
affect the way we build things in the construction industry in

(06:48):
real estate. So as you think about that, have
an awesome rest of your day. Go make some great things happen
and we'll talk to you again tomorrow.