China Is Not the Problem
by Paul Craig Roberts
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At a time when even the Wall Street Journal has disappeared into the maw of a huge media conglomerate, the New York Times remains an independent newspaper. But it doesn’t show any independence in reporting or thought.
The Times issued a mea culpa for letting its reporter Judith Miller misinform readers about Iraq, thus helping the neoconservatives set the stage for their invasion. Now, the Times’ reporting on Iran seems to be repeating the mistake. After the United States commits another senseless act of naked aggression by bombing Iran, will the Times publish another mea culpa?
The Times editorials also serve as conduits for propaganda. On Aug. 13, a Times editorial jumped on China for “irresponsible threats” that endanger free trade. The Times’ editorialists do not understand that the offshoring of American jobs, which the Times mistakenly thinks is free trade, is a far greater threat to America than a reminder from the Chinese, who are tired of U.S. bullying, that China is America’s banker.
Let’s briefly review the “China threat” and then turn to the real problem.
Members of the U.S. government believe, as do many Americans, that the Chinese currency is undervalued relative to the U.S. dollar and that this is the reason for America’s large trade deficit with China. Pressure continues to be applied to China to revalue its currency in order to reduce its trade advantage over goods made in America.
The pressure put on China is misdirected. The exchange rate is not the main cause of the U.S. trade deficit with China. The costs of labor, regulation and harassment are far lower in China, and U.S. corporations have offshored their production to China in order to benefit from these lower costs. When a company shifts its production from the United States to a foreign country, it transforms U.S. GDP into imports. Every time a U.S. company offshores goods and services, it adds to the U.S. trade deficit.
Clearly, it is a mistake for the U.S. government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by U.S. companies in America. The imbalance is the result of U.S. companies producing their goods in China and selling them in America.
Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70 percent of the goods on Wal-Mart shelves. Mysteriously, members of the U.S. government believe that it would help the U.S. consumer—who is as dependent on imported manufactured goods as he is on imported energy—to be charged higher prices.
China believes that the exchange rate is not the cause of U.S. offshoring and opposes any rapid change in its currency’s value. In a message issued in order to tell the United States to ease off the public bullying, China reminded Washington that America doesn’t hold all the cards.
The Times editorial expresses the concern that China’s “threat” will cause protectionist U.S. lawmakers to stick on tariffs and start a trade war. “Free trade, free market” economists rush to tell us how bad this would be for U.S. consumers: A tariff would raise the price of consumer goods.
The free market economists don’t tell us that dollar depreciation would have the same effect. Goods made in China would go up 30 percent in price if a 30 percent tariff was placed on them, and the goods would go up 30 percent in price if the value of the Chinese currency rises 30 percent against the dollar.
So, why all the fuss about tariffs?
The fuss about tariffs makes even less sense once one realizes that the purpose of tariffs is to protect domestically produced goods from cheaper imports. However, U.S. tariffs today would be imposed on the offshored production of U.S. firms. In the era of offshoring, corporations are not a constituency for tariffs.
Tariffs would benefit American labor, something that the U.S. Chamber of Commerce, the National Association of Manufacturers and the Republican Party would strongly oppose. A wage equalization tariff would wipe out much of the advantage of offshoring.
Profits would come down, and with lower profits would come lower CEO compensation and shareholder returns.
Obviously, the corporate interests and Wall Street do not want any tariffs.
The Times and “free trade” economists haven’t caught on, because they mistakenly think that offshoring is trade. In fact, offshoring is labor arbitrage. U.S. labor is simply removed from production functions that produce goods and services for U.S. markets and replaced with foreign labor. No trade is involved. Instead of being produced in America, U.S. brand names sold in America are produced in China.
It is not China’s fault that American corporations have so little regard for their employees and fellow citizens that they destroy their economic opportunities and give them to foreigners, instead.
It is paradoxical that everyone is blaming China for the behavior of American firms. What is China supposed to do, close its borders to foreign capital?
When free market economists align, as they have done, with foreigners against American citizens, they destroy their credibility and the future of economic freedom. Recently, the Independent Institute, with which I am associated, stressed that free market associations “have defended completely open immigration and free markets in labor,” emphasizing that 500 economists signed the Independent Institute’s Open Letter on Immigration in behalf of open immigration.
Such a policy is satisfying to some in its ideological purity. But what it means in practice is that the Americans, who are displaced in their professional and manufacturing jobs by offshoring and work visas for foreigners, also cannot find work in the unskilled and semi-skilled jobs taken over by illegal immigrants. A free market policy that disregards American labor is not going to win acceptance by the population. Such a policy serves only the owners of capital and its senior managers.
Free market economists will dispute this conclusion. They claim that offshoring and unrestricted immigration provide consumers with cheaper prices in the marketplace. What the free market economists do not say is that offshoring and unrestricted immigration also provide U.S. citizens with lower incomes, fewer job opportunities and less satisfying jobs. There is no evidence that consumer prices fall by more than incomes so that U.S. citizens can be said to benefit materially. The psychological experience of a citizen losing his career to a foreigner is alienating.
