By now the president has found out that he can't single-handedly take on the combined de-industrializing institutions that control the GOP -- the Chamber of Commerce, National Association of Manufacturers, agribusiness, etc. These are the labor-intensive sectors of the economy responsible for passing NAFTA, sending jobs and factories out of our country and into cheap labor colonies like Mexico, China, India, Vietnam, and elsewhere.
During the 2016 campaign, Trump identified the American operators of these businesses as the enemy -- frequently holding up Carrier, an A/C manufacturer, as a vivid example. Also Ford Motors, Nabisco, and others. They were moving their plants to Mexico? Well, how about a big fat 35% tariff on everything they make there and try to bring back into the US market? That would totally counter-act the greedy American executives' attempt to generate higher profits simply by slashing labor costs, sending the work to Mexico instead of Michigan.
As a rule, executives should only be rewarded for improving their company's products -- providing a higher quality and quantity for a lower price. Or inventing entirely new products. They must be punished for cutting labor costs, since that is not an invention or product improvement. It doesn't take a genius to figure out that you can boost profits by slashing labor costs, it only takes a sociopath. By rewarding their cheap-labor programs, we are breeding the executive class to be dull-witted, lazy, and predatory, rather than ingenious, industrious, and pro-social.
Since taking office and getting immediately cock-blocked by the de-industrial lobbies, as well as every politician in his own dominant party, the president has given up on taking the fight to the anti-American executives who have destroyed the economy that once used to support a large prosperous middle and working class. He no longer harangues flagrant violators of his former campaign slogan to "Hire American," like when Harley Davidson just shut down their plant in Kansas City, in order to move production over to Thailand.
He also doesn't put any pressure on the cheap labor colonies themselves. Quite the contrary -- he just helped save a telecom cartel in China, complaining about US policies that were costing too many Chinese jobs. And he's not only capitulated to Mexico on NAFTA, but on the never-to-be-built wall as well. Really, how hard would it be just for symbolic theatrical value to keep demanding that Mexico will pay for The Wall? He doesn't even bother with the empty symbolism anymore.
He's never attacked Vietnam, despite their soaring trade surplus against the US. He used to mention them on the campaign trail as one we've got to watch out for, how Vietnam is the next China, etc. But he's surrendered on that front too -- even rhetorically, let alone substantively.
The leaders of these cheap labor colonies are the recipients of stolen goods -- our manufacturing sector -- rather than the thieves themselves (the American executives). However, Trump doesn't go after either group involved.
The only party he's interested in picking fights with are Canada, Japan, Germany, and by extension the EU.
Contra the liberal airheads, no one cares if these are "historic allies" since the motive for that alliance is long gone -- WWII and the Cold War. No one cares about preserving zombie alliances as some kind of diplomatic cargo cult. Maintaining that alliance costs the US an absolute fortune, for which we get nothing in return, aside from the imperial operators at the top level of the Pentagon and State Dept.
Nevertheless, these are not cheap labor colonies, and they therefore have little to do with the de-industrialization of our economy. When Carrier, Ford, and Nabisco close down a plant in Indiana, Wisconsin, or Michigan, they are not sending the work to be done in Canada, Germany, or Japan. Wages are too high there, and the whole point is to slash labor costs.
Some of them do benefit from our providing their military needs more or less for free -- South Korea, Japan, Germany, Italy -- which frees up a lot of their government's funds to invest in their domestic industries, making them much more competitive internationally. But even if we ended that practice, and their manufactured goods became more expensive, that would not return factories back here.
Our tool-makers did not get wiped out because the German tool-makers were heavily subsidized due to their government not having to pay for national defense (taken care of by Uncle Sam) -- but because our greedy executives and stockholders shut down the American factory and sent production to China, Mexico, or India, and sold the product back into our market with shameless American branding, despite being made in the third world.
The only one of the countries whose national defense we provide that is still something of a cheap labor colony is South Korea, although less and less so recently as their standard of living improves and their workers expect higher wages, similar to Japan's trajectory. And who's the one country that Trump never bitch-slaps about how heavily our provision of military needs only serves to subsidize their industries, which wipes out our own industries back home? Why, South Korea.
