May 5, 2011
-- by Dave Johnson
Since China’s admission into the World Trade Organization we have been packing up our factories and sending them over there. We have been buying so many things made in China, but they have not been buying very many things made here, and the resulting “trade deficit” has gotten worse year after year. Everyone is afraid of what China might do with all those trillion$ in US Bonds they have accumulated. We are told to be afraid, that we need to cut Medicare and Social Security and unemployment benefits and all the other things We, the People do for each other, and learn to be poor. There is a better way to solve the problem: let trade BE trade.
Trade Should BE Trade
Trade is supposed to be about trading. It is not supposed to just be a scheme to drive wages and living standards down by packing up factories and moving them across borders. It is not supposed to be "take a pay cut and a cut in benefits or we'll move your job." It is not supposed to be "well, we have something called globalization now so everyone should expect to be poorer and poorer every year."
Trade is supposed to be we buy what they make and they use the money we pay them to buy things we make. And then we use the money they paid us to buy things made there. And then they use the money we paid them to buy things made here. It is supposed to go on like that, and everyone does better and better. Better and better, not poorer and poorer.
Let Me Take Your Order, Please
So here is an idea for next week’s US-China Strategic And Economic Dialogue. Last year we "raised issues" and signed various memorandums of understanding but nothing changed. This time we have to stop putting off what has to be done. This time, let’s tell China that from now on trade will be trade.
Here is what I mean:
When the meeting begins Secretaries Clinton (State) and Geithner (Treasury) and Locke (Commerce) should slide a big stack of order forms across the table and say, "Your turn. Let us take your orders now, please."
That is what China can do with all of those US Bonds they have been accumulating. They can start trading, which means buying things from us. And we should say that those things should be things, not companies or farms or real estate or more factories. Our government should make it clear that it is their turn. It is time for trade to BE trade. And if not, we will put a big tariff on goods made in China until it is.
We need to put a few conditions on the deal. Just like they do. They have not been trading with us, they have been seizing the means of production. There is a long list of schemes and manipulations and conditions China uses to rig the game, and it is time to stop this nonsense.
The main unfair tactics China uses to its advantage: 1) Currency manipulation. China "pegs" its currency at a very low, or "weak" rate, so goods from China cost up to 40% less than they otherwise should. 2) Labor-rights suppression, which has lowered manufacturing wages of Chinese workers by 47% to 86%. 3) Massive direct government subsidization of export production in many key industries. 4) Environmental degradation that ends up affecting all of us. 5) Intellectual property theft and piracy, which mean that American products that could be sold are stolen instead. 6) A number of policies that block U.S. firms from market access.
It is necessary to bring their currency to market rates, but this is not all that must be done to bring trade into balance. It helps; it doesn’t fix it.
Do What They Do
In our scenario our administration has handed a stack of order forms to the Chinese delegation, and said, "We're ready to take your order now." Tell them the deal for cashing in those bonds -- and continuing to sell to us without big tariffs -- is that China has to actually trade with us, and spend all of those accumulated bonds on goods made here. (I guess if they can tell Social Security recipients that their bonds have been spent they can set conditions on China cashing in theirs... right?)
We don't make that here anymore, you say? Well, here is a solution to that, too. We can just do what they do. We can say, you have to build a plant here that does that. And you have to "partner" with an American company before you can even do that. And you have to transfer your technology to that company. And after a few years your company goes away and the factory and the technology and the market will be ours.
Believe it or not, that is what they say to our companies, and for far too long our government has let them get away with that. So along with the stack of order forms, they can tell China that we are going to start doing what they do. Go down the above list, point by point, and just do what they do. Leave out the labor-suppression and environmental degradation parts.
We Can't Just Go Back To The Old Way
There are huge interests here and in China who have done very well because of the "trade" policies of recent years. With the economic crisis heading into the past they are pushing very hard to just go back to the way things were. Of course they are. And they are very, very powerful. The Chamber of Commerce runs hundreds of millions of dollars of campaign ads urging us to just go back to doing the things that brought them so much wealth and power. In China those who accumulated great wealth and power from these schemes are fighting hard to just keep it going. The imbalances have been just great for them, and they use the resulting wealth and power to push for more.
But the resulting imbalances have been terrible for everyone else in the world. The imbalances have drained wealth and power from everyone else in the world. Can everyone else in the world overcome this or are we all helpless against the onslaught?
Or do we have to wait for the next crisis to completely destroy everything and rebuild from there?
Posted by Dave Johnson at May 5, 2011 5:51 PM
To some degree, I've bought into the Modern Money Theory of Mosler (maybe Mosler Money Theory), in which dollars are nothing more than bits in an account or numbers on bills. Actual wealth is in the form of goods and services, and imports increase wealth (and exports reduce wealth).
I have been wondering, who really benefits and who is harmed by imports and exports? For example, I think of a small section of a political thriller novel I read probably a quarter century ago (title completely forgotten).
A farmer in the Opium Triangle (Laos, Burma, that area of Southeast Asia) is described in naive, simpleton terms as very happy at the approval given to his product by the authorities who buy it up. They've given him $150 instead of the usual $100.
Then the book shifts to objective mode as it describes the next steps in the production of illegal drugs (from the farmer's produce) worth hundreds of thousands of dollars.
Then there's China's prison industry. Has there been much discussion of China's prison industry recently? It's probably a major player in the production of China's exports.
What do businesses in China do with the dollars they receive from the exports?
Posted by: John M at May 8, 2011 3:19 PM
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