China's Prices Undercut U.S. Tire Makers, Causing Plant Closings

Newhouse News ^ | 8/8/2006 | Thomas W. Gerdel

[gogeo]

Automation requires skilled engineers to design the factory, skilled workers to build the factory machines/robots. Skilled construction hands to build the factory and skilled labor to operate it. All skilled, all high paid, all American. win-win. But cheap labor is the enemy of automation, this is a fact jack.

If cheap labor is the enemy of automation, it's also the enemy of quality.

[1rudeboy]

Very good point.

[gogeo]

Free trade eats babies.

Cute little, cuddly puppies, too.

[gogeo]

I like your tagline. It's becoming a common theme with a lot of guys I know.

[1rudeboy]

I forgot I wrote that. Did that FReeper ever show up again, or was his comment a drive-by?

[looscnnn]

Reducing/eliminating taxes would not make up the $19+ / hour difference between US and Chinese pay. It would help, but not enough.

[gogeo]

Don't know. Intellectual analysis by mantra seems to be in vogue.

[justshutupandtakeit]

Treasury bonds pay interest in dollars. It would be the lender who has the problem of convertibility not the US. Total non-problem.

[justshutupandtakeit]

Wheat, corn, soybeans, beef, pork, chicken?

[Alberta's Child]

You have to understand that when dealing with China, most of the underlying fundamentals of currency trading do not hold true. This is because China is a closed economy dominated by government-owned companies, and there are severe restrictions on what a foreign investor can do there. A person who has $100,000 in U.S. currency can invest in U.S. securities, buy real estate in the U.S., start a business in the U.S., etc. The same holds true for someone owning $100,000 worth of Euros (whatever that translates to), $100,000 worth of Japanese yen (again, whatever that translates to), etc.

Foreign investors in China have no such flexibility in their business decisions, so their currency has no real underlying value to it (if you have any doubt about this, just ask anyone who has done business in China how much value they place on Chinese currency). What this means is that China's currency only has any value in the sense that it has a defined relationship to another currency (i.e., the U.S. dollar). If you are a Chinese tycoon and you want to buy thoroughbreds from a Saudi prince, he sure as hell isn't going to accept a bazillion yuan for it unless he knows for sure that a bazillion yuan exchanges directly to some fraction of a bazillion U.S. dollars.

In linking its currency to the U.S. dollar, what China has done is institutionalize itself as a cheap manufacturing center for U.S. consumers. In other words, they have voluntarily done what no American in his right mind would ever do -- permanently establish himself and succeeding generations of his family as a low-paid laborer who manufactures things he'll never be able to afford.

Just think about that for a moment. China has basically established itself as our permanent source of slave labor.

[justshutupandtakeit]

Damn there goes my plan to get myself a Trigger.

Oh, well at least my city mansion will become more valuable. Of course I will have to bring in a front-end loader to get the books out.

[Alberta's Child]

None of those are cheaper to produce in the U.S. than anywhere else. It might seem that way because they are "cheap" in one sense, but that's not the case at all.

It's important to understand the distinction between "price" and "cost." The price of something represents the amount of money you must pay to buy it. The cost of something is the value of it when you compare it to alternative uses of the capital and labor used to produce it.

U.S. agricultural products are "cheap" because U.S. farmers are heavily subsidized. When you factor in the cost of a $150 billion Federal farm bill, your loaf of bread costs a heck of a lot more than the $1.99 you pay at the supermarket.

[justshutupandtakeit]

Great Britain's economy collapsed because of WWI not its Free Trade policie. In fact, it was under Free Trade that it came to dominate the world economy. Adam Smith showed the means by which Free Trade INCREASES the Wealth of Nations. You should read it sometime.

[Mase]

Your economic ignorance of Bananna Republics, or England's free trade historical experience, as prehistory and example shows that you have never been a serious student.

Pretty sad what passes for being a serious student these days.

From: The Truth about History and Trade - Bruce Bartlett.

