Why America isnt winning the trade war
Published 3:20 pm Friday, April 23, 2010
Suppose you went to WalMart to purchase a widget and found that the one made in the US was $4.50 and a similar widget made in China was $4.00.&bsp;&bsp;&bsp; So you purchase the Chinese widget and reason that if the US worker didnt make so much money and the labor unions didnt demand so much in money and benefits, the US company could make that widget for $4.00.&bsp; Or so the common rationale goes that has embedded itself in our culture since the Reagan years.&bsp; Well folks, you need to keep up and upgrade your obsolete thinking but first you need to understand a fact.&bsp;&bsp; The US worker is 10 times more productive than the average Chinese worker as well as any other 3rd world worker.&bsp;&bsp; Additionally, the unions are undergoing a sea change in their thinking and are much more amenable to changes in work rules and benefits than they used to be.&bsp; In a few years, theyll be acting more like business people than business people.&bsp;&bsp; If I hear someone complaining about the union nowadays I think, this person either doesnt know what he/she is talking about or they are completely out of touch with reality.&bsp; I say this as one of the few people who has ever de-certified their companys union in North Carolina.
Anyway, back to my widget buying point.&bsp; If you take that $4.00 Chinese widget and add 15% to it, it is now a $4.60 widget and would cost more than the US made widget at $4.50.&bsp; Why am I adding 15%.&bsp; Well, thats the amount the Chinese government directly subsidizes any export to the US.&bsp; Same goes for almost all our trading partners.&bsp; The subsidy runs from 8% – 18% depending on the country and goes to any company that exports a product to the US. &bsp;
Now lets say the US company wants to export its $4.50 widget to China.&bsp; Because China assesses a 17% tax on the value of products imported into their country, the US widget will cost $5.27 in China.&bsp; So, how many Chinese are going to buy the US widget when they can get a homegrown one for $4.60?
Now expand this same scenario to all our major trading partners in the world and you have a pretty good idea of why the value-based part of our economy is shrinking and the standard of living is falling so fast for the middle class in our country.
Ive heard a lot of our high powered economic theorists and ideologists try and discount this fact but the facts are the facts folks.&bsp; And Ive also heard people from this legion of ideologists say we should just make those other countries stop doing that. For such a strongly opinionated group, they sure are nave.&bsp; There is nothing in our Free Trade agreements that can stop them and WalMart or Wall Street is not going to lobby in support of such a change. They like the current unsustainable setup.&bsp; The leaders of these other countries figured out a long time ago that the US financial leaders and politicians are just plain stupid in this regard and they have taken full advantage of that weakness.&bsp;&bsp; &bsp;
We can continue on this self-destructive path to the point where the middle class can no longer afford WalMart prices or we can do something about it. &bsp;
Now our wizards of Wall Street and Washington (along with their self-interested lobbying groups) want to beat the drum of getting the Chinese to float their currency (Yuan/RMB).&bsp; This is just another meaningless smoke screen that would have almost no impact on the import/export dynamics except in the minds of the ideologists obsessed with this unproven free-market theory.&bsp;&bsp; And politically it is convenient to blame the problem on someone else like the Chinese instead of our own stupidity.&bsp;&bsp;&bsp;&bsp; Floating the Yuan does little to fix the advantage that our trading partners have over us with their Value-Added Tax (VAT) systems.&bsp; The VAT is used by these countries to subsidize exports to the US and to make US products more expensive to import into their countries. Its one of the best protectionist techniques that Ive ever seen.&bsp; Its plain and its simple. &bsp;
This global unfairness is a serious enough threat to the US that our entire standard of living is going to continue to decline.&bsp; If I were to venture a guess, Id say that the mere act of implementing a VAT system would probably increase our exports by 20 – 30% in a just a couple of years.&bsp; There would be an almost instantaneous boost is the purchase of US made products worldwide. &bsp;
But sadly, there would be much whining from consumer advocates, WalMart and Wall Street about how the cost of American Flags for Independence Day celebrations would go up by a nickel.&bsp;&bsp; So you say you want a revolution..
Rodney Gibson is the former Mayor of Saluda.