How Currency Manipulation Creates American Jobs
WSJ -- "President Obama and other administration officials argue that the Chinese currency is undervalued. That makes Chinese exports artificially cheap in terms of other foreign currencies, contributing to the U.S.'s large trade deficit with China and, they say, depriving Americans of jobs. Treasury Secretary Timothy Geithner said during his Senate confirmation hearings in early 2009 that Mr. Obama believed China was manipulating its currency.
Don Boudreaux responds here and here. Here's my response:
1. It's a strange use of the word "manipulate," which means:
a. "To influence or manage shrewdly or deviously."
b. "To tamper with or falsify for personal gain."
In this case the "manipulation" is to America's advantage and China's disadvantage, because the undervalued yuan and overvalued dollar makes Chinese goods cheaper and more affordable for American consumers and companies, saving us billions of dollars, and making us wealthier and China poorer. It would be like accusing Wal-Mart of "manipulation" for offering "Everyday Low Prices," and saving Americans billions of dollars??
2. As the chart above shows, almost 60% of imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.) and b) capital goods (machinery, equipment, parts, tools, etc.) which are mostly purchased by AMERICAN COMPANIES as inputs for production in the United States. Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers. Therefore, China's currency "manipulation" helps American companies and actually SAVES and CREATES jobs here.
Update:
3. For the artificially cheap consumer goods purchased from China with artificially overvalued dollars, thanks to the "manipulative" Chinese government and Chinese people, those cost savings don't somehow just evaporate or disappear. To the contrary, the money saved most likely gets spent on other goods and services, many of which are produced by American employees working for American companies, stimulating jobs in those sectors.
For example, the $100 saved by an American consumer purchasing artificially cheap Chinese tires, might spend that extra $100 taking his or her family out to dinner more often at local restaurants, helping to save or create jobs in the local restaurant industry. That is, some Americans working in the restaurant industry can thank the manipulative Chinese for their jobs.
90 Comments:
Amen, Mark. Unfortunately, your smart, simple analysis will undoubtedly fall on the deaf ears of White House mercantilists who have ignored - and often denigrated - imports ever since they took office.
One in five of the possibe U.S. workforce does not have a job. We have recently had two increases in debt ceilings with boosts of trillions at a time. The increasing use of foreign inputs takes jobs away and is not accounted for in Mfg. statistics.
Is this something to brag about? Maybe in the closed confines of a smokey cafe debate could this logic be pursuasive, but not without a couple of drinks. After one sobers up the reality of mighty economic powers being developed in export oriented economies sinks in. The U.S. is in the hangover phase and pondering how to respond (maybe an emphasis on exports ourselves?).
Here is an article put out by Revere Copper Products explains how Chinese currency manipulation hammers its company and U.S. jobs unfairly.
Revere Copper products was founded in 1801 and is beleived to be the oldest manufactuing company in the U.S. The founder of the company was the very same Paul Revere who warned the citizenry of Boston and now his legacy warns the U.S. population.
This company's document is not asking for subsidies or special protections; only the response of its government to enforce agreed upon rules and treaties in the marketplace for the free exchanage of goods and services.
China is buying our Treasuries (or other securities) with a 40% undervalued currency. Thus, they are paying almost twice as much for these assets than they should. I'll let someone give me $10 for a $5 bill any day. The Chinese are being very stupid.
I am sure that the Chinese policy to create American jobs with their currency manipulation is part of their plan, Comrad Perry.
Doubt it.
It might, however, meet the needs of US multinationals.
Actually, I have heard people criticize Walmart for their low prices. They claim that they "unfairly" force suppliers to provide their products at a cheaper price.
this is a classic issue of diffuse and difficult to see gains vs concentrated and obvious losses.
if china keeps its currency too low, it makes it's exporters more competitive vs ours. this harms some of our companies that compete and causes some jobs to be lost. these are the concentrated obvious losses.
however, it also makes cheaper goods available to ALL Americans. this yields benefit to everyone in terms of more purchasing power and choice. this is a diffuse benefit. you don't really notice 10% cheaper flatware, but you're getting benefit from it.
the question then becomes: is the benefit greater than the cost.
in this case, the answer is almost certainly yes. most of our economy is not subject to Chinese competition. they can't sell you a house in texas or a meal in florida or healthcare in california. we don't buy their cars nor their airplanes.
a small segment is harmed (but becomes more efficient as a result) and everyone gains. the overall pie is bigger. this doesn't mean it doesn't suck to lose your job, but it does mean that overall, we are all better off. economies change. those most subject to competition change most. change is good, not bad.
acme buggy whip may have been a helluva company with a fine and long tradition of excellence, but if they missed the move to the auto, well, too bad so sad. they should have become acme auto upholstery.
it always amazes me how so many self described "liberals" are too conservative afraid of change to accept capitalism.
adapt and evolve or perish. it's a natural as well as an economic law. no one benefits from dinosaurs lobbying against the little mammals who start eating their eggs.
actually, as i think about that last comment, yes, obviously, the dinosaurs doing the lobbying benefit, but their benefit is a net loss to the system as a whole, which is what i was really driving at. and their benefit is short term. not evolving now just makes you more vulnerable later.
Do you mean government jobs? From what I can tell, with the exception of health care and government sectors, the private sector did squat last decade with hiring. How many millions of good-paying manufacturing jobs did we lose? (BTW, for all of you free market zealots - go ahead, laugh all you want; but remember the country is paying for it dearly with the loss of good income, with communities suffering, and the likelihood that we're going to have our second jobless recovery. Yup, the Chinese can have all of the hard work and our lunch, too.)
Do you mean government jobs? From what I can tell, with the exception of health care and government sectors, the private sector did squat last decade with hiring. How many millions of good-paying manufacturing jobs did we lose? (BTW, for all of you free market zealots - go ahead, laugh all you want; but remember the country is paying for it dearly with the loss of good income, with communities suffering, and the likelihood that we're going to have our second jobless recovery. Yup, the Chinese can have all of the hard work and our lunch, too.)
It seems as if government-intervention in the market place is only a no-no if it applies to developed democracies; China can manipulate its currency all it wants, and Brazil can maintain its uber tariff polices. For some reason, nobody seems to think those two countries are going to collapse, and as far as I can tell, the laissez faire crowd doesn't seem to be in any hurry in demanding change in the nations' economic policy.
Re: "gettingrational:"
Your link from Revere Copper makes precisely the opposite point.
Consider their example on pg. 8-9 about brass doorknobs. In the current state of the world, the doorknobs get made in China and sold for $12. In Revere Copper's ideal state of the world, the doorknobs get made in the USA and sold for $18. That's certainly good for Revere's doorknob-making business. But it ignores all the buyers of doorknobs, who now have to pay 50% more for their knobs. In this example China's monetary policy is giving all Americans doorknobs below cost. That's bad for a doorknob producer (otherwise known as a 'special interest') but good for everyone who uses doorknobs (that is, all of us).
Consider the extreme case: What if China decided to give Americans free doorknobs? Or free cars? Or free food? If cheap is bad, free must surely be worse. Right?