It's not because he's trying to make nice with them during negotiations about North Korea, since he keeps his hands off of every cheap labor colony, not just the one we're involved in high-stakes geopolitical negotiations with.
In fact, Trump's sense of defeat has become so ingrained that he doesn't even try to argue for our re-industrialization anymore -- bringing factories and jobs back. Instead it's about how to export more and more agricultural products -- one of the few things we still produce, as candidate-Trump used to mock on the campaign trail. ("Japan is sending us cars by the ship-load, and what do we send them? Beef. And wheat. And corn.")
Agriculture has never created a prosperous middle class anywhere on Earth in its 10,000-year history. It does create an elite class, unlike the hunter-gatherer economies that preceded it. But they don't pass their wealth on down the pyramid, since their underlings are not very value-adding. Slaving away in the fields doesn't add much value, since most people can sow and harvest their own crops -- why pay such a huge premium for someone else to do it for you? Mostly what you're paying for is the fact that some giant landowner has the productive land, and you don't, so doing your own agriculture isn't feasible.
Making your own steel, your own television, your own clothing, however -- not so easy to do, and worth a much higher premium. Especially when mass production gets invented, then the owners of a manufacturing plant can really start churning out these highly profitable items -- if only they can hire enough workers to operate it day-in and day-out. That leads them to pay much higher wages to unskilled or semi-skilled laborers. While the elite class gets richer with industrialization, the working class gets even richer, narrowing the inequality gap for the first and only time in human history.
There's no other way than industrialization, which is why backwards economies are so desperate to industrialize in a single generation -- so much so that they propel violent revolutionary movements to take over the government and economy. As we become more de-industrialized ourselves, I worry that we too will go in that direction when we re-industrialize. You'd hope that the elites would see that, and re-industrialize peacefully and pro-actively in order to avoid ending up like the Romanovs -- but they show all the signs of still being blind to the destruction they have caused by de-industrialization, so why bother getting out in front of a non-existent problem?
Trump got elected to try to peacefully negotiate the re-industrialization of our economy -- not to push even more agricultural products on foreign countries. Today's plantation owners already get subsidized out the ass by our government, they already make a killing in globalist free trade deals -- the cheap labor colonies get the factories, as long as our plantations get to wipe out their farms -- and none of them "Hire American". The former populist now openly brags about getting cheap-labor immigrants to work on the "farms" so that their greedy plantation owners do not have to pay decent wages to American citizens, or to invent or adopt new technology that would replace farm labor regardless of whether it was foreign or American.
The idea of him hounding Canada, who is nowhere near the top of economic threats to us, into buying more food products, when that sector has never been doing better, and is a key group behind our de-industrialization, is utterly ridiculous.
He only looks slightly less clueless or impotent when he tries to lower barriers to American cars in Asia or Europe. That's one industrially manufactured good that we still do make here, but we aren't going to re-industrialize the economy simply by making more cars for export. Maybe by punishing Ford for moving plants to Mexico, and forcing them back to Michigan. But not by trying to open up Japan or Germany to American cars -- which their citizens want absolutely nothing to do with.
Hey, big gas-guzzling American cars, and our more nationally distinctive pickup trucks, are not everyone's cup of tea. Lowering tariffs or raising quotas won't do anything to kick our car production into high gear, since the Big Three car-makers are nowhere near hitting their quotas already. If the re-industrialization of our economy depends on getting Europeans to buy Rams instead of Renaults, we're doomed.
Our peer nations are not the cause of our impoverishment, since we all enjoyed the Golden Age of Capitalism together during the mid-20th century. France was making cars, Germany was making cars, and America was making cars -- competition among this tier of nations did not matter. Germany made tools, and America made tools. Japan made televisions, and America made televisions. France made kitchen appliances, and America made kitchen appliances. Big deal!
(We were also supplying Japan's and Germany's national defense for that period as well, pointing again to the secondary rather than primary nature of that problem, vis-a-vis our de-industrialization.)
The real change that happened -- around 1980 -- was not competition from a foreign peer nation, but an internal betrayal by the executives of our own companies that made trucks, tools, televisions, and toasters. Our shuttered factories did not move to peer nations, where the wages were comparable to our own, but to cheap labor colonies in the third world.
