Posted on 09/09/2016 1:49:55 PM PDT by MichCapCon
If the government prevented people from shopping outside of their own town or state, they would be outraged and recognize it as limiting their freedom. If Michigan businesses were prevented from buying or selling their products to people from other states, most people would understand that to be economically destructive.
Yet when it comes to the issue of foreign trade a lot of people from both sides of the political spectrum are opposed to allowing a similar free flow of products and services between countries. That’s why the two main presidential candidates are able to run their campaigns with antitrade sentiments as key planks.
But international free trade is a good thing. It allows people to sell their products to a much larger group. It gives consumers more choices in what they are buying, making goods and services better and less costly because of the increased competition.
Antitrade sentiment often plays well politically in Michigan. Many people blame foreign trade for the loss of some jobs, though that was occurring before trade agreements were made and is more related to technological advances and labor laws. Even leftist economists at the Economic Policy Institute only blame NAFTA – the trade agreement most frequently cited as economically destructive – for the net loss of 43,600 jobs in Michigan, a state with 4.8 million jobs. This, of course, doesn’t make it any easier for the people who lost these jobs, but it nevertheless shows that even the highest estimates of the negative impact of NAFTA on Michigan workers can find only a minuscule effect.
But it is likely that trade leads to more jobs overall. A new report from The Heritage Foundation looks at trade as it relates to Michigan. In particular, it looks at the benefits from trade – the number of jobs supported by exports, foreign investment in the state, and jobs gained from trade agreements. Here are some facts from the report about trade in Michigan:
1. There are more than 14,500 Michigan businesses that export goods around the world, supporting almost 271,000 jobs.
2. Service exports have more than doubled in the last decade to $13.4 billion while total exports have increased to $53.2 billion. Transportation companies export $26 billion worth of equipment to 165 countries.
3. Since NAFTA was signed in 1994, the state has gained 281,700 jobs overall and has a lower unemployment rate.
4. Michigan is home to 1,733 automobile and auto parts companies, 26 percent of which are foreign owned.
5. The state imports $124 billion worth of goods, mostly from Canada and Mexico. This competition lowers the costs of goods for consumers and provides products for Michigan workers to sell.
6. Michigan has significantly increased its exports to Mexico (16 percent) and China (27 percent) in just the past three years.
7. The 30 percent steel tariffs imposed under the Bush administration harmed Michigan companies – the increase in cost made Michigan lose more jobs than all but three states.
Lowering trade barriers can provide new competition to businesses competing with foreign producers. But it also provides new opportunities for other local businesses, which might benefit from selling goods to new buyers in new markets. The historical evidence is overwhelming: Free trade always accompanies economic growth and prosperity, and countries that allow their people to take part are, on balance, much better off.
All I know is that the open borders rino back stabbers are in favor of”free trade” and that makes me oppose it right there.
There was very little trade with our Soviet enemy. See the summary of this Rand study here
I recall however that some insisted that we had to help the moderate Soviets build their economy lest the hardliners take control, there would be war and it would be our fault.
The issue for Reagan and the presidents before him was national defense. Not so today it seems that greed prevails.
On a related issue. I recall the business cycles of the 50s, 60s, 70s, and 80s. They came back stronger than ever. (Never beat the 19% GDP increase of WWII though.)
That has not happened since Reagan. Why? Transferring wealth that has enabled Red China to build its military? Could be IMO. We refused to do that for the Soviets.
I think we have 30 years of experience with “free trade” to make the conclusion who have benefited from it. Hint: look at China
And we can thank Reagan for the WTO. You wanna go down that road?
Free trade with nations using slave labor? Give me a friggin break.
http://www.paulcraigroberts.org/2004/03/22/guest-commentary-the-harsh-truth-about-outsourcing/
The Harsh Truth About Outsourcing was published in BUSINESSWEEK, March 2004
Economists are blind to the loss of American industries and occupations because they believe these results reflect the beneficial workings of free trade. Whatever is being lost, they think, is being replaced by something as good or better. This thinking is rooted in the doctrine of comparative advantage put forth by economist David Ricardo in 1817.
It states that, even if a country is a high-cost producer of most things, it can still enjoy an advantage, since it will produce some goods at lower relative cost than its trading partners.
Today’s economists can’t identify what the new industries and occupations might be that will replace those that are lost, but they’re certain that those jobs and sectors are out there somewhere. What does not occur to them is that the same incentive that causes the loss of one tradable good or service — cheap, skilled foreign labor — applies to all tradable goods and services. There is no reason that the “replacement” industry or job, if it exists, won’t follow its predecessor offshore.
For comparative advantage to work, a country’s labor, capital, and technology must not move offshore. This international immobility is necessary to prevent a business from seeking an absolute advantage by going abroad. The internal cost ratios that determine comparative advantage reflect the quantity and quality of the country’s technology and capital. If these factors move abroad to where cheap labor makes them more productive, absolute advantage takes over from comparative advantage.
