Free trade does not exist. You do not need 400 pages in a trade agreement to lower trade barriers. Trade is managed. The U.S. is losing. We buy $2 billion each day more than we sell overseas. Even Warren Buffett thinks this ridiculous. Free traders are working hard to prevent the U.S. from changing course.
I have not seen anyone on this site discuss the core reasons for our trade deficit with China and other countries. Currency manipulation and Chinese tax subsidies are the main causes. They have nothing to do with free trade. The cheap Chinese goods are a reality, but they are manufactured by government edict.
This is my first post. And it is long. I apologize. Sort of. If this diary gets some attention, I'll post more. More below the fold.
Catfish raised in cesspools, ethylene glycol in toothpaste, melamine in pet food, and shrimp raised with banned antibiotics are a major problem. They kill people and pets. That is a bad thing. The free traders tried calling us protectionists for wanting to label food as to country of origin (COOL), but the U.S. Farm Bill will likely mandate COOL for meat and produce thanks to the work of hundreds of organizations.
The "China Price" has U.S. automakers and Wal-Mart ditching U.S. suppliers, and food manufacturers bypassing U.S. farmers for overseas goods. China is now one-third of the $800 billion U.S. trade deficit in 2006 (oil is also one-third). But Chinese goods are truly not cheap. The cause is currency manipulation and tax subsidies by the Chinese government.
Labor costs are indeed low. But it takes many labor hours to make a ton of steel in China, but only 0.5 labor hours per ton in the U.S. So the net production cost difference is much less than the hourly rate difference.
Regulatory systems are lax. An energy intensive smoke stack factory emits eight times more carbon per unit than in the U.S., giving rise to the Chinese brown cloud that produces 25% of California's air pollution.
Equivalent goods made with equal standards are not cheaper for U.S. consumers absent the Chinese government manipulation I discuss below, especially after you consider the cost of transporting the good the 6,640 miles from Beijing to Kansas City.
Moderate Democrats want "fair trade" with labor and environmental rights written, in enforceable ways, into new trade agreements. But better labor standards will not save the decimated U.S. apple farmers, shrimpers, or toolmakers, any more than it will save one of the four million jobs lost in seven years to free trade.
Other Democrats like Sherrod Brown and John Tester are focused on the core reasons for the trade deficit, Chinese currency manipulation and tax subsidies. These are the two biggest reasons for the "China Price" causing the trade deficit. They are pure Chinese government decisions, not free markets.
Let me explain currency manipulation, the biggest trade issue. It is really not boring... I think. The dollar is strong in currency markets in relation to other currencies when our economy is strong. The dollar has fallen recenty, and European vacations cost more. Your dollar gets you less Euros now. And if you buy a European product, having it shipped to your home, it will cost you more. Free floating currencies, charted over time, fluctuate a lot. The chart looks like a heart rate monitor.
In 1995, China devalued its currency by 40% and pegged it to the dollar. If the dollar goes up, the Chinese juan goes up, and vice versa. A chart of the yuan to the dollar shows a flat line. The heart rate monitor chart looks like the patient is dead.
The practical result was that a Chinese batch of shrimp raised with banned antibiotics would have cost you $100, but now costs you $60 because of the government decision. It's hard to compete with that.
Now let's look at the second biggest issue, border adjustable taxes, another fun topic. Most of China's industry is government owned or controlled, making it difficult to know what real costs are. But they have a value added tax system. Instead of taxing income, they tax products at every step where value is added. The rate is 17%, ultimately.
When a Chinese company exports a product, it receives a rebate of all taxes. A 17% subsidy. Thus, we have now cut the cost of the $100 batch of shrimp below $60 to $43.
On the other hand, U.S. shrimpers that would sell to China for $100, cannot sell anything because the actual cost is $140 to a Chinese consumer because the dollar is too high. Add to this the fact that the Chinese government imposes their 17% value added tax on the incoming shrimp, and the real price for a Chinese buying U.S. shrimp is now $157.
So which would you buy? You can choose $43 shrimp (albeit contaminated, but the FDA probably won't catch it), or the same amount of shrimp in the U.S. for $100. The difference is not because of labor or regulatory costs, but Chinese government edict.
Multiply this effect across every product category in the U.S. economy, and you get a situation where America buys $800 billion more than it sells each year, millions of good jobs are lost, and the economy-wide hemorrhaging gets worse each year.
This is the free trade that the multinationals and their sycophants are pushing. Some bills are pending in Congress to neutralize the Chinese government's actions. But the point is, there is no free trade.