Balance of trade

[Previously published as a letter to the editor, Leavenworth Times, October 2010]

Note: another post, appended.  A fix for bad economics.

Looking for Our Lost Jobs

In the last few years, America has lost a lot of jobs. Where did they go? Most of us know jobs have fled overseas, along with manufacturing, and even research and development, to countries where labor is much cheaper.

Blame the trade deficit, in 2009 about 381 billion dollars in goods and services. We’re buying goods that can be made outside and shipped into the U.S. – more cheaply than we can make them. The sad thing is, we used to make shoes, televisions, cell phones, refrigerators. We invented many of those products. We could still make them, if pushed to do so.

Most of the assertions made in this essay are taken from a paper by Robert E. Lighthizer, presented on June 9, 2010 to the U.S. China Economic and Security Review Commission, a creation of the United States Congress. The paper can be found on the internet by doing a search on “Lighthizer China”.

Some 80% of the trade deficit goes to China. It’s not an equal playing field – they deliberately sell more to us than we do to them. They cheat by manipulating (undervaluing by as much as 40%) their currency to effectively subsidize their products, or change rules for import, or employ unusual specifications our products have to meet in their market, among other things.

It’s been going on too long. In the last decade, from 2000 to 2009, the annual deficit in manufactured goods with China has gone from 83 to 226 billion dollars. At the same time, according to Lighthizer, America has lost 5.6 million jobs as manufacturing companies have been unable to compete. We have shut down 42,000 manufacturing firms. Oh, and China has a huge trade surplus at our expense.

All recent presidents – Clinton, Bush, and Obama – may be blamed for letting this continue to happen. It has been going on well before Clinton took office. Perhaps the Congress may be blamed even more. Over 500 members, and none of them seem to see the problem. We’ve been eager to please China, but they’ve sat back and shrewdly exploited us.

If you want more American jobs, eliminate the trade deficit with China. Limit the import of Chinese goods to the value of the goods we sell there. Watch our factories start up again. The profit motive is powerful.

This idea is not an easy sell among politicians. Many espouse free trade and dislike tariffs. Some are afraid we’ll get into a trade war. We are a member of the World Trade Organization (WTO) which supposedly sets rules for trade and adjudicates disputes. But America is still sovereign, and is the largest market in the world. We can’t let this situation continue. Our assets are flowing to China like a river, and without us their industry would wither. Our workers are better than theirs, if given a chance. Trade war? Bring it on.

Certainly, if we restricted cheap goods, our prices would go up for a time, but competition would quickly reduce them.

We should work on the other 20% as well. But concentrate on China first.

How? We might begin with a blanket 40 per cent tariff, or we could completely block goods until China allows us to equalize trade, or Hell freezes over, whichever comes first. China is understandably maximizing their profit at our expense. Surely we can look out for our own interest, while at the same time stopping the erosion of our jobs and our industries.

It’s been going on too long. America may bleed to death before anything is done,either by the Chinese-loving Obama administration or the incoming Congress. The GOP “Pledge to America” doesn’t mention the problem. Perhaps we’d better just give up and make funeral arrangements for America’s middle class.

**************

====    A fix for bad economics.  (Originally posted in the dim, distant past.  Revised Nov. 2015)  

When I was a kid, I used to get into marble games with other, sometimes older kids. Often, I lost badly, and would pick up my remaining marbles and go home, sadder and not much wiser. I never mastered the game, and my future with marbles was grim, and hasn’t changed to this day.

America may be in a similar position with regard to manufacturing and the global markets – in a losing game. Labor is cheaper in many other countries, so it costs them much less to make most products than it costs us. When you buy something from Walmart, where was it made? Most likely China, Korea, Japan, India, or Singapore. Who receives your purchase money? After Walmart takes their cut, most of it goes to those countries. Those countries don’t buy much from the United States, hence we have a trade deficit with them.

Many believe that’s a good thing: American consumers pay less for the items made in cheap-labor countries, than what they would pay for American made goods. In my mind, that’s wrong – we’d be better off if we didn’t .

