The primary culprit of the ballooning US trade deficit is being purposefully obscured: Corporate America
China is taking its propaganda on trade directly to the US. And “folly” seems to be the preferred official term. The four-page propaganda piece in Sunday’s Des Moines Register, “paid for and prepared solely by China Daily, an official publication of the People’s Republic of China,” as it said, was titled “Dispute: Fruit of a president’s folly” (image via Jennifer Jacobs of Bloomberg News):
This was preceded by days of ping-ponging threats and counter-threats of tariffs and other measures.
“It’s time to take a stand on China,” President Trump told Fox News on Thursday. “We have no choice. It’s been a long time. They’re hurting us.”
On Friday, the Chinese government said that the US administration needed to “correct its mistakes” regarding its management of the trade dispute.
On Saturday, it emerged that China had cancelled scheduled trade talks, including a trip to the US by Chinese Vice-Premier Liu He.
Monday morning in Hong Kong, the South China Morning Post – which was acquired in 2015 by Alibaba Group in a clear effort to bring it in line with the priorities of the Chinese government – had this on its front page:
With all this activity going on, it’s easy to lose track of what is actually the issue. Trump is trying to deal with the huge and unsustainable US trade deficits that have ballooned over the past two decades. But it involves two groups of entities:
- The policies in other countries, such as in China
- And Corporate America.
But Trump appears to be bungling this debate. This became clear some time ago when he was being bashed like a sitting duck from all sides on this issue: by Corporate America, China, the EU, other entities that would lose, and by their propaganda outlets in the media.
So on July 25, I sent a letter via the White House submission system. I never expected to get a real reply, figuring that at the most, a bot would handle this, and that, without anyone actually reading my text, I’d get a generic reply. In fact, I got two generic emails, one of which (Sep 13) was about Trump’s general goals on trade, written in the first person. “I will not tolerate unfair trade practices that harm American workers, farmers, ranchers, and businesses,” it said among other things. And it included an image of the President’s signature.
The reason I wrote the letter was to spell out what has gotten totally muddled by now: The dominant role of Corporate America and the US corporate tax code in the ballooning trade deficits.
The White House submission system imposes a tight limit on length; everything has to be whittled down to the bare bones. Hence the brevity. Here is the relevant part of my letter:
The two most important factors in the US trade deficits are:
- Corporate America. It has tax incentives to offshore production, such as transfer pricing when bringing merchandise into the US. And it is always looking for cheap labor and other cost reductions.
- Unfair practices by other countries, such as China.
Those two factors need to be separated – and be addressed separately.
Tariffs are a tax on Corporate America. You gave Corporate America a huge tax cut. Now it’s getting a tax hike. Let it squeal. Tax cuts and tax hikes need to be linked. It’s just a shift in where government revenues are coming from.
Tariffs are a “sin tax” – like taxes on alcohol. They encourage one type of behavior and discourage another. Since Corporate America is trying to maximize its margins, it will change its behavior and increase investments in US production in order to reduce the impact of tariffs.
Tariffs squeeze corporate margins because companies have a hard time passing them on: Prices in the US are always at the maximum level (market forces). GM threatens to slap $5,000 on its Mexican-built cars? Ha, it now puts huge rebates on its cars in order to sell them!
Corporate America has never passed tax cuts on to consumers or workers. The massive tax cut it received this year is getting passed on to top executives and shareholders. Why doesn’t it pass this tax cut, or at least some of it, on to consumers in form of lower prices? Because it doesn’t have to.
A similar logic, but in reverse, applies to tax increases. Walmart, which specializes in selling China-made goods, will always charge the maximum the market will bear, given its sales goals. Other retailers are the same. The auto industry’s supply chain goes all over the world, and tariffs are changing the equation of where it goes, and they’re changing cost structures – but prices in the US are set by market forces.
Tariffs squeeze corporate profit margins. That’s why Corporate America hates them.
But it’s not the government’s role to maximize corporate profit margins. And it’s not the government’s role to maximize share prices. But it is the government’s role to deal with the huge and unsustainable trade deficit.
And this is where the trade debate has completely gone off the rails: It has by now obscured the primary culprit, Corporate America with its perennial search for cheap labor and other cost efficiencies, and its use of the US corporate tax code, which for decades encouraged corporations to use transfer pricing and other methods to keep profits offshore (what has become the pile of untaxed profits called “overseas cash”).
China doesn’t force Corporate America to run its supply chain through China. This is a decision Corporate America made.
Tariffs don’t prevent trade. They just change the cost equation a little. In this manner, tariffs are a “sin tax” that provide a counter-balance and give Corporate America a different element to include in the equation. That part has gotten completely – and it appears purposefully – obscured by the White House, which is the most pro-Corporate America White House I can remember.
And the debate needs to shift to Congress, whose decision this should ultimately be.
For the rest – such as attacking China’s own policies and the uneven playing field in China – well, that’s long overdue, but it’s not the primary issue. The primary issue is Corporate America.
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Richter/…. 2020 ?
I have no doubt you’d crush your opponents in the debates. On the other hand, there’s this popular story about Adlai Stevenson when he was running for president in 1952. Someone heard Stevenson’s impressive speech and said, “Every thinking person in America will be voting for you.” Stevenson replied, “I’m afraid that won’t do—I need a majority.”
Ha, ha. Thanks.
Another nugget is this quote from H. L. Mencken:
“As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.”
“BOOBOISIE: In 1922, Mencken coined the word ‘booboisie’ for uncultured and uneducated members of the general public, i.e. ‘boobs’, modelling the word after the more famous ‘bourgeoisie’.”
https://interestingliterature.com/2015/09/12/7-great-words-and-phrases-coined-by-h-l-mencken/
Sad, but so true.
I agree with much of what you say. However, multinationals are not all part of “Corporate America.” If Ford had all of its factories in the U.S. The newly Chinese Volvo or Mercedes could put its factories in Vietnam or India and crush it financially.
The tariffs as drafted are unwise, because the multinationals (not just the ultra rich controlling corporate america) will transfer factories to lower cost countries, as many were trying even before the tariffs. Trump should have worked out a common arrangement with our allies.
Alienating our friends even if they have partly benefitted from unfair trade practices is not smart. We are barely now the world’s largest economy. That is still just a minority fraction of the total world economy.
“I’m afraid that won’t do—I need a majority.”
Update: You don’t need a majority, you just need to game the Electoral College (and/or the Supreme Court).
careful Bob, Wolf has a rule about politics :)
Pray tell, how do you “game the Electoral College?”
You need to write in crayon with simple words and pretty pictures with the word Trump written a lot.
https://www.newsweek.com/donald-trump-does-not-read-white-house-top-secret-intelligence-briefings-big-617515
\\\
A noble effort…good luck!
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Agree with you, Wolf, especially ‘China doesn’t force Corporate America to run its supply chain through China. This is a decision Corporate America made.’ Walmart been selling ‘Made in China’ goods for decades!!! Most of the luxury brand names are ‘Made in China’!!!
