Time to demand Fair Trade!

[Glen]

1. The seem to sell like hotcakes as far as I know.

2. So what? Should the government protect Mattel because it made a poor investment decision?

3. It's unlikely that a Chinese lawyer will want to practise law in Canada anyways.

4. What do you think they do with their massive foreign reserves? Let it gather dust, or invest it around the world?

5. But Detroit industries used the competitive advantage the local government provided to squeeze out competitors in other parts of the US. Japan and Western Europe fixed their currencies with the US Dollar from world war 2 until 1973. The Arab countries are doing the same so that "Joe the Plumber" won't complain about high fuel prices.

Finally, tell me how a Canadian textile factory worker making $12/hour can in a million years compete with someone willing to work for 10% of that and I'll give you the rights to the Brooklyn Bridge.

Where are you drawing these inferences from? I don't think the government should be protecting Mattell at all. They should should be protecting its citizens. If goods from certain countries have a history of being in contravention of Canadian standards, in-spite of regulation that deems otherwise, they should be barred entry or face strict inspection. The cost of which should be born by the importer. I won't even bother responding to your other points as you have failed to realize that we are talking about international, not national, trade.

 

[Glen]

The notion that Chinese goods are soo inferior as to have any bearing on this conversation is a bit tiresome. Personally, I don't actually buy that much anyways so I could care less. What I do know is that Walmart's biggest users are (ironically...) unemployed blue collar types. The Bay Street crowd is not responsible for Walmart's primary customer base being white people with a family income under 60k. For example, Dichotomy has been ragging on how "cheap" Chinese blenders are and how free trade screws Canadians, but in another thread (basically) calls everyone hippies for being opposed to a Walmart in Leslieville. I guess it is one of those new "fair trade" Walmarts. It's the perfect example, Lou Dobbs types hate the idea that China is "taking" their jobs, but if you ask people to go with less (and pursuing a "made in canada" policy would mean less) you are a pinko commie.

China does actually invest more in Canada than we do in China, I assume it is mainly because of Chinese nationals investing in Canadian real estate. Hell, Vancouver wouldn't even be a city if not for Chinese buying condos there.

Once again though, Glen (and the fair trade movement at large) takes legitimate trade issues (like producer subsidies or fixed exchange rates) and concludes that if the economy is not 101% free, we should make it 101% controlled (through subsidies, tarrifs ect...). I don't think anybody would suggest the current system is ideal. To borrow that Churchill quote: it is the worst system we have, except for all the other systems. The problem is, whenever solutions are proposed (like the recent Doha round of trade talks), a whole horde of people descend on every government complaining about this and that. It is ridiculous. Even Karl Marx spoke in favor of free trade for the love of god!

The issue of product inferiority is not one that I raised. Safety yes, inferiority no. I do not think that Chinese products are inherently inferior. As far as Chinese investments in Canada go, care to point to any other outside of condos, resources or energy that are anything other than grease for the mercantile machinery? You should also have a look at the restrictions that foreign investors face when 'investing' in China.

What is remarkable is that you seem to be suggesting that it is I that is engaging in black or white thinking. The shortcomings in WTO rules and current practices are not minor. Extremely undervalued currencies, lax labour and environmental standards, price fixing, unilateral market access, and the list goes on. To even use the term fair under such circumstance is ridiculous.

While Walmart may be considered the primary source for made in China goods, you would be surprised that many designer goods are made there despite "Made in Italy" or "Made in France" labels. The difference is that when Walmart reduced cost by outsourcing to China they passed the savings on to consumers. Prada, Gucci etc. just pocket the savings.

 

[Whoaccio]

The issue of product inferiority is not one that I raised. Safety yes, inferiority no. I do not think that Chinese products are inherently inferior. As far as Chinese investments in Canada go, care to point to any other outside of condos, resources or energy that are anything other than grease for the mercantile machinery? You should also have a look at the restrictions that foreign investors face when 'investing' in China.

