We are being beaten. That's why we don't make anything in America anymore.
Posted on 02/18/2005 9:55:18 AM PST by Willie Green
For education and discussion only. Not for commercial use.
It is difficult to decide whether the trade figures for 2004 or the Bush Administration's reaction to them indicate the greater danger to the American economy and nation. Last year's trade deficit hit $617.7 billion -- surpassing the record 2003 deficit by 24 percent. The deficit in goods was even higher, at $666.2 billion. The imbalance increased as a share of the economy to 5.3 percent of gross domestic product, up from 4.5 percent in 2003. This is a situation usually associated with underdeveloped countries on the brink of financial collapse.
The Bush Administration is ideologically opposed to doing anything about the deteriorating international situation. It is content to passively accept whatever transnational corporations and foreign governments do to shape the world economy to their advantage. Attempts at positive spin took their most unbelievable form in Treasury Secretary John Snow's testimony to the Senate Budget Committee on February 10. "What those numbers reflect is the fact that the American economy has been doing well relative to other economies," he claimed. "We are importing more from those other economies because we are creating more disposable income."
Yet, according to Commerce Department figures released in January, disposable income by the third quarter of 2004 had increased at an annual rate of 3.5 percent. How does that translate into a 24 percent hike in the trade deficit? Snow apparently assumes that Americans will spend most of any increase in income on imports rather than on American made products. Why would this be true unless American firms are being beaten out by their foreign competitors?
This pattern is not seen elsewhere. Per capita income in Europe and Japan is on a par with America. The European Union actually has a larger combined economy than does the United States, with Japan in third place. Both the EU and Japan run trade surpluses, and in fact use their large gains in the U.S. market to boost their own economic output and income.
China does the same. It is growing three times as fast as the U.S., and its American trade surplus of $162 billion, up by $38 billion from 2003, is a sign of its strength as the rising manufacturing hub of Asia. Beating out the competition in foreign markets is the real sign of successful commerce and government policy, not losing market share to overseas rivals as has been the American case for over a decade.
Here is the fundamental error that has bedeviled political economy for centuries. Is international trade essentially about cooperation or competition? Classical liberals see free trade as creating a world peacefully arraigned by a division of labor and economic integration (a concept of global unity that goes well beyond trade). The Bush administration is in this camp. Those with a more realist or conservative bent see a world based on a more fundamental economic principle, relative scarcity. The first law of economics is that there is never enough to go around; wants are unlimited while the ability to satisfy those wants is limited at any point in time (though it can be increased over time). Thus, there is always competition to gain "the lion's share" of what is available, be it jobs, raw materials, industrial capacity or the means to advance to the next level of prosperity through the accumulation of capital and technology.
Everyone agrees that capitalism is based on competition. Firms are driven to innovate and expand or be left behind by their commercial rivals. What the free traders overlook is that there are societal consequences if the nation's capitalists consistently lose to foreign competitors, or abandon the nation for operations overseas (again in response to competitive pressures).
Americans understood this national aspect of competition during the decades when the United States attained global leadership. By the dawn of the 20th century, America was the largest, most productive economy in the world. In 1902, Brooks Adams published THE NEW EMPIRE proclaiming how American had surpassed Europe as the center of the world economy. While not as well known now as his brother Henry, Brooks was a prominent member of the 4th generation of the illustrious Adams family, counting from Founding Father President John Adams. Brooks and Henry Adams were in the intellectual circle surrounding President Teddy Roosevelt.
"The world seems agreed that the United States is likely to achieve, if indeed she has not already achieved, an economic supremacy. The vortex of the cyclone is New York. No such activity prevails elsewhere; nowhere are undertakings so gigantic, nowhere is administration so perfect; nowhere are such masses of capital centralized in single hands. And as the United States becomes an imperial market, she stretches out along the trade routes which lead from foreign countries to her heart, as every empire has stretched out from the days of Sargon to our own," wrote Adams.
The former global Superpower, Great Britain, according to Adams "is gradually assuming the position of a dependency, which must rely on us as the base from which she draws her food in peace, and without which she could not stand in war," a view borne out in the two world wars of the 20th century. Because London had adopted free trade while Washington still practiced protectionism in Adams' day, American firms were able to profit greatly from their penetration of the British Empire – much as the rising (reborn) empire of China is doing in the American market today.
Indeed, at the end of Adams's interpretative world economic history, he warns that the center of gravity may continue to shift, to Asia. Japan was a rising power in his time, but he thought in the long run China would prove more formidable. "Prudence, therefore, should dictate the adoption of measures to minimize the likelihood of sudden shocks," he advises. "American supremacy has been made possible only by applied science. The labors of successive generations of scientific men have established a control over nature which has enabled the United States to construct a new industrial mechanism, with processes surpassing perfect," he argues, but "America holds its tenure of prosperity only on condition that she can undersell her rivals."