There’s too much circus around this trade sanction, using China as an “escapegoat”for the woes of America. China intentionally postponed the DC meeting and put into action Trump’s bluff. Also, media is not publicizing the ‘Real Deal of Behind Closed Door’ meeting with North Korea and US and China https://www.bloomberg.com/news/articles/2018-05-18/china-s-greatest-ally-in-trump-trade-talks-may-be-north-korea
https://www.nytimes.com/2018/05/21/business/china-trade-trump.html
Let’s get real — China has NOT weakened the Yuan to chase thin profits based on US-China tariff war; it’s maintaining its multi lateral trading system and building an open world economy. http://en.people.cn/n3/2018/0703/c90000-9477308.html
https://www.bbc.com/news/business-45570241
By the way, sharing this San Francisco Blockchain start up — take a look at who and where the multi million US Dollar investors/partners came from to support this California, USA — using the cliche ‘Disruptor’ https://www.the-blockchain.com/2018/06/25/sharespost-gets-15-million-to-expand-security-token-trading/
Congress Is the Problem
The reason why there is a trade/payments deficit is this: foreign central banks buy US debt. They create their own domestic currencies and use them to buy US dollars. Then they use these dollars to buy US government debt.
Why do they do this? Because it subsidizes exports. Their domestic currencies do not rise. Foreigners can buy more imported goods.
Every administration wants this to continue. Each administration wants buyers of the government’s IOUs. Each administration thinks that there will never be a time to pay off this debt. “Federal debt is forever. Federal debt will grow forever.” So, foreign central bank purchases of T-bills at 0.01 percent is free money for the administration.
Politicians like free money even more than customers do. There is a reason for this: the all-or-nothing position of most members of Congress. Congress wants the export nations’ subsidies, which holds down Treasury debt interest rates. Unlike Congress, a customer can cut back on his spending and still muddle through. He cuts back at the margin. The politicians cannot cut back on their spending without being threatened by a loss at the next election. It’s all or nothing for members of Congress. It’s not all or nothing for a buyer of imports.
If a defender of tariffs wants to take a free-market position, he should call for a ban on the sale of all government debt to foreigners. That is where the main export subsidy is. The government should pass a law: “As of [date], the United States government will no longer make interest payments on its debt to any owner of this debt who is not an American citizen. It will also no longer redeem its debt held by noncitizens.” Foreigners would start selling their US debt on the day some Congressman begins sending the draft around to other House members. Interest rates would soar. The depression would begin. The Great Default would be next, either openly or by Federal Reserve hyperinflation.
Links between the Deficits
This is why the twin deficits are connected. The US government is running massive deficits. Foreign central banks buy US government debt. This is the main form of their export subsidies: holding down their domestic currencies’ price in relation to the US dollar.
There are other links. The main cause of the trade deficit is the cost of imported oil. The US government offers a military safety shield for Saudi Arabia. It allows the Saudis to buy American jets and weapons. The Saudi military is dependent on these exports from the United States. So, the government accepts dollars for oil. It gets OPEC to do the same.
Again, the connecting links are made at the highest level: government to government.
This is good for American consumers of energy. It keeps oil prices low. It is a subsidy from OPEC.
The Austrian economist says, “Make hay while the sun shines. Consume cheap oil while it is still cheap. If Saudi bureaucrats want to sell us their only valuable resource in exchange for government promises to pay, good for American consumers.”
https://mises.org/library/twin-deficits
If I may play devil’s advocate, Mr Wolf, (and do so from a position of economic ignorance), blame could be more evenly apportioned. China is a “currency manipulator” – Forbes confirmed such in July this year.
A renminbi that is manipulated lower against the dollar enhances the attractiveness to corporate America in pursuing labor arbitrage offshore.
A (naturally) higher renminbi = more of the supply chain repatriated back to America = reduced trade imbalance.
If geopolitics was poker, I would rather hold Trump’s hand (no pun intended) that Xi’s.
Exactly, and don’t forget the other US interests that may play a bigger factor in the decision to escalate the dispute than many realize, like
-Intellectual property/state sponsored industrial espionage/cyber crime
-Regional territorial disputes
-Direct support of regimes hostile to the US and it’s allies
-Ongoing human rights issues
It seems to me that the only card firmly on China’s side is rare earth minerals.
The irony here is that the US is fully signed up to the “currency manipulation” China practices, the peg and Chinese state capitalism was a known. The Chinese surplus went to fund the US spending , via treasury holdings. Strong dollar meant you all got to carry on buying cheaper . Chinese investment was also accepted capital used by your favourite banks. US corporations are taking a nice cut too. If you cannot see that this framework was fully planned between US and China this way, then I don’t know.
What Scott is saying is the normal finger pointing that exists between countries that are not on best terms, or are looking to bolster own prestige. Just as China is sensored, we are too – what does the rest of the world think of Europeans or Americans nowadays? Only nice things no? Doesn’t make Scott wrong but it is easy to win an argument when the other side isn’t in the room.
Crysangle,
“The irony here is that the US is fully signed up to the “currency manipulation” China practices,…”
Thanks for pointing this out.
There is a lot of history here (too much for me) , stretching back to the early 70’s at least. There you had end of gold standard, Nixon’s first visit to China, PRC replacing ROC at the UN, even negotiations on Hong Kong starting, all within the space of a couple of years. There are some very deep layers to all of this I think, and whatever they are, they carry right through to where we are today and how the relationship with China is projected and managed, the part China plays, or is allowed to play, in our own countries…am out of my depth to say more than that though.
I usually like the postings on this site. Some of the real estate scaremongering and discussions on job losses resulting from self-driving vehicles is a bit over the top, but typically the content is good. This article, however, is pure nonsense. To describe a tariff as a “sin tax” is absurd. It is only right and proper that companies seek the lowest cost of production. It’s not a sin – it’s a good thing that results in efficiencies that increases wealth. Globalisation and much freer global trade has been a key driver of global growth over many years.
To realise how stupid this argument is consider what would happen if every country had a similar “sin tax”. If it’s a sin for American companies to source components outside of America, it’s a sin for German companies to look outside of their country etc etc. The end result is higher prices, less efficiency and lower growth for everybody.
I used to believe all of that and I still have “The Ayn Rand Letter” to prove it.
What pushed me differently was the shuttering of the underwear factories in the Mississippi delta region. The workers there were getting a fair wage and were quite happy as their wage covered their expenses of living and it was a social club of a sort. The last to leave was Fruit of the Loom.
The machines were moved out to El Salvador so the communities were ruined. The usual panacea was that they needed to learn new skills such as IT and programming.
Are you kidding?
Free trade does not necessarily result in the most efficient pricing.
My company can produce high precision molds at a lower cost than getting them from Italy or the Chinas. Our deliveries are far faster which can mean success or disaster for the customer.