The free market economists ignore that a country that offshores its production also offshores its jobs. It becomes dependent on goods and services made in foreign countries, but lacks sufficient export earnings with which to pay for them. A country whose workforce is being reallocated, under pressure of offshoring, to domestic services has nothing to trade for its imports. That is why the U.S. trade deficit has exploded to over $800 billion annually.
Among all the countries of the world, only the United States can get away with exploding trade deficits. The reason is that the United States inherited from Great Britain, exhausted by two world wars, the reserve currency role. To be the reserve currency country means that your currency is the accepted means of payment to settle international accounts. Countries pay their oil import bills in dollars and settle the deficits in their trade accounts in dollars.
The enormous and continuing U.S. deficits are wearing out the dollar as a reserve currency. A time will come when the United States cannot pay for the imports, on which it has become ever more dependent, by flooding the world with ever more dollars.
Offshoring and free market ideology are turning the United States into a third world country. According to the Bureau of Labor Statistics, one-quarter of all new U.S. jobs created between June 2006 and June 2007 were for waitresses and bartenders. Almost all of the net new U.S. jobs in the 21st century have been in domestic services.
Free market economists simply ignore the facts and proceed with their ideological justifications of open borders, a policy that is rapidly destroying the ladders of upward mobility for the U.S. population.
COPYRIGHT 2007 CREATORS SYNDICATE INC.
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1 Comment by Brian Wheeler on 17 August 2007:
When the US economy and US labor markets were much less integrated into a global economy, the US economy had a higher rate of economic growth(from 1945-1973). Economists refer to this as the Golden Era of American Economic growth. During this same time period the real wage for both skilled and unskilled American workers-the majority of whom were White Americans-was increasing. Overall, Economic inequlaity had narrowed. During this time period in America-which was demographically 90 percent White-there was a much more econimc equality between the upper class and the rest of America.
Starting in 1973 the rate of economic growth began to decline and the real wage began to stagnate for skilled White American workers and began to decline for unskilled White American workers. All this began to occur when the US economy became more integrated into the global economy and the US labor market become globalized through increasing levels of LEGAL and illegal immigration.
Mr. Roberts, I just want to say a few words about Comrade Alexander Cockburn whose website you write for. Comrade Cockburn and his lefty comrades over Counterpunch cheer on and tolerate the race-based politics of hispanics and asians on the Counterpunch website.
So obssessed is the LEGAL IMMIGRANT Alexander Cockburn with reducing White Amerians to racial minority in America that he has for the past 14 years-I’m am a long time reader of Alexanders Nation and counterpunch columns-justified the racial and economic dispossession of the majority White American population on the grounds that cheaper hispanic and asian immigration is a great benefit to the greedy cheating class(agribusiness and Bill Gates). All I can say is this: What a cockoach you are Alexander Cockburn.
Mr. Roberts, I highly recommend that you read a very important book on the real facts about protectionism written by a young Korean economist who teaches economics at Cambridge. The name of the book is “Kicking away the ladder”. Also, there are essays written by this economist on the true history of protectionism floating around the internet.
I support a protectionist trade policy. I support a protectionist immigration policy.I oppose the globalization of American labor markets through post-1965 asian,hispanic,african,carribean and asian LEGAL IMMIGRATION.
Because American labor markets have been globalized through post-1965 non-European immigration, the majority White American population faces the very real possibility of complete economic and racial dispossession over the next several decades in the nation they founded and created.
Why do you let the cockroach LEGAL IMMIGRANT Alexander Cockburn off the hook?
The globalization of American labor markets through post-1965 non-white LEGAL IMMIGRATION has created enormous economic insecurity in thousands of White American families across America. Thousands of American White families are experiencing an acute level of terror and fear because of this. This is very likely the reason they are not aggrsively challenging the Bush adminstrations war crimes in Iraq.
2 Comment by Lee on 18 August 2007:
“The Times’ editorialists do not understand that the offshoring of American jobs, which the Times MISTAKENLY thinks is free trade,”
“Clearly, it is a MISTAKE for the U.S. government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by U.S. companies in America.”
“The Times and “free trade” economists haven’t caught on, because they MISTAKENLY think that offshoring is trade.”
I don’t believe PCR’s use of mistake is appropriate. Asking someone to pass the malt-o-meal when only cream of wheat is on the table is a mistake. I find no way to convince myself that the above are not calculated efforts to reduce the American population to serfs. The people who publish and edit the Times etc are not stupid.
PCR’s last sentence is much closer to the truth even though “Pilotesque”: “Free market economists simply ignore the facts and proceed with their ideological justifications of open borders, a policy that is rapidly destroying the ladders of upward mobility for the U.S. population.”
