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The Trade Debacle With China
By Wolf Richter www.testosteronepit.com
The US trade deficit with China through October is $245 billion and will likely hit a record $300 billion for the year. It’s politically convenient to blame China, particularly its yuan policy. But the driver behind the trade deficit is a broad and enduring strategy by US corporations to shift an ever increasing range of economic activities from the US to China. And now a trade war is breaking out.
American companies have heavily invested in China. At first, they shifted basic, dirty, or dangerous jobs to China to benefit from cheap labor and loose regulations. It brought costs down for US consumers. Over the years, the trend spread to other areas of commerce, from auto components to pharmaceutical research. For example, Merck, one of the largest pharmaceutical companies in the world, announced from its headquarters in New Jersey last week that it would invest in a 500,000 sq. ft. facility in Beijing. Purpose: discover and test new drugs. Chinese jobs to be created: 600. The project is part of Merck’s $1.5 billion investment in China. An investment that will contribute to China’s growth at the expense of the US economy.
One of the jobs programs that Congress, the Obama administration, and states have trotted out with fanfare during the stimulus bonanza was green tech, and particularly solar energy. Taxpayers subsidized the sector through a mix of local, state, and federal incentives. On the federal level alone, there were investment tax credits, cash grants, depreciation bonuses, and loan guarantees. At the state level, bankrupt California has been at the forefront of subsidizing the industry.
And yet, much of solar panel manufacturing has drifted off to China. As subsidies worldwide were cut back, prices for solar panels have plummeted below US production costs and have taken down a number of manufacturers. Among the losers: US taxpayers (see the now defunct Solyndra).
The winners are at the other end of the solar industry—to the point where photovoltaic power generation is dreaming about “grid parity” again, the ever elusive concept where unsubsidized solar energy is competitive with fossil fuels. The booming (albeit tiny) industry is expected to reach 1.9GW by year end, double its capacity in 2010.
Of course, driving down the cost of solar panels to make them competitive with other sources of energy was one of the goals of the subsidies. The intent was to harness US cutting-edge technologies. Turns out, it was easier to achieve cost reductions by manufacturing in China.
Now, after years of subsidizing the US solar industry, a somewhat ironic shift in strategy: to protect US manufacturers, the US International Trade Commission jumped into the fray on December 2 with a preliminary determination that Chinese manufacturers received $30 billion in subsidies (DOE estimate) from the Chinese government and dumped solar panels on the US market, thus seriously harming US manufacturers.
Today, China struck back. This time with anti-subsidy and anti-dumping duties on cars and SUVs manufactured in the US (Reuters). China's Commerce Ministry claimed that US automakers benefited from government subsidies—US taxpayers have moaned about this for years—and dumped their vehicles on the Chinese market. Combined, the anti-subsidy and anti-dumping duties would amount to 21.8% for GM, 15% for Chrysler, 21.5% for unidentified US automakers (Ford, Honda, and Toyota?), but only 2% for BMW.
All major automakers have heavily invested in production plants in China, by far the largest auto market in the world. Thus, most of the vehicles they sell in China are made in China. However, certain high-end US-made vehicles would be hit with these duties. It must have been hard for bureaucrats at the Commerce Ministry to find an industry to hit: so far this year, the US exported only $84 billion to China, a drop in the bucket compared to the $330 billion in imports from China.
The trade deficit and the damage it does to the US economy will only get worse as long as US corporations, in their fit of strategic short-termism, continue to invest in China instead of in the US. While it may make sense for each individual company on an investment by investment basis, if all companies adhere to the same strategy, the economic foundation of the US will continue to deteriorate. So, in addressing the trade deficit, politicians should have a chat with their corporate sponsors—instead of solely pointing their collective finger at China, though there certainly are many things to complain about, such as technology transfers, copyright violations, and trademark issues.
International trademark issues can have delicious twists when a Japanese owner of a noodle shop in Taipei takes on a large Taiwanese corporation and.... Wins In Dispute Between Japan and Taiwan.
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@CTG Sweden
Understood.
It's not just cheap junk that is manufactured in China. Vespas are manufactured in China, Louis Vuitton bags are manufactured in China, ext, ext, ext.
Swani:
My comments:
Yes, but most of China´s exports is currently based on labour intensive production. Therefore, China would not lose much on a trade war. It seems like a smart move to swap less labour intensive exports for less capital intensive imports.