Investment is investment. Just because the money doesn't go to industries you deem to be "important" doesn't make it any less significant. There are far more Canadians that make a living off of real estate than building cars, and to them a Chinese person investing in Burnaby is pretty significant. Maybe you don't like "condos, resources and energy", but those sectors (specifically) are the only reason Canada isn't duking it out with Latvia and Mexico for "who can assemble a better Malibu" at the moment. And still, Chinese product safety is not a major liability. It needs to be improved, obviously, but you make it sound as if the 100 deaths over the past decade in the US (90% of which were due to parent neglect) is the premier threat facing Canadians. That, literally, hundreds of thousands of Canadians would slip into poverty is of little or no concern. If all Canadians can't have jobs 'working the line', what is the point of trying to earn a living in another field, right? Let's just ban all imports, start fixing prices and maybe we can try to export hockey to Venezuela and Zimbabwe.

What is remarkable is that you seem to be suggesting that it is I that is engaging in black or white thinking. The shortcomings in WTO rules and current practices are not minor. Extremely undervalued currencies, lax labour and environmental standards, price fixing, unilateral market access, and the list goes on. To even use the term fair under such circumstance is ridiculous.

You're logic is, in short, free trade doesn't exist ergo why bother. That is very black and white. There are varying degrees of free trade, and you would probably oppose all of them because they don't fit you're Hamiltonian vision of every Canadian working in a factory, driving a GM and living in a nice quiet suburb. It doesn't matter to you that, even failing short of some kind of Ayn Randian economy, country's that liberalize their economies routinely and consistently out perform those that do not. The 20th century is littered with failed autarkies, from Fascist Italy to North Korea and Hawley-Smoot USA. Maybe the greatest example, Japan. Dichotomy's wet dream because they managed to take one of the world's largest growth spree and turn it into a decade long recession just so that they could keep subsidizing their rice crop at 490% of it's value, restricting immigration just to keep shoveling billions into dead end robotics and subsidizing just about every failed concept from the Minidisc to NetDocMo to the Sony Aibo.

While Walmart may be considered the primary source for made in China goods, you would be surprised that many designer goods are made there despite "Made in Italy" or "Made in France" labels. The difference is that when Walmart reduced cost by outsourcing to China they passed the savings on to consumers. Prada, Gucci etc. just pocket the savings.

What is you're point? That buying "made in China" products is ethical from Walmart, but buying a Prada bag made in China isn't? First of all, Prada, Gucci, Hermes are textbook cases of conspicuous consumption. The utility of a Prada bag isn't that it can carry things, it is that you spent 5k on it. I've never understood conspicuous consumption, but when people buy some of these things they are getting more than just a bag (at least, to them).

More importantly though, so what? Fine, Prada customers are bad shoppers, the owners of Prada get the money and spend it as they please. It is still in the economy, being cycled from air headed heiress shopper to clever high fashion sales men to overpriced coffee barristas, the BMW dealership and the coke dealer. The circle of life. Walmart products having lower margins doesn't change anything (they were low margin in Canada too...). If you think buying foreign goods is wrong, and you shop at Walmart, you are still just as much of a hypocrite as if you bought a Gucci Bag made in Phuket.

 

[Glen]

Investment is investment. Just because the money doesn't go to industries you deem to be "important" doesn't make it any less significant. There are far more Canadians that make a living off of real estate than building cars, and to them a Chinese person investing in Burnaby is pretty significant. Maybe you don't like "condos, resources and energy", but those sectors (specifically) are the only reason Canada isn't duking it out with Latvia and Mexico for "who can assemble a better Malibu" at the moment. And still, Chinese product safety is not a major liability. It needs to be improved, obviously, but you make it sound as if the 100 deaths over the past decade in the US (90% of which were due to parent neglect) is the premier threat facing Canadians. That, literally, hundreds of thousands of Canadians would slip into poverty is of little or no concern. If all Canadians can't have jobs 'working the line', what is the point of trying to earn a living in another field, right? Let's just ban all imports, start fixing prices and maybe we can try to export hockey to Venezuela and Zimbabwe.


You're logic is, in short, free trade doesn't exist ergo why bother. That is very black and white. There are varying degrees of free trade, and you would probably oppose all of them because they don't fit you're Hamiltonian vision of every Canadian working in a factory, driving a GM and living in a nice quiet suburb. It doesn't matter to you that, even failing short of some kind of Ayn Randian economy, country's that liberalize their economies routinely and consistently out perform those that do not. The 20th century is littered with failed autarkies, from Fascist Italy to North Korea and Hawley-Smoot USA. Maybe the greatest example, Japan. Dichotomy's wet dream because they managed to take one of the world's largest growth spree and turn it into a decade long recession just so that they could keep subsidizing their rice crop at 490% of it's value, restricting immigration just to keep shoveling billions into dead end robotics and subsidizing just about every failed concept from the Minidisc to NetDocMo to the Sony Aibo.



