Thursday, March 3, 2011
ABC NEWS REPORT ON "BUY AMERICAN" IS MISGUIDED
Most economists are of the opinion that free trade is good for everybody, and that it's good for jobs in America. There is nothing wrong with buying US-made products, but neither is there any wrong in buying foreign products. The reason so many of us buy foreign products is because we choose the product that offers the best quality-price value. The world economy is amazingly intertwined. We benefit from doing business with China (or whoever) just as they benefit from us. Moreover, there are social benefits with trade among countries--doing a lot of business with another nation is possibly the most beneficial way of promoting world peace, and it raises the living standards of poorer nations (NOT at the expense of our own standard of living). "Buy American" is a compelling social slogan, but it offers no benefit toward promoting the US economy or jobs.
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David I think your thinking along with other economist is ideal in theory but and its a big but this is not how it works in the real world. The real world does not operate on an equal basis as governments continually attempt to manipulate the economy to their advantage. I see this every day in my job with a multi-national company. I find it more ironic you mention China since I am reasonably knowledgeable on how China games economics and international trade to their advantage. I can assure you if we paid our blue collar worker the wage paid in China we would absolutely eliminate the illegal alien problem as no one would look to America for a job. China is a master at undervaluation of their currency which provides a massive trade advantage to China not to mention the trade restrictions they employ. While I do agree in theory free trade makes sense but only if all elements of economy are equal.
ReplyDeleteThank you for your comments.
ReplyDeleteChina is not going to go away. While they pose great difficulties to certain American industries, they offer great opportunities to others. A system of trade barriers protecting American industries cannot keep pace with a rapidly changing world economy. Like most government policies, ultimately, it will have unintended negative consequences. Are we to design a specific trade barrier policy with each country based on what we feel are their particular unfair trade practices? Such policies will ultimately prove counterproductive to our economy as a whole. If our manufacturing sector can't compete with other countries (due to a lack of cheap labor or whatever), then we should allocate those resources to other uses where we are competitive.
Thanks for your rebuttal David, I do enjoy this. At the moment my mind is full of examples that rebut your theories just not sure where to start. First I do believe we do not raise the standard of living in 3rd world markets with free trade without any impact to our own standard of living. I believe there is a correlative relationship but the wave is so large we may not know it is hitting us but I believe it has started with this latest down turn in our economy and the high probability of any meaningful recovery protracted for 20 plus years and we may never fully recover from this. I believe part of this was the over-leveraging of our wealth by refinancing of our real estate asset base as a means to increase our standard of living buy cheap goods from low cost countries and bang it collapsed.
ReplyDeleteAs with regard to US companies not able to compete visa via cheap labor this is not the only factor.....many of these 3rd world markets especially China and India expand manufacturing capacity to the point where the capacity exceeds the demand driving pricing below profitability with the sole intent of driving out the competition so they can now control the market. These governments utilize many economic tools to provide for this one specific example that I am aware of is the China and India governments will subsidize the cost of energy to insure cheap manufacturing cost.
Our company was probably the last US based company to manufacture computers (FYI no OEM manufactures computers) and now the manufacturing of computers is primarily controlled by China. The only US manufacturing of computers by our company was in North Carolina specifically for Israel...we manufactured 100% of IBM computers world wide. We sold this business to Lenovo of China, which is a Chinese Government controlled business.
The largest telecom manufacturing company in the world is amazingly China...didn't we have a major telecom economic meltdown....from over capacity....there are numerous examples of over capacity meltdowns in our economic history and it is being used against the US by 3rd world manufacturing.
You state that while the China's of the world may pose difficulty for American industries to compete but they offer great opportunities to others...I would like you to name one manufacturing industry benefiting from China with any significance.
Don't get me wrong I am not anti-free trade I do believe the benefit does outweigh the negatives and it does weed out the under performers in the market...but I do believe we should utilize policies in very specific instances where abuses are in place by a government that dramatically distorts market forces.
No doubt China IS a trade adversary--it's far from all good. However, there is
ReplyDeletelittle to gain by waging tarrif wars with them. In the long-run China
can be a benefit to our economy. Best to leave them be and go about our business
without making lot laws and adversarial policies in revenge for what we believe to be unfair trade practices. It seems disingenuous to be a "free trader" and advocate tarrif policies. Our negative responses toward China will be met with reactionary negative responses toward us. The US Government needs to get out of the business of managing our economy, not delving in yet further. I was under the impression that many US companies were utilizing cheap labor in other countries in a large way. I'm pretty sure that China was not a primary cause of our recession nor of our on-going economic woes.
David,
ReplyDeleteThe Heritage Foundation has a great article on job creation in America versus jobs going over seas......government policy via corporate tax rates is the primary factor in this article....this is spot on assessment as our company has cash sitting off-shore but with the high US tax rates this money will not come back to the US to create jobs until the government changes the corporate tax policies....