The Free Trade Antediluvians
By Pejman Yousefzadeh Posted in Barack Obama | Economic Ignorance | Economy | Free Trade | Hillary Clinton | Protectionism — Comments (16) / Email this page » / Leave a comment »
James Surowiecki titles his piece on free trade "The Free Trade Paradox." I don't quite know what is paradoxical about it, since his piece makes clear that supporting free trade is a no-brainer and that as a consequence, we ought to be deeply concerned about the trade stances of Barack Obama and Hillary Clinton:
All the acrimony in the primary race between Barack Obama and Hillary Clinton has disguised the fact that on most issues they're not too far apart. That's especially the case when it comes to free trade, which both Obama and Clinton have lambasted over the past few months. At times, the campaign has looked like a contest over who hates free trade more: Obama has argued that free-trade agreements like NAFTA are bought and paid for by special interests, while Clinton has emphasized the need to "stand up" to countries like China. Two weeks ago, both senators signed on as sponsors of a new bill that would effectively impose higher tariffs on China if it doesn't revalue its currency. The candidates are trying to win the favor of unions and blue-collar voters in states like Ohio and West Virginia, of course, but their positions also reflect a widespread belief that free trade with developing countries, and with China in particular, is a kind of scam perpetrated by the wealthy, who reap the benefits while ordinary Americans bear the cost.
It's an understandable view: how, after all, can it be a good thing for American workers to have to compete with people who get paid seventy cents an hour? As it happens, the negative effect of trade on American wages isn't that easy to document. The economist Paul Krugman, for instance, believes that the effect is significant, though in a recent academic paper he concluded that it was impossible to quantify. But it's safe to say that the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. So standing up to China seems like a logical way to help ordinary Americans do better. But there's a problem with this approach: the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.
The reason for this is simple: free trade with poorer countries has a huge positive impact on the buying power of middle- and lower-income consumers--a much bigger impact than it does on the buying power of wealthier consumers. The less you make, the bigger the percentage of your spending that goes to manufactured goods--clothes, shoes, and the like--whose prices are often directly affected by free trade. The wealthier you are, the more you tend to spend on services--education, leisure, and so on--that are less subject to competition from abroad. In a recent paper on the effect of trade with China, the University of Chicago economists Christian Broda and John Romalis estimate that poor Americans devote around forty per cent more of their spending to "non-durable goods" than rich Americans do. That means that lower-income Americans get a much bigger benefit from the lower prices that trade with China has brought.
Read it all. That the "reality-based community" should find itself on the wrong side when it comes to this issue should come as no surprise whatsoever. But it'll be a nasty shock to policymaking if the campaign rhetoric of the remaining Democratic Presidential candidates--and much of the Democratic party--actually gets codified as our national approach to trade issues.
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A large % of US manufacturing and service industries are foreign owned and that number is rising every day.
Since 99% of the world is more left wing than the USA, more and more left wing policies are being pushed by their owners on to their workers and onto our campaigned finance grubbing politicians.
That is why I thin we are slowly see a shift in the USA to the left.
Thanks to Free-Trade and the sending of a large amount of the USA wealth over-seas, that money is coming back to purchase this country and its workers.
More and more USA citizens will owe their paycheck and their loyalty to liberals in Europe and Asia, Socialist and Communist in Europe, Asia and South America and terrorist in the Middle-east.
Free trade actually enhances global capitalism.
Countries in Europe, Asia, and elsewhere adopt more policies of the right in response to global competition.
Ireland cuts their tax rates, and every country in the EU is following suit.
China attracts foreign investment because they provide a framework in which such investments make sense.
So many countries have modified their tax codes to be flat or substantially flat taxes.
The aggregate economics policies of the international community are far more on the right now than they were 25 years ago.
Free trade makes even leftwing weenies compete with other leftwing weenies using the tools of the right.
I went to look for EU tax cutting, and it looks like many countries are cutting corporate taxes. I then checked into the American corporate tax rate, and it seems that the corporate income tax here is 35%, as high as it is in the EU. Of course, there are enough loopholes that corporations here don't generally pay it, but that seems awfully complicated.
Personally I'm for extremely low tax on capital, but relatively high tax on personal income above some magic number. Let capitalism work like science does, where personal compensation never gets all that high, but if you're good you're given millions of dollars to manage for the good of the country. As long as capitalists keep their money invested in the economy it doesn't get taxed, and it's only when the capital is taken out in the form of personal income that it gets taxed.
Of course, making this a workable system sounds like a regulations nightmare, but it can't be any more nightmarish than the current system. Creative accounting is a multi billion dollar industry and has led to the creation of four international corporations whose main focus is helping corporations pay as little tax as possible.
Why would you want to take money away from people who's only crime is that they're more successful at business than the average person?
And what's going to stop the truly wealthy (rather than the upper middle class) from outsourcing their personal finances (Cayman Islands, anyone)?
like Ireland or "Eastern" Europe have corporate tax rates significantly below 35%.
Even Russia has a lower tax rate (not saying that Russia doesn't suffer from more severe problems, like the absence of the rule of law).
If people want to keep more jobs in the US, they should support a corporate tax rate of 0% and use a consumption-based tax as you describe.
China manipulates its currency such that they have a advantage over us and thus we engage in Free Trade but they do not.
