Saturday, January 28, 2017

Higher Prices On Import Goods A Fair Cost For Jobs

The lower prices consumers pay for imported goods have a hidden cost. Higher prices on import goods is a fair cost for retaining and seeing jobs return to America. Several economists have come out recently pointing out that the first thing to suffer from Trump's economic policy will be low prices at Walmart on all the things we import from countries like China and Mexico as well as close allies such as Japan and South Korea which we have subsidized for years. Whether these economists are short sighted, so enamored with the thought of globalism, or simply echoing what they have been told are the benefits of free trade does not mean the positive effect is as large as they claim.

It Is Time To Address Both Abusers And Imbalance
President Obama's goal and policy to reduce the trade deficit by exporting more was pure folly and based on hope or delusion rather than business experience. It resulted in substantial damage to our budget that is reflected in America's national deficit. Our government had to spend money to pick up much of the slack caused by putting our heads in the sand and not taking real action to correct America's massive trade imbalance.  As the chart shows China imports are the biggest part of our problem. This means American consumers are helping to finance the construction of China’s war machine. and a creeping loss of control over core strategic elements.

The truth is we should call a spade a spade and question how much we really gain when we find Americans can no longer get good paying jobs because they have been exchanged to other countries in order to lower the price of goods we buy. In many ways, this is akin to a deal with the devil and over time it hollows out our middle class as more and more Americans find themselves dependent on government aid for their existence. We give those in charge of plotting our course in this world far too much credit for wisdom or that they will take our best interest to heart. It is important to recognize that inequality has grown over the years under such nonsense and making matters worse is that not all the countries that we feed wealth into are our close allies.

Well known economist Stephen S. Roach wrote an article which appeared on Project Syndicate on January 25th under the Business and Finance section; The greatest tragedy for the US may well be the toll all of this takes on the American consumer. “America first” – whether it comes at the expense of China or via the so-called border-tax equalization that appears to be a central feature of proposed corporate tax reforms – will unwind many of the efficiencies of global supply chains that hold down consumer-goods prices in the US (think Wal-Mart). With their incomes and jobs under long and sustained pressure, American consumers count on low prices for their economic survival. If Trump’s China policy causes those prices to rise, the middle class will be the biggest loser of all.

12 Months Of Deficits Total Over Half A Trillion Dollars
I beg to differ with Roach's opinion, it is an exaggeration to say Americans count on low prices on the type of low-quality junk they buy for their survival. The fact is the bulk of our income is spent on things like housing, healthcare, food, energy, and many items already made here in America. Much of what we import could be made here at home at a reasonable cost if America faced some of the major issues relating to being competitive. Little harm will come from seeing prices rise on "peripheral items" such as torch lamps, children's toys, and yes even electronic devices. If anything higher prices might cause consumers to make better choices and eliminate the waste that results from purchasing poor quality products.

Trade Deficits Add Up Rapidly
Americans should expect the politically heated debate over the new trade agreement to continue.  We must ponder how much of this is about individual governments giving up control and becoming subservient to corporate “efficiency” and the desire of companies to both develop and control future rules. We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Trading manufacturing and productive jobs for temporary lower prices are a poor trade-off for the long-term damage it wrecks. Developing a long-term sustainable economic system that is balanced can contribute to both global cohesion and the world economy.

Footnote; The article below delves into the difference between free trade and fair trade.


  1. Imagine if all the cheap junk sold at the big box stores over the last 30 years had been quality products made in our own country.

    1. If that were true a great deal less landfill jobs would of been created

  2. Hi Bruce, I first want to thank you for taking the time with your analysis. It helps so much if we all have a civilized debate. I am missing two factors, though, and I am interested what you make of them. My conclusion has long been that (1) despite the trade deficit the profits accrued by US companies via operations abroad ultimately flow back into the US and (2) as human labor is gradually replaced by machines it won't be a significant source of employment in the long term. Based on this I would be inclined to think that it is the corporate governance and tax system that need reform rather than global trade. In other words, the US economy as a whole benefits from globalization but those profits aren't fairly distributed. (One example of that are disproportionately vast payouts of C-level executives compared to rank and file employees — deserved or not, the difference is staggering). Adjusting these policies is especially crucial as manufacturing jobs begin to disappear due to automation, creating immense wealth for those who will control the machine-based manufacturing plants as well as the core technologies behind them.

    1. It sounds like we are in agreement overall. I feel it is important we are in control of shaping and designing the kind of world in which we live. Politicians on the far right and on the far left as well as many leaders of big business have agendas that fit poorly with this goal.