3 Comment by Philip Candido on 18 August 2007:
It should be common sense, a nation which produces nothing is subservient to those who produce.
4 Comment by Thomas Miller on 19 August 2007:
I agree with Brian Wheeler, since Roberts started being published by Counterpunch, he has sounded a lot more like a strident leftist.
(And the comment he made recently about being willing to let the whole of Mexico into the U.S. if it meant getting rid of the Neocons was just silly). He seems to think that the left is the only real opposition to the Bush Administration these days. Does he even know abut this website?
5 Comment by Johan Dieckmann on 19 August 2007:
(Re. comment #3)
“… It should be common sense, a nation which produces nothing is subservient to those who produce. …”
French demographer and historian Emmanuel Todd observes in his “After the Empire” that the total industrial capacity of the U.S. has now declined to roughly equal that of Japan, a country with a mere one-third of U.S. population. (Capacity, mind you, not even the actual output.) What a change since the WW II times, when the unique might of America stemmed from the enormity of its industrial basis.
According to Todd, what keeps the United States of today afloat is the trust of the rest of the world, that this still is the safest place to keep the money, mainly via purchase of U.S. government bonds. When that magic disappears (and it will, since next to nothing is actually produced), it won’t be pretty. Among other things, Todd projects a decline of the living standard to about 70% of the present.
6 Comment by John Q. Public on 19 August 2007:
The state-capitalist class which accounts in its basic constituency for about 1/10th of one percent of the u.s. population or roughly 300,000 people and in its purest form accounts for 1/100ths of one percent of the u.s. population or about 30,000 people have their fingers on the pulse of the nation’s a.) money supply & the nation’s biggest cartels or multi-national corporations, b.) big government (i.e. the feds, fed agencies, electred federal ‘representatives’), c.) and big media which includes the N.Y. Times of course. I call it the Bermuda Triangle (or black hole) into which anything and everything adverse to this tri-unity’s interests vanishes. It matters NOT that the interests of this microscopic minority in comparison with the 99.9% of the rest of the american population, and/or throw in the population of the entire rest of the world for good measure for that matter, run contrary.
That’s reality presently. It doesn’t even matter if the interests of this microscopic minority are self-destructive and so run not only contrary to the interests of the rest of the country and/or world but against their own interests as well…It will continue in the direction it alone wishes to head, until it no longer exists as such.
You need to understand that it is an investment or investor community interested only in certain (i.e. sure-thing) short-term profits and the status quo and it is not in the least concerned with anything else.
China knows this especially at the upper levels of its own quasi-communist regime and was pressured by these same forces into becoming a quasi-state capitalist system itself like the united states. In order to do so and to compete (maintaining its viability as a regime) the chinese regime knew it would have to throw off of all social services and out of most social programs a significant enough portion of its population to provide a cheap labor force for its own subsequent state-capitalist class. As well as provide a cheap labor pool (almost slave labor by any standards, even in asia) for the microscopic investment class in the u.s. So that this tiny class, tr-unity, or ‘Bermuda Triangle’ would begin to off-shore most of their industries, to take advantage essentially of new, legal slaves in China. This would also prevent any u.s. tarriffs from being placed on chinese goods, and as PCR points out in his article above, give china some leverage as to how its own currency is valued. So as to keep the price of off-shored goods in china and chinese goods entering the u.s. low enough for the increasingly poorer, and debt ridden u.s. consumers, (being inevitably forced more and more into lower paying service industries.)
As PCR points out if china who is perceived to be holding subsequently too much u.s. debt and is too cash rich in terms of u.s. dollars is pressured into revaluing its currency in relation to the u.s. dollar it will only subsequently hurt u.s. consumers, and not the microscopic american investment class in the short-term.
Since only the microscopic american investor class has any power or clout whatsoever in this system, and NOT the 99.9% of the american population, this is the prudent or smart move for the chinese regime to have made in terms of its own viability and self-presevation in china and internationally. The point to grasp is that how the chinese regime is behaving is exactly how the the u.s. investor class behaves and controls its own domestic population except that the circumstances were somewhat different on each side.
The question becomes only how long can each nation’s microscopic minority at the expense of the rest of the 99.9% of their respective populations survive the inevitable upheaval or new revolutions in each of their respective nations, due to the misery index domestically. It is NOT China’s fault…it IS the fault of america’s investor class; but at the moment it looks like two adolsecents playing chicken with one another in their cars? Win-win – would that neither swerves?
7 Pingback by Conservative Heritage Times » Offshoring and free market ideology on 21 August 2007:
[...] Posted under Immigration & Free Trade & Political Correctness & Globalism “Offshoring and free market ideology are turning the United States into a third world country. According to the Bureau of Labor Statistics, one-quarter of all new U.S. jobs created between June 2006 and June 2007 were for waitresses and bartenders. Almost all of the net new U.S. jobs in the 21st century have been in domestic