Nevertheless, the customer gets preferential cost writeoffs if they purchase out of the lower 48.
I could go on and on.
I spend a certain amount of time reading a site called “Reddit” which is skewed younger than here and more tech-savvy, and they laugh at the “panacea” of everyone going into programming. For one thing, the need for programmers is overstated; companies want good programmers for janitors’ wages. Secondly, not everyone is suited to be a programmer, and thirdly, once you reach your 40s or 50s, no one will hire you for anything “tech”.
To be fair, they apply the same magnifying glass of skepticism toward jobs like welding. They point out that it’s hard on the eyes, lungs (poisonous gases) and a lot of the time, body (heavy stuff) and that not everyone has the “touch” for welding. But Industry wants to push that there are jobs galore to drive wages down.
Don’t get hung up on the term “sin”.
You are missing this in Wolf’s post…
“Prices in the US are always at the maximum level (market forces).”
Karl at market-ticker.org says the same thing.
Do you seriously think if companies can charge customers $$ more they would not? Price is always what the market can bear.
The point is it is not going to result in higher prices for the consumer (basically a bogey to push their agenda) but it is going to result in higher cost for companies therefore it is going to lower the profit of companies, lower share prices, lower bonus etc. Corporate America is yelling because of this and not because it is going to result in higher prices to consumers. Corporate America has done a good job of pulling wool over people’s eyes for the past so many years.
Also look at another aspect. If due to this America (substitute any country) has more factories, more people are going to have jobs and ability to buy which in turn means more demand. I think it is good for the country and society as a whole. Let Corporate America spread the spread instead of hogging it themselves. To make my blood boil, after hogging it themselves they get bailed out by tax-payers, savers, retirees and prudent, all enabled by the conniving central bankers and politicians.
Bman has his finger on the realities of our post-global world. That’s right, post-global. The low skill factory jobs are gone, they will never come back, nor should they. Tarrifs are a needless tax on consumers, and will only force them to buy even cheaper goods.
The real key to economic prosperity is to pout More money into peoples pockets… ALL developed economies have a form of socialized healthcare…except the US, in most developed economies people don’t need to worry about going bankrupt if they go to the hospital, but that is the reality in the US. Second is stagnant middle class wages… the only way this is considered uttered is with wider access to education… here again the US has fallen behind.. Education and skills upgrading is only for the rich in the US…1hereas in other countries it may even be free.
Americans may wake from their self inflicted suffering, but if they keep voting GOP, they have only misery to look forward to.
For the truth is, the Post global world is much bigger than the US, and will leave it behind.
You speak the truth, Nicko.
“Tarriffs are a needless tax on consumers, and will only force them to buy even cheaper goods….
The real key to economic prosperity is to put more money into peoples pockets…”
Your statements above seem contradictory. Tariffs ARE the way to put more money into peoples pockets. They create more jobs in the United States.
You can’t assume tariff costs are automatically passed to the consumer. That would be a bad assumption at a time when the wealth is concentrated and consumers have limited spending power. Trump’s tariffs will most likely come out of corporate profits, and why the corporate run media is a squealing about the tariffs. The tariffs will cause a wealth transfer from corporations to the general population.
Nicko – This is why my advice to any at least moderately smart young person is to get the hell out of the US to a true first-world country.
“It is only right and proper that companies seek the lowest cost of production.”
This is not a truth, it is a reality. Companies “will” seek the lowest cost of production regardless of whether it is right and proper. “Right and proper” is purely an ideological desire.
White, male real income peaked in the early ’70’s. My ideological desire is that working Americans incomes increase along with growth in productivity. Globalization is antithetical to that.
We live in a market economy: your income is a function of what your education and skill set brings to the table for your employer, plus how many other people in your geographical area have similar skills and how badly your employer needs you right now. Many parts of this country are humming along at sub 4% unemployment, average household income is >$100k/year, home prices are going up, schools are good, etc. This is about as good as it gets. If that’s not the case in Flint, Michigan or Youngstown, Ohio or rural America – develop some skills and move to where the jobs are!
The $40/hour unionized job for a HS education white male installing hubcaps or mining coal was a gross market distortion and isn’t coming back, period. If that job can be done just as well by a Mexican worker in Mexico making $3/hour, if will be done by a Mexican worker making $3/hour. In addition to that, if the job is that basic, someone is probably working on automating the job away soon, anyways. Tariffs won’t fix the problem. Driving up costs to save a few hundred overpaid workers in a struggling industry here or there doesn’t make any sense. It’s time to move on.
Mark, your right to life and happiness as you know it is granted by your citizenship and the continued prosperity of the United States. I think this takes precedence over low prices on consumer goods.
If you think it is acceptable for good jobs and corresponding wealth to leave the United States, I hope you would also enjoy living in totalitarian society some day. Many of the countries we trade with don’t have the freedoms, human rights, or living standards. Global corporations certainly don’t care if you get those rights.
If we rack up $500B trade deficits year after year for decades, there will be no jobs or country left. It’s time for drastic action such as tariffs. Hopefully, it is not too late. It’s time to worry less about what is economically efficient from a global standpoint. It’s time to worry more about preserving basic freedoms and rights that America and few other countries provide.
“…increases wealth…”
Of course it does. You’ve missed the point of this article: Where the wealth goes – to corporations and their wealthy associates.
bman – what would a wife say if her husband had a concubine in Asia? Do you think she’d just go along with the arrangement and there’d be no consequences? Come on.
The husband might argue that it’s all a part of “free trade”, and because the concubine is having more children, well, it’s good for global growth. Do you think the wife would care about that? Do you think she would apply her own form of a “tariff”? Yeah, I thought so.
The corporations have wanted it both ways.
bman,
Clearly your thinking is clouded by your worries about your stock portfolio, and not by what it is good for the US economy. They are two very separate concepts. I’m not worried about your stocks. I’m worried about the US economy.
Every tax has two effects: it funds government operations and changes behavior to minimize that tax. A “sin tax” is explicitly designed that way.
If every country had a similar tax, the world economy would be in better and more balanced shape because incentives to dodge local rules and wages would be slightly reduced, production would be slightly more local, transportation and the expenses and issues surrounding it would play a slightly smaller role in the economy in favor of local jobs, etc. Our current tax code encourages offshoring. Tariffs would counterbalance those encouragements.
What would the stocks in your portfolio be worth if profit margins were squeezed somewhat by tariffs? Well, that’s your problem to sort through.
Where #45 loses his control of the tariff “narrative” is when he applies it to everyone and everything. Attacking the EU on trade after pulling out of their climate accord isn’t going to win any favours there. Attacking Canada over dairy, when US has the trade surplus in the partnership.
As far as prices being safe, when it was a 5% bump, they could eat that. But when these 25% hits multiply to 35 and then up to 45% or more, you are looking at all profits being cut. That’s when companies raise prices or fold up shop. Both are net negatives on an economy hitting the apex of an everything bubble.