Economiser, your argument is reducto absurdo. The Revere document shows exactly how currency manipulation harms their U.S. made products ability to compete. Are you asserting that because they are in business to produce in the United States that they are some evil "special interest". They are not seeking anything special but rather the enforcement of rules agreed to in individual country, WTO and IMF agreements. Please read the document. When I shop for doorknobs there are lots of choices at various prices.
theory: "China's currency "manipulation" helps American companies and actually SAVES and CREATES jobs here."
reality
Re: gettingrational, 2/19/2010 3:16 PM:
China's giving us stuff below cost. On net, that's a benefit. It may harm certain select industries, it may cause some factories to close, and it may force some people to find new jobs. But we as a society are richer as a result. As long as China (or any other country) chooses to give us stuff below cost, I don't see any reason to stop them.
My reducto ad absurdum merely illustrates the point. The difference between a cheap doorknob and a free doorknob is a difference of degree, not of kind. If China were to give us free doorknobs, do you actually think that would be a bad thing?
As long as China (or any other country) chooses to give us stuff below cost, I don't see any reason to stop them.
To be fair, while China's effective dumping of product on the US is unquestionably good for the US economy, it is bad for the Chinese consumer.
For instance, to reducto ad absurdum the other way, if China attained their low prices not via government policies encouraging inefficiently high capital investment, but rather through slave labor, surely the US should not gleefully profit from the resulting lowered costs.
Fortunately, we don't face that dilemma. The US should reap the low-cost goods while we can.
Yet another remarkably shallow analysis of what protectionism actually does. If someone sends free goods to America, it reduces American productivity by roughly the difficulty of finding a non-subsidized industry times the number of people affected (effectively, it costs America job opportunities, which matters in proportion to America's unemployment rate). It also does increase the purchasing power of those in America who have jobs.
Foreign protectionism, then, encourages a wealth transfer from the underemployed in America to the well-employed. Maybe you don't care about that, but you should at least admit it. Also, if you don't like the entitlement programs that tend to result from income inequality in democracies, you might even want to do something about it. For those who live in the real world, it might be worth half a thought.
... the reality of mighty economic powers being developed in export oriented economies sinks in.
You mean like the "mighty economic power" of Japan? Weren't they supposed to have taken over the world by now?
What you fail to see is that all of the policies that the Chinese pursue - fixed exchange rates, closed capital account, massive trade surpluses, hoarding of gold and U.S. dollars - are not evidence of economic strength, but of economic vulnerability and weakness.
The Chinese, like the Saudi's, have one thing to offer - cheap labor. They fix their currency at a rate that they believe will make their labor competitive, not with western countries, but with other countries involved in labor intensive industries. This has the effect of impoverishing their people while producing cheaper goods for us. Goods that we would buy not from other Americans, but from other countries. If their economic growth has come at the expense of anyone, it's their neighbors -Indonesia, Malaysia, the Philippines, etc. - not us.
If someone sends free goods to America, it reduces American productivity by roughly the difficulty of finding a non-subsidized industry times the number of people affected ...
Once more, this time in English.
It also does increase the purchasing power of those in America who have jobs.
Who are now free to spend or invest those additional dollars in our economy creating opportunities to offset those you claim have been lost due to - protectionism?? It's difficult to navigate the labyrinth of the leftist mind.
... it might be worth half a thought.
Indeed, it might be. Unfortunately, that seems to be more than you can muster. Back to your ouija board.
Mark,
I don't doubt that currency manipulation creates jobs, but let's not forget that it also destroys jobs.
Indeed, the net effect of currency manipulation (intervening in foreign exchange markets) and trade patterns on employment is immaterial.
Total employment in the economy is not a function of trade or foreign exchange intervention, but rather the number of people in the labor force.
This becomes clear when examining the strong correlation between the civilian labor force and civilian employment.
Any gaps between the two are a matter of the business cycle, demographic change and government policies aimed at labor markets.
So, while you can say that currency manipulation conveys benefits for some Americans by creating jobs, you should also add that it conveys costs to other Americans by destroying jobs, with a net effect of zero.
Now, with that said, currency manipulation makes both countries worse off by forcing each country to specialize in production in which they have comparative disadvantages.
There are some qualifications to this argument, at least in theory. In fact, Mr. New Trade Theory, Paul Krugman, has even abandoned his previously held belief that protectionism, justified by the presence of imperfectly competitive industries, could actually improve outcomes.
So you must also discuss of how currency manipulation destroys jobs to be fair.
--Pingry
... if China attained their low prices not via government policies encouraging inefficiently high capital investment, but rather through slave labor, surely the US should not gleefully profit from the resulting lowered costs.
What? Haven't you been paying attention in school? No culture is better than another, that would be cultural chauvinism. If the Chinese choose to exploit each other, as has been their custom for millennia, who are we to impose our values on them?
You haven't been listening to our supreme leader who just recently asserted "The danger, I think, is when the United States, or any country, thinks that we can simply impose these values on another country with a different history and a different culture."
Soooo....
Pardon the rudeness but this is an absurd analysis.
Consider the economy of the antebellum south. With its cheap labor, slavery, this analysis would lead you to believe that economy would be superior to that of the North. Not so. In 1857 Hinton Rowan Helper published a book titled “The Impending Crisis of the South” in which he used the 1850 census data to argue that slavery (the ultimate cheap labor) hurt the economic prospects of non-slaveholders, and was an impediment to the growth of the entire region of the South. In the South, Hinton Helper says: “We want Bibles, brooms, buckets and books, and we go to the North; . . . we want toys, primers, school books, fashionable apparel, machinery, medicines, tombstones, and a thousand other things, and we go to the North for them all.” You want to be that dependent on China?
In the antebellum South plantation owners and the merchants who supported them prospered. Everybody else just got by. There was no advantage for a non-slave to have any skill that could be done by a slave. Are we headed for an economy in which multinational corporation leaders and those who support them prosper and everybody else just gets by?
Cheap is not the road to prosperity. There is a good reason that innovation most often comes from wealthy countries. High labor costs and high raw material costs force innovation. After the imposition trade protection by the United States in 1828 there was an explosion of labor saving devices put to use in the North. For example, the mechanical reaper of Cyrus McCormick (1834) and the steel plow of John Deere (1837). But the cheap labor of the antebellum South meant there was no compelling need for innovation. Using slave labor was cheaper than buying machines. In the beginning the cost advantage of new technology is small. Cheap labor or raw materials makes it even smaller. No country has ever improved the standard of living of its citizens with cheap labor or cheap foreign goods.
In his book, “The British Industrial Revolution in Global Perspective” Oxford professor of economic history Robert Allen asks: “Why did the industrial revolution take place in eighteenth-century Britain and not elsewhere in Europe or Asia?” Part of his answer is EXPENSIVE LABOR that resulted from the 1348 Black Death, which wiped out a third of England's population and caused wage rates to rise and, in England, reproductive patterns to change, producing a decline in fertility. England's lower fertility ensured that the impoverishing 16th and 17th centuries were less impoverishing than elsewhere in Europe and wages remained relatively high.
Cheap labor and cheap import goods lead to a declining economy. Obama is correct on this one. There is more to economic well being than cheap consumer prices.
Interesting that the rhetoric has picked up again after China went on a buyer's strike regarding US Treasuries.
The graph points out that US manufacturers benefit greatly from cheap Chinese produced inputs. When the yuan was slowly appreciated starting about 5 years ago, it really impacted several manufacturing clients. Basically the increased costs came out of their margin as they weren't in a position to pass the costs through. They just let some of the least productive positions go to cover it.
Let the yuan go higher, and over time production will shift to other places in Asia or South America, and very little will pop back up in the US. Check product labels now and much of the more basic manufacturing like textiles and food has already shifted to other countries.
