The Americans who bought products made with leather from GST AutoLeather will save some of their own money in the form of less expensive products thanks to a more efficient factory in Mexico. On the average, they will then use this money to satisfy other wants. Ultimately, this indirectly manifests itself in Angel Mills finding a job as a massage therapist.
If Americans instead chose or were forced (by tariffs) to buy products made from leather from GST AutoLeather's plant in Maryland, they would pay a higher price for a less efficient plant, and on the average, America would be poorer. Instead of being able to afford both a leather couch and a massage, they would only be able to afford the leather couch.
With unfettered trade between Mexico and America, however, it may be more cost efficient to have the plant in Mexico instead of Maryland and to import the leather. Imported leather is paid for with dollars, which then are used to pay for American exports in industries that are most cost-effective and efficient by being located in America. The same goods, at a cheaper price, means that consumers can spend their money on their other demands. It means that a consumer can have both his couch and his massage, instead of wasting part of the price of the leather in the couch for an inefficient plant in Maryland.
It also means that Angel Mills is re-employed more efficiently as a massage therapist. Jobs are not a scarce resource, gentlemen, because human demands for things are unlimited. That is how and why a free market works to my understanding, and I'm not even an economist.
Wrong! You really missed the reality in that example. The factory in Mexico is not more "efficient", the labor is simply cheaper. In the immediate, it made the American worker slightly poorer and only provided the Mexican a job. The Mexican will receive no raises in the future and thus will remain poor. But maybe she'll make enough to pay for her husband or kids to come North. The surplus of illegal un/semi-skilled workers lowers the base wage in America. In the end, GST AutoLeather will not have done itself, its owners/shareholders, its workers, its state or country, a favor. GST will be bankrupt in five years.
Now if GST had invested in a more effecient factory in the USA......the benefits would have killed 'em!
Quote: The Americans who bought products made with leather from GST AutoLeather will save some of their own money in the form of less expensive products thanks to a more efficient factory in Mexico
That is a fine and dandly line of thought until you multiply the loss of GST with thousands of other plants going the same route. How long will it be until your job is the one being offshored and your ox is now being gored?
You've got this pretty much backwards...The couch price didn't change...The manufacturer took the wages he paid to Americans and put it in his own pocket...He didn't drop the price of the couch...He didn't move to Mexico to be nice to Americans...
And now the lady with considerably reduced wages can't afford the couch...She can't afford a massage either...But she NEEDS the couch...So she buys cheaper groceries...Doesn't drive as much and gives up on going to the movies...
And now, she won't be buying a new car (which puts more Americans out of work)...
Almost. To truly have a market, businesses should not be protected by things like OPIC ( sort of an FDIC for businesses investing overseas ). You want to move production off shore, you should be fully prepared to take the risks of things like--nationalization of your industry by a foreign govt, wars, etc.. Right now, the government indirectly subsidizes some of this off-shoring phenomenon. The funny part is, there are some hidden costs that short sighted types in management don't see, which is why there is usually staff on hand domestically to put out the fires ( aka, fixing all the screw-ups ), and the slow movement of things like call centers back on shore because things weren't 'working out'.