Apparently, you lack any appreciation for American freedoms. If you are a citizen, I hope you will realize your comments slap the hand that feeds you.
America give us basic human rights to vote, speak freely, organize, etc. America also provides education, protection from harm, property ownership, advanced legal system and commerce. This is what made America a great nation. China does not give you these things. Global corporations do not give you these things.
Global corporations have taken full advantage of everything America has to offer, including access our wealthy consumer population. Perhaps it is time they start giving something back to the system rather than take, take, take. They need to hire Americans to produce goods sold in America. They need to pay taxes in accordance with the spirit of the tax law and not look for every conceivable loophole to screw America.
Its like you think only America has freedoms. Lol.
I invite you to not take any of your deductions and please, pay some extra taxes.
or shut up. Either way,
Bobber’s individual fiscal choices are quite independent of whatever he’d like to see the wider society do.
It’s like you’re saying, “take less for yourself and see how you like it!” when “you” couldn’t mean just Bobber – for tax policy, “you” means everybody paying taxes and sustaining their costs, which by their nature come with offsetting BENEFITS given the spending those taxes fund. Heck of an ambiguity, and one hell of a confusion on your part.
America having more freedom than China supplies no conclusion whatsoever that, in America alone, one will enjoy freedom.
Is there a rational point buried in that belligerent reply?
By the way, I won’t be following your demand to “shut up”. I have the right to do that in America.
Much More Serious.
The US imposed economic sanctions against a CHINESE MILITARY ORGANIZATION for buying Russian fighter jets and missiles.
Wait…. What?
China has announced that this violates basic norms governing international relations between two sovereigns. Also saying that this move by the US is mean behavior and a blatant hegemonic act, with no right to interfere.
Poking the dragon with a pointed stick.
China has called in the US ambassador for a spanking and they have cancelled a number of important interactions. Not only on the economic front, but the diplomatic also.
What was the US administration thinking? Or were they thinking at all? Admonishing, then punishing China for acting completely within her right, to interact with whom she pleases, is not going to improve the situation.
Far from it. This has really knocked down a hornets nest. China could put on the gloves and begin to play really hard ball now. The economic consequences for the US and for the west will be bad.
Seems like Trump is ready to play hardball and is holding the better hand. China is two steps behind as they are reacting and Trump is attacking. I would rather be on the offensive. Exonomic consequences for China will be worse.
The trade deficit results from the Government running a deficit. We created the trade deficit ourselves as the result of our Government deficits. We create debt (ie money now) when we run a budget deficit. That extra money is used to buy imported goods and that money sent to the foreigners, comes back to us to buy our Government debt.
To make a long story short we give the foreigners paper (ie debt) for tangible goods. Since the world is supplying America with goods and trading the good for “paper”, Americans need not work. It is like you had a credit card with an unlimited balance. You would need to not work either. That is part of reason why Americans don’t have jobs or have crappy jobs.
To solve the situation we need to stop printing money (ie. running debts up), or foreigners need to stop taking our dollars or, we go back to a hard money system. In a hard money system like Gold, once you run out of gold you can’t buy much from outside the country. The Government currency has to devalued, so the problem takes care of it self in the end.
Trade deficits are only maintained by unchecked credit, like the US has with the rest of the world.
The US is its own worst enemy when it come to this trade war. The US wants to have its cake and eat it too. Trump need to realize the Government deficit is a major cause the trade deficit.
Mr. Monkey,
This is the crux of the problem……you nailed it shut. It all changed in 71 when offshoring the U.S. Dollar became our stealth mode of operation. I wish more people could see this. It only changes when our method of banking changes. I’m talking about a monumental shift towards public banking whereby we the people are the beneficiaries of the interest paid on the money lent into existence. Change banking and you change the need to offshore the U.S. dollar. Until then the game continues!
“Mr. C” and “Monkey”:
Bingo!!
A very enligthing article showing that the fears about global trade war might be exaggerated or even more, propagnadized.
Everything has a bit of propaganda to it. Even #45 calling everything fake is a literal form of propaganda. The companies that will feel it will be ones that export goods from the US, the importing companies just move work inside the borders to avoid the tariff of shipping goods over the borders.
I hope it hits Amazon, but the rest I don’t really care. The everything bubble will hit them soon.
The United Corporations Of America have a long story of abuse, because the government let them. Things got slighty better after the Great Depression, but times changed at the end of the seventies, Polticians started to listen to people like Milton Friedman and Arnold Harberger. Congress started to love the idea of “copyright that lasts forever” thanks to a charismatic guy named Sonny Bono and others.
The result? Copyright that lasts more that a hundred years, the most expensive drugs in the world when they literally make it for cents, a Heath Care that’s rightfully mocked by the rest of the civilised world, Internet provider monopolies that cause Internet speeds in some big chunks of the states to only be as fast as Internet was a decade ago, and more.
Keep mocking millenials but it was Generation X who let Corporate America have it’s cake and eat it.
You are the ones who ruined everything, stop blaming your kids.
Corporate America serves the top 10%…it cares not for your protestations. Invest globally, the wider world economy is doing fine.
Invest globally, so you can sponsor corporate abuse all over the world!
Corporations have only truly changed from the time of the Robber Barons in that they no longer have a single person in charge that decides everything. That if anything, have made looking for a quick buck way more urgent, more so on public owned companies.
Totally agree. And yet Corp power, as bad as it can be, is preferable to it it’s main competitor because it’s main competitor has no competition. Many corp’s realize this so they have been busy forming joint ventures with that competitor. Corp’s goal is profit. It’s competitor is only trying to do “good”. Keep digging all the way to the roots…
While I agree with the general sentiment of US corporations being the real culprit, I’d like to address two things from the perspective of someone who lived in a non capitalistic society before:
1. The model of “maximize shareholder value” baked into law is the single biggest reason for corporate greed. It gives only and only one incentive to execs, maximize profits and thus their compensation. Hypothetically, if shareholder value was linked to other variables such as environment deterioration or number of domestic jobs, the outcomes would be different (not necessarily utopian)
2. Given point 1 above, are tax cuts+tariffs going to cause more jobs to come back to the US? It’s very complicated. The tax cuts causes corporate repatriation leading to higher asset prices and stronger dollar. This automatically makes other countries cheaper to produce in. There is ABSOLUTELY NO WAY a company like GAP can make $10 hats by paying $15/hr minimum wage. There are 196 countries in the world, all waiting to be the feeder to American consumerism.
I’d like to elaborate on point 2 a bit more:
The boom times and laws created in 50s, 60s, 70s and 80s were great for those times. Why? Because the US was the only game in town. The only supplier of mass produced hats, the only supplier of pipes, pharmaceuticals, roadways etc.