China just happens to be artificially a little lower, but the next step up the price ladder is not the US. And people expecting exports to China to jump are going to be disappointed in the level. Much of the US brands they purchase aren't produced here, they're manufactured closer to China. Although companies like Harley Davidson and Caterpillar would do well.
There is a good reason that innovation most often comes from wealthy countries. High labor costs and high raw material costs force innovation.
That's right and higher U.S. labor rates, relative to emerging economies, have forced U.S. manufacturers to innovate. They have also focused our industry on higher value added goods. We are the world's most productive economy. We are not in decline, though the Democrats are working very hard to bring us down.
Obama is correct on this one.
Let's not get excited.
Note that boobles supposed 'reality' is actually the cost of having excessive government...
Peter Schiff at Seeking Alpha: More Government = Fewer Jobs
Anonymous said...
Pardon the rudeness but this is an absurd analysis.
Consider the economy of the antebellum south. With its cheap labor, slavery, this analysis would lead you to believe that economy would be superior to that of the North. Not so...
You're right, your analysis is absurd. How do you get from currency manipulation to the conclusion that the old South's economy should have been superior to the North's?
If you're trying to imply the US is like the South, that's ridiculous. China is the one not letting the workers receive the full benefits of their efforts. The US is more like the North, receiving the benefits of the cheap products of the South, but with a separate economy of it's own.
The US isn't atrophying for the lack of low skilled manufacturing jobs. Increasing labor costs long ago forced innovation in manufacturing.
The Chinese currency is just a convenient excuse. China could let it float and it would affect Chinese exports, but the US would still be an expensive place to manufacture. They'd have to find a new excuse as manufacturing shifted to other countries in Asia and South America. Those countries have a better gripe about the exchange rate than the US does.
Consider the economy of the antebellum south. With its cheap labor, slavery, this analysis would lead you to believe that economy would be superior to that of the North.
Wow. You really missed the point of your own analogy.
In your analogy, the South is China, and the North is the US. The US profits from cheap imports from the South, while the economy of the South suffers under massive misdirection of capital and the hampering of free consumers.
Continuing with the analogy, you appear to suggest that the remedy for this "problem" is to grow cotton in the North, forgoing the existing comparative advantages of higher value productivity.
What sort of currency manipulation was taking place in 2002?
I just can't seem to remember if that was much of a news item...
From USAToday, dated 12/12/2002:
U.S. manufacturing jobs fading away fast
'Fifty years ago, a third of U.S. employees worked in factories, making everything from clothing to lipstick to cars. Today, a little more than one-tenth of the nation's 131 million workers are employed by manufacturing firms. Four-fifths are in services.
The decline in manufacturing jobs has swiftly accelerated since the beginning of 2000. Since then, more than 1.9 million factory jobs have been cut — about 10% of the sector's workforce. During the same period, the number of jobs outside manufacturing has risen close to 2%'...
juandos: "Note that boobles supposed 'reality' is actually the cost of having excessive government... government"
juandos, jaundos, juandos. why do i even bother reading your links?
the first one is a fauxnews editorial about how expensive government workers are. its says nothing about how or how much that changes payroll employment. not relevant.
in the second link peter shiff says that government regulation causes payroll employment to fall, without quantifying the effect nor providing any evidence this is true other than peter shiff thinks so.
he blames up government regulations that have been in effect for 40 years, such as non-discrimination and minimum wage. why in the last 10 years they suddenly caused payrolls to plummet is not explained.
btw, george bush worked very hard at eliminating (or not enforcing) govt regulations on business and yet has the worst job creation record of any administration ever. WSJ
lastly, he blames obama's budget deficits. this is not relevant as obama took office two months AFTER the last entry on that job chart i linked to.
MARKETS IN EVERYTHING: THE CHINESE YUAN
Empty Space.
Why?
There is no market!
Why is that? Complete control by the Chinese.
America’s trade deficit with China was $232.5 billion in 2006, up 125% from 2002.
Of the $287.8 billion in American imports from China in 2006, the following product categories had the highest values.
Top Chinese Exports to the U.S.
1. Computer accessories, peripherals and parts.
2. Miscellaneous household goods.
3. Toys & sporting goods.
4. Computers.
5. Non-cotton household furnishings & clothing.
6. Video equipment.
7. Household furniture.
8. Footwear.
9. Cotton household furnishings & clothing.
10. Telecommunications equipment.
Of the $55.2 billion in American exports to China in 2006, the following product categories had the highest values.
Top Chinese Imports from the U.S.
1. Semi-conductors.
2. Civilian aircraft.
3. Soybeans.
4. Plastics.
5. Raw cotton.
6. Industrial machines.
7. Copper.
8. Computer accessories.
9. Aluminum.
10. Steelmaking material.
Top Chinese Exports & Imports
Most Popular Products Traded Between China & America
Jun 28, 2007 Daniel Workman
This analysis is based on latest statistics from the US Census Bureau - Foreign Trade Statistics and CIA World Factbook as of the date of article publication. Read more at Suite101.
CompEng, your statement isn't supported by the facts. In the mid-2000s, the U.S. current account deficit was 6% of GDP. Yet, the U.S. unemployment rate was 4 1/2%.
Protectionism causes job losses, but also creates jobs, in part, because there's more leisure to acquire higher skills from the higher goods to labor ratio. The volume of imports tend to benefit the masses, including lower income Americans.
one thing left out of this free trade conversation is what is the "actual" benefit? this is important because assuming, as i do, that there is a benefit, what if the benefit is insignificant?
so, in the spirit of adding some reality to the conversation, here is a posting by trade economist dani rodrik that discusses this very issue. link please read it.
here are some (controversial) selected quotes:
"the gains from moving to complete free trade are a meager 0.25% of GDP"
"bottom line for the U.S.: full liberalization of global merchandise trade would eventually increase U.S. income by 0.1% by 2015"
I think it's worthwhile to mention how exactly it is that China is manipulating their currency: by purchasing US government bonds. They take the dollars that they get from us buying their stuff, and then GIVE THEM RIGHT BACK TO US essentially as a loan.
The current (and previous) administration is criticizing China for their currency manipulation on the one hand, and begging them to buy bonds on the other. They're not actually stupid, so at least one of these positions amounts to putting on a show for the public.
misterjosh:"They take the dollars that they get from us buying their stuff, and then GIVE THEM RIGHT BACK TO US essentially as a loan."
yes, that's called a LOAN josh. we gotta pay it back.
Bobble, why do we have to pay it back? If China stops buying U.S. Treasury bonds, its economy would implode, because it wouldn't be able to sell its goods to the U.S. (exports are a large proportion of its economy). Also, it wouldn't be able to buy commodities at world prices, that are priced in dollars. China cannot damage the U.S. economy without causing much greater damage to its economy. So, China has to continue to lend to the U.S., at negative real returns, while the U.S. economy expands and inflates the debt away or just prints money.
"the first one is a fauxnews editorial about how expensive government workers are. its says nothing about how or how much that changes payroll employment. not relevant"...
Coming from someone that references wikipedia, well that's rich sethstorm...
This can only come from someone who purposefully and selectivly edits reality...
So where does the money that supports those government workers come from? Fall out the sky or does government reach into the wallets of people in the private sector for it?
"he blames up government regulations that have been in effect for 40 years, such as non-discrimination and minimum wage. why in the last 10 years they suddenly caused payrolls to plummet is not explained"...
