Wednesday, October 12, 2011

One explanation for the mess we are in!

China is of special concern

Our negative balance of trade in manufactured goods in 2010 was over $500 billion.  China accounts for something over half of this amount.  Obviously we must always keep in mind the other countries involved.  But our negative balance of trade with China is much larger than with any other country. 

China is of special concern for other reasons.  China has published a policy document clearly setting out the objective of complete destruction of the manufacturing sectors of the United States and other western countries.

China has maintained its currency at an artificially low level for many years, through complex financial maneuvers. If the Chinese currency were allowed to reach its level through normal market forces, millions more Americans would be setting out for work this morning!

President Obama has repeatedly made speeches about this problem, but has done nothing concrete about it.

Now a group of Senators is trying to get a law passed that would essentially force the U.S. government to bring an action against China for unfair trade practices. (Why do we have to “force” our government to act in the interests of all the people?)

The reaction of the business community has been swift.  As stated in my previous blog post, “a coalition of 51 U.S. business groups” is trying to torpedo the proposed Senate action.

Who controls U.S. government policy?

The action of U.S. business interests against a modest Senate proposal explains why successive Presidents, successive Administrations, and successive generations of Senate and House members during 50 years have done nothing to prevent or at least reduce transfer of manufacturing jobs to low-wage countries including China.  

This situation explains the censorship that currently governs what appears in newspapers and on TV, and governs what politicians are allowed to say. 

The “51 U.S. business groups” and probably additional business groups, have been waiting and hoping for three decades that they would be allowed to sell directly to the one billion people of China.  They drool when they think of this huge market.

While these “business groups” are waiting and hoping for something that clearly is never going to happen, they don’t want anything done that will annoy the Chinese.  Thus their opposition to action on Chinese currency.

News Flash!  And it is Good news!  The proposed bill to force action on Chinese currency has been approved by the Senate!  Congratulations to Senator Stabenow of Michigan and other senators who worked very hard to develop this bill and get it through the Senate.

Collateral Damage!

In support of their own narrow and selfish interests, “business groups” completely control government policy.  The interests of these “business groups” are paramount in government policy, with no concern whatever for collateral damage:

  • America has lost its technological leadership in R & D and manufacturing capability
  • Hemorrhage of many hundreds of billions of dollars every year, real wealth going out to foreign countries to pay them to do our manufacturing for us.
  • Loss of manufacturing employment, and loss of the value-added effect of manufacturing, which otherwise would be enriching our economy and nation
  • Half of all households need social assistance at tremendous cost, paid for by increased government debt and higher tax burden on those who still have employment
  • At least 25 million unemployed.  Half of Americans pay no tax because they have no income
The collateral damage outlined above adds up to trillions of dollars, the hidden cost of saving a few dollars by buying a Chinese-made item.

Where are the protests?

Collateral damage began in the 1960s when manufacturers started to transfer jobs overseas.  The damage and the devastation have steadily mounted over a period of 50 years. Millions of people should have been in the streets decades ago protesting this damage to our nation.  But Americans have been uncharacteristically passive.

Finally now the “Occupy Wall Street” people are in the streets. Very good!  However they are going after a secondary target. Wall Street is very annoying but is not the cause of the real problem. 

The real problem in America is that 25 million people, and probably more, are unemployed.

All the commentators and politicians who are so hysterical about debt and deficit should really be concerned about unemployment, the CAUSE of debt and deficit.

And the unemployment is caused by the tail wagging the dog.  The unemployment is caused by government obedience to the narrow interests of business, rather than obedience to the interests of 312 million Americans.

Ironically, many large companies are complaining about poor business conditions in the United States, lower store sales, etc.  They don’t understand, or at least PRETEND not to understand, that the cause of the problem is the unwise policies they themselves forced on the government and the people of America! 

Occupy Wall Street should be demonstrating against the “51 U.S. business groups” and their allies. There should be not thousands but millions in the streets in Washington, protesting the devastation of 50 years of allowing narrow business interests to control government trade and economic policy.

Prospects for solving the problem

Under the censorship, no one is allowed to say “We have to get our manufacturing jobs back from China” (and other low-wage countries), let alone discuss how getting the jobs back could be accomplished.