But the world has changed. There are many more players in the world and they don’t need to rely on US to provide capital or techniques to do anything besides high tech (even high tech in Asia is starting look so much better than US, see mobile payments).
With Trump policies and corporate greed baked into law, the dollar keeps rising in value, making other countries more competitive producers by doing nothing. Put tariffs on China and GAP will start doing production in Vietnam. Put tariffs on Vietnam, they’ll start producing in Indonesia. Put very high tariffs on the whole world and then maybe only American-made goods will be sold in the US. Maybe it is hard to imagine for Americans but their goods are overpriced in the global market and there are other competitive sellers.
With tariffs and expensive locally manufactured goods, the dollar will strengthen even more and US exports will never be able to compete with a BHAP (fictional Vietnamese hat makers). That drop in exports will show in revenues earned in quarterly reports of American companies causing drop in asset prices here, hurting anyone who holds US assets.
What follows is: To be a great mass producer of junk again, America needs to devalue its currency. Which means, the average American consumer becomes poorer. Is America politically ready to handle this?
..or countries such as the USA and UK that for 40 years have placed no value in industrial planning simply wait for poverty to arrive (not that it hasn’t already for those who don’t measure wealth in terms of stockmarket indexes…) – then the Chinese, who picked up that lost manufacturing capacity, will outsource to them to save labor cost, naturally returning the manufacturing jobs that have been lost over that period of time.
That’s the other option.
Probably about 20 years until China is the new ‘first world’ and countries that cling to the failed neoliberal model join the ranks of the third.
Bravo!
(Here’s hoping someone in the admin. reads your blog, if not your letter.)
Mr. Wolf, a person of your experience doesn’t know that Corporate America is not a target that can be taken by direct assault? Naïve schit like this “And the debate needs to shift to Congress, whose decision this should ultimately be” are not going to produce results. You screw Corporate America through their commie Chinese handlers, using mostly Nat.Sec.-derived authority, which is the way Trump does it.
“Walmart, which specializes in selling China-made goods, will always charge the maximum the market will bear, given its sales goals.”
The word “Sales” should be PROFIT, I think
Ultimately, yes, it boils down to profit goals. But “top line” growth (sales growth) is a big corporate goal, and pricing, such as undercutting your competition, is used (among other methods) to accomplish that.
There’s an interesting thesis which states that Mr Trump’s real targets aren’t headquartered in Beijing or Moscow, but in Davos.
The Davos crowd’s objectives, primarily, are (a) free international movement of capital, in pursuit of maximum returns, (b) free movement of goods and services, in pursuit of lowest cost, and (c) free movement of labour, to exert downwards pressure on wages.
It’s noteworthy that Mr Trump is inimical to all three.
To this list, logic has added a fourth – (d) financial deregulation, so Americans who’ve lost well-paid jobs through out-sourcing can carry on consuming like there’s no tomorrow.
This thesis is persuasive, and suggests that Team Trump might be rather more rational than his well-funded opponents would have us believe.
Thank you Wolf for addressing this issue with the White House.
I am an audiophile and I’ve watched high-end components’ manufacturing move from Japan, UK and the USA to China. There’s only one reason and of course, it is money.
Outlaw Audio is an American company that offers, hands down, the best two-channel receiver for the money. They sell direct to consumer. They also unabashedly proclaim that, “First we spec and design our products, and then we locate the best possible venue for their manufacture. We are convinced that by matching a specific product to its ideal manufacturing venue, we will always deliver the best and most cost-effective A/V components.” Their RR2160 receiver is made in China.
On the other hand there is Schiit Audio in California. They make great products and sell direct to consumers also. Their business model is, “The vast majority of our parts, on a total cost basis, come from right here in the USA, from companies manufacturing their products in the USA.” All of Schiit’s components are manufactured in-house in California.
Two philosophies of business from two US companies. What, I wonder, would it cost Outlaw Audio to have their receiver made in the USA, and would consumers reward them for doing it that way instead of outsourcing across the Pacific? Should there be a tariff placed on Outlaw’s Chinese made products to punish them for choosing to build outside of the US?
I have Schiit in my main A/V system.
Informative on hi- end audio, but the broad market is not hi-end. You are by your proud admission a niche consumer.
The largest category of Chinese imports to the US is consumer electronics at 27 % of total.
The US was out before China was in. Last US TV Zenith 1995. The US was taken out by Japan who offered quality and price. Now Japan is out of mainstream TV with Toshiba exiting. Sony still offers big ones: the store near me has one only at 4K +.
Americans may well continue to provide niches, but they aren’t going to
solder and assemble on a mass production basis: not a price they would buy themselves.
just a random thought, I wonder how automated the production process is today for TVs. I suppose there are two considerations here for where to site the manufacturing, first, the marginal costs, labor and shipping. Then, the up front costs of where to locate the factory.
Even if production of TV can be fully automated, my guess is that this industry would not move from where it is. Easier to retool the existing factory than to put up a new one.
This would apply writ large to most industries I would think.
Great thread, and i would add supply chain to the mix, as its all running, locally, at fiercely competitive prices.
Thanks Dan I like hearing about USA mfg success stories. But a small, high-end manufacturer probably has a loyal following that is not as price sensitive and therefore higher margins can absorb higher component costs. Also shoppers likely see brochures or peruse their website and these can highly tout the Made in USA aspect to further reduce price sensitivity.
In the 1980’s there was a big story in Bethlehem PA about a new hotel across the street from the steel mill being built with beams from Japan. Would the builder have rather used Bethlehem beams and support local jobs and avoid controversy? Sure, but his job is to win the contract and then complete construction for the least possible cost within specs.
Firms that take a stand on buying USA when it hurts their competitiveness are eventually doomed. So to some extent I don’t agree that Corporate America made a choice. It should be a role of the government to protect industries and let them compete on a level playing field in USA.
To add insult to injury, part of the former mill property has been developed into a Sands Casino.
Good article Wolf, and the point on tax breaks for Corps is well said.
I am looking for steep price reductions in Canada as Christmas approaches. As I no longer buy American made products (whenever possible and I usually make it possible), I expect these US tariff increases to lower the prices for Chinese goods in all other markets. I use a lot of tools in both woodworking and fabrication. When Chinese-made grinders drop to around $20 cdn/per, I will pick up a dozen for future use. They keep. Meanwhile, our lumber prices have increased to match the US tariff rate on softwood as it is subject to external market pricing forces. Apparently, these tariffs have increased the price of a new US built home by up to $9,000. But hey, with cheap financing costs who is counting? (Who, beside the banks doing the lending?)
Good for you, Wolf! Saw this comment:
“Tariffs are part of protectionism, a practice used by all developing countries to compete with more advanced economies and to ‘protect’ domestic industries. Protectionism was key to U.S. economic development. It’s been key to *all* currently economically successful nations, including China.