It does not matter what they make or the prices charged, if they lose a significant chunk of the US and EU markets simultaneously because of a trade war and/or collapsed euro they will starve within a few months. All the US Treasury debt in the world will not buy them out of it either, we can pay them back in dollars so devalued that it would barely pay my dry cleaning bill. Inflationary? Who cares, the moment hyperinflation hits we just announce a new North American currency called the Amero backed by US markets, technology, agriculture and military strength, Canadian natural resources like oil and gas, Mexican resources and labor. And then make sure the nations balance their budgets in this new "EU" of north America.
The problems with so called free trade that has been pushed on us relentlessly by corporate interests is that it never was free or fair. In future we would have to practice being self reliant and when we do business with the outside world it will be on fair trade terms not FREE trade terms that allows nations like China to undervalue their currency by 40% and produce products with slave labor and no regard for the environment. 35 years ago China was a destitute backwater of failed communist dystopian rhetoric and little more. Every few years millions starved in cyclical famines. It was trade with the USA and NOTHING else that brought them out of that horror of poverty, but they are now so dependent upon us as markets that they cannot punish us without returning to the poverty they used to know. They did not get their new found wealth organically via entrepreneurial and capitalistic economics, they got it through unilateral trade with the US and EU and as much by currency manipulation as by anything else.
They have enormous problems that will sink them without the profits they make from their mercantilist policies vis a vis the US and EU. Population, environmental disaster, lack of internal resources, lack of sufficient arable land, China is about 12% arable as compared to the USA with 44% of land able to grow crops. The two countries are about the same size, think of the USA with 4 times as many people but just one fourth the farmland, that is where China is. Their problems will probably sink them even with the trade they have enjoyed.
China doesn´t seem to fear increased US tariffs on exports from China.
Perhaps that´s because China currently primarily exports “cheap junk” to the US.
If China intends to increase wages they got to reduce the dependence on exporting “cheap junk”. It is better for China to cut imports of goods associated with capital intensive production and produce such goods domestically instead. That enables China to raise wages.
It seems as if China prefers to cut imports related capital intensive production rather than safeguarding access to markets for “cheap junk” which requires labour intensive production and low wages.
Other reasons for China to reduce the dependence on exports to the US and Europe could be that they feel that large sovereign and household debts make it risky to depend on these markets and that reduced dependence on exports to the US and Europe reduces the risk for conflicts and political pressure from the US and Europe.
Furthermore, I don´t think that American and European politicians care if “cheap junk” will be produced in the US and Europe, respectively, rather than in China. I think that they feel that more low-paying, labour intensive jobs would be a blessing because that would enable the US and European labour markets to absorb the current and future oversupply of labour. The service sector can not grow indefinitely and provide an unlimited amount of low-paying jobs. So if they can add some manufacturing jobs related to “cheap junk” that would probably be great from their point of view. So I assume that this is some kind of win-win situation. China can raise wages and the US and Europe can hide oversupply of labour caused by political decisions more easily.
All I was saying was the US and EU account for well over half of the Chinese export economy and more like 70% when you allow that business with many of it's trade partners buy and sell parts which are actually going to end up in products in America or the EU eventually, and they are already in for a hard landing as it is, it just seems odd timing to me that they would pick this moment to start... or should I say turn a trade cold war HOT. Years of practicing currency manipulation and product dumping and our politicians too afraid to do more than rumble and bitch because it was Chinese "investment" relending back to the USA what we spent in their markets. When you look at this without all the hype and panic over possible hostilities they stand to lose a lot more from a trade war than the west does.
We both stand to lose a lot. If this escalates much, it could at a minimum lead to a ramping up in inflation.
They own more than a trillion $ of government's financial paper counting GSEs etc. If they quit trying to prop our dollar &/or quit exporting a lot of their cheap products here prices will start to escalate.
Rising inflation should translate to increased interest rates unless they resort to even more money printing. That would put us even further behind a rock & a hard place. We can't possibly afford higher interest rates with the trillions of debt & hundreds of billions rolling over in short order, not to mention the trillion plus annual deficits being piled on for as far as the eye can see... while the first of the baby boomers turned 65 this year.
Not saying it wouldn't hurt them a lot, or even more than us, but it would certainly be painful for us as well.
'Economists' and politicians that want to explain away why we have some of the highest unemployment in the western world and a standard of living that is shrinking every day, hurting the rest of the consumer economy along with it, like to use the old trick, of blaming 'the people'. Really, they should blame their own missing cojones.
