On Mon, 08 Aug 2016 18:02:46 -0700, Winston_Smith
<
inv...@butterfly.net> wrote:
>On Mon, 08 Aug 2016 16:22:36 -0400, Ed Huntress wrote:
>>
>>Tell you what. We'll leave it at that, and we'll get into dueling
>>statistics some time. No anecdotes allowed. Just overall effects of
>>trade over time. Ok?
>
>OK. Some time. I see you recognize statistics are just as open to
>selection and interpretation as anecdotes. May not be worth the effort
>on anyone's part.
Of course. But they tell the overall story, if you read them
carefully.
Back in 2001, when I spent six months researching trade with China and
wrote several articles about it, I reacted to our then Commerce
Secretary's (Don Evans) comment to the effect that American tool and
die makers could compete with anyone in the world, and didn't need
protection. My response was, back when China's average manufacturing
wage was 83 cents/hour and they were selling lots of crappy injection
molds in the US, "How do you compete with 83 cents an hour?"
The answer was, you don't. Which raised the question, "what is 'fair'
trade?" What makes it fair or unfair?
No one could admit that it was a matter of wages. That was very
anti-ideological. So they scrambled around in all the nooks and
crannies and came up with "comparable labor laws," and "comparable
environmental protections," and the elimination of bank
subsidies...and then, when it became apparent that those were all too
weak to explain the trade imbalance, they seized on "currency
manipulation."
That had a good run for five years or so. Then some of the top
economists in the world started saying, "hey, bullshit. Their currency
actually is OVERvalued." That was around 2008 - 2010. The currency
manipulation thing lost its sting.
Now it seems to be back in style. So we have an excuse and a complaint
again. China's manufacturing wages are up to around $2.65 and
transportation got more expensive -- why, I don't know. That helps,
but we still have a substantial trade gap.
Now, in case we even get serious and look at this issue in some depth
(which it definitely won't be as long as it's a political football), I
think you'll find that these things are true. This is the distillation
of what I learned years ago and what I've picked up by reporting on it
from time to time since:
1) You can't "compete" with wages that are 1/10 of yours. Screw the
fact that direct labor is only about 12% of manufacturing cost; it's
all of the direct labor in the supply chain that adds up. It's almost
all labor in the end.
2) China, like Japan will not have wage increases fast enough to play
out the scenario mapped out by Milton Friedman and the other trade
theorists of the past half-century. In other words, there will be no
balancing due to currency devaluation in the country with greater
imports (that's us).
3) The fact that you can pack up new technology into a shipping
container and knock 25 years off of development time (think
GM-Shanghai and the engines in Chevy SUVs) means that changes will
come to fast for the importing country to adjust.
4) Thge sheer volume of China's exports tosses traditional trade
theories into the trash can. Not only does it come too fast, in comes
in quantitites that are too large to adjust to.
That's where we are relative to the traditional thinking about trade.
Still, without trade, an advanced economy will wind down in a swamp of
protectionism and inefficiency. There is no domestic substitution for
an economy like ours. For the products we export, our domestic markets
are already near saturated. That's why we're pushing exports in the
first place.
So what we have to resolve is that combination of facts. No
broad-based protectionism; that's suicide. No fantasies about domestic
substitution. Our ability to control currency manipulation, by a
country that is really determined to do it, is limited, and we can't
play that game with out own currency. That's one of the upshots of
having the dominant trade currency for the world.
What we're left with is this combination of factors: One of the
objectives of trade is to accelerate the development of underdeveloped
countries, so one of our goals is for China to do well and to become
more expensive. That puts them more on a par with us, and trading with
countries that are on our par (like Western European countries)
produces the best balance and the best results for us.
Meantime, we need to push our educational system to build technical
competitiveness. And, more important for social peace, we need to
provide more support for people who lose their jobs through trade:
direct money support, mobility support, and educational support.
It will work itself out.
--
Ed Huntress