Maybe you need someone to explain this paragraph to you sethstorm: Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire...
"btw, george bush worked very hard at eliminating (or not enforcing) govt regulations on business and yet has the worst job creation record of any administration ever. WSJ"...
Hmmm, funny that coming from the WSJ since its well known that the President can't create a job...
Funny how BLS Unemployment numbers don't agree with the WSJ...
Do some more homework...
Yes but by allowing China to keep the Chinese yuan competitive something it can do easily, because it is a communistic country, you impede a neighbour like Mexico, which cannot keep the peso down as easily, because it is not a communistic country, to export what it was expected to export signing Nafta.
If you believe that free market has anything to do with freedom of trading with non-free nations... you got it unbelievably wrong.
If you also believe that getting the goods cheaply will long term make your country stronger than developing the jobs expensively, I must deduct you are more lost than credit rating agencies rating AIG. Yes China is “manipulating”, if not for money in the short term for something much more valuable to them in the long term.
Of course I am totally for free trade... but that is with free trade partners!
you impede a neighbour like Mexico, which cannot keep the peso down as easily, because it is not a communistic country...
Already mentioned.
If you also believe that getting the goods cheaply will long term make your country stronger than developing the jobs expensively...
First, we do not compete in the same space as China. We are creating jobs in value added industries and the real threat to our economy is the public education monopoly. As you pointed out China is in competition with countries like Mexico. Mexico can compete, but it must make the capital investments necessary to increase productivity. If it does this then they will ultimately be better positioned than the Chinese who rely heavily on cheap labor.
Second, the Chinese are providing goods and inputs that we would not be making ourselves. They are, in effect, subsidizing our industry and consumption. That is a massive transfer of wealth that does make us stronger.
PeakTrader,
my statements are entirely supported by the evidence. Unemployment over that period was relatively low (so cheap imports had little negative effect on the economy), but the jobs created by having cheap stuff were low end service jobs, things of the Walmart, AppleBees and McDonald's variety. Now there's nothing wrong with those jobs, but they are in non-tradeable and discretionary services. So when a recession hits, out they go.
What I'm trying to get right is the theoretical picture, which can then be applied to reality according to the circumstances.
Anonymous,
I see... you don't understand what I said, so I should take my half a brain back to my ouiji board? Pure brilliance.
Not all economic activity is equal. If Asian competitors decide to subsidize anything to do with software, car parts, and cellphones, and then richer Americans create new opportunities in dog-walking and hair styling, then all is well? Look, if people were infinitely innovative, none of this would matter, but that's not the case. Again, if you don't care what happens to people that aren't smart enough to adjust to new realities, that's an argument I understand. But the assumption that because people have money, there will be decent jobs around is just that... an assumption.
For example, the $100 saved by an American consumer purchasing artificially cheap Chinese tires
...until you factor in the more frequent replacement costs. China(and other FTA/Third World nations) has(have) not been known for any sort of quality. That is where Dr. Perry fails to make his point.
Hmmm, funny that coming from the WSJ since its well known that the President can't create a job...
...and his opponents(as well as a few of the current administration's friends) are even more anti-American in their support of offshoring. They can't make a climate that provides jobs here either.
First, we do not compete in the same space as China. We are creating jobs in value added industries and the real threat to our economy is the public education monopoly.
Then our industries would have no issue with the country. The problem is that they do have a problem in spite of your claim.
Second, the Chinese are providing goods and inputs that we would not be making ourselves.
Like junk-grade trinkets made at the order of some Audi-driving Third World bureaucrat, at volumes to crowd out anything else?
There's your answer.
But it ignores all the buyers of doorknobs, who now have to pay 50% more for their knobs.
Except that you forget that the 50% discount also cuts out certain freedoms. In that regard, the extra cost of having Revere make it is the cost of non-economic freedoms.
Do some more homework...
The impartiality of Heritage is in question.
Let the yuan go higher, and over time production will shift to other places in Asia or South America, and very little will pop back up in the US. Check product labels now and much of the more basic manufacturing like textiles and food has already shifted to other countries.
Then have a "lack of freedom" tariff on those countries, and one that does not go away if they just simply relocate to another country. Problem solved.
Maybe I've gone about this the wrong way. My primary point was that Chinese protectionism hurts the Chinese *and* the US economically.
Milton Friedman, in his Free to Choose series, made the same point about Japanese protectionism: it hurt them in terms of purchasing power, but it also hurt us a little. He did say that free trade was the correct response to such protectionism, not more protectionism.
"Coming from someone that references wikipedia, well that's rich sethstorm..."
You've referenced Wikipedia, too, so don't try hiding behind anything, hypocrite.
peaktrader:"So, China has to continue to lend to the U.S., at negative real returns, while the U.S. economy expands and inflates the debt away or just prints money."
i agree. china's U.S. treasury holdings are not the huge problem everyone seems to think.
i was only making the point that treasuries are loans and will be repaid, tho, as you state, likely with devalued dollars.
"Coming from someone that references wikipedia, well that's rich sethstorm..."
I didn't make that reference for which Juandos attributed to me.
CompEng, you stated first:
"If someone sends free goods to America, it reduces American productivity...(and) costs America job opportunities, which matters in proportion to America's unemployment rate."
Then you stated:
"Unemployment over that period was relatively low (so cheap imports had little negative effect on the economy), but the jobs created by having cheap stuff were low end service jobs."
In your first paragraph, you asssume free goods reduce productivity, raise unemployment, and cost job opportunities.
In your second paragraph, you assume cheap (or free) goods have no effect on employment, or the economy, and freed-up resources flow to low-end jobs.
You also stated: "Foreign protectionism, then, encourages a wealth transfer from the underemployed in America to the well-employed."
I think, there are some false assumptions and contradictions in your statements, which cannot fit in a mathematical or empirical model.
In regards to the update...
Great, the US lost millions of manufacturing jobs last decade, it had created zero net jobs overall (http://www.wnd.com/index.php?fa=PAGE.view&pageId=121602), it's going to have another jobless recovery. Yet, what are we suppose to tell the towns in Ohio who've lost their good-paying jobs? "Hey, look on the bright side. At least you can buy an iPod."
So if it's not okay for the US to manipulate its currency, or for it to maintain protective tariffs (because that's government interfering in the marketplace!), then why is it okay for China to play with her money, or for Brazil to instill tough tariffs? Shouldn't we tell China that currency manipulation runs loggerheads against free market principles, that she's endangering her economy? Shouldn't we tell Brazil that tariff protections are bad for economic growth?
Yet, what are we suppose to tell the towns in Ohio who've lost their good-paying jobs? "Hey, look on the bright side. At least you can buy an iPod."
Get sponsored for a government clearance and/or join the military?
At least it'll get you something harder to move to the Third World, if not impossible.
Just to put blame where blame is due, the US lost millions of manufacturing jobs last decade primarily because of automation. The US manufacturing industry produces more and more product every year using less and less labor.
The effect of China's misguided currency management is small potatoes in comparison.
I dunno. I'm very familiar with the communities that have lost their job base over the years, and a lot of them don't recover.
I think of Kohler located in Sheboygan, WI. It's a company that has supplied thousands of good-paying jobs w/good benefits throughout the area (although the housing slump has cut into jobs). The town is a middle class throwback to vibrant Midwest towns one used to see in the '60s with low poverty.