How could politicians make the case that American workers are somehow spoiled for not 'accepting' Chinese wages? It's like an abusive husband blaming his wife's black eye on her 'laziness'.
If anyone wants to know why manufacturing has moved off shore, they should ask the CEO's of companies that manufacture actual goods, in an off the record manner of course, especially, if the said companies are lobbying to keep their current gravy train untouched. What company wouldn't want to sell in the biggest market in the world, paying zero import tariffs, while manufacturing in China and paying zero taxes on their profits made in the US market? Who wouldn't keep paying politicians for this sweet deal? Shareholders would lynch you for allowing any changes to these fabulous profit margins.
But if you were to ask them privately, and I have, why they manufacture in places like China, all will say that they manufacture there to remain competitive, and that if everyone was forced to manufacture in the US in order to sell in the US market without being subject to tariffs, they would comply. They would bitch about it, but they would comply. Plain and simple, but no company is going to be the only idiot manufacturing in a more expensive location, if all of their competitors aren't being forced to do it too, that would be corporate suicide. I should know, I'm a CEO and I manufacture in the States because I'm still a private company and I want to. It's costs me a little bit more, but I don't care, I like my factory and I can still do what I want. The moment one becomes a public company things change and executives are pressured to increase their margins and invest less in the future in order to compete quarterly. It's that, or stock prices take a hit and CEO's get replaced by their boards.
This is so basic. If we want manufacturing to return to the US, the government has to be the one to do it, public companies will not. They can't.
One thing that people can do to help their fellow Americans, is to boycott en-masse goods or places that sell goods that are not manufactured in the USA. Then, and only then, will CEO's be able to make their cases to their boards that it pays to manufacture in the USA because they are losing business otherwise. I'm not saying that this is easy. I love my Apple computer and my BB, but it can be done with certain products that are not so unique and that one could replace with American made goods without having to change too much of one's life to do it, but if the actual buyers of these foreign made goods are not willing to make an effort to research and sacrifice a little bit to help the cause, why should anyone else?
CEO's love their country too, they have kids, they want them to have a bright future. If the people made it easier for them to do the right thing, I think most of them would.
CEO's love their country too
No, they dont. As soon as they get done sucking all the juice out of the orange they'll toss it in the trash and move to a new country and become citizens there. Only ones that won't are the one that didn't suck enough juice out to ensure they have the means to escape also.
Very good summary. But remember this all started with Nixon "opening": China and Reagan "tearing down" the Iron Curtain. In other words, large multi-national corporate sponsors of both political parties moved heavan and earth to gain the first advantage by investing in formerly communist countries with highly educated workers without the baggage of high wages, employee benefits, high taxes and environmental regulations. Smaller, less politically connected companies followed suit because, as you say, they really had no choice if they wanted to stay in business.
We have now reached a tipping point when all the stimulus in the world, whether tax cuts or deficit spending, just creates more jobs offshore. And with the average Chinese factory wage still less than $5k a year, we're a long way from wage parity.
"CEO's love their country too, they have kids, they want them to have a bright future. If the people made it easier for them to do the right thing, I think most of them would."
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That's true, but I think the most workable solution is to adress the problems of an unlevel playing field rather than trying to cajole people into making decisions for a perceived public good even when it goes against their own personal interests. The problem that should be fixed:
"What company wouldn't want to sell in the biggest market in the world, paying zero import tariffs, while manufacturing in China and paying zero taxes on their profits made in the US market? Who wouldn't keep paying politicians for this sweet deal? Shareholders would lynch you for allowing any changes to these fabulous profit margins."
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Asking employers to voluntarily pay more to produce their products here than their competitors may be paying and consumers to voluntarily dig for info about where their products are (mostly?) manufactured so they can pay more for their purchases than their neighbors are paying is swimming upstream and extremely unlikely to pan out. That strategy has been tried numerous times. One example is in the auto industry where highly paid union workers tried to cajole everyone into buying American even when the products were significantly higher & often of inferior quality. But it was a losing battle, and foreign made cars dotted even the union workers' parking lots. More and more of their jobs were exported, more of the parts were made overseas and now the jobs are shifting to the southern states where "right to work" laws are in force.
Currency Wars > Trade Wars > Shooting Wars
That darn rhymin' history, at it again...