Once a nation becomes sufficiently ‘advanced’, it normally advocates ‘free trade’ and denigrates protectionism. This has been especially true of the U.S. Unfortunately, it’s now reasonable to look at the U.S. as a ‘re-developing’ nation for which protectionism again makes sense.”
Trump wants to “redevelop” the U.S., force the manufacturers to produce here.
Sure, bring in raw materials, if your own country doesn’t have them, but at least do your own manufacturing. Let the citizens make their own goods and then turn around and buy them.
How ridiculous that products are shipped halfway around the world! Products should be made locally. Saves precious, non-renewable energy and is better for the environment.
The corporations pretended that they were trying to help “developing” countries (they could care less about them), and all the while they were turning the U.S. from a “developed” country into a “developing” one, all because of greed.
I say nuts to that.
His problem was not going through Congress in the first place. I know it is a pain in the butt, but the executive is strongest when backed by the legislature. It would also make sure there was buy in and debate from everyone on the way forward. Pulling the “national security” card and going it alone is setting yourself up for a fall. Anything bad that happens, then the fingers will be pointed at you. Sure is a much more easier and quicker way to get what you want done, but many times the easy way is much more expensive in the end.
What started with NAFTA and the accelerated with China/WTO with big manufacturers leaving USA then suppliers doing the same is anything but natural. We trade with Commies now!!!
Just a few points I am sure you have considered. Your analysis of a good reason to impose trade tariffs on Chinese goods is excellent. But I think the likely hood is that through Trumps pure ignorance of the matter he has failed to chose advisors who grasp this matter with your perspective. Which likely means their end goal is ill defined.
Second,I think we all know the Republican Congress, and the Democrates even, are generally against punishing corporate America for their profit driven offshoring of labor. Balancing trade tariffs against tax cuts is an idea that wouldn’t survive a second in any one of their heads. Trump mindlessly rails only against businesses that attack him directlly…
So again while I think you have essentially distilled what a reasonable strategic reason for raising tariffs should be. I have zero confidence anyone with any intelligence in the federal government is considering something similar. Because the president is a moron surrounding himself with sichophants and morons, or Republicans and buisness leaders who stand philosophically opposed to his actions on trade.
I recently read an article about China’s BRI program. I think it was Malaysia where the government accepted financial assistance for infrastructure to build a new port and tourist center. The Chinese brought in their own labor and materials. Needless to say the local people thought that the infrastructure project would use local labor and materials. China is implementing this wherever the BRI iniative is being developed with other countries. They plan to own these trade routes and control them, especially where natural resources are needed to fuel the Chinese industrial complex. China is playing the long game and has the patience and capital to win.
Wolf,
I would agree with your larger assessment about where the blame for the trade deficit lies. But those same corporations that shipped manufacturing overseas saw themselves as having no choice. Ultimately, it’s the consumers that dictates where their spendings go. I suspect that most of the companies that went to China had some form of overseas competition and saw that it was best to find locations where manufacturing was cheaper. They probably took the lessons from the TV and auto industry as a sign of the times.
The Chinese of course decided it was easy to help themselves to the stupidity of foreign companies eager to crack the world’s largest market. But it did it in a way To ensure that it’s own domestic industries was able to gain ascendency. Plenty of industries where this has occurred.
All that aside, most of China sees the current tariffs as a foreign policy tool to constrain the rise of China. They aren’t wrong, because in large parts, the corporations have vested interests in keepin off tariffs, but I think those interests are simply guided by short term thinking, not any long term planning. So, inadvertently, the current policies are also forcing changes in behavior of our companies and consumers. But the outcome of those changes will be far from certain.
The one thing for sure though is that comrade Xi is sure that he will outlast Trump or any US administration. Because he thinks that China can endure the pain a lot longer, and the truth is, he isn’t wrong.
I wonder how many American jobs have been driven abroad by the high cost of American health insurance, which is heavily subsidized by employers? If Trump wanted to pick a fight with China, perhaps he should have held off picking fights with our major allies. China has inflicted economic pain on a lot of industrial countries.
That China article, was it a paid advertisement? I don’t know why government doesn’t subsidize US businesses directly (consumers). You subsidize directly only once while tariffs are multifarious. This is where Bitcoin might be able to translate goods and services across borders, one world, one wage. What really has to piss you off is that the people in China are being exploited by corporate America with the blessing of their Communist leaders.
The comments so far show why Trump can’t argue this on a sin tax platform. He must stick to his “China is hurting us” message because it’s the only reasonable “Other” for his base to blame. China, for its part, has no other choice but to turn to its corporate bedfellows for backup in the PR wars.
If I were advising Trump, I’d have him tweet about Communist polluters who poison their own kids just to get money from hard working American families. Then quietly push stories in friendly media about pinko West Coast corporate hypocrites who look the other way while babies die because it’s more profitable to do so. Apple would be a great place to start.
People don’t think rationally — especially those who imagine themselves “investors” who think their fat stock portfolio is a result of their own superior intelligence. The only way to fight the blather from people like bman — who tend to be inordinately influential within their own circles — is to juxtapose their greed against the dead babies that result from it on the other side of the ocean.
The corporate America is trying to keep the prices low for consumers. The tariff’s and other policies will only lead to increase in prices across the board. If all companies increase the prices and pass on the tariff’s, the consumers will have no option but to pay higher prices. Also, in many industries like auto parts and steel, the US companies have been closed since the 1970’s. Bringing back production to the US will be impossible without billions of dollars in investment. There are no qualified US workers in those industries as well. Sure workers can be trained. But it will several years for that to happen. In the meantime, with advances in technology, those jobs have already been automated or will be automated in the near future. Bringing back production to the US will NOT lead to any job gains.
“Corporate America trying to keep prices low for consumers “ ?
That’s the most idiotic post I’ve read in a long time. Corporate America wants as much profit as they can get at all times. Corporate America will screw their customers, employees, and the country for another nickel.
The prices of most goods have not increased much since the 1970’s. You can still find $1 items in Dollar store. Corporate America is indeed trying to keep prices low because of self interest. If all of those items are manufactured in America, you will probably be paying 25 times more for the same item.
I stand corrected, you have just doubled down on the idiocy.
Walmart has a policy of beating up vendors to get the lowest prices. Walmart stores are also unpopular because their low prices drive out traditional retailers, and they do not offer a living wage, which puts a burden on social services. Muni governments offer new Walmart stores concessions because they like the added tax revenue. So if you live in B and A gets the new Walmart store, your city is getting screwed. So you better play the game.
The net effect of all this is deflationary. The Fed is trying to levitate the giant wave, or avoid a sudden downdraft. This is as they have come to say, the result of Neoliberal Policy, which is not new or Liberal.
It has worked a long time on consent, and it still does, our trade partners consent to tariffs. We consent to let Corporate America profit from economies of scale. It is the nature of this policy that it is never debated, or only at the margin (human rights, remember that?) Congress may consent to allow the president to impose tariffs, depending on the party in power. Until someone questions the policy, nothing will be done and nothing will.