Because we depend on foreign countries for cheap goods, most of our manufacturing has left us for sunnier shores. Entire industries have left the United States, and we have an unemployment rate of more than 9 per cent. On the other hand, huge industries have grown in China and the other cheap-labor countries. In essence, we employ their workers over our own.

This has been going on for many years. Politicians berate unemployment, decry the loss of industry, but never do anything about it. As with so many problems, the government matches Albert Einstein’s famous definition of insanity: doing the same thing over and over again and expecting different results. They have hampered our industries even more: our companies are saddled with the highest corporate taxes in the world, as well as nearly the highest labor cost. (It’s hard to obtain comparison figures, but the world’s highest labor cost in manufacturing probably goes to Norway or Denmark.)

Perhaps an entirely new approach is needed. I suggest one which most people will dismiss out of hand, unless and until they give it real consideration:

We should block imports of all manufactured goods, including those made overseas by American firms.

I’m not blocking raw materials, or specialty foodstuffs. We could still bring in wine from France, and cheese from Switzerland. I’m blocking all manufactured goods.

Think about that for a moment. That would almost terminate international trade, wouldn’t it? Is that such a bad idea? The rest of the world would be horrified. America is the largest single market in the world, almost matching the combined countries in the European Union. Our home market is so big, we don’t really need to sell to the world outside our borders (my opinion.)

The truth is, we are capable of manufacturing everything we need. We don’t need to export goods in order to find places to sell them.

If we blocked all imports, what would this do? Manufactured goods prices would rise, of course, but we would begin to see our own plants manufacturing again. We would see an explosion of new manufacturing and consequently, greatly increased employment in this country. This would help us once again enjoy the most powerful economy on the planet.

I’m not totally evil – I’d give the foreign countries a way to sell their goods within our economy:

Allow foreign companies to form stock corporations, with at least 10% American ownership, in the United States, and allow them to manufacture goods here, providing that no less than 85% of the employees of the firm are U. S. citizens.

This has happened in the auto industry. Honda, Toyotas, and other firms have built plants in the United States, and most of their cars are assembled here. That’s good.

However, some American car firms manufacture cars in other countries (such as Mexico*), and essentially import their cars. I’d stop that – my laws would apply to them as well.

This is a radical change, and we’d see negative consequences as well:

  • Environmentalists would be outraged. They would worry about emissions and global warming, increased power use, and on and on. We should insist that new plants be built with environmental safeguards, where possible.
  • Other countries might reciprocate, and/or retaliate against trade with us. No trade with them. Big deal.
  • Some of our companies might lose significant external sales. For example, GM sells a lot of cars in China; if China cuts off imports from us (retaliating), GM would hurt, and there would be some loss of jobs.
  • There are those who believe America exists primarily to support Third World countries. They too would be outraged that we did something so selfish. But, our primary objective should be to optimize conditions in this country.
  • The shipping and port-related industries would take a hit. We’d be importing a great deal less – just raw materials.
  • China’s economy might collapse, and they might start a third World War with us. There are all kinds of doomsday scenarios we could imagine, but we get a lot of those as a result of just living.

We couldn’t implement this all at once. There would be a need for a transitional period, allowing time for our manufacturing capabilities to be built up. I suggest increasing tariffs, in several steps, gradually reducing imports and leading up to the final cutoff. A reasonable time might be two years. We could also do it with decreasing goods quotas rather than tariffs.

I haven’t seen anyone advocating this idea, but I believe in it, but an interesting idea intended to achieve a balance of trade was advanced by Warren Buffett and others. A bill to implement it was introduced into the Senate, but it never went anywhere. His idea was the Import Certificate. Warren Buffett’s idea

I’d really welcome comments. Or at least, intelligent ones.

* Note – Ford makes autos and parts in an incredible array of domestic and overseas factories. See Ford factories around the world. So does General Motors: List of GM factories.

 

One Response to Balance of trade

  1. littleB2bigB says:

    This is a huge problem for our country. Your remedy, though would require a huge adjustment and recovery time, could truly save us from our current and eventual financial demise. We would be hated by many, but the end result would make us a strong and financially self-sustaining. That’s what I want for my family.

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