Now Korea Is Cleaning Our Clock
"The entry into force of the U.S.-Korea trade agreement on March 15, 2012, means countless new opportunities for U.S. exporters to sell more made-in-America goods, services and agricultural products to Korean customers—and to support more good jobs here at home."
Thus did the Office of the U.S. Trade Representative rhapsodize about the potential of our new trade treaty with South Korea.
And how has it worked out for Uncle Sam?
Well, courtesy of Martin Crutsinger of The Associated Press, the trade figures are in for April, the first full month under the trade deal with South Korea.
And, surprise! The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.
Shades of NAFTA. When it passed in 1993, we had a $1.6 billion trade surplus with Mexico. By 2010, our trade deficit with Mexico had reached $61.6 billion.
There is other news of interest in those trade figures for those who chronicle the industrial decline of the United States.
In 2011, America ran the largest trade deficit ever with a single nation, $295.4 billion, with China. But this year, the U.S. trade deficit with China is running 12 percent ahead of 2011.
And the U.S. trade deficit with the world is now back up over $600 billion a year.
What do these mammoth and mounting deficits mean?
A deepening dependence on foreign nations for the necessities of our national life. A steady erosion of our manufacturing base. A continued stagnation in the real wages of the middle class. And an unending redistribution of America's wealth to foreign lands.
It is no coincidence that the real wages of U.S. workers ceased to rise in the mid-1970s, just as a century of U.S. trade surpluses was coming to an end.
In 1975, we began three decades of trade deficits that grew until, in the Bush II years, they reached 8 percent of the entire economy. These deficits helped to precipitate the Great Recession and helped to prevent our rescue from it.
For just as a trade surplus adds to the gross domestic product of a nation, a trade deficit subtracts from it, substituting foreign goods for U.S.-made goods.
If one would, in a sitting of a single hour, understand where and why America converted from the economic patriotism of Washington, Hamilton, Jefferson, Madison, Jackson, Lincoln, Theodore Roosevelt and Cal Coolidge to the free-trade ideology of academics and ideologues, none of whom ever built a great nation, let me commend a splendid pamphlet from The Conservative Caucus.
"The Conservative Case Against Free Trade," by Ian Fletcher and William Shearer, is a brisk walk through the trade and tariff history of the republic. It is a short story of national decline, of how a nation that converted itself in its first century from 13 agricultural colonies into the greatest industrial power the world had ever seen began to kick it all away in the third century of its existence.
It is a chronicle of the rise and fall of the United States as a sovereign and self-sufficient republic.
The knock on economic nationalists is that they really do not believe in trade.
This is nonsense. Like libertarians, economic patriots believe in untrammeled free trade among the states of the Union.
They believe in the 14th Amendment's equal protection of the law. U.S. wage-and-hour laws, civil rights laws and environmental laws should apply equally to factories from New York to New Mexico and from Alabama to Arizona. If states wish to adopt their own right-to-work laws or abolish corporate income taxes, that is free and fair competition.
Global free trade is an altogether different matter.
If you move your factory to Mexico, Guatemala, Vietnam, China or Bangladesh, the 14th Amendment no longer applies.
Global free trade means U.S. workers compete with Asian and Latin American workers whose wages are a fraction of our own and whose benefits may be nonexistent. Global free trade means U.S factories that relocate to Indonesia or India need not observe U.S. laws on health, safety, pollution or paying a minimum wage.
Global free trade means that companies that move factories outside the United States can send their products back to the United States free of charge and undercut businessmen who retain their American workers and live within American laws.
Free trade makes suckers and fools out of patriots.
Anticipating the Davos crowd, Thomas Jefferson wrote: "Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains."
Instead of a trade policy crafted for the benefit of multinationalist corporations, we need a new trade policy that puts America and Americans first.
COPYRIGHT 2012 CREATORS.COM
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Who comes up with the pictures that go with the stories? They're wonderful! They never fail to make me smile if not laugh out loud. Kudos to the Lone Photoshopper!
