Posts Tagged ‘ fair trade ’

Gettelfinger thinks only an idiot would not want a bailout

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My good friend, Reedkeys, over on blogspot, posted this video and expressed his outrage that Lansing’s Mayor Bernero seems to imply that capitalism isn’t working for the auto industry.  I didn’t quite get that same message but then again, I’m an idiot.  I think he was saying that free trade isn’t working for the industry.  [Addendum:  OK, I went back and watched this again and I have to admit I tuned this interview out early the first time I watched it.  I see Reed was really responding to the dumbass comment the Mayor made toward the very end.  He then says capitalism doesn’t work and that the rest of the world is NOT capitalist.  OK, I disagree with all of that and think the mayor’s leftism is shining through.] In fact, I would say free trade isn’t working for any U.S. industry.  Unless you want to classify Wal-Mart as an industry.  Wal-Mart is not only thriving but they are a major reason so many jobs are going overseas.

Lansing’s Mayor Bernero tries to say that the American automakers are in a tough bind trying to compete with countries like China that can pay workers far less than we can.  Do we want an America where career choices for the masses are limited to selling a foreign product, service, or menial labor?

I’m not entirely certain I disagree with the mayor. I  blogged about free trade a few weeks ago, my point then was simply that free trade is a wonderful theory but one that only truly works when the playing field is level.  In pure theory, free trade allows the market to determine which industries live and which die, based on pure competitive factors. However, free trade does not introduce fair competition. It allows competitors into our market without adjusting price for VERY different standards of living.

Getting Fat on Free TradeNow if you believe the U.S. standard of living is far far too high and that we here in the U.S. should all be living without cars, TV’s, or computers, and our homes should be made from mud or other low tech materials, then I see where you are coming from. I think Gore may believe this – as long as he is exempt.  Granted unions are demanding wages that exceed their labor output but what is a fair competitive wage in the auto industry?  Would $10/hr be fair?  How about $5.75 that’s roughly the same as your average high school student. (I think they deserve more than $10 but to illustrate my point let’s go as low as we can go.)

Would lowering every single auto worker’s pay to minimum wage solve the problem? No. The average Chinese factory worker makes $2.20 an hour. Furthermore current trade agreements while eliminating tariffs allow the Koreans to continue import taxes on U.S. products through “taxing cars based on “engine displacement”, including the Special Consumption Tax, the Annual Vehicle Tax, and the Subway/Regional Development Bond.”   The Korean only agreed to “overhaul” and “address” trade concerns.  Meanwhile Korean textile imports to the U.S. go tax or nearly tax-free.  But trade agreements do not address the basic standard of living inequities that exist.

It is not capitalism that has failed it is the tariff system that has been changed to benefit third world producers while exterminating American producers. As I mentioned in my essay on this topic, we need to have equalizing tariffs or demand foreign workers make salaries that are roughly equivalent to U.S. workers. This would mean higher prices and thus no one wants this. But should nothing be done to equalize trade, we will slowly spiral into a world where the standard of living reaches a global median. (Oh, I’m certain it wiull never be totally uniform but more so than we see today.)  A world where those who are able to own a business populate the upper-class and what remains of the middle-class while the rest of the world languishes in the realm of the working poor.  This is when you can truly kiss capitalism goodbye.  A poor democracy will vote itself right into a communist dictatorship. Last month we got a taste of just how little people use reason when they are terrified of the future. Naturally, union concessions are necessary but equally so a little strategic use of tariffs to level the field.

Should the auto industry fail, can the U.S. economy absorb up to 3 million displaced workers?  I certainly do not want to give the big 3 money, but I think loans with attached strings is a sound rescue plan.  However, if we do not begin to practice “fair trade” and learn to compete, it will be no different than keeping a brain-dead trauma patient plugged into life-support.  The auto industry and for that matter all U.S. manufacturing will eventually falter.  Allowing industries to fail and continuing to import from nations where labor costs are nearly unmeasurable is economic suicide.  Whether it occurs slowly over decades or overnight I simply cannot accept the notion that such a trade policy is good in the long haul.  I am reminded of something I heard as a child, “the production of finished product from raw materials is the only true way to produce wealth.”  That may not be always be true but applied to nations it makes more sense than where we seem to be headed, “Producing nothing, while consuming all the world can produce is the true way for importers to get rich while a nation goes to hell.”

As a  theory, free trade makes a lot of sense, but sometimes there are good economic reasons to stray from a good theory.

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