What do you think would happen to the head of a Chinese company who suggested moving jobs offshore.He would suddenly disappear.The ironic thing is that during the next oil crisis when oil hits $200/barrel,it will no longer be economic to ship goods back to the
USA
"He would suddenly disappear." Yeeees, But not like you suggest.
14% of millionares already gone or one foot out the door...
http://www.chinadaily.com.cn/china/2011-11/01/content_14016403.htm
Note that China (like India) has capital controls, which makes moving large sums of RMB out of the country difficult.
Funny though, most of the people I kow are still opening businesses in China, not the USSA. China (today) is still far more capitalist and unregulated then the United Socialist States of America.
One has to assume that down the road this corporate strategy will become self destructing. It will be difficult to import to the U.S. and make billions when very few have jobs.
The US gave China MFN status and guess what... They took it!
At some point too, the Chinese proletariat is going to snap. They are slowly realizing (due to fiat crunch.....sound familiar?) that they are the slaves of Western Corporate Opulence. On top of that, the Chinese 1% is getting hurt in their bottom line and THEY are also starting to not only move away, but also invest in other countries like Kenya, Austrailia, and Brazil.
Quality of items are decreasing. Shipments are not made on time. Employee turnover at vendor factories has more variance than BAC stock. And their internet grumbling is increasing, leading to movements like when a bunch of Chinese villagers land grab a village.
China banned twitter in favor of a micro blog they could more control, but even that's getting out of control. Plus, no matter how much a government controls the internet.....it cant Hackers and a more knowledgable computer society can usually in the end defeat these controls - just google VPN. For example; streaming websites for sports came about when MIT and Chinese programmers got together to solve the problem of China not showing NBA games (to watch Yao Ming) late at night over P2P WPN networks like TVAnts 2-3 years ago.
Now you can stream Houston Rockets games over the internet with just a simple flash player.
Expecting individuals or individual companies to collectively ignore their own goals & interests to act for in the collective good in so many individual decisions is NOT a good way to achieve those collective goals or to be the solution to perceived problems. Ideally you want to change the system to align the individual goals with those of society as a whole.
Ending all of the government intervention that distorts the free market mechanism would be a great start, of course, but each side is always jockeying for an advantage over the other. Ending the artificial manipulation of the value of each other's fiat currencies would also be a nice step in the right direction, but getting back to a "real money" monetary system rather an a multitude of competing fiat money systems is the ideal.
But even barring those systemic changes, we could put a big dent in our inefficiencies & trade deficit if we worked to allow wages to move more fluidly to meet demand and competition. Ended minimum wage laws would be a step in the right direction. It's silly to have tens of millions of unemployed workers while complaining that we can't compete with the workers in other markets. Of course that's what happens when you pay people not to work... Then they start to lose job skills and even the get up & go to get up & go bright & early each morning.
I liked Milton Friedman's idea of a negative income tax for those making wages below what we deem to be sufficient to adequately live on. Rather than sitting around the house all day watching TV or getting into trouble, folks can get out & get a job even if it's below current minimum wage. If it's below what we think is acceptable it can be supplemented through a negative income tax structure. The more you make the more you get, but even those at the very bottom of the ladder could get enough to at least subsist on. It would give them more dignity and even if they're at the bottom of the ladder, would hopefully give them a better position to begin climbing up the ladder.
It seems to make a lot more sense to me to have world corporations paying our workers and then subsidizing them to bring them up to societal minimum standards rather than having them pay Chinese or Indian workers and then paying them to sit around the house.
We have an inherent advantage at least in producing items for the US market. I spoke with someone a couple of days ago who works for a furniture manufacturer. He said we ship our lumber over to China where they assemble the furniture and then they ship the finished product back to us for sale to American consumers. Are there workers really so much better or more productive than our own? Should our workers be paid to sit at home while ships shuttle back & forth across the Pacific so Chinese workers can do the assembly? How can that be justified for a world allegedly trying to conserve energy & reduce greenhouse gases?
But expecting companies to ignore the bottom line and just higher American workers at much higher wages with much higher benefits is just silly in my opinion.
So US workers would make what, $10 a day? Your thesis ignores the cost of living. It sounds great but is wholely unworkable as people can't subsist on Chinese wages.
duplicate. sorry about that.
"It sounds great but is wholely unworkable as people can't subsist on Chinese wages."