Kohler is privately owned by the Kohler family who happens to be worth billions. They're rich and they live rich. If they wanted to, they could easily shut down the factories in Sheboygan, move them over to China, and save a lot of money paying wages; yet they haven't, and as a result, Sheboygan has maintained its vibrant middle class atmosphere with a low poverty rate.
Now, I have no problem with people being rich. The Kohlers have proven you can be worth billions, and yet support a middle class economy. But lets say they fell for the devil's temptation: they moved Kohler's production over to China. How would the town of Sheboygan, with the loss of good-paying jobs, nice benefits and tax base, benefit from the Kohler family's gain? Please tell me.
Yes, Sheboygan would still be able to buy flat screen TVs and cheap laptops, but it would lose a great deal of tax base that supports its schools, police, roads and infrastructure; plus they would have a lot less money to support their local economy by buying houses or supporting businesses.
"Just to put blame where blame is due, the US lost millions of manufacturing jobs last decade primarily because of automation."
I used to be a quality control consultant for Caterpillar. My job was to travel to various suppliers throughout the Upper Midwest, and work with them on quality control issues. I've talked to countless shop owners throughout the years. Trust me, China's currency manipulation and low-cost advantage is a huge reason why much of our manufacturing base moved over seas. If it was more of an issue of automation, you wouldn't see as many "Made in China" stickers because the stuff would still be made here.
I'm starting to see more and more investors jump on the Jim Chanos bandwagon, and they seem to be very nervous about China. I hope Chanos is a nut, because if he's right and China's bubble-bursting turns out as bad as forecasted, not only will we be hard-pressed to find anyone to buy our debt in bulk, we may also wish hadn't shipped most of our textile mills (not to mentions other vital industries) elsewhere.
I'm not betting against China, but I am saying...
Yes, it's a paradox. Americans were buying houses, autos, and many other goods at a record pace. Yet, they didn't have a job or a good job.
However, there were jobs, e.g. in construction, transportation, retail, health care, finance, etc. Flipping houses seem to be a good job for a while. So was lending money to people without a job. Some people are better at finding jobs than others.
But lets say they fell for the devil's temptation: they moved Kohler's production over to China.
Apt words for such a deal with China, especially when some use it to get around those in the US. For selling out your sovereignty to the Chinese, you get an end-run around any US regulatory issues. Problem is that a Faustian deal never ends well.
I'm starting to see more and more investors jump on the Jim Chanos bandwagon, and they seem to be very nervous about China.
Perhaps they're seeing something that was already seen by the rest of the developed world's workers.
...because if he's right and China's bubble-bursting turns out as bad as forecasted, not only will we be hard-pressed to find anyone to buy our debt in bulk, we may also wish hadn't shipped most of our textile mills (not to mentions other vital industries) elsewhere.
I'm not betting against China, but I am saying...
Well, if it causes a regime-ending collapse in China, I'm all for it. That, and it would be a very powerful weapon(if not damning) against offshoring(as done today).
The U.S. government has been incompetent putting money in American hands. So, they can buy the excess assets and goods. Tax cuts for China or Japan wouldn't do any good, because there are few consumer goods to buy. So, they're better off spending on infrastructure. However, the U.S. had too many consumer goods and too little money to buy them.
Peak Trader,
Not quite. It's a matter of relative magnitudes.
Reading carefully,
it reduces American productivity...(and) costs America job opportunities, which matters in proportion to America's unemployment rate
Followed by:
Unemployment over that period was relatively low (so cheap imports had little negative effect on the economy), but the jobs created by having cheap stuff were low end service jobs.
Basically, what I'm saying is that the world's largest and most dynamic economy was able to provide employment opportunity for most of those pushed out by foreign competition (subsidized or not), mitigating the "damage".
You also stated: "Foreign protectionism, then, encourages a wealth transfer from the underemployed in America to the well-employed".
It does, but I'll grant it's a second-order effect. Mark Perry's actually right to the first order: if you make a number of people a little more wealthy and minority less wealthy, there tends to exist money to hire the minority... but often not in what they're most efficient at.
So if (hypothetically) foreign protectionism knocked out 2M jobs in a 150M job economy, 70% of those 2M were able to get new jobs and half of those at roughly comparable wages... how does that show up in an underemployment rate? The answer can hide in the noise. If in exchange the goods those guys were making are (for example) 30% cheaper, I think that works out as both a transfer and a net loss in total value, but who's going to measure it? It's small relative to the economy. Maybe I shouldn't be making noises over such second-order effects?
"The U.S. government has been incompetent putting money in American hands."
Of course the Chinese have also helped out by purchasing debt, thus artificially supporting the US consumers' lifestyle. The key word is "artificially": with a lack of true substance to support the US consumer economy, it was obvious that some point, something would give and the house of cards would come crashing down.
I predicted the financial crisis accompanied by the recession from hell back in '04, followed by another jobless recovery. Of course the way things were going back in the '80s, I figured if the US maintained a straight course, it would be about 2 to 2 1/2 decades before the US would be in a world of hurt
CompEng, that may be true in the economic literature. However, how do you measure total value? The same quantity of goods (or more goods) for less labor or for more leisure increases total value. The underemployed can acquire higher skills, which require more time (or leisure) than in the past. The flexibility is there.
Anon, China is the house of cards, because it exchanged real goods for worth less U.S. paper assets rather than real U.S. goods. A lack of credit or money brought down the U.S. economy. All the U.S. government had to do was distribute money to the masses. Yet, it failed!
Basically, what I'm saying is that the world's largest and most dynamic economy was able to provide employment opportunity for most of those pushed out by foreign competition (subsidized or not), mitigating the "damage".
Except that you gloss over:
Unemployment over that period was relatively low (so cheap imports had little negative effect on the economy), but the jobs created by having cheap stuff were low end service jobs
It does, but I'll grant it's a second-order effect. Mark Perry's actually right to the first order: if you make a number of people a little more wealthy and minority less wealthy, there tends to exist money to hire the minority... but often not in what they're most efficient at.
Usually for the worse.
So if (hypothetically) foreign protectionism knocked out 2M jobs in a 150M job economy, 70% of those 2M were able to get new jobs and half of those at roughly comparable wages... how does that show up in an underemployment rate? The answer can hide in the noise. If in exchange the goods those guys were making are (for example) 30% cheaper, I think that works out as both a transfer and a net loss in total value, but who's going to measure it? It's small relative to the economy.
Well, you still ignore that those people on the wrong side of that equation still exist. That is, "because they're a statistical minority" means that there's some sort of excuse that can explain (and dismiss) them.
That is, the other half of those 2m and the 30% are ignored just because they can be marginalized as a statistical minority.
The underemployed can acquire higher skills, which require more time (or leisure) than in the past. The flexibility is there.
That takes time and money which a good chunk of the displaced do not have (and cannot always get). Never mind that by the time that they acquire said skills, some foreign lobby has bought the job right from under them.
Kill the current forms of offshoring. Now.
The same quantity of goods (or more goods) for less labor or for more leisure increases total value.
...which consistently results in commoditized junk.
Peak Trader,
The underemployed can acquire higher skills, which require more time (or leisure) than in the past. The flexibility is there.
That's the key, isn't it? If you really believe enough of those guys could all get new jobs that are just as good, then there is no loss. I believe the people responsible for providing out counseling for those 50-yr old lifers in manufacturing that the odds in many cases aren't that good.
Anon, China is the house of cards, because it exchanged real goods for worth less U.S. paper assets rather than real U.S. goods.