Glad you like them!
The images are manufactured by Sandy Faulkner, a taxidermist from Wiener, Arkansas.
Mr. Buchanan quotes Jefferson in saying that merchants have no country.
Yet, the men he commends - Ian Fletcher and William Shearer - are corporate lobbyists by profession. Ian Fletcher was a representative of the US Business and Industry Council, and also a hedge fund man. Speaking as someone who has read the essays of Fletcher, I'll say that the summary of what he believes is that anything that is bad for American business is bad for America. And he explicitly says that it is better for the consumer to lose as long as business wins.
His form of conservatism and nationalism basically involves viewing one's country as a shopping mall with a flag, and an entity whose sole purpose is to boost the earnings of domestic corporations.
This fake dichotomy is interesting. People in favour of certain trade agreements are always rootless cosmopolitan merchants, while people against them are non-materialistic patriots. Except the biggest advocates of the other side are corporate lobbyists to big businessmen - Ross Perot, Donald Trump, you name it. At the very least, can we be honest and say that both sides are materialistic people with allegiance to nothing other than money?
Either way, a trade deficit does not rise without a capital surplus. Korea can not raise exports to United States without raising business investment in United States. That Korean businesses invest in US over their own country somehow disadvantages Americans? Of course not.
Besides, Mr. Buchanan is erring to think Korea is some low-wage, unregulated economy. It has all the laws that every First World region has.
Mr. Sanjay,
Is foreign investment here as good for us as the jobs we've lost to them? How is investing in U.S. government paper and corporations which outsource their production and jobs (or use H-1b visas to import foreign workers) in our interest? Why couldn't we do this ourselves? It would help if we made enough to be investors.
To more or less pick up where I left off with my last comment on economics . . .
I understand why tariffs and government intervention is not the answer to the problem. And I agree that South Korea is not a very good example of the problem (they are, from all reports I have heard, very hard working and very proud of their work - I have family over there and when they say goodbye to one another they always say "Work hard" - this is a far cry from the current state of the American worker - on a level playing field they kick our butt).
However, when it comes to the likes of Mexico, China, Guatemala, Vietnam . . . etc., it seems that there is a legitimate problem. The condition of living in these countries is far below that of America. There is, in many cases, a state of affairs that creates a surplus of workers which, combined with such low living conditions, drives wages down. How can America or any "1st World" industrialized nation compete with this? Is it just the rule of thumb that once life gets good enough in a county you just have to expect all of your factories to leave? What incentive is there to make a CEO keep his factory in America when the economic fact is that he will increase his profit margin, perhaps dramatically, by moving the factory else where? I understand that lowering production costs is "in the best interest of the consumer", but at what point is the national interest supposed to supersede the "good of the consumer"?
I'm not arguing for government intervention, I don't believe. I'm honestly curious what is supposed to be done about this problem? Is there nothing beyond just hope that the CEOs will display enough love of country that they'll turn down the increase in profits in order to keep their factories at home? That doesn't seem like much of a hope. I just can't see how it can be expected for a developed nation to compete with an underdeveloped nation in terms of labor costs, so how can any developed nation ever hope to maintain its manufacturing jobs? Are Americans supposed to willingly drive their own standard of living down into the gutter in order to compete in manufacturing? Are we supposed to devalue our currency (thereby robbing Americans of their own savings) in order to compete in manufacturing?
I think, Mr. Cornell, that our problem is principally monetary.
But first, let's have a look at Germany. The reason why Germany is doing so well right now is that the Euro is highly overvalued for the PIGS countries (and somewhat overvalued for France) and rather undervalued for German productivity. In other words, German products are cheaper for the French and the Italians than they should be, and so these latter two tend to buy more of them than they otherwise would. However, this export dependency also means that the German economy stands to contract considerably in the months following the increasingly likely breakup of the Euro. If the national currencies are allowed to float, I'd say offhand that the Neue Deutsche Mark will likely rise to 25 percent higher than the New French Franc and the U.S. dollar, 75 to 100 percent higher than the New Spanish Peseta and New Italian Lira, and 125 to 150 percent higher than the New Greek Drachma.