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That's where the negative income tax comes into play. They earn whatever wages the market will bear for their current skill set, and if that's below minimum societal standards, it is supplemented by the government to at least bring them up to that minimum standard. Perhaps the savings on paying them something similar to sit around the house & watch TV or roam the streets looking for some fun wouldn't be all that astronomical, but it would at least give them a foot in the door by getting them used to getting up every morning to get to work on time. It also gives the children a good example when they see Mom &/or Dad go off to work every day rather than perpetuating and reinforcing a lifestyle on the government dole.
It also wouldn't require that everyone get's $10/day jobs. For one thing there are additional expenses involved in dealing with employees in other countries. The extra travel and shipping expenses are obvious, but having to learn & hire people to deal with the various governmental regulations & other cultural issues are also involved.
I've worked at below minimum wage jobs before, and some were quite grimy, dirty & labor intensive. It was when I was in high school and it wasn't like I relied on it to support a family, and it wasn't like our family really needed it, but it did actually pay my college tuition for a few semesters. But the real benefit was that it taught me the value of hard work. It also made me appreciate better jobs more than those who have had them handed to them. I'm less likely to complain or worry about a task I feel is to boring, or demeaning or beneath me than many others. It beats shoveling dog shit off the floor of some factory to start the day.
But in any event, even a little more flexibility on allowing wages to adjust to market conditions, even if that is in a downward direction helps with the unemployment situation. I've seen plenty of instances where guys appear willing to let the bank take their house before they'll take a decent job that was offered to them, but they still feel is too beneath them. A neighbor & friend used to refuse to answer the phone a lot of times when he was afraid it was the union hall calling with a job for him. He often preferred to collect the unemployment & take his boat &/or jet sky down to the river. Another example is a grocery store manager who told a customer who was complaining about the lack of help that "It's the end of the month." as if that explained everything. When she asked what that had to do with anything, he replied that a lot of the employees called in sick near the end of the month if they were getting too many hours as it would push them over the edge for some of their government benefits, such as food stamps, Medicaid etc. A customer of mine who worked at a grocery store told me that was true. She said fellow employees made fun of her for not doing that. They laughed at her saying that she was in effect paying to work those extra hours.
In many places employers have gone begging for help at minimum wage jobs, and even at higher levels than that in some cases. I just saw an ABC story where our "Rebuild America" dollars are often going to Chinese companies who bring their Chinese workers over here to rebuild our bridges & other infrastructure. A big issue is allegedly a shortage of welders here: http://abcnews.go.com/WNT/video/us-bridges-roads-built-chinese-firms-145...
I'm reminded of a story about a textile business owner who closed and sold his factory to a foriegn investor who opened the factory in a far eastern country. The foriegn investor got an old factory that was labor intensive and the US textile business owner bought state of the art machinery that was automated to produce a superior product at a higer margine--
Chips and gaming computers are like that-- soon to be obsolete , auto plants are like that -- just saying.
Again slightly off topic: In the not too distant future this will factor into America's relationship with China. I was sitting in a restaurant by the USA's premier technlogy university, MIT. As is my wont, I performed a statistical sampling. Observing the young couples that walked by, I noted the first 20:
5 couples WM/WF
1 couple BM/WF
15 couples WM/AF (chinese)
Some might say that these AF will create assimilated American children. I have two WM colleagues that have married AF and I can tell you that such is not the case. Among other things the children become fluent in their mother's native tongue.
WM/AF is the future of America's technocratic class.
Slightly off topic:
"the ever elusive concept where unsubsidized solar energy is competitive with fossil fuels."
Before locally generated solar is competitive with the wasteful grid and electric cars start roaming the earth, either a new miraculous source of "fossil" fuels will be found or solar panels will cause cancer and have to be eliminated.
USA needs tariff protection on manufactured goods, our markets are big enough our labor pool is big enough our nat resources are big enough to basicly stand alone..we produce the food that others MUST BUY.
the lowering of living standards and loss of jobs is by design and can be reversed.
The decline of our living standards cannot be reversed without a change in national attitude, because there would be several undesirable aspects of reviving manufacturing in the U.S. Just think of the increases in air pollution, water pollution, and foliage destruction. Plus, if one is a politician, there is the terror of decreased dependency of the proletarian masses on the ruling class. We can't have that!
Barack Obama promised to fundamentally change the U.S. He promised to make electric bills much higher. So far he's succeeded, thanks to complicit Democrats and spineless Republicans. We're fast approaching a new version of the gilded age, except this time it includes the political class. Welcome to the Dystopian States of America.
anybody care to look at the jobs in USA vs the growth of Free Trade?
obviously our pols do not or the MSM or Finance media..