Polaris manufactures quite a few different products, and they are busy investing in their businesses.
http://www.startribune.com/polaris-to-buy-monticello-contract-manufacturing-firm/492610191/
Chris, you are right about automation, but there is a need for skilled workers. Polaris is not only maintaining jobs in the US, but they’re increasing production and their workforce.
Hell, it’ll soon be winter here in Minnesota, I think I need a nice new Indy 850 sled.
If I wasn’t sitting on my yacht in Antibes I would post a more detailed comment.
Wolf, I agree with your initial supposition and most of the comments, even if some are contradictory.
For all the abusive and derogatory remarks about President Trump I think readers should be reminded of a comment related to GWB. “Do not confuse the importance of the message with your view of the person delivering the message.”.
I think DJT is 100% right to go down the path of tariffs. A country cannot ever compete on a level playing field with another country on a ‘free trade basis’ if the other country has low standards of living, low wages, poor health care, limited old age pensions etc etc.
You cannot blame China for its economic policies. But you must understand that ‘free trade’may have to come in the long term at the price of eventually lowering the standards of living in USA, UK, EU ….etc.
You can’t have the cake and eat it……
Pres Trump is trying to tell people that.
Import tariffs are in the long term inevitable. Better than WW3?
Lucky I got my Sea Ray 510 before the idiotic EU imposed a 25% import tariff on USA made yachts. Still Sea Ray can always expand production in Poland. Tariff wars are inevitable. Hillary would only have delayed them, eventually common sense would have prevailed.
In the end “Make America Great Again” is not just a slogan.
It means what it says even if there is some pain to go through to achieve the objective..
From an Englishman who believes in the USA.
PS Trumpmwas right about Mrs May’s poor Brexit negotiating strategy. Have they forgotten how many British, American, Canadian lives were sacrificed in WW2. At least Mrs May is right about that. We deserve some respect. Macron take note.
Make America Great = Higher Prices for all products.
Consumers will be bearing the brunt of this policy. Poor will become poorer and the middle class will become poor too.
Chris – bull! Consumers don’t have to buy, and if prices are too high, they won’t. This is going to cut where it should have always cut – right into corporate profits. That’s why they’re angry.
Next up – monopolies. Split them up – the media, banking, health care.
60,000 Americans were killed fighting Communism in Vietnam (and, we were told, a South Vietnamese loss, “would send all of Asia down, like dominos), but the same U.S. government that sent our boys to die, just a few years later conferred on that still officially Communist nation Most Favored Nation Status, and this for the benefit of U.S. corporations looking to outsource manufacturing to a new cheap labor source.
For all the Congressmen flying the flag of freedom on their lapels, they are for the most part big-corporate drones. The definition of a fascist state is “A political regime, having totalitarian aspirations, ideologically based on a relationship between business and the centralized government.” Given Congress’s surrendering its powers to the Executive ever since 9-11, the price gouging by a MIC dependent on perpetual (undeclared war), price gouging on an unprecedented scale by Big Pharma and banks which pay almost nothing to savers but gouge card holders 25%+ APR, and relentless trends toward monopolies despite Anti-trust laws, is there any real question that Trump is leading us further and further toward a Fascist type dictatorship?
On the other hand, it is true that a Nike or an Apple will send all of it manufacturing overseas to save 5 cents per unit, because that is the essence of laissez-faire capitalism. And until 1913 there was no need for any income taxes- tariffs provided the necessary revenue. so I say, just enough tariffs to eliminate the IRS!
Have you forgotten how many mainland European, Russian and Jewish lives were also lost during WW2?
Idiotic England and Wales wanting to leave the very Union that strives to keep Europe working together peacefully, just when the rest of the EU is already moving towards restricting immigration.
Good luck keeping your union together when the Northern Irish and Scots fully realise the EU isn’t going to give Britain any special deal just because they think they’re owed one. And that a hard brexit will live up to its name.
Enjoy your yachting holiday in the EU by the way.
No PHUSG, I haven’t forgotten all the Russian and Jewish lives. It’s just they they are not invoking BREXIT.
Scotland is a “special case”. Let’s not base our future on what the Scottish want. Perhaps get “LIZ’s” approval and give them their independence. See how they get on now we have drained the North Sea of most of “their” oil.
As for NI . Well they’re between a Rock and a Hard Place.
Mr Churchill saw it (WW2) coming and appeasement only delayed the inevitable.
If we’re not in the Euro why be in the EU?
I agree with Mr Farage. Hard Brexit is the only answer.
I don’t think ‘England expects’ or feels it’s owed any favours. It’s Nelson vs Napoleon all over again. Place your bets. Macron vs May (with a touch of Merkel to add some spice). Both their political futures are on the line and both will eventually turn out to be just a couple of lines in the history of this era.
Pres. Trump will get all the headlines because at least he sees the big picture.
It’s sad that many Americans don’t appreciate what a fine President they have. Even those voters who are upset about his election only have to wait another 2 years to correct their error. Enduring Democracy means having to accept a winner even if you didn’t support him.
Please give the man a chance.
PS his old yacht, Trump Princess, is moored here in Antibes. Now renamed Kingdom and owned by a wealthy Saudi. Bought no doubt with the priceless of oil money they collected from petroleum products sold to US citizens.
The American’s and Canadian’s didn’t invoke Brexit either so that just makes no sense to me.
> See how they get on now we have drained the North Sea of most of “their” oil.
How neighbourly of you.
> Let’s not base our future on what the Scottish want.
No, go ahead and base it on the nostalgia of British empire and WW2 ‘glory’ of the elderly of England and Wales, robbing your youth of the opportunity to be a part of the real future, which is a strong EU with a strong economy and strong borders.
To PHUSG
America and Canada want favourable trade with USA and within limits they have/had it.
Let’s agree to differ and see what happens in the next 12 months.
Currently Uk and EU appear to want to undermine US sanctions on Iran. Let’s see what happens there as well.
PS in my previous post I intended to say “proceeds” not “priceless”.
My iPad sometimes has a mind of its own.
Enjoy the Dollar store.
https://www.americanthinker.com/articles/2018/08/stagnant_wages_are_a_problem_trump_is_the_solution.html
There is a lot of assumptions in this article. The big assumption is jobs will come back with this policy. The fact is most jobs are already or are going to be automated in the next few years. Even if the wages rise, corporate America will pass it onto consumers in the form of higher prices. The prices are going to increase significantly one way or the other.
Dollar Store goods are often *not* a deal.
Your dollar store aspirin will cost more per pill than just getting a large 250 or 500 tablet bottle from Target. Likewise, dollar store dryer sheets work out to cost about 2X as much as just getting a large box of them from Safeway for $5 or so.
The main thing about dollar stores is, you can buy things as dollar at a time. And when most of your money goes for necessities like cigarettes, Steel Reserve, and that tattoo you’ve been saving up for, well, dollar store’s where you feed your kids.