With the U.S.'s massive trade deficit on real goods, one would expect that the exchange rate of the dollar should decline relative to the value of other countries' currencies until it is no longer more advantageous to outsource than to keep factories at home. Then the trade deficit balances itself out. A less powerful exchange value does not, by the way, necessarily mean a commensurate decline in domestic purchasing power, but in our case standards of living might decline noticably for the simple reason that that our wage and lifestyle equilibria have for several decades assumed the availability of cheap Third-World trinkets for many basic needs. The shock will indeed be painful and there may be nothing we can do about that.
So why has the needed adjustment not taken place gradually? One reason is that China et. al. have been buying large quantities of T-bills and dollar-denominated debts in order to keep our currency high so that we will continue to be able to afford their exports and grow their capital. Another reason is that the dollar has a lot of weighty history behind itself and is considered a "safe haven." These two factors, in the 1990s, made possible a Credit Culture that allowed people to buy goods they could not afford, keeping consumer spending constant or even growing while covering up demand for rising wages. Today, they make possible a bloated and increasingly tenuous U.S. financial sector holding together a system that does not deserve to be held in place.
Mr. Moses,
Thank you for your comment. I don't disagree with anything you've said, but this is exactly why all things economics give me such a headache. Too many variables. I can do simple math, but when foreign purchasing of T-bills and "safe haven" status and European debt and quantitative easing and all of these things play into the economic status of the country I give up my chips and fold my hand. How do we control such a system? Can it actually even be controlled? I hope much smarter men than me are driving this ship, although often I have my doubts. Thank God this is one thing I won't be held accountable for on the Last Day - I've got enough to worry about as it is.
Thank you for your comment. I don't disagree with anything you've said, but this is exactly why all things economics give me such a headache. Too many variables. I can do simple math, but when foreign purchasing of T-bills and "safe haven" status and European debt and quantitative easing and all of these things play into the economic status of the country I give up my chips and fold my hand. How do we control such a system? Can it actually even be controlled? I hope much smarter men than me are driving this ship, although often I have my doubts.
Oh, there are "smart" people working in quantitative finance, all right. (They'd flunk after one semester otherwise.) The problem is that many of them lack any sort of wisdom or foresight, or worse, are pawns pressurized into faking numbers for the companies they work for and creating formulas that ignore inconvenient factors.
Also, while the government certainly has a role to play in regulating and calling players to heel (banks that are "too big to fail" should be closely monitored and prohibited from engaging in activity that risks massive socioeconomic fallout), it is important to remember that governmental distortions of currency and finance are precisely what have delayed a badly-needed correction all throughout the 1990s and 2000s. I'm not a laissez-faire liberal by any stretch, but neither am I one who thinks he'll be any exception to the rule that you shouldn't anger a Siberian tiger. Princes have been governing and governments have been regulating since the dawn of time; no one has vanquished the boom and bust cycle. Things get out of control because our government cannot--politically speaking--accept contractions on paper. (Again we get into the problem you mentioned elsewhere of not taking all the variables into account: as much as I love numbers, I know as well as anyone how easy it is to lie or manipulate with them.)
And it's actually not as complicated as they make it out to be, either. The main reason why it seems so complicated is that large banks are trying to milk the system without creating anything of real, tangible value. I have heard it said that "The laziest boy is the one who works the hardest," and that certainly applies here.