Trump knows all of this, given his speeches from 2016 and before, but he seems to have begun rationalizing his GOP-obstructed plan to re-industrialize. Now he's no longer going to attack the "shithole countries" that all of our factories have been relocated to by the beneficiaries of the massive corporate tax cut -- he's going to stand up to a "worthy fuckin' adversary" like Canada or Germany. A fellow real, first-world country, not one of those fake wannabe up-and-comer countries. He can fold it in with his other rationalizations about going big or going home, dealing with winners rather than losers, and so on.
That bodes very poorly for the remainder of his disjunctive presidency, which was lame-duck from the get-go. He'll be picking fights with people who don't matter, while giving a pass to, or downright genuflecting to the real problems we face -- Saudi Arabia as the source of radical Islamic ideology and collective violence, China et al as the cheap labor colonies that receive our stolen manufacturing sector, and Mexico that keeps waving on hordes of immigrants across their border with us.
Again, the real fight to pick is with the American leaders who have made junior partners with these foreigners, especially the military brass and the executives of the material sectors in the economy. But if you did confront foreigners, it would be the Saudis, the Chinese, and the Mexicans -- not the Germans, the Japanese, or the Canadians (what a joke!).
The president has little time left to steer the Overton Window back in the direction of his historic 2016 campaign. All signs point to it shifting even further in its current wrong-headed direction. That will allow re-aligners on the Democrats' side like Bernie Sanders to easily steal back the trade issue in 2020, depriving the GOP of its tepid support from the Rust Belt, and ending their Reaganite reign for good.
The case for a "wage-price equalization tax" (or if you prefer a "labor-price equalization tax"* to level the playing field on which Western workers are expected to compete?ReplyDelete
*the name based on Samuelson's famous "Factor-Price Equalization Theorem."
Trump is only a little more than one year into what may be an eight year term of office. He is opposed by a majority of his own party as well as the Democrats. Maybe he will come around if the balance of power in Congress moves his way?
He's supported more by Dems than GOP on trade. Sherrod Brown and Bernie at a minimum in the Senate, more in the House (Tim Ryan etc.). Steelworkers union (although they oppose the tariff on Canada since they're a non-factor). Rust Belt voters.ReplyDelete
It's the polar opposite on the GOP side -- no support in the House or Senate, and vehement opposition from organized business. Republican voters do not favor globalist trade deals, but their will does not count without buy-in from the elites of their party.
Even the awful Dems like Chuck Schumer voted against NAFTA -- they had so much more credibility on the issue until Trump's 2016 campaign. But now with his reversal, it opens the issue back up to populist Dems to run with it -- and credibly so, since their party and their institutions will not totally obstruct trade hawk policies.
That still means Bernie or some populist has to be the standard-bearer, but if they allow that, they easily re-capture the flag of populism that Trump managed to yank out from underneath them for a brief while.
Western workers don't compete with those of cheap-labor countries -- they have been replaced by them. The Samuelson model is about two countries that both produce some good -- let's say televisions.ReplyDelete
But the US does not produce TV sets any longer. They used to -- I have a 13" RCA made in Indiana in the mid-1980s, with a wonderful picture quality, perfect for occasional use off to the side of a room.
Over the past 30 years, though, RCA and all the other American TV makers have closed down their US plants and re-located them to cheap-labor colonies in Asia and Mexico. So there are no American workers who make the parts for TVs, or assemble the parts into the finished unit.
The wages between China and the US did not equalize for TV assembly workers -- they went to 0 here, as the industry was dismantled by greedy executives, and rose to whatever middle-class purchasing-power wage they are when the plants were re-located to China.
Our industrial policy should not focus on Chinese workers, which is what a tax on cheap Chinese labor would do. It should focus on the root of the problem, which is our own executive class dismantling the industrial economy that previous generations created and improved on.
How would you tax the labor component of the good's price anyway? The US companies send their production overseas for lower labor, environmental, and regulatory costs -- lower costs, in general. So hit them with a tax in general, meaning on the price of the good itself. That would prevent US companies from moving abroad, and would force them to re-re-locate their foreign plants back to this country.