What is you're point? That buying "made in China" products is ethical from Walmart, but buying a Prada bag made in China isn't? First of all, Prada, Gucci, Hermes are textbook cases of conspicuous consumption. The utility of a Prada bag isn't that it can carry things, it is that you spent 5k on it. I've never understood conspicuous consumption, but when people buy some of these things they are getting more than just a bag (at least, to them).

More importantly though, so what? Fine, Prada customers are bad shoppers, the owners of Prada get the money and spend it as they please. It is still in the economy, being cycled from air headed heiress shopper to clever high fashion sales men to overpriced coffee barristas, the BMW dealership and the coke dealer. The circle of life. Walmart products having lower margins doesn't change anything (they were low margin in Canada too...). If you think buying foreign goods is wrong, and you shop at Walmart, you are still just as much of a hypocrite as if you bought a Gucci Bag made in Phuket.

Remarkable! Building condos makes jobs. And I have been labouring under the impression that they build themselves. Thanks for clearing that up.

Now if you could explain how it creates demand that would clear up everything. In the absence of increased demand, it would be logical to believe that such condos would have been built anyway. Lets be clear here though, we are talking about investment, not immigration. I can't believe that you can so easily dismiss the loss of jobs, that have been occurring under false circumstance. Do you think that China would have grown at the same pace if the currency was fairly valued, 40% more than it is. Or if wages were not artificially lower than they are, because workers would have to pay market, not below cost, fixed cost for food and energy? Do you really believe that any country engaging in such market subsidisation is going to do so in perpetuity? History has shown time and time again that such practices are utilized to gain market share, afterwards they are rescinded, but the jobs losses that might not have occurred in the affected nations usually do not return.

As far as the other issues you remarked on, let me be clear. I did not ever say that we should not buy foreign goods. What I have clearly stated, and you seem to completely ignore, is that domestic producers are not on a level playing field. Your arguments illustrate the hypocrisy clearly. The issue is not about '100 deaths over the past decade in the US'. It is more about the 30,000 Chinese coal miners who die every year, or the pollution that they generate, on our behalf.

Lastly, your remark about " literally, hundreds of thousands of Canadians would slip into poverty is of little or no concern" shows that you do not understand how commodity markets operate. Commodity prices are a reflection of global demand. You can change the makeup of whom buys from whom with negligible effect on pricing. So long as the total demand and supply remain the same. Ignoring the effects of Canada supplying resources to countries which will price them for domestic consumption below cost to subsidise industries that then import finished goods back into Canada, while ignoring the 200,000+ manufacturing jobs that have been lost is quite a leap. Does your concern only extend to certain types of jobs?


I am not against Free Trade, per say. I am just waiting to see it.

 

[Whoaccio]

Now if you could explain how it creates demand that would clear up everything. In the absence of increased demand, it would be logical to believe that such condos would have been built anyway. Lets be clear here though, we are talking about investment, not immigration. I can't believe that you can so easily dismiss the loss of jobs, that have been occurring under false circumstance. Do you think that China would have grown at the same pace if the currency was fairly valued, 40% more than it is. Or if wages were not artificially lower than they are, because workers would have to pay market, not below cost, fixed cost for food and energy? Do you really believe that any country engaging in such market subsidisation is going to do so in perpetuity? History has shown time and time again that such practices are utilized to gain market share, afterwards they are rescinded, but the jobs losses that might not have occurred in the affected nations usually do not return.