The bottom line is this: we live in an increasingly specialized and complicated social economy. The technocratic fantasy of a team of benevolent scientists and mathematicians keeping everything online and everyone working is fantastical precisely because of the operative word "benevolent." So long as the humans in charge of society, however intelligent, are prone to technical and moral errors, society risks suffering falls. The higher we climb, the harder we fall, and it is hard to deny that whatever the social and cultural failures of the contemporary era, we have climbed *quite* high in economic and technological terms. This was the main theme of the late Michael Crichton's Jurassic Park (the book, not the thriller Spielberg tried to pass for a masterpiece), illustrated with Ian Malcolm's apt analogies to a faulty mathematical fractal. The modern global economy is no less than a large-scale Jurassic Park: an attempt to control and milk a set of large, savage, self-sustaining monsters who on the whole have little regard or understanding for the forces penning them in. The results may be just as disastrous.
I know that's not very comforting, but that's where my logic is taking me. I'd very much like to be wrong.
Just to pick up a point that was left off:
Korea is a rich, high-wage country.
Korea is also a regulated economy, that has all the regulations found in any of the OECD countries, in terms of wages and environmental protection.
And Korea has the typical corporate income tax that you'd find in any Western country outside of Ireland.
So what does Mr. Buchanan here consider an unequal playing field with US? There isn't any!
What caused South Korea to have such a trade balance? Certainly none of the reasons that Mr. Buchanan attributes to Mexico, Venezuela, Guatemuala, or Vietnam. There is one difference between Korea and US.
Koreans have stomached much higher inflation historically, which sometimes reached 20% or above, since their currency is regularly depreciated to maintain exports. The US is a region of price stability, and does not depreciate currency to boost exports as often. So Americans get price stability and fewer jobs, while Koreans get price instability but more jobs.
That is the only trade-off - price stability or jobs. The solution is obvious. Give up on price stability, if Americans want more jobs. Unfortunately, people who want both price stability and more jobs are part of the problem - we can never have both. A famous New Zealand economist, William Philips, discovered that the highest real wage growth rates in UK were observed during the periods of the highest price instability. Across all over the world, all of us can bear a higher cost of living temporarily in favour of more jobs for working people...right?
Mr. Cornell
Pace your family members, I hardly think the Koreans "kick our butt". If you are talking about certain fields where they have taken the lead – largely due to our investments and technology transfers, and because of our funding and manning their military defense, OK, but then, that isn't a level playing field, is it? Most of their top ten industries (steel, shipbuilding, etc.) are heavily state controlled and protected. Furthermore, workers in an economy that has had to pick itself up from wartime devastation naturally are going to work more hours than those in one that remained intact. Hours worked for Koreans is now trending downward.
Whenever American workers are given a modicum of support from ownership that reinvests in them, e.g. Hypertherm, a New Hampshire maker of plasma torches, they can compete with anyone. We also, of course "kick the butts" of the world in agriculture, IT, intellectual property, proprietary premium content, and the internet.
A question for all you doubters and those who say America's manufacturing collapse was inevitable: Why couldn't we have captured the rising Chinese market, rather than ceding production to them? Anyone could see that after the Cultural Revolution had run its course, Chinamen would begin clamoring for the good life; they could not sink any lower, the only direction was up. We still had massive manufacturing capacity advantages and market share over them when their consumer spending began to rise.
Mr. Sanjay,
See my post above for the answer to your claim about Korea's "level playing field".
As for the inflation/employment tradeoff you're touting, otherwise known as the Phillips Curve – a hot theory when I took economics in the mid-'70s – it has been discredited. I'm surprised a young, well educated chap like you, with commercial connections, to boot, hasn't noticed. It has been shown that though a short-term jump in employment can be produced by an expansionary – inflationary – monetary policy, the resulting expectation of a higher inflation rate just causes unemployment to rise to meet the new point of equilibrium, only now at the new, higher, rate of inflation. Indeed, data for the U.K. (tutor2u.net) show inflation and unemployment dropping in tandem through the Nineties, with the drop in unemployment leveling off as inflation begins to trend up again in the early 2000s.
The larger question should be: do we really want to rob from the savings of the old and the thrifty to keep consumer spending high (for awhile) or do we instead start to find ways to save (and rebuild) American industry?