In the day-to-day news about trade problems with China the bigger picture can get lost. America is giving up its competitive position in industries of the present and future and it is costing us. Even the people you would think would defend "free trade" are coming to understand that America is losing its vital ability to invent, keep and create industries and jobs and to keep a modern economy humming.
Robert J. Samuelson has a significant op-ed today in the Washington Post, The makings of a trade war with China in which he says we need to confront China's illegal trade manipulations. You should read the whole thing, but here are excerpts:
... Confronting China's export subsidies risks a similar tit-for-tat cycle at a time when the global economic recovery is weak. This is a risk, unfortunately, we need to take.
... The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don't.... China's worst abuse involves its undervalued currency and its promotion of export-led economic growth.
Samuelson concludes,
The collision is between two concepts of the world order. As the old order's main architect and guardian, the United States faces a dreadful choice: resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous.
It's not just Samuelson concluding that we need to confront China's cheating on trade. Many others have been weighing in that we are losing too much and have to take steps. For example, in July, Andy Grove, Intel's influential former CEO, published a very important opinion piece on a similar topic, How to Make an American Job Before It's Too Late. Grove wrote that we are not just losing jobs to China, we are losing the "chain of experience" that enables new companies and industries to form and to create new jobs and argues for a national economic strategy to preserve our manufacturing and technology base. (These are excerpts but Grove's entire piece is an absolute must-read.)
You could say, as many do, that shipping jobs overseas is no big deal because the high-value work -- and much of the profits -- remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?
...evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.
Grove also says that we need to fix this and fix the unemployment problem for other reasons as well,
Unemployment is corrosive. If what I'm suggesting sounds protectionist, so be it.
One after another, our business leaders and economists are realizing that the "free trade" ideology has not worked out very well for us. We were told by the "experts" that moving our factories out of the country was a good idea, that new jobs would replace those lost. They didn't. We were told that we don't need or want a national strategy to be competitive in the world because an invisible hand would guide us. It didn't. We were told that trade "partners" would reciprocate by buying from us equally. They didn't. We were told that we would invent new industries to replace ones we lost. We did, but the new industries moved or are moving out of the country, too.
Now that we are in the midst of the resulting crisis even the "experts" are realizing that trade needs to be a two-way street for it to work, and it hasn't been. "Free trade" was supposed to be a panacea, bringing us a prosperous future. The reality was different. A few corporate leaders (the ones who promoted these ideas) have gotten really, really rich at the expense of the rest of us (and that includes other corporations and corporate leaders). Now that the beneficiaries of the "free trade' bamboozlement are off to their private islands in their private jets or private yachts the rest of us are looking around at the devastation of our economy and standard of living, wondering what to do and finally becoming aware that rigid ideologies and their enforcers have kept us from looking for practical solutions that actually work for all of us as a country and community.
So finally from the depth of the resulting crisis a rational national discussion may be beginning, one in which people on the "free trade' side are not able to just shut down different opinions by shouting "protectionist" or other slogans. As this discussion gets underway here are three principles to help guide us:
1) Let's drop ideological preconceptions and look at what has worked in history and what is working for other countries today. Science is supposed to describe, but economics has too often been about "if only people would do such-and-such, so-and-so would result." That is prescribing and is not science.
2) We have to talk about how we handle mercantilist nations like China who are not playing by the trade rules and what we, together as a nation, can do about it. Let's also talk about and multinational reactions to the mercantilists. We can join with countries interested in lifting each other with fair trade, interested in trade models that help us mutually lift each other, and together take on those who want it all for themselves.
3) Ultimately we can't all export our way out of this mess. And ultimately we can't return to unsustainable old economic models that have failed us over and over. We can't continue with a few taking as much as they can get at the expense of the rest of us. As machines and technology solve more of our problems and do more of our work our overpopulated, undereducated world has to come to grips with equitable models for who gets what for what and how to take care of our planet and each other. That is the only thing that will work in the long run.
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
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Isnt that the very definition of a service economy? Those at the bottom get to service the needs of the very few at the top?
A trade war between China and the world wouldn't hurt the US as much as a trade war between China and the US. But either is still better than China's currency situation. Still, the best solution is to reach an agreement on currency reform without a trade war.
The EU has mixed interests, with growing economies (e.g., Germany) far more interested in that vast China market that they are so successfully tapping, and contracting economies worried about competition.
In fact, most of the world runs a deficit with China.
Think about it.
http://www.uschambermagazine.com/article/peruvian-president-speaks-to-chamber-before-fta-signing
Our standard of living HAS NOT improved as a result, a few well-placed people may have got ridiculously wealthy. Everyone else is struggling to find a job while real jobs were being actually being created 30-40 years ago when products were actually made in America. Some how middle class people were able to buy appliances, clothing, tvs, radios, etc as well as all the essentials back then, so don't tell me moving our factories to China has improved living standards; purchasing power remains unchanged or perhaps decreased.
Perhaps they million/billionaires behind this offshoring mess have come out with better incomes, but everyone else is being left in the dust.
"The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don't."
Let's change it a little.
The trouble is that the USA has never genuinely accepted the basic rules of war. The USA follows rules when they suit its interests and rejects, modifies or ignores them when they don't. Just look at Vietnam, Afganistan and Iraq.
The USA also rejects, modifies and ignores international trade agreements as well. An easy example would be the softwood lumber dispute with Canada. They have a weak economy and a weak army so they back down even though they're right. Now the USA wants to push China around on trade and China refuses so now the US is using propaganda.
The American people do deserve to work, but when honest hard working americans are getting paid minimum wage and looked down upon while the cast of Jersey Shores get paid millions, then I say the problem will persist regardless of the value of Chinese currency.
How the hell did we let China destroy our manufacturing sector like this?
How did we let our greed take over and prove the comunists right?
Inside the bunkers, they must be laughing non stop, at the poor arrogant gringos, done in by their own greed.
I only have one question. Are we still strong and proud enough to bring this game to a halt and get our manufacturing jobs back?
For over 20 years, China had been the biggest benefactor to Americans. Affordable goods of high quality held inflation low and raised the living standards for all American consumers; recycling of trade dollars kept American interest rates next to nothing. As a direct result, American asset prices kept rising steadily. Unemployment was never a real problem for the entire generation (20 years!!), and everyone had extra money to spend. Those were the golden years - until the 2008 meltdown/recession caused by the fraud of the American banksters (which killed 8 million American jobs). Even after the debacle, Beijing stood by America, refused Putin's advances to assault the American financial system, and continued to buy Treasuries and GSEs. thereby propping up the rickety American financial system. China wanted to see a strong and stable America, where folks have jobs and can afford to buy more products from China.
Most of the exports from China are complementary, and not competitive, with what is made in the U.S. Good prices continue to keep consumer prices low. Instead of protectionist moves, Washington should instead push for increasing exports, by (a) revamp export controls; and (b) encourage FDI into America's export sectors. Who better to sell and export Made in America, than folks who know the language and custom and needs and wants of the target markets, than traders FROM the target markets?
Why is there no focus at all in what is being pursued - an INCREASE in American exports? The Chinese brings over big delegations for the express stated purpose of buying billions of American goods EACH TRIP, why is there no concerted effort to encourage more of same? Why is there no sustained programs to entice FDI into the export sectors and thus creating American jobs?