While neither a historian or an economist, I certainly recall learning that the Smoot–Hawley Tariff in 1930 “exacerbated the Great Depression.”
If you or anyone cares to do so, please explain how tariffs wouldn’t currently play out in the same way in a similarly indebted country, though asset prices are rising presently, not declining.
My thanks to anyone who does.
As always (or at least, usually), an enlightening article. I wish I could afford to hire you!
Tariffs would lead to increase in inflation and after the next recesion, will put the country on the path to hyperinflation like Venezuela.
New user we ran a trade surplus when Smoot-Hawley was passed. Now we run a trade deficit.
Trade deficit is less than the money government spends on military and unnecessary wars. America First policy is meant to make poor and middle class poorer. It will NOT lead to any increase in jobs because most of it will be automated anyway.
Yup. I should’ve remembered that fact as well. Thanks for the lesson.
Since the tariff was almost suicidal back then, when the US had unrivalled production, can I infer it’s a good idea today, under a trade deficit and outsourced production?
Yup. We have arrived.
Up=Down
Good=Evil
Poor = Rich
Censorship=Free Speech
Long live George Orwell.
We have met the enemy and he is us.
Smoot-Hawley certainly gave a big boost to the Nazi party in Germany in 1932 elections, after it help cause the failure of the important Austrian bank Credit-Anstalt in 1931 and 25% unemployment in Germany. Read more about the failure of Credit-Anstalt here: http://www.bloomberg.com/news/articles/2011-04-20/lessons-from-the-credit-anstalt-collapse
If the Administration is losing the debate on trade policy, maybe it’s not the message, but the messenger. Trump does not even attempt to debate issues, meaning engage in civil back and forth discussion. He blasts one way opinions on Twitter. Or sits for a softball interview on Fox News. If challenged, he has openly admitted that he simply makes up facts. Whether you like or dislike his politics, why would you take his arguments on public policy seriously?
Mary – Trump might be losing the debate with U.S. multinational corporations, but they don’t have any allegiance to the U.S. They could care less. 60% of all goods coming out of China and destined for U.S. markets are from the U.S. multinationals.
Trump actually does know what he’s doing. He’s trying to bring the jobs back and right a wrong. As soon as the multinationals took jobs offshore, tariffs should have been applied. Trump is doing what no other politician has had the guts to do.
It’s either that, or the U.S. continues to bleed while the U.S. multinationals and the Chinese elite get ever richer. Which do you want?
Yes, you are completely correct backwardsevolution. And excellent article Wolf. You nailed it. Tom Donohue and the US Chamber of Commerce have no particular interest in American workers or the American economy. They put the “U.S.” in front of their name to obfuscate their goals and allegiances.
It looks as if the US is settling into a classic geopolitical dispute with China as this country expands its influence through power projection. You have to find means of paying for participating in this game and shoring up allies. In this struggle the supply chains through China make less sense than going through US allies or potential allies like Vietnam, India, Mexico, Thailand, Philippines, Japan, Taiwan, Korea, Indonesia etc. The US dollar as a reserve currency is set at levels because of offshore demand which cripple the US tradable goods and services sector. These contexts make tariffs on China a very low fruit in this ongoing set of interactions, even if they were playing fair on trade which they are not. Geopolitics has always trumped corporate profitability (no pun intended), and also necesitates higher taxes for the general population. Of course China could play fair on trade and stop naval expansion in which case the geopolitical arguments would fade away. It’s really not about containment as about reaction to aggressive expansion in both capacity and intent which necessitates reaction.
Thankfully we’re having this discussion at last, I’ve been wondering for 30 years when this subject would finally become mainstream.
It’s about time!
The fact is, China has little intention of altering its course and will concede nothing in future trade talks. China is a state-run economy based on a business model that is geared to expand by crushing the competition.
China has no intention of being locked into producing low-end manufacturing of basic goods but is determined to move into high-tech products. A key part of the plan centers around both state-owned and private firms investing in and acquiring foreign companies for the purpose of stealing their technological innovations.
Subsidizing those companies working within its system in a multitude of ways helps China achieve this goal. Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.
Ninety-eight responses, and counting!
I’m glad people are talking about corporations again, and their bullying, ruthless, and racist behaviours.
I’ve just been galvanised by Michael Moore’s new film, Farenheit 11/9, and believe we, the 99%, should name and shame these revolving-door, corporate free-loaders; CEO’s, central bankers, elite universities (I made that one up) and most politicians.
Thanks for a timely article.
The global debt bomb is in a slow motion implosion. Foreign economies are failing. Those who are paying attention are investing in US hard assets. Some in the US stock market as well. I heard someone say the US is the prettiest of the ugly sisters (sorry, don’t remember who). Also, Trump’s tax relief on corporate foreign holdings is slowly bringing that money back to this country as well. We will be affected by the Global financial failure, no doubt. Add to this observation, the fact that we are in for big changes in this country as robotics and AI become increasingly adopted by corporations to save on labor costs. But if we are wise we will steer our currently increasing fiat wealth, while it still has value, into production capability in our own country.
In a nut shell, and greatly simplified, all of this serves to help America become more independent and self reliant.
Thus the main reason the “Swamp” and much of the rest of the world leadership is against Trump becomes very clear. His efforts are anti globalization.
There are a couple of guys who lived in China for many years and have done videos about the country. One of their recent videos was about the unavailability of milk powder sourced from other countries. China prevents milk powder from being imported because they want to favor their own companies. Think about it for a second. You can go to Walmart and basically buy anything from China tariff-free. Can a Chinese consumer do the same in China? The answer is no. Watch the video and see for yourself the insane repression of Chinese consumer. The Chinese consumer wants to buy American products. They just can’t because the government doesn’t want them to.
https://www.youtube.com/watch?v=YQm5FZMforg
Interesting. Assuming corporations are charging full boat, what the domestic market can bear, what would that imply for minimum wage laws? If the corporation has to eat the new tariff in reduced profits, wouldn’t Walmart have to eat the mandated increased minimum wage costs instead of laying off labor in a “tight labor market” and reducing profits even more? Etna? Electric utilities? Hospital non profit corporations?
Walmart raised its starting wage to $11/hr, from $9/hr, in order to attract the quality help it is looking for. It also added/increased maternity and parental leave benefits. It’s doing this because the tighter labor market is forcing it to. In most states, minimum wage is a lot lower than what Walmart now pays.
You wasted your time with this letter. This tariff policy is not meant to be sensible, rational or even remotely achievable. It is about sticking it to the perceived really big winners in the global economy even if it seriously hurts his Trumpkins. It is well worth the pain; that is why they love him for it. It will probably get worse. This is the terrible price we all pay for going from widespread prosperity to having very few really big winners and lots of really big losers. If we do not address our inequality there will be others doing things to make sure your ox gets gored too.