Monday, May 30, 2011

The costs of manufacturing OUTSIDE America are too high!

Some people say to me that Americans choose lowest-cost items and therefore will not buy USA-made goods.

I believe this statement may have been correct ten years ago but is not correct now.   Difficult to prove this statement either way because in most cases the consumer is not offered a choice.  He or she goes into a store and sees only Made in China.  I say to Wal-Mart and other chain stores:  Put USA items and China items side by side, with clear labelling, and see what choices the consumer makes.

There are thousands of manufacturers of consumer items operating in the United States.  These manufacturers could quickly increase production, if the chain stores showed interest. At very little additional effort, consumers could be offered a choice.

I have not made a detailed study in stores.  In half a dozen instances that I came across by chance where identical Chinese and American items were available, the prices were the same!  So why are we importing these Chinese items? 

Anyone who says that consumers go by price only should carry out a survey.  Talk to 1000 consumers fairly selected according to level of financial assets, employed or unemployed, and other relevant factors.  Ask the consumer if he or she will pay 10% more for the same item Made in USA.  Ask if he or she will pay 20% more.  I predict that a survey of this type will find that people are prepared to pay more for American-made goods.

I recently saw an article by Ms Michele Nash-Hoff*.  She presents some poll results, similar to the above suggestion.  The overall impression of the article is that the typical American consumer is way ahead of politicians, commentators, and analysts, in understanding the importance of getting our jobs back from overseas, in understanding the importance of buying American, and in willingness to pay more to buy American.  Maybe many Americans also understand the huge hidden costs incurred when we "save" a few dollars buying a Chinese item. Full discussion further on in this post.

* "Poll shows creating manufacturing jobs is key to recovery".  Huffington Post.  September 7, 2011.

One man said to me that talking about buying American is Nationalistic.  I don't think that is a terribly bad word but I also don't think this is what is happening.  Most Americans understand that buying foreign-made goods has nearly wrecked the economy, and has created a huge army of 25 million unemployed.  Americans want to buy American-made to help ensure the security of their own employment, and to help relatives, neighbors, and friends retain their jobs or find jobs.

The sending of jobs overseas started 50 years ago.  Over the years it occurred to me: "Are we sending these jobs overseas to help the poor people of those countries?"  I could not understand why we were sending our jobs away.  In November 2011 a man said to me that my mention of buying American is selfish and we should think of poor people overseas.  I have to say that I do not agree with this idea.  Charity begins at home!

Take China as one example. If any Chinese person living in China is worried about the poor people of China, let him or her set up to manufacture in China, hiring Chinese people for the purpose, and selling the products to the Chinese people.  That is the way to lift up the poor people of China.  Not by sending the goods to USA and wrecking the economy of the USA!

Going  now to more general topics, obviously some of our manufacturing is done inside our borders and some of our manufacturing is done for us by foreign countries. 

We export some manufactured goods to foreign countries.  But we IMPORT much greater amounts of goods.

In official U.S. government publications, from Congressional Research Service and from Bureau of the Census, Foreign Trade Division, the above situation is concisely described as follows:

         "Value of manufactured goods exported 
                            MINUS value of manufactured goods imported"

The result of this little bit of arithmetic is NEGATIVE if imports are larger than exports.  

At present our Negative balance of trade in manufactured goods is over 500 billion dollars per year. 

So our net cost of having a great deal of our manufacturing done for us by foreign countries is over 500 billion dollars per year, real money hemorrhaging out of our country and impoverishing our country.

Some economists have said that a negative balance of trade is not real money and we don't have to worry about it. 

I say it IS real money, hemorrhaging out of our country, never to be seen again, and the proof is two-fold:

+  America is impoverished.  Our people can't find jobs, portions of some of our cities are being shut down, and our governments at all levels are fighting impossible deficits.

+  China, the major example of foreign countries doing our manufacturing for us, is responsible for about half of our negative balance of trade.  China is rolling in money.  China doesn't know what to do with all the money.  China has built millions of new apartments that are empty, and has built new towns that are ghost towns.  China is greatly enlarging an already very large military establishment, despite the fact that there is absolutely no enemy and no threat in sight.  China is investing in technology and manufacturing so that it will become self-sufficient in all manufactured goods including airliners, and will supply all manufactured goods required on the Chinese domestic market and also on the world market.   

Parenthetically, a great deal of the technology will be stolen from western countries but that is a topic for another post!

There are well over ONE THOUSAND professors in economics departments in U.S. universities.  I invite economics professors and economists with any other affiliation to come forward and let me know if anything said in this post is incorrect or incomplete.  I will listen and if warranted I will adjust my views and statements.

Let's summarize.  I say that manufacturing outside USA is far too expensive and far too costly for the following reasons:

1.  We are paying our life's blood, over 500 billion dollars per year, to have our manufacturing done for us by foreign countries, while our own workers stand in line at unemployment offices.

2.  We have to make increased unemployment and welfare payments. 

3.  Our governments are facing huge deficits because of the loss of tax revenue.  Very simply, workers in foreign countries don't pay U.S. taxes.  Over half of Americans have such low levels of income that they don't owe any tax. 

4.  People who want to work and can't find work are subject to increased health and social problems, leading to increased costs.  People in illegal activities can't be told "get an honest job".  There are no jobs.  The result is hundreds of billions in extra costs for police, courts, and jails. 

Add up items 1 through 4 and you will see how expensive it is to manufacture overseas. 

Some people say that job loss in manufacturing is due to increased efficiency of the U.S. manufacturing sector.  It is true that the U.S. manufacturing sector has become more and more efficient.  But the fact is that today the U.S. manufacturing sector is not able to make all the goods we need.  In addition, we have to import goods to a net value of over 500 billion dollars per year. 

We have to bring the manufacturing jobs back from overseas.  The whole process over the last 50 years of sending manufacturing jobs overseas has been a giant mistake.  Our business and government leaders have to admit the mistake.  Bring the jobs back from overseas and our costs will go DOWN by literally trillions of dollars.

One further point.  I am not against trade.  Trade is good when there is approximate equality between imports and exports. 

However, when there is a negative balance of trade of over 500 billion dollars per year, that is not "trade".  It is a devastating, pathological, insane situation that has to be reversed.

As an example of devastating and pathological, note that our imports from China are four times larger than our exports to China. 


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