Canada has more jobs, and a higher GDP and GNP today, than at any point in history. Barring the fact that we are most likely heading into a recession, which has little to do with China per se, the Canadian economy is doing just fine. Between 2001-2006, Canada's employment growth led the G7 countries, ahead of the USA and far ahead of protectionist Japan and Europe. The obsession with China confuses issues as well. Many of "our" jobs didn't even go there, they went to Mexico or Kentucky. The bulk of Ontario's manufacturing job losses would have likely occurred regardless of whether Asia even existed, as inefficient factories were shut down or moved to cheaper US jurisdictions. This is supported by manufacturing output actually rising by 1.3% during '01-06, while employment (in that sector) dropped by 1.4%, suggesting that most of the employees let go would have been terminated regardless of China. Still, our productivity is abnormally low in the manufacturing sector, which suggest further layoffs are going to occur (regardless of trade) until Canadian producers invest in more advanced equipment and downsize failing operations to normalize with OECD averages. Ironically, if we liberalized our banking laws this would increase the amount of capital available to Canadian producers and make them more able to compete.

You keep running on the assumption that, if China (or you're 3rd world scape goat of choice) didn't exist, Canadian would consume an equal amount of Nike shoes and Lego toy sets and that all (or at least a good chunk of) the current sino-canadian trade would revert to Canadian producers, which is demonstrably false. Prior to the 1980s, we just didn't consume as much. If we reverted back to a to the 1970s, Canadian producers would have reduced demand for their goods among Canadian consumers. Manufacturing output would fall, as disposable incomes would decrease.

As far as the other issues you remarked on, let me be clear. I did not ever say that we should not buy foreign goods. What I have clearly stated, and you seem to completely ignore, is that domestic producers are not on a level playing field. Your arguments illustrate the hypocrisy clearly. The issue is not about '100 deaths over the past decade in the US'. It is more about the 30,000 Chinese coal miners who die every year, or the pollution that they generate, on our behalf.

And you're "solutions" would only spark trade wars and bring us back to some kind of Hugo Chavez inspired wasteland. If therr is a lack of trade freedom limiting progress and economic growth (as I admit there are), the logical solution would be to free up trade regulations. "Fair" trade activists though intentionally try to create distorted systems simply to say it is broken! In another thread, without any prior details on the agreement, you voted that in a possible Canada-EU trade pact, we should only agree to free trade so long as certain industries are protected. In other words, we should only have free trade so long as we don't have free trade, so I can complain how we don't have free trade and hence should have less free trade. It is a vicious cycle which has caused countless recessions.

Lastly, your remark about " literally, hundreds of thousands of Canadians would slip into poverty is of little or no concern" shows that you do not understand how commodity markets operate. Commodity prices are a reflection of global demand. You can change the makeup of whom buys from whom with negligible effect on pricing. So long as the total demand and supply remain the same. Ignoring the effects of Canada supplying resources to countries which will price them for domestic consumption below cost to subsidise industries that then import finished goods back into Canada, while ignoring the 200,000+ manufacturing jobs that have been lost is quite a leap. Does your concern only extend to certain types of jobs?

I was actually referring more to increased prices from trying to pursue you're half baked autarky ideas. There is a good chance, that if Canada reverted to a protectionist footing, manufacturing employment would grow marginally. It would probably be good for the line worker at a GM plant. He isn't the Canadian economy though. The bulk of Canadians would see their living costs rise dramatically. In the 1950s & 60s, when most Canadians could count on a job in manufacturing and China didn't exist, the average Canadian family spent 50% of it's income on the "costs of living" (housing, food & clothing). By today's standards, that is actually the definition of poverty in Canada (going by the LICO). Today, precisely because of our admittedly imperfect free trade agreements, the average Canadian family spends 30% of it's income on "living," By sparking trade wars, as well as disadvantaging the entire resource and construction sector, the increased cost of living would push far more Canadians into poverty. Just like things were way back when in the good old days.

 

[Glen]

Canada has more jobs, and a higher GDP and GNP today, than at any point in history. Barring the fact that we are most likely heading into a recession, which has little to do with China per se, the Canadian economy is doing just fine. Between 2001-2006, Canada's employment growth led the G7 countries, ahead of the USA and far ahead of protectionist Japan and Europe.

Real GDP of 2.37 % over the period. Nothing to crow about. No lets see how we do in the next 6 years. With the loss of 1/4 of a million manufacturing jobs in Ontario alone it is easy to predict what the outcome will be.

The obsession with China confuses issues as well. Many of "our" jobs didn't even go there, they went to Mexico or Kentucky. The bulk of Ontario's manufacturing job losses would have likely occurred regardless of whether Asia even existed, as inefficient factories were shut down or moved to cheaper US jurisdictions.