"The reversal of Great Britain’s free-trade policy began as a reaction to Germany, which imposed a protectionist tariff in 1879 under pressure from its big businesses. The situation soon led to adoption of protectionist measures throughout Europe. Although Great Britain initially resisted the protectionist trend, by the turn of the century it, too, began to adopt such measures. Joseph Chamberlain was the leading advocate of the policy of limiting free trade to the nations within the British Empire, while imposing protection against those out side. Lillian Knowles described the change in policy:"

"The period from 1886 to 1914 witnessed a great change in English policy. It is the period of abandonment of laissez-faire in colonization, commerce, industry and agriculture. Great Britain began to modify her cosmopolitan ideas of free trade and laissez-faire, and to concentrate on developing trade within the British Empire."

"In 1897, Great Britain renounced its treaties with Germany and Belgium that had prevented the country from giving preferences to its colonies. However, the major break with free trade came in 1915 when the government imposed tariffs of 33 1/3 percent on motor cars and parts, musical instruments, clocks, wristwatches, and movie film. subsequent legislation broadened the list of items subject to protectionist tariffs."

"The abandonment of free trade during World War I coincided with the beginning of Great Britain’s economic decline. Freedom to trade had been the strongest pillar of Britain’s general free-market policy. When that pillar fell, the doorway opened to socialist measures of all kinds. British history in the 20th century is essentially one of almost continually expanding government control of the economy, and an equal decline in Great Britain’s power and influence in world affairs."

This all sounds eerily similar to the policy you're suggesting the US needs to adopt. No doubt this would lead to the same result. I'm certain your reply will include the protectionist revision of history by William Hawkins.

[Alberta's Child]

Thanks. It's a line from a song called "Standing Outside a Broken Phone Booth With Money in My Hand," by an obscure band called Primitive Radio Gods.

Folks might remember it from the soundtrack of The Cable Guy.

[justshutupandtakeit]

Where did you come up with the idea that a debt owner can dictate how that debt is serviced? If the owner does not want dollars it is just too damn bad for him.

[Paul Ross]

Treasury bonds pay interest in dollars. It would be the lender who has the problem of convertibility not the US.

Not if the new debt that the government generates in the future can't be sold in Treasury Bonds for that very reason. Hence, this reveals the long-term Achilles heel of the heedles borrowing and spending strategy.

Total non-problem.

We'll see, won't we?

[Paul Ross]

Chicken or egg is confused by your author. It's a good thing you posted this revisionist history...by Bruce Bartlett, who not quite as serious as you seem to think:

"The abandonment of free trade during World War I coincided with the beginning of Great Britain’s economic decline. Freedom to trade had been the strongest pillar of Britain’s general free-market policy. When that pillar fell, the doorway opened to socialist measures of all kinds. British history in the 20th century is essentially one of almost continually expanding government control of the economy, and an equal decline in Great Britain’s power and influence in world affairs."

The evidence is definitive that the decline wasn't caused by abandonment of free trade policies...but had already happened while the British were fully under the sway of free trade zealots who infested the bureaucracy...and when the evidence came that the UK's industrial infrastructure was being seriously wounded by predator nations, they did start shifting gears at the turn of the century...but they didn't fully implement an industrial restoration policy until they were already in the midst of WW-I. And it was seriously compromised by the dependancies that the zealots had blithely promoted as "strengths." The decline was caused by predators isolating industries as targets of opportunity, and then denying Great Britain its broad mass markets. Great Britain lost its economies of scale previously enjoyed. At this point, they were already a "Dead Industrial Empire Walking." The belated, and fitful modest implementations of protections were "too little, too late."

[Toddsterpatriot]

Sorry Paul, you aren't getting off this one so easily. It is curtains for your side. The evidence is in. You lose. If you were an honest debater you would rethink your whole position vis-a-vis trade.

[justshutupandtakeit]

The chart was REAL wages i.e. wages after inflation is factored OUT. NOMINAL wages increased even more.

Another economic concept you need to understand is the difference between real and nominal.