But the ONLY way to save America and other western countries is to get the manufacturing jobs back. OK, President Obama came into office soon after the crash in Fall 2008. Not his fault. But now he has sat for three years waiting and hoping for something to happen, rather than taking strong action to control the flow of foreign-made goods.

“New industries” and “re-training for new industries” are pipe dreams. They will never provide enough jobs to make a dent in 25 million unemployed.  And, without strong policies in effect, any new technology and new employment in new industries will drain away to China.

We have to get the mass employment back from overseas, the employment that produces tens of thousands of consumer, commercial and industrial items.  Like a person who has been ill, we would start with simpler items.  We would have to re-build our technological and manufacturing skills, and then take on more complex items.

The ordinary people of America know that we have to get the jobs back from overseas.  They know we have to rebuild our technological capability. 

The “coalition of 51 U.S. business groups” and their allies in business and government are scared.
Desperate responses come from scared people. Basically with the censorship and other measures they are trying to prevent Americans from learning what they already know.

There is one industry in America that is hiring, and that is the industry of creating fantasy explanations for how we got into our present mess.  Censorship Fantasy explanations

Hired guns are saying nonsensical and ridiculous things:

  • Hillary Clinton said in a speech in January 2011 that our trade with China is still less than our trade with EU (i.e., she is claiming that imports from China have not yet reached a significant level!).  Hillary Clinton speech
  • The Federal Reserve Bank of San Francisco produced a calculation purporting to show that Chinese goods constitute only 2.7% of our economy.  Federal Reserve Bank SF
  • Robert Reich recently said, “It is stupid to punish China” over the currency issue, and “China merely assembles”.
If “assembly” is so “mere”, let’s do it in USA and put five or ten million people back to work!


Mr. M. states "It is not just China.  All emerging markets, Vietnam, India, Brazil, with lower costs and attractive tax structures, are of concern." 

Ed Farkas comment.  True, all of these countries are of concern.  But our negative balance of trade with China is very much larger than our negative balance of trade with any other country.  Further, these other countries don't have a published, active and organized plan to destroy the American manufacturing sector completely.  But generally the answer to Mr. M's comment is that we need to apply a tariff to goods from China and from any other country that does not buy from us in approximately equal quantities (measured in dollar value).  We can't continue to have a negative balance of trade with each of dozens of countries.  The negative balance of trade is real money and real wealth going out of our country, impoverishing our country.  The negative balance of trade number is a direct indicator of how many Americans could be working but are not working.  The tariff applied would be largest for goods from China, and smaller for other countries with smaller negative balances.  As soon as I say "tariff" some people invoke the empty scare word "protectionism".  The fact is that America's negative balance of trade in manufactured goods in relation to the size of our economy is so large as to be absolutely unprecedented in world history.  The resulting damage we are doing to our own country is also unprecedented.   The damage we are doing to ourselves by allowing our existing negative balance of trade to continue is far greater than any possible alleged damage that could occur through "protectionism".


Mr. H. asks:  "So how and what can be done to get Americans back to work?  It's obvious that many existing jobs are gone - most likely for good."

Ed Farkas comment.  I believe that jobs will come back if the economic conditions are attractive.  Manufacturing costs in some areas of the United States have decreased while manufacturing costs in China, as one example, have increased, to the point where USA is competitive with China.  Some foreign corporations have looked around the world and have concluded that their best bet for new manufacturing facilities is USA!  Some American corporations have re-analyzed costs of their China operations and have concluded that manufacturing in USA is now more attractive.  They are bringing work back to USA.  Where the jobs are not coming back fast enough, and tens of millions of Americans are suffering, without jobs, without income, without dignity, we must apply a suitable tariff.  I believe that even a small tariff of 20% would bring millions of jobs back from China.  I believe there is no such thing as a "job gone for good"!


Mr. S. says:  "We let clowns dismantle our strengths and make huge profits selling us out.  That is treason in my view!"

Ed Farkas comment.  Absolutely true.  John Kerry, not the sharpest politician we have, referred to "corporate Benedict Arnolds" during the 2004 presidential election campaign.  But he only said it once, because of the censorship that is in effect.

President Obama said, during the 2008 campaign, "We have to get the jobs back from China".  But, again, he only said it once.  He probably had a rough night with his advisers, after making that comment, with his advisers undoubtedly explaining to him that no one is allowed to say that!


Mr. W. says: "Nice article".

Ed Farkas comment:  Thank you!

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