When one thinks of WHO benifits from the trade policy, it is not the American public as they have lost good paying jobs, it is the mega banks and international corps, and the captured pols and regulators who get their pockets lined.
if you think NWO is tin foil hat, you might be wrong.
Many non USA citizens post here, and they see it as good policy, it is for THEM. Until the NWO banksters and elite deem their jobs are to be moved to the next hell hole.
The wage argument might have been the most important 10 years ago, today it has little to do with wages and more to do with a business friendly climate, as it turns out 'Communist' China with all it's bureaucracy and corruption is still more business friendly than the Good Ol'e USA
Companies prefer to give a bribe or two in exchange for fast tracking their projects and cut down on regulatory issues than to go by the book here, and those books are getting bigger by the day
Nash Equilibrium anyone?
One practical solution is to influence the middle/upper class in China to keep boosting inflation to a pt where costs arent that cheap anymore. This is happening already indirectly but could take 5-10 more yrs.
"While it may make sense for each individual company on an investment by investment basis, if all companies adhere to the same strategy, the economic foundation of the US will continue to deteriorate."
Dell, meet Acer.
Don't think traders have caught this nugget just released...speaking of things Chinese
Well how bad do you think things will be sir?
"The overall trade environment next year for China will be complicated, partly due to the economic uncertainties in the European countries, and I should say that the export situation in the first quarter of next year will be very severe," Commerce Ministry spokesman Shen Danyang told a news conference at the release of the FDI data.
http://finance.yahoo.com/news/china-fdi-flows-stumble-november-044037193...
Well it looks like China is going the way all the other Keynesian central money corntrol political structures are going. There are going to be a lot of unhappy citizens looking for lamposts.
http://www.telegraph.co.uk/finance/china-business/8957289/Chinas-epic-hangover-begins.html
This reminds me of the story about the Nevada hair dresser who financed multiple houses back in 2007.
It was a stripper, not a hair-dresser (though there could have been more than one, I guess):
Excerpt(s) from "The Big Short":
"In Bakersfield, CA., a Mexican strawberry picker with an income of $14,000/yr and no English was lent every penny he needed to buy a house for $724,000."
"By May 2007, however, there was a growing dispute between Howie Hubler and Morgan Stanley. Amazingly, it had nothing to do with the wisdome of owning $16 Billion in complex securities whose value ultimately turned on the ability of a Las Vegas stripper with five investment properties, or a Mexican strawberry picker with a single $750,000 home, to make rapidly rising interest payments."
"'Who takes out a home loan and doesn't make the first payment?' asked Danny Moses, putting the matter one way. 'Who the fsck lends money to people who can't make the first payment?' asked Eisman, putting it another."
James Chanos was correct. The Telegraph article talks a lot about property developers which was Chanos biggest target. Also Hugh Hendry walking through the CBD - central business district of some larger Chinese city with endless empty mega skyscrapers. 90 floor monster buildings that are empty.
Trade deficits are caused by government deficits. I'm only repeating econ 101 so don't vote me down on basic common sense.
Here's the reasoning -- overspending by the government leads to too much money chasing after goods, causing inflation and/or a trade deficit. Since we don't have inflation (oh really BLS?) we have a trade deficit.
Not the whole story of course. Stupid politicians think that everyone else will play nice with fair trade agreements. The Chinese are communists and cheats, the Mexicans are corrupt and the Canadians.. well they're Canadian (cheap if you know what I mean, sorry to my Canadian friends, but it's true).
Cheat? Corrupt? And cheap! Sir, I resemble those remarks!
Econ 101?
Government spending is not the cause of inflation. Nor is the definition of inflation is not the fallacious "more money chasing after goods" theory. Inflation is an increase in the quantity of money and credit, period. It has nothing to do with whose pocket spending dollars come out of. The cause of inflation is the fractional reserve banking system and actions of the Fed that create money out of thin air (e.g. asset purchases, QE).
Furthermore, trade deficits are not inherently evil. It does, hoever, represent national dissaving. As an individual, you have a trade deficit with respect to the rest of the economy any time you spend more than you take in over the course of the year (for instance, when you buy a house). The problem is sustained dissaving, which once again, is the result of the Federal Reserve keeping the cost of borrowing artificially low, thereby reducing incentive to save.
Finally, America calling anyone else's trade practices unfair is highly ironic.