As a result of NFTA we lost some jobs but we also created some as a result. Remarkable what happens when trading partners are on a level field. They each play to their own strengths.

Still, our productivity is abnormally low in the manufacturing sector, which suggest further layoffs are going to occur (regardless of trade) until Canadian producers invest in more advanced equipment and downsize failing operations to normalize with OECD averages. Ironically, if we liberalized our banking laws this would increase the amount of capital available to Canadian producers and make them more able to compete.

Just how unproductive do you think Canadian factories are? Take a look at screws and nails. The labour content is next to nill. We produce the raw resources to manufacture them. Yet Chinese imports are priced 20% to 40% lower. No amount of gains in efficiency is going to offset that artificial difference.

You keep running on the assumption that, if China (or you're 3rd world scape goat of choice) didn't exist, Canadian would consume an equal amount of Nike shoes and Lego toy sets and that all (or at least a good chunk of) the current sino-canadian trade would revert to Canadian producers, which is demonstrably false. Prior to the 1980s, we just didn't consume as much. If we reverted back to a to the 1970s, Canadian producers would have reduced demand for their goods among Canadian consumers. Manufacturing output would fall, as disposable incomes would decrease.

So what? I really don't give two shits that you won't be able to afford that extra pair of Nike's. The truth of the matter is that even if they continue to be made in China, eventually the price is going to rise. The factors which make labour cheaper, below cost, government fixed food and energy prices, plus other factors are not sustainable. They are tools to gain market share. I have no problem with the notion of paying more and consuming less. Especially if it means buying better.

In this debate it is you that has shown a remarkable lack of knowledge in the issues. From currency pricing to productivity (hint declining sales automatically reduce productivity), to actual product safety concerns. Going so far as to suggest that product safety concerns were over stated and a result of poor parenting, tell that to those who died and fell ill on heparin. You have also should a callous disregard for the environmental and safety concerns of those people and countries whom are 'improving our lives by making things cheaper' for us.

And you're "solutions" would only spark trade wars and bring us back to some kind of Hugo Chavez inspired wasteland. If therr is a lack of trade freedom limiting progress and economic growth (as I admit there are), the logical solution would be to free up trade regulations. "Fair" trade activists though intentionally try to create distorted systems simply to say it is broken! In another thread, without any prior details on the agreement, you voted that in a possible Canada-EU trade pact, we should only agree to free trade so long as certain industries are protected. In other words, we should only have free trade so long as we don't have free trade, so I can complain how we don't have free trade and hence should have less free trade. It is a vicious cycle which has caused countless recessions.


I was actually referring more to increased prices from trying to pursue you're half baked autarky ideas. There is a good chance, that if Canada reverted to a protectionist footing, manufacturing employment would grow marginally. It would probably be good for the line worker at a GM plant. He isn't the Canadian economy though. The bulk of Canadians would see their living costs rise dramatically. In the 1950s & 60s, when most Canadians could count on a job in manufacturing and China didn't exist, the average Canadian family spent 50% of it's income on the "costs of living" (housing, food & clothing). By today's standards, that is actually the definition of poverty in Canada (going by the LICO). Today, precisely because of our admittedly imperfect free trade agreements, the average Canadian family spends 30% of it's income on "living," By sparking trade wars, as well as disadvantaging the entire resource and construction sector, the increased cost of living would push far more Canadians into poverty. Just like things were way back when in the good old days.

All I have done is suggest that trade takes place on a level field. Account for the expense of rules and regulations on domestic producers and apply that to non complying imports. Add in the cost savings from intellectual property theft. Prevent unfair currency rigging and artificial incentives, IE. price fixing that distorts wages.

 

[Whoaccio]

Real GDP of 2.37 % over the period. Nothing to crow about. No lets see how we do in the next 6 years. With the loss of 1/4 of a million manufacturing jobs in Ontario alone it is easy to predict what the outcome will be. As a result of NFTA we lost some jobs but we also created some as a result. Remarkable what happens when trading partners are on a level field. They each play to their own strengths.