As usual we have a Free Trader who can't see the forest for the trees. Any country controlling their exchange arte in their favor is not engaging in free trade.
Of course a worshiper of free trade and the de-industrialization of the USA would never admit to anything else.
currency.
It has never happened. It is not the source of China's success.
There is no "de-industrialization of the USA." See the numerous links above showing how manufacturing output is up.
You are the person lost in the woods. You are the equivalent of someone complaining about the demise of the blacksmith industry with the invention of the automobile.
In a free market economy, there will always be creative destruction. Anyone who tries to avoid the creative destruction will ultimately be limiting the prosperity of the society.
High energy and commodity prices. People are accusing the US of artificially devaluing the dollar. Do you feel more prosperous now then you did 12 months ago?
Your economic arguments are quite shallow, and you ignore the fact that manufacturing output in the US is increasing.
Also, manufacturing is a minor player compared to energy, which will be the focus of 21st century realpolitik.
Personally, I like Thomas Friedman's idea that America needs another space race, and this one should be about energy. Invest in education to raise a new crop of scientists and engineers to tackle the problem, and also invest in subsidies/research funding to tackle biological, nuclear, and renewable energy production.
Cheney has done everything he could to maintain American supremacy (and thus the American way of life) through his actions in the Middle East, but I sometimes wonder whether that effort would have been better spent at home. Most likely he and his allies believe that alternative energy sources cannot be brought online quick enough to save our infrastructure if something drastic happened in the Middle East, so he chose the conservative option of maintaining our dominance in the Middle East by keeping the various factions there divided and thus relatively easily controlled.
that Bill Clinton pushed through trade normalization ("most favored nation" status) for China.
As a tool for opening up China, it's not clear how successful that's been. As a tool for increased globalization, its effect is undeniable.
On the other hand, the output of those twelve-year-olds makes for a nice experience at Wal-Mart.
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Gone 2500 years, still not PC.
The GOP needs to wake up, their base is being sold to foreign people who are much more liberal and even socialist/communist compared to us.
Just look at what has happened to Miller Beer.
A proud American company that now supports Gay Marriage and Gay Rights Parades/Fairs and Illegal Immigration into the USA. They are now a company pushing open borders with Mexico.
Thanks to Miller Beer (bought by a Foreign corp) - We all should support " Miller Brewing Company of Milwaukee, WI, producers of the popular beer Miller Genuine Draft, has given at least $30,000 to groups that support illegal aliens and illegal immigration so they can march down our city streets making demands of Americans. Here are the news reports about this beer maker's deplorable activity by Miller Brewing Company."
The Great American Sell-Off
Total acquisitions amount as reported: $1,974,779,120,570
Total number of acquisitions: 15,397
Average amount of US companies sold to foreign acquirors per day as reported: $182,646,977
First acquisition date: 07/03/1978
Last acquisition date: 02/08/2008 (for the $$ value above)
Countries that attract foreign investment are prosperous places to live.
Countries like China and India finalized realized that foreign investment was a critical necessity, and those countries have been enjoying vigorous economic growth.
Countries that do not attract foreign investment are hell holes. Burma and North Korea come to mind.
I agree that we need to be careful when it comes to security sensitive industries, and I also agree that sovereign wealth funds pose significant problems.
However, in pure economic terms, the purchase of a US company by a foreign company is not an inherently bad thing.
I support free trade in general, but trade with China needs to be banned entirely!
China needs to be on par with Cuba and North Korea, and I will support any Congressional or executive action to limit trade and relations with China. Their tainted, poisonous, and dangerous products pose serious dangers to the country. I will NOT sympathize with companies looking to cut corners and save a couple bucks by exporting jobs to or importing products from China. Such activity needs to be illegal. I support it as a defense issue as much as an economic and human rights issue.
The benefits outweigh the risks of free trade with other countries, but China needs to be specifically excluded.
It is true that manufacturing jobs in the US are down dramatically, with about 3.6 million fewer manufacturing jobs over the last 10 years:
http://ita.doc.gov/td/industry/otea/OCEA/MBU/memp_graph.html
On the other hand, US manufacturing production output is at an all time high, up 26% over the last 10 years:
http://ita.doc.gov/td/industry/otea/OCEA/MBU/mprcu1_graph.html
Also inflation-adjusted hourly compensation of manufacturing workers is up 25% over the last 10 years:
http://ita.doc.gov/td/industry/otea/OCEA/MBU/mprod_k.html
Which implies that the loss of manufacturing jobs in the US is mainly due to enhanced productivity of manufacturing workers, who are making use of more and more automation, IT, and other advanced technologies (and skills) due to the availability of capital in the US.
The manufacturing jobs that remain in US are being compensated more, although most of the recent increases have been in terms of benefits such as health care rather than wage increases.
You don't have to pay a machine minimum wage, so you replace low-skill workers with machines, and hire one high-skill, high-paid worker to keep the machine running.
This is a long-term trend that has been going on in the US for over 50 years. Like agriculture, manufacturing once represented a large percentage of workers, now is a small percentage of workers despite increasing total output.
Meanwhile, millions of new jobs are being created in US non-manufacturing sectors, keeping the unemployment rate at a reasonably low level.