JuicedGamma, you took the words right out of my mouth. Addison Wiggin's very readable book (
The Demise of the Dollar...: And Why It's Even Better for Your Investments (Agora Series))expalions how trade deficits result in long term inflation from the deficits created and why htis time will be worse since our economy has almost zero growth to contribute toward pyaing for th eimports;
http://www.amazon.com/Demise-Dollar-Better-Investments-Agora/dp/04702872...
The US has the funkiest 'fair trade' deals going around mate, not the other way around.
They might as well read "All of your bases are belong to us".
Generally, they're horribly skewed in favour of the US, such as:
Sign at the bottom and we'll be your bestest buddy, just don't ask us for anything. You'll also get an obligatory visit from our president for a photo op with your polies. Visits are limited to once every 5-10 years, and only if he as nothing else going on that weekend.
The Defence based 'fair trade' ones are even worse. It astounds me that any country would sign an FTA with the US... they must throw a hell-ov-a-good party for signatories.. payola is the only reason that seems logical.
Remeber these kinds of "negotiations" with undev countries generally take place within smelling distance of IMF assistance of some kind, generally after getting in too deep previously with same.
http://www.youtube.com/watch?v=bAz8kUUG_WE
Yeah true that:)
Ala confessions of an economic hitman.. scary stuff.
I'm sure all the big nations mess with their trade agreements with their smaller... "partners"
Just so happens the US has a lot of clout. Wouldn't be surprised if you're right, and most of the FTA signatories receive some kind of "aid".
Australia bent over and took one from our US allies in exchange for 'closer ties'.. whatever that means.
We also have one with Japan... they are 'forced' to permit our rice growers to export rice there... a minimum quota... most of which is trucked to warehouses, stored for 5 years and then fed to cattle or dumped in landfill (I sh*t you not). This is top grade rice, thousands of tons of it.
In return, they can send their cars here, and the taxpayer heavily subsidises toyota for the privilege of them building cars locally from a loss making facility.
Free markets in action...
So now we have a trade war. Ron Paul warned the other candidates if they created sanctions on China there would be a trade war evolve. Now we have it.
Today Wukan, tomorrow the world.
http://www.telegraph.co.uk/news/worldnews/asia/china/8955295/Rebel-Chinese-village-of-Wukan-has-food-for-ten-days.html
Why this is relevant i have no idea, but its very interesting , so thanks.
Wukan Clan ain't nuttin' to fuck wit.
Private corporations will always go where it's cheapest in order to remain competitive, it is not their obligation or duty to manufacture in America or anywhere else for that matter.
It is the government's responsibibilty and duty to protect it's citizenry and they could do this very easily by imposing tariffs for certain goods and using instruments of this nature to protect the local economy and American workers.
However, like everything else, there is no political will to do this because the multinationals lobby lawmakers to maintain the current situation while the politicians and their media proxies perpetuate the myth that the reason that we don't have more manufacturing jobs in the US is because of regulations, unions, or wages that are just way too high to attract manufacturing, that, or they blame it on not enough 'stimulus' from higher taxes, when all anyone has to do, is look at Germany ,and see, that they have the some of the strongest unions in the world, their workers earn 20% more than American workers, yet Germany has some the strongest manufacturing in the world and low unemployment.
Most of what politicians say, is nothing more than scripted lies meant to cover up their raping of the country by the people that pay them handsomely to legislate the rape.
The cost of the KY Jelly is up, I hear.
It always stuns me when people say that those without jobs should try to get hired at companies that take less than minimum wage. Or that to expect US Corporations to NOT take advantage of cheap Chinese labor in favor of the bottom line.
If US workers got the fruits of those labor, minus cheap costs for cheap shit, I'd agree. But they don't (unless you are a CEO), and THAT increases gov't fiat dependence.
It amazes me how many conservative dickbags, some of whom don't make good money themselves, enjoy gettting fucked up the ass and think that at least making the POINT for a better life for yourself is un-American. To question the rich to at least break us off a LITTLE more, is un-American.
You knows whats un-American? Fueling the world's largest economy that's driven by a country in China that would love nothing more than to see us sink into the Atlantic.
Actually, there are several instances of corporations moving manufacturing to where labor was more expensive to get leverage for deregulation or break labor unions in the US.
Caterpillar comes to mind.
German auto workers take pride in their work. UAW goons go to 7-11 on their lunch break to get a quart of Colt 45 and to smoke some dope.