One of my favorite passages also comes near the end of the work: "Life may be destroyed as effectively by peaceful competition as by war. A nation which is undersold may perish by famine as completely as if slaughtered by a conqueror. Therefore, men thrown into acute competition by rivals must have the ingenuity to secure an equality of equipment, else they will suffer; it may be by hunger, it may be by the sword, but in either case the purpose of nature will be attained. Nature abhors the weak."
While it is fashionable to dismiss works of that period as "social Darwinism," labels do not change how the world works, which is in ways just as intense now as ever. Brooks warned against the classical economists dogma of free trade. "Now men are apt to lecture on political economy as if it were a dogma, much as the nominalists and realists lectured in medieval schools. But a priori theories can avail little in matters which are determined by experiment....No one can say a priori what will succeed; the criterion is success." By this standard, U.S. trade policy is a failure, no matter how many academic economists claim it should be working in theory.
The dangerous situation in America today is no longer just one of particular industries being battered by foreign competition. The declining dollar indicates an impending financial meltdown, which would be a clear indicator of the nation's economic defeat in the global arena, and the coming end of its world leadership. America may no longer be a "new empire" but it would be tragic if its leaders allowed foreign rivals to push the country into a retirement home prematurely.
Ridiculous argument. I'm not suggesting the thirty to forty percent tariffs we had in the 20's (or the up to sixty percent tariffs in the post Civil War era). I'm talking under five percent. No nation will put retaliatory tariffs for so small an amount. We have the greatest market in the world and they will willingly pay a cover charge to have access to it or they won't sell their goods. And if they do retaliate, so what. It's clear from the trade deficit that our goods are selling less over there than theirs are here.
And I always thought protectionists want the gubmint to protect their jobs. What an eye-opener.
Check it out. A Naderite speaks.
If you want to destroy the American economy, go ahead, start using prtectionist methods like tarrifs.
If you don't think the rest of the world would react, your kidding yourself. look how fast, and how deep they reacted to a steel tariff. They are itching for ANY reason to slap on tarriffs of their own. don't give them any excuse.
I'm not following Ted Kennedy's views. I'm following the views of such men as Hamilton, Lincoln, Coolidge, and Reagan. I'm well aware that the American consumer pays the tariff. I'm for getting rid of the income and corporate taxes. We survived for 150 years with tariffs as the main source of revenue. And we can make money on the so called "trade deficit". We did in the past and we can again.
Let me guess. Because of NAFTA? The WTO?
Did I say anyting about protectionism? No, although I'm for it. I'm not calling for taxing foreign goods to protect our own industries. The problem with the steel tariffs is that it didn't address the problem at hand which in my view was the enormous cost of labor. If steel companies have to go out of business because they're inefficient, let them. I won't shed any tears. Tariffs will not destroy our economy, certainly not a mere one to two percent. We built our economy on tariff revenue.
Tell you what. I'm kind of strapped for cash at the moment. Can you send a check for my share to the Treasury? Thanks in advance.
I'm not for the government to protect any job. Protecting an industry perhaps if it's necessary for our support and defense. We created and maintain the greatest market in the world. We make the greatest products in the world. What will their retaliation do? Next to nothing.
We are being beaten. That's why we don't make anything in America anymore.
We can lower the income tax across the board by the same rate as the amount of income that is coming in through tariffs.
Hogwash. Tell that to Caterpillar, 3M, Cargill, et al.
Not my clothes, I assume you don't dress well. people don't want to work inthe garment industry. In fact, those working in the remaining ones are mostly cheap labor immigrants. Unions have destroyed the garment industry.
by textiles, I suppose you are including bricks etc? Then your wrong. Not one ceramic tile, paving stone, brick, or any of the flooring I have in my home is made anywhere but here. There is a reason for that. those things are HEAVY and the cost of shipping makes it more feasable to make those products here.
Again, if you are buying chineese furnature, don't invite anyone over 99 lbs to sit on it. You are begging for a lawsuit. I wouldn't buy it. I suppose there are some people who would, in a pinch or something. North carolina's funature industy is suffereing from other problems, it isn't because china has taken over the market, it's because union are gutting it too, plus the lack of technology. They can't compete. Interesting though, that those who make very fine furnature are still in business. I have always said chevy's are junk. I quit buying them after the last lemon I bought in 1980, and vowed to GM over the phone one time when I was waiting for my 4th transmission that I would never every buy another Chev product unless I had my car fixed that day. It wasn't and I haven't. SOME components are made in China for SOME cars, big deal. Again, some companies do not keep up with the times, and unions destroy others. There is nothing that can be made in China that can't be made here. So go ahead, make it and sell it. There are many other ways to make money than heating up clay to make bricks, or manufacturing goods. Americans are good at making money in other ways. Some industry just isn't worth saving and proping up for the sake of it. Americans keep whats good and profitable, and contract what is not. it's how we stay ahead of the game.
I seem to recall that by far the bulk of our trade defecit is due to our import of crude oil.
Do you also recommend putting a tarrif on oil imports??
It really depends on the person. My wife and I put an expensive toaster on our wedding registry, but I doubt we would have bought it on our own, even though we could afford it.
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