Yes, free trade works. That is my point. It is you who has gone on and on about how we are hemorrhaging jobs (or at leas the jobs you care about) but you continually ignore the jobs we gained in other sectors. Real GDP growth of 2.37% isn't half bad compared to countries like Germany and Japan either, countries which go to great lengths to protect their manufacturers and screw their society as a result of some pseudo Marxian faith in the industrial proletariat being the bed rock of modern society

Just how unproductive do you think Canadian factories are? Take a look at screws and nails. The labour content is next to nill. We produce the raw resources to manufacture them. Yet Chinese imports are priced 20% to 40% lower. No amount of gains in efficiency is going to offset that artificial difference.

Canada. Should. Not. Be. Making. Nuts. And. Screws. We could over value the Yuan by 100%, it would still make absolutely no sense to make products with virtually no value in Canada.

So what? I really don't give two shits that you won't be able to afford that extra pair of Nike's. The truth of the matter is that even if they continue to be made in China, eventually the price is going to rise. The factors which make labour cheaper, below cost, government fixed food and energy prices, plus other factors are not sustainable. They are tools to gain market share. I have no problem with the notion of paying more and consuming less. Especially if it means buying better.

I have no problems with 'paying more and consuming less' either. Society at large, does. I challenge any politician, of any stripe, to run on a platform of increasing the cost of living for Canadians solely for the purpose of benefiting a depressed manufacturing sector. You have this obsession with manufacturing and the role of producers of manufactured goods in society. Canada is bigger than a GM plant. Yes, if we pulled out of the WTO, I imagine Oshawa would actually see a bit of a revival. Obviously that is an attractive proposition. But, who would be paying for this? The answer is Canadian consumers, who would be burdened with abnormally high costs to support inefficient local producers. And what happens when local consumers have a diminished ability to consume? Local producers get screwed!

(as an aside, there is a subplot to all of this. Pursuing this kind of protectionist policy, on a national level, would be a boondoggle. It would be seen as the blatant favoritism it is of the Central Canadian manufacturing sector it is. People in Alberta STILL complain of being forced to buy above market prices for industrial and consumer goods half a century ago. This would rank up there with the NEP. Rightly so, Canada only even really developed a manufacturing sector because of regressive tariffs in the fist place)

In this debate it is you that has shown a remarkable lack of knowledge in the issues. From currency pricing to productivity (hint declining sales automatically reduce productivity)

Quick, name one successful example of a protectionist country? Name one instance in history where protectionist policies have improved the lot of society? Name one credible economist in this day and age who argues for anything approaching protectionism. Even the left wing economists have abandoned arguing against the, nearly universally, accepted theories behind competitive advantage and trade liberalization. I'm not stating my opinion so much as observed fact.

All I have done is suggest that trade takes place on a level field

...by tilting the field in our favor.

 

[Glen]

You are repeatedly skirting the issue. As I stated in my previous post, Free Trade can be good. It increases efficiency and creates better jobs. That is not what is at debate here.

The issue is what we have now is not Free Trade with China et al. With the US, predominantly we do. But not with other nations outside of NAFTA. What is remarkable is that China is engaging in predatory pricing to gain market share which we allow in a wholesale fashion. Yet the very same practices are illegal here.

If you think that China is content on growing only lower rung industries, think again. If you were a real proponent of free and open markets you would not have disdain for the idea of a Canadian company making fasteners. I used that example to illustrate that such a product, which production is nearly completely automated, should not have such variance in price. The fact that there is such a large gap signals the extent of the manipulations that are at play here. The same issues are effecting many value added industries as well. Precision machinery, pharmaceuticals, software development etc.


Listing countries that have benefited from liberalized trade is easy. Listing ones, where both parties benefited, under the conditions that I have raised is impossible.

 

[Glen]

Just in case you do not read the links, Peter Morici sums it up best.

Free trade can offer Americans great opportunities to improve their prosperity and quality of life.
By permitting Americans and workers in other countries to do what they do best, it raises
incomes and living standards, and widens the range of goods and services available. However,
currency manipulation, and other forms of government intervention, can thwart the gains from
trade by permitting some countries to subsidize exports on a massive scale and run up large trade
surpluses.
In the case of China, the currency market intervention necessary to maintain its yuan peg
imposes a tax on Chinese firms and workers equal to nearly 9 percent of GDP, which China uses
to subsidize exports to the United States and other countries. This lowers U.S. GDP by up to
$500 billion or 4.4 percent, and overwhelms the U.S. efficiency gains from trade, estimated at
$125 billion.
In the near term, consumers enjoy lower prices at discount stores and shopping malls, but the
effects on American prosperity and economic leadership are highly corrosive. The trade deficit is
significantly reducing GDP and jobs creation, stifling wage increases, reducing tax revenues and
increasing the federal deficit, undermining U.S. investments in R&D and long-term growth, and
creating a burdensome debt to foreign governments and individuals. Longer-term, the continued
tax on U.S. prosperity, imposed by currency manipulation and the trade deficit will undermine
public support for the WTO and other trade agreements, and limit U.S. foreign policy options
and leadership.