In general, I'd say yes, but I'm not sure the Chinese government (as opposed to the Chinese people) isn't getting exactly what it wanted. What are Chinese concerns? National pride, independence, technology transfers, manufacturing capability (technology and manufacturing superiority won the last two world wars), stable foreign reserves, and unemployment. Maximum individual wages don't really make the list as long as wages are increasing enough to keep the people happy, and the Chinese standard of living is much higher than a generation ago. Chinese can't buy US goods and services? Not a problem. All they really want is technology and software, which they mostly get for free. Currency manipulation is a sneaky tax on the Chinese people, but it's accomplishing what it's meant to. Never assume the other guy making decisions is an idiot: he just may want something a little different. :)
Seth, the displaced are more likely to acquire higher skills with more leisure and more goods than with less leisure and less goods.
Also, why would demand be strong for "commoditized junk?" Maybe, they're really bargains. Moreover, you wouldn't overpay for a good. So, why do you want employers to overpay for workers?
CompEng, there's more demand for modern skills than obsolete skills, unless you want to keep old skills new.
Seth, the displaced are more likely to acquire higher skills with more leisure and more goods than with less leisure and less goods.
The problem is that being displaced doesn't allow for that situation. That is, being displaced makes for having less leisure and resources as one is required to find work, that simply may not be in their immediate locality.
So, why do you want employers to overpay for workers?
1) They aren't.
2) Consider it the cost of freedom if there was such a concept.
3) They (employers) aren't the Almighty.
Also, why would demand be strong for "commoditized junk?" Maybe, they're really bargains.
The flood of low-quality items is what I call "commoditized junk".
I am in agreement about benefits of lower yuan.The chart on your mention of 60% of imports being a capital good but does not make it clear if that is ALL U.S. imports or imports from China alone. Could be misleading.
Throughout history, more leisure (or less labor) and more goods have been "luxuries" that allowed people to innovate and invent. Creating more leisure and goods are in themselves products of innovation and invention.
"A lack of credit or money brought down the U.S. economy. All the U.S. government had to do was distribute money to the masses. Yet, it failed!"
A lack of true consumer purchasing power through wages was what brought the US economy down - the easy credit merely delayed the pain, but inevitably made the result worse. Since a lot of the well-paying jobs aren't coming back, and the recovery is expected to be jobless, this mess will likely take some time to get out of.
Years of high unemployment might possibly extend until the 2020s, which, with the slew of retiring baby boomers expected to come, might bring one positive effect: a shortage of manpower will drive employers scurrying and competing for workers - anyone who wants to work will work.
Of course there's the dilemma of paying for social security and medicare, the younger generations will likely being taxed more to pay to support the aged population (and not to mention for years of debt run up)... but that's different subject altogether.
Sethstorm,
Well, I'm still in the boat that China will rise to dominate the world, while the US will bow down much like UK gave up its world leader title in the 20th century. If I wanted to bet against anything, it would either be the US dollar or the euro.
But yeah, you're right about the outsourcing bit. If China were to go up in flames, it would hammer supply chains around the world. If increased difficulty were to occur, with say buying clothes, computers, refrigerators - or even obtaining the endless parts made elsewhere that our manufacturing (what's left of it anyway) depends on - it would be scary.
I hope that's not the case, and I'm going to assume it's not. True, we'd likely move much of the operations back here, but we and the world would suffer immensely in the meantime.
Anon, I've explained before that government, not wages, caused the recession:
Massive U.S. job losses over the past two years were the result of dollars being drained out of the U.S. economy through current account deficits (when foreigners sold their goods to the private sector and bought government bonds), restrictive monetary policy (keeping the Fed Funds Rate at 5 1/4% too long), contractionary fiscal policy (shrinking budget deficits that reached $162 billion in 2007), allowing Lehman to fail (in Sep '08), which froze the credit market, the government spending spree over the past year (rather than refunding households with a large tax cut), which made it harder for households to pay-down debt, and generally poor or failed fiscal policy responses over the past year.
Bush was open to a stimulus plan in late '08 (I suspect a tax cut). However, if Obama announced in Jan '09 something like a $5,000 per worker tax cut (or $750 billion for 150 million workers), there would've been a more shallow recession and a V-shaped recovery rather than this L-shaped recovery.
U.S. workers would've paid-off or paid-down their highest interest rate debt first to increase their monthly income, while strengthening banks, which would spur demand and increase production.
The U.S. was on a path to a mild recession or soft-landing from the small tax cut in early '08. Large tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01.
"Massive U.S. job losses over the past two years were the result of dollars being drained out of the U.S. economy through current account deficits (when foreigners sold their goods to the private sector and bought government bonds), restrictive monetary policy (keeping the Fed Funds Rate at 5 1/4% too long)"
That's part of it, and certainly made the overall recession worse. However, a lack of support from wages over the course of decades ultimately helped set the consumer economy for failure in the long course. Wages simply weren't keeping up; instead, the US consumer maintained the lifestyle through increased borrowing that largely started in the '80s, and has increased until recently. This ultimately was not sustainable, especially when mixed with Wall Street's dangerous credit derivative concoctions.
"contractionary fiscal policy (shrinking budget deficits that reached $162 billion in 2007)"
I'm rather unclear about this. Often, good fiscal policy goes hand-in-hand with good economic policy. Consider the status of America's creditor status in the '60s along with good growth. Or the budget surpluses garnered in the '90s. If anything, the deficit accrued last decade has hampered America's long-term prospects and have made the Chinese nervous - especially with Obama's spending priorities.
"allowing Lehman to fail (in Sep '08), which froze the credit market, the government spending spree over the past year"
I agree with these two. Allowing Lehman to fail proved to a disaster; it ultimately costed the government more than it should have.
"(rather than refunding households with a large tax cut), which made it harder for households to pay-down debt"
Obama did give a tax cut to households - it did little to stem the tide.
"However, if Obama announced in Jan '09 something like a $5,000 per worker tax cut (or $750 billion for 150 million workers), there would've been a more shallow recession and a V-shaped recovery rather than this L-shaped recovery."
That would be a nice tax cut. However, that would have required more borrowing and ultimately would drive Obama's budget deficits even higher.
The US displayed horrendous spending priorities for much of the past three decades (the exception being Clinton), when it should have been keeping its books clean, and taking care of its own infrastructure needs. It's similar to a free-wheeling couple who bury themselves in debt by loading up on consumer goods while neglecting their house. Then, when the roof needs fixing, they're too far in debt to do anything about it and they ultimately have to bit the bullet.
Years of high unemployment might possibly extend until the 2020s, which, with the slew of retiring baby boomers expected to come, might bring one positive effect: a shortage of manpower will drive employers scurrying and competing for workers - anyone who wants to work will work.
The questions are:
1) Waiting until the 2020's isn't an option for most of us.
2) What prevents them with just using offshoring as a threat as it's been used today? Kill it, then think about it when U6 (as it is measured today) reaches 2%.
3) Kill off any discrimination (in any direct or indirect way) towards those whom are now(and may become)long-term unemployed. Temps are not the solution, they are still a problem.
Large tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01.
Kennedy never used offshoring as a weapon. The other two did, to the blue-collar and white-collar professions respectively.
I hope that's not the case, and I'm going to assume it's not. True, we'd likely move much of the operations back here, but we and the world would suffer immensely in the meantime.
Well, there are some levels of survivability that the nation's citizens may have to be prepared to accept.