This is what is wrong with today’s debate about outsourcing and offshore production. It’s not really about trade but about labor arbitrage. Companies producing for U.S. markets are substituting cheap labor for expensive U.S. labor. The U.S. loses jobs and also the capital and technology that move offshore to employ the cheaper foreign labor. Economists argue that this loss of capital does not result in unemployment but rather a reduction in wages. The remaining capital is spread more thinly among workers, while the foreign workers whose country gains the money become more productive and are better paid.
Economists call this wrenching adjustment “short-run friction.” But when the loss of jobs leaves people with less income but the same mortgages and debts, upward mobility collapses. Income distribution becomes more polarized, the tax base is lost, and the ability to maintain infrastructure, entitlements, and public commitments is reduced. Nor is this adjustment just short-run. The huge excess supplies of labor in India and China mean that American wages will fall a lot faster than Asian wages will rise for a long time.
Until recently, First World countries retained their capital, labor, and technology. Foreign investment occurred, but it worked differently from outsourcing. Foreign investment was confined mainly to the First World. Its purpose was to avoid shipping costs, tariffs, and quotas, and thus sell more cheaply in the foreign market. The purpose of foreign investment was not offshore production with cheap foreign labor for the home market.
When Ricardo developed the doctrine of comparative advantage, climate and geography were important variables in the economy. The assumption that factors of production were immobile internationally was realistic. Since there were inherent differences in climate and geography, the assumption that different countries would have different relative costs of producing tradable goods was also realistic.
Today, acquired knowledge is the basis for most tradable goods and services, making the Ricardian assumptions unrealistic. Indeed, it is not clear where there is a basis for comparative advantage when production rests on acquired knowledge. Modern production functions operate the same way regardless of their locations. There is no necessary reason for the relative costs of producing manufactured goods to vary from one country to another. Yet without different internal cost ratios, there is no basis for comparative advantage.
Outsourcing is driven by absolute advantage. Asia has an absolute advantage because of its vast excess supply of skilled and educated labor. With First World capital, technology, and business knowhow, this labor can be just as productive as First World labor, but workers can be hired for much less money. Thus, the capitalist incentive to seek the lowest cost and most profit will seek to substitute cheap labor for expensive labor. India and China are gaining, and the First World is losing.
It’s not a mutually beneficial trade practice — it’s outright labor arbitrage
My two closest co-workers are robots. But what do I know? I log in to FR to read about how my manufacturing job does not exist.
Good for you. Be sure to tell your little good luck story to the thousands who got to wave goodbye as their factories picked up and left the country.
I will, as soon as you tell them that I have my job for the same reason. Interesting how a dynamic economy works, isn’t it? I mean, I didn’t take “their” job to get mine. I just took a job that was offered to me.
You have your job because the factories they used to work for left America? Explain how that worked out.
No, Slick Willie was prez when this boondoggle was born.
Uruguay Round. Learn about it when you have some free time.
No, I simply was responding to your silly notion that my manufacturing job carries their “baggage.” My company does ship to Canada and Mexico.
I have. Uruguay round started in 86 and lasted unitl the end of 94.
Where did I say that “your” job carries their baggage?
Oh, right, I didn’t.
But since your sole reaction to Roberts’ essay on labor arbitrage was to speak of your own job I thought maybe you could share your tale of your own good fortune with those who saw labor arbitrage take the plants that they once worked in out of the country. I’m sure that will convince them that Candide and Dr Pangloss were right.
Was it worth it?
1969 - 2016
The Bureau of Economic Analysis (BEA) has dozens of national income and product accounts (NIPAs) tables.
"The contributions to percent change in a real aggregate, such as real GDP, provide a measure of the composition of growth in the aggregate . . . contributions to percent change [is] a valuable tool for economic analysis."
Table 1.5.2. Contributions to Percent Change in Real Gross Domestic Product, Expanded Detail (1969 - 2016)
It did not start with Obama.
With the BEA table I attempted to tranform it to a crude graph showing business cycles since 1969. Blue years and white years mean best year results yet for that component of the Real GDP percent change, red with a dot means worst year yet for that component of the Real GDP percent change. Everything else is somewhere in between.
Hover for column headers and years to see the BEA table data.
I remember business cycles as coming back stronger than ever. It ain't happening today. Hard to beat the 19% GDP increase in WWII though. :)
“Arbitrage?” Meaning that I must talk about someone else, but not myself? I don’t think that word means what you think it means.
Ok, then. So it’s Reagan’s Fault(tm).
” Meaning that I must talk about someone else, but not myself?”
Generally that’s appropriate when an article is discussing a subject and people other than you.
Read the Paul Craig Roberts essay and you can learn how arbitrage differs from free trade as espoused by David Ricardo.
“Arbitrage?” Meaning that I must talk about someone else, but not myself?”
So because you have a manufacturing job, means that America has NOT lost its manufacturing base?
Is that what you’re implying?
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