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BREAKING: Corporations Admit Trade Is About Lower Wages (Duh)

05/25/2011 12:35 pm ET

I meant the "breaking" as a snark, in case it wasn't obvious. For everyone but the pro- so-called "free trade" crowd (economists, elites and too many Democrats), it's been crystal-clear that the driving force behind trade is wages, not efficiency, a better product, lower prices for consumers and all the other nonsense you read. Today, even some business people are admitting it, albeit, not intentionally.

The New York Times has a piece today that describes how companies are now fleeing China, or at least hedging their bets, because--get this--labor costs are TOO HIGH:

China remains the most popular destination for foreign industrial investment in the world, attracting almost $83 billion last year. But a growing number of multinational corporations are pursuing a strategy that companies and analysts call "China plus one," establishing or expanding Asian bases outside China, particularly in Vietnam.

A long list of concerns about China is feeding the trend: inflation, shortages of workers and energy, a strengthening currency, changing government policies, even the possibility of widespread civil unrest someday. But most important, wages in China are rising close to 25 percent a year in many industries, in dollar terms, and China is no longer such a bargain. [emphasis added]

And if you can't keep wages down, well, let's just cut the number of workers:

"We will maintain our capacity in China, but we will make it more automatic and reduce the number of employees," said Laurence Shu, the chief financial officer of Shanghai-based Texhong, one of the world's largest makers of cotton and spandex fabric.

To limit labor costs, Hanesbrands is building a largely automated factory in Nanjing. But the company is also building a factory in Vietnam, in addition to a factory it bought here, and two more in Thailand. [Emphasis added]

What does the labor cost issue mean?

In coastal provinces with ready access to ports, even unskilled workers now earn $120 a month for a 40-hour workweek, and often considerably more; wages in inland provinces, where transport is costlier, are somewhat lower but also rising fast. While Chinese wages are still less than $1 an hour, factory workers in Vietnam earn as little as $50 a month for a 48-hour workweek, including Saturdays.

Texhong estimates that average labor costs for each textile worker in China will rise 16 percent this year, including increases in benefits costs -- on top of a 12 percent increase last year. New regulations are making it harder for companies to avoid paying for benefits, like pensions, further increasing labor costs.

When those increases are combined with a currency rising against the dollar at an annual pace of up to 10 percent, labor costs in China are now climbing at 25 percent a year or more.

Got it. Imagine that: China labor is no longer a bargain. Chinese workers are putting in 48-hour workweeks (and we thought we worked too hard) and still earning less than $1 an hour--AND THAT COST IS GETTING TOO HIGH FOR CORPORATIONS.

Yes, I am yelling. Because despite the fact that it is painfully obvious (thanks to a good article by The Times, a paper I regularly criticize for its bias towards so-called "free trade") that wages is the overriding, and, in many case, sole factor driving trade, we still have to hear the gibberish about those who are for so-called "free trade" are enlightened while those who oppose so-called "free trade" are backwards.

Perhaps we could have a public debate and ask: what is the lowest wage, taking into account differences in prices of goods, workers around the world should expect in the future? Is there a floor?

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