Well, I'm still in the boat that China will rise to dominate the world, while the US will bow down much like UK gave up its world leader title in the 20th century.
If you want to believe that, fine. I'm not one to want to believe that our nation should preserve its superpower status in any constitutionally valid way. That also means working towards the collapse of the Communist regimes in the East (China, Vietnam) even if they are only so in name.
Seth, how do you know the free market, including offshoring, doesn't offset government costs at local, state, and national levels?
If government taxes, fees, regulations, etc. cost one-third to one-half of your income, are you going to blame the free market for not having enough money to buy goods?
If government taxes, fees, regulations, etc. cost one-third to one-half of your income, are you going to blame the free market for not having enough money to buy goods?
Still not enough of a reason to justify regulatory capture.
Otherwise you might want to explain that a bit further. Not too much, just that it seems unclear as to what complaint you're addressing.
Seth, one complaint I have is sending that $400 vehicle registration fee rather than getting that root canal :)
"1) Waiting until the 2020's isn't an option for most of us."
I wish that weren't the case but I don't have any easy answers. This mess has been a long time in the making, and will take time to get out of.
If anything, the 2020s may not be that great by any means as we'll have to pay exorbitantly to support the aged population, and a hefty price will be paid for the debt we've accrued. Also, expect major markdowns in housing values as senior citizens look to cash in as a way to support themselves, which of course will throw open a major housing glut.
One possible remedy industrialized nations may turn to is immigration to fill in holes. I wouldn't be surprised if the US adopted a more open door policy with Latino immigrants.
This would be a much better analysis if the graph was of imports from China, not from the entire rest of the world.
My own impression is, that most of what we import from China is consumer goods, not machinery and raw materials.
Which makes your analysis not relevant.
Your update is somewhat better, at least it tries to address the issue is how cheap consumer goods from China helps create US jobs.
But, I think your analysis in the update is also wrong, or at least is only looking at a secondary effect. One wage earner buys cheap toys and meals out, but another wage earner (or two, or three) lose their (manufacturing) job due to cheap imports.
There won't be enough additional restaurant jobs to compensate for the lost manufacturing jobs. In fact there probably won't be any additional restaurant jobs at all, because all of the laid off manufacturing workers won't be going out to eat.
The only way real way to 'make up' all the lost manufacturing job is for the US (collectively) to make enough things that can be EXPORTED to pay for the cost of the imported consumer goods.
The only 'cheap consumer goods' pathway that does that is:
1) Lower consumer prices, which puts
2) Downward pressure on wages, which
3) Makes US produced products more competitive internationally.
Maybe it isn't politically correct to talk about, but lower wages are the only real way cheap consumer goods will add US jobs in the aggregate. Because 'lower wages' are the only way cheap consumer goods can feed back into a more competitive outputs of goods and services.
Of course our higher productivity means we don't have to lower our wages all the way down to 40 cents an hour.
Is it better for America to offshore high-paying manufacturing jobs and then import those goods at lower prices and higher profits, or keep the high-paying manufacturing jobs and sell the same standardized goods at higher prices and lower profits?
Are more goods and capital better than fewer goods and capital?
Displaced U.S. workers can become biochemists, microbiologists, engineers, auto mechanics, retail clerks, or design and improve the goods it offshores, etc. Resources are freed-up to move into higher-quality, higher-skilled, and more profitable "core" goods in older U.S. industries or into emerging U.S. industries.
Of course, we could have stopped or slowed the inevitable long ago and most of us would still be farmers, similar to China.
Also, I may add, why export U.S. goods when the U.S. can export worth less paper assets?
Moreover, regarding quality, is it better to buy a microwave oven that works well for 10-years at $100, or buy one that works well for 50-years at $500?
We have to remember why China doesn't have a freely-floating exchange rate: they want to avoid the kind of macroeconomic crisis that seems to beset many developing countries (for example, the 1997 Asian Currency Crisis). So they sterilize foreign exchange with the US by purchasing "safe" US government securities with the dollars they earn.
One problem is that once you have bought up enough dollar-denominated securities in the process of sterilizing your own foreign exchange, you now have a major investment that you don't want to mess up. If the Yuan appreciates against the dollar, all though Treasury Securities will go down in value for China.
I'd like to add that Avatar has now earned over $150 million in China (so far), outpacing France as the movie's top foreign market. Some of you sound like the US never exports anything!
"Is it better for America to offshore high-paying manufacturing jobs and then import those goods at lower prices and higher profits, or keep the high-paying manufacturing jobs and sell the same standardized goods at higher prices and lower profits?"
While there is a short-term benefit of buying cheaply-made clothes from China, there's also a long-term price many workers and communities pay for this. Communities that lose a large employment base suffer a consequence of a lower tax base and lower consumer spending to support the economy's community: this includes less funding for roads, schools and needed services. Another consequence displaced workers gain is the loss of valuable heath benefits.
"Displaced U.S. workers can become biochemists, microbiologists, engineers..."
Not displaced 50-year-old workers. This takes few years of college and expense; many middle-age people would rather be paying for their own kids' college education at this point.
"auto mechanics, retail clerks, or design"
These examples can be obtained. Auto mechanics is a good one that pays reasonable plus can be obtained with a two-year education from a community college. Retail doesn't offer the best wages or benefits. Community colleges do offer a venue for displaced workers with two-year programs at affordable rates. Many of the degrees don't earn the wages or benefits previously lost, but it does offer a path for displaced, unskilled workers to take as a detour around dead-end jobs such as Wal-Mart.
"Of course, we could have stopped or slowed the inevitable long ago and most of us would still be farmers, similar to China."
Creative destruction works when adequate replacements are installed over displaced industries that overall benefit society. For example, nobody is going to cry over the fact that cell phones killed the pay phone industry. Nobody is going to feel bad for the horse shoe blacksmith who got put out of business by the auto industry. In contrast, today we've had entire industries gutted without implementing adequate replacements - this is evidenced by Midwestern communities that have entire employment bases ravaged, and have seen their economies go into tatters.
A good example would be the town of Sheboygan brought up by a prior anon: how would the city benefit if the Kohler family decided to ship production elsewhere?
"I'd like to add that Avatar has now earned over $150 million in China (so far), outpacing France as the movie's top foreign market. Some of you sound like the US never exports anything!"
The debate has never been about the US not exporting to China, it's been about how China's currency manipulation and low-wage advantage has shuttered an enormous job base here in the US, and has hurt a lot of families and communities in the process. Yes, cheaply-made clothes and laptop computers are nice, but but doesn't pay for the needed infrastructure and services communities need: a good job base pays for a large part of that.
Trade is inevitable and has been part of the early days of human civilization, but it should not be conducted to heavily benefit one at a dire expense of another.
Displaced U.S. workers can become biochemists, microbiologists, engineers, auto mechanics, retail clerks, or design and improve the goods it offshores, etc. Resources are freed-up to move into higher-quality, higher-skilled, and more profitable "core" goods in older U.S. industries or into emerging U.S. industries.
You speak of it as if it were instantaneous and the people had the desire to go into some of those fields. It is neither instantaneous nor do the people go willingly.
Nor does it recognize the existing talents that they have. Help the displaced as they see fit, no more no less.
Is it better for America to offshore high-paying manufacturing jobs and then import those goods at
No, as you act as if it is the only way to get to that point. What you get is junk from people whose government takes a short term hit to eviscerate our nation. That might as well be blood money.