 

[Glen]

http://www.fpif.org/fpiftxt/5274

The beneficiaries of these trade agreements try to divert attention by arguing that our trade in services has increased or that our competitiveness has declined. Those arguments are simply diversions because they don’t explain why our exports of goods to countries that made no concessions increased more than our exports to China, which made significant tariff and non-tariff concessions. Such arguments also fail to explain why our imports of goods from China increased more than our imports from other major trading partners. Is there any wonder that the people on Main Street think that trade agreements do not work?


Were this simply a problem with our bilateral trade relationship with China, policy makers could focus on resolving that dysfunctional relationship. However, the problem extends to nearly all trade agreements since they are based on the flawed premise that free trade benefits the economy. The premise is flawed and broken since free trade does not exist in a “free market†Petri dish where all other factors are neutral.

Using China as an example once again, proponents of the free trade model argue that China has a competitive advantage in wage rates that makes it ideal as the global manufacturing center that it has become. A closer examination, however, reveals that China has adopted an export-led development strategy, the centerpiece of which is a currency that is undervalued by 20-80%, with the consensus leaning toward 40%. Thus China’s wages, in U.S. dollar terms, are 40% cheaper than they would have been if the currency were allowed to freely float. Similarly, foreign investors receive a 40% subsidy to develop operations in China. To add insult to injury, our exports are taxed at an additional effective 40% rate.

Robert Cassidy, a contributor to Foreign Policy In Focus (www.fpif.org), is the former Assistant U.S. Trade Representative for Asia and for China and was the lead negotiator for China's 1999 Market Access Agreement that paved the way for China's accession to the WTO.

 

[kEiThZ]

With Obama in office we might see a real push for 'fair trade' so maybe many of these issues on uneven labour, environmental, etc. standards will get addressed.

 

[urbanfan89]

With Obama in office we might see a real push for 'fair trade' so maybe many of these issues on uneven labour, environmental, etc. standards will get addressed.

Don't get your hopes too high. He will not magically cause wages in China to double overnight nor will he magically put every kid who's currently in a Cambodian sweatshop into school.

 

[kEiThZ]

Don't get your hopes too high. He will not magically cause wages in China to double overnight nor will he magically put every kid who's currently in a Cambodian sweatshop into school.

It's not that I believe Obama is a cure to all the world's ills (or even what ails the USA) but he will succeed at putting 'fair trade' on the agenda and indeed, this was talked about all through the election. The Asian exporters are in for a rough ride in the next few years if they think they can keep using kids in sweatshops to churn out Walmart merchandise.

 

[urbanfan89]

The Asian exporters are in for a rough ride in the next few years

Who's *not* in for a rough ride in the next few years?

if they think they can keep using kids in sweatshops to churn out Walmart merchandise.

Believe it or not there's a looming threat to dirt cheap hands: robotics. Within 25 years almost all manual labour in the world will be priced out due to cheap and efficient robotics. That's why they are working up the value chain.

 

[Glen]

The China Price Report

This report examines the eight major economic drivers of the China Price and provides estimates of their relative contributions to China’s manufacturing competitive advantage. Lower labor costs account for 39% of the China Price advantage. A highly efficient form of production known as “industrial network clustering†together with catalytic Foreign Direct Investment add another 16% and 3%, respectively. The remainder of the China Price advantage is driven by more mercantilist elements. Export subsides account for 17% of the advantage, an undervalued currency adds 11%, counterfeiting and piracy contribute 9%, and together, lax environmental and worker health and safety regulatory regimes add another 5%. Implications for management strategy and public policy are noted within the context of the “flight or fight†choice facing manufacturing enterprises seeking to compete with China