There's also no competition b/w US and China at the top of a company, since China is used for its cheap labor. It does have some white-collar professionals and managers, but not the senior-level executives or the creative class who design the process to begin with.ReplyDelete
That's the really big easy money -- and those jobs have remained right here in the US. A designer creates the template for some item of clothing, the marketers work on how to brand it, the advertisers work on how to raise awareness of it, the sales staff works on how to get it to retailers, and the senior executives oversee that whole domestic informational operation -- plus, indirectly, the foreign material operation.
Gee, somehow the executives forgot to outsource their own jobs, and those of the creative class, to China and Mexico and India. Sure, China gets some engineers, plant managers, line supervisors, etc., but those are middle-class rather than upper class.
So not only do American working and middle class people drop off a cliff with de-industrialization, the elites who run the company remain in place, only wealthier after slashing labor costs at the middle and bottom. It widens inequality at both ends.
We have to stop looking at "trade" as trade -- it's about the executives and stockholders here firing the American workers and middle-class professionals, sending that work to a cheap labor colony, while keeping their own jobs.
"Trade" implies that both countries produce a thing from start to finish, and then compete against each other over who can do it the most efficiently. But the two countries *don't* do the same things -- the cheap-labor colony gets the working and middle-class jobs in manufacturing, while the rich country gets the elite jobs in overseeing the whole operation.
"Globalized supply chains" means the very top executives and stockholders of the rich countries shifting tasks to wherever they can be done the cheapest, exploiting the entire world for their own benefit -- not the benefit of the country they reside in, since they fired all their workers and middle-class professionals in their own country. Just for their own greedy individual selves.
Over the past 30 years, though, RCA and all the other American TV makers have closed down their US plants and re-located them to cheap-labor colonies in Asia and Mexico. So there are no American workers who make the parts for TVs, or assemble the parts into the finished unit.ReplyDelete
American TV makers like RCA and Zenith are not around anymore. Most TV brands today are South Korean or Chinese.
Which raises the question: why don't American executives support tariffs and protectionism since that would make their jobs a lot easier and make them money? If I were an American TV executive, blocking Samsung and LG TVs from the US market would make it a lot easier to sell my TVs in the US and sell them at much higher prices.
Perhaps it's because the rest of the world's markets are big now, and they fear losing out on market share abroad from retaliatory tariffs. This was less of an issue in the past when the global economy was much smaller.
Today's executive class is rootless in their industries, so we don't really have "American TV executives" who are tied to that industry, and who would therefore try to keep steering policy toward their industry's advantage.ReplyDelete
They just went from parasitizing one industry -- TV sets -- to another -- social media, or whatever.
But even if we did have a legacy TV industry, they would still off-shore their production to China or Korea -- just like Japan's legacy electronics brands have (Sony and the others are all made in Thailand, China, etc.). And just like American brands in apparel -- Nike shoes or Levi's jeans, for example.
The only industries that have not off-shored production are those that cannot -- industrial commodities like steel. If US Steel tried to made their steel in China, and then sell it to manufacturers under the US Steel brand with a "Made in China" sticker, their clients would say, "Why would I buy from you when I can go straight to the Chinese source like you did, and without the mark-up for American-level executive compensation, American brand mark-up, etc.?"
Agricultural commodities too. Iowa corn farmers can't buy up a bunch of farmland in Mexico, raise the corn there, and import it back to the US under an American brand that says "Product of Mexico". The consumers would just go to the Mexican source themselves, since Mexican corn is Mexican corn, just like Chinese steel is Chinese steel. No point in paying a mark-up for empty American branding on foreign-made commodities.
Those are the two biggest sectors pushing for tariffs -- agriculture actually gets them, since they're part of the dominant party's coalition (GOP under the Reagan era), while steel does not since they're not part of the dominant coalition (they keep trying to pay their way into the club with donations, but it's not enough, and their industry does not reliably deliver the voters of Pennsylvania to the GOP).
I keep saying that the Bernie movement has to wholly embrace protectionism for the industrial commodities if they want to win back the populism and America-first economic policies from Trump. They can't risk losing Pennsylvania again -- too many Electoral College votes.
They've already got the Steelworkers union calling for tariffs -- one of the few cases where a trade or industrial union hasn't totally sold out. And probably because that's where labor's interests and capital's interests are in the same direction, since the owners cannot replace domestic production with foreign production.