Trade is inevitable and has been part of the early days of human civilization, but it should not be conducted to heavily benefit one at a dire expense of another.
Unfortunately the US citizen is not part of the mutual benefit. The mutual benefit is between the business and the foreign powers willing to buy influence. They are the ones whom consider US citizenship a cost. What presumed benefits come our way are coincidental in nature.
Anon & Seth, it seems you're making some false assumptions. Living standards don't rise when workers produce worthless goods (e.g. pyramids or buggy whips) just to maintain high-paying jobs, so workers can pay taxes; 50-year olds may be better at learning and using new skills than 20-year olds (and people are living longer); standardized goods are not "commoditized junk" (there've been stampedes when stores open to buy that "junk"), and the natural process makes sure there's a creative part in the creative-destruction process (you don't have to make sure something will grow after a prairie fire).
"Anon & Seth, it seems you're making some false assumptions. Living standards don't rise when workers produce worthless goods (e.g. pyramids or buggy whips) just to maintain high-paying jobs, so workers can pay taxes."
Clothing, tires and parts for commercial airliners are not worthless goods - they're a part of our current lifestyle.
"50-year olds may be better at learning and using new skills than 20-year olds"
50-year-old displaced workers can learn new skills, but this takes time and the job gained often offers lesser pay and benefits. Middle-age people often have kids they wish to see go off in college; it's also a time when health problems can start to emerge, and that's not good if one doesn't have health coverage. Some employers prefer the twenty-something range because perceived as cheaper.
"standardized goods are not "commoditized junk" (there've been stampedes when stores open to buy that "junk"), and the natural process makes sure there's a creative part in the creative-destruction process (you don't have to make sure something will grow after a prairie fire)."
I never said the items were junk; but creative destruction in the present has not always replaced adequate industries for communities with displaced job bases. This is a big difference when industry and automotive replaced agriculture's dominant employment; or in current forms such as cell phones replacing pay phones, or satellite TV pummeling cable.
I used to be a quality control consultant for Caterpillar. My job was to travel to suppliers throughout the Upper Midwest, and help sort out quality control issues. Over the years, I became familiar with corrosive effects of manufacturing towns losing their base - schools, tax base, roads and basic services getting the axe. They all end up suffering. A few might come back, but most don't
Anon, it seems, your solution is to maintain the high-paying jobs as long as possible, until the firm is bankrupt, since competitors produce the same good cheaper. It may be better to focus on new jobs for displaced workers.
Also, I stated before, a country benefits from more, not less, goods and capital, and when limited resources are freed to produce other goods, including facilitating growth in emerging industries.
"Anon, it seems, your solution is to maintain the high-paying jobs as long as possible, until the firm is bankrupt..."
No, it's not. CAT's hard ball tactics back in the '80s were necessary to break the UAW's stranglehold so it could free up cash to invest in new assembly, new products; plus bust up the sclerotic union bureaucracy that prevented CAT from implementing flexible, and improved manufacturing techniques that have made it the world class producer it is today. Had I been able to clear union hurdles among 3rd party suppliers, I could have been more successful in my efforts to improve product quality, and likely would have saved more jobs.
A company needs to make money so it can be profitable, invest in product, and reward patient investors. Unions largely shot themselves in the foot because they didn't obey this principle. The problem we have today is that the pendulum has swung to the opposite extreme. Achieving extremities seems easier than achieving balance.
"since competitors produce the same good cheaper."
So what Alexander Hamilton think? Tariffs, when not taken too far of an extremity, are a useful measure to protect needed industry, or a growing economy: European and Japanese industries were vehemently protected from US giants after WWII; Brazil upholds a stringent tariff system; the US was the largest exporter of goods in the world before the '80s, largely because of a protective tariff system.
Again, tariffs are useful when not taken to far: I would not have wanted an incompetent US auto industry undeservedly protected, especially when Japanese counterparts not only offered superior products made by Japense workers earning good wages, but when Toyota and Honda set up shop here and offered a plethora of well-paying jobs. They key phrase is balance.
"Also, I stated before, a country benefits from more, not less, goods and capital, and when limited resources are freed to produce other goods, including facilitating growth in emerging industries."
What adequate industries are replacing those lost? Walmart, Best Buy, Citgo gas stations? How are part-time jobs with little/no benefits beneficial? Would those industries lift Sheboygan, WI, if Kohler's industry split town?
Let me make clear that, like Alexander Hamilton, all the presidents on Mount Rushmore, every Republican presidential candidate from Abraham Lincoln to Herbert Hoover, and Andrew Jackson I am a protectionist. I used to be a free trader but changed when I started looking at the data myself. The impact of free trade on the auto industry is a good example of how so called free trade has failed us.
First, a note about Toyota, which is often praised by free traders for saving US consumers from poor quality products. Few companies owe as much of their success to trade protection as does Toyota. Toyota started out as Toyoda Automatic Loom a manufacturer of textile machinery. At the time Japan’s biggest export was silk. They moved into car production in 1933. Their product was very poorly made. Had Japan followed free trader theory they would have purchased from the most efficient producers GM and Ford which were operating in Japan at the time. Instead Japan chose to protect their industry. In 1939 Japan kicked GM and Ford out of the country. After the war they protected Toyota and the government gave them money. In 1958, after 25 years of trying to make a decent car, Toyota exported their first car to the US. It was a piece of junk called the Toyopet. It failed. Convinced that industry was more important than silk, Japan kept on protecting Toyota until they got it right. We on the other hand exposed GM, Ford, and the rest to the products of cheap foreign labor.
In the 1920s and 1930s American car companies were setting up production around the world producing a product superior to anything the locals could produce. At home American car companies competed with each other but had little foreign competition because of tariff protection. Things did not work out well due to local trade protection and the war. When the British surrendered Singapore to the Japanese negotiations took place in a Ford factory which the Japanese turned over to Nissan to assemble military vehicles.
Before World War II there were few imported cars. GIs returning from Europe brought back some cars and trade barriers were lowered in the 1950s and cars began to be imported. The imports were designed for high price fuel and winding lightly traveled roads. The high priced fuel resulted in small cars with small engines. Performance was gained with lots of gears. The winding roads caused them to be designed for good handling. All this and low wages in war torn Europe meant that the imports were cheap and fun to drive if you were ok shifting all those gears. The fly in the ointment was they were, except for some luxury cars, unreliable, expensive to maintain, too small to be a family car, and underpowered. They were basically 1915 Fords updated with 1939 technology. TheVW bug which latter became a success did not even have a fuel gauge. Still they proved popular enough that in the late 1950s domestic producers came out with small cars to compete with them. The domestic small cars were of superior quality that they took substantial market share away from the imports. Competition from imports did not cause domestic cars to improve. It was better quality domestic cars in direct competition that drove the imports to improve. After that improvement it was the improved but still cheaper imports that caused domestic quality to decline as cost reduction became paramount. Squeezed by cheap foreign labor domestic manufactures almost went out of business in the 1980s except Ronald Reagan saved the industry by protection in the form of quotas. Because of the cheap labor domestic producers abandoned the small car market to the imports.
After the war, if the world had followed free trade theory, today Ford, Chrysler, and General Motors, along with free trade victims Studebaker, Nash, Hudson, and Willys would be car makers to the world. Instead they are weak high cost competitors nearly out of business. How did this happen? We blindly stuck to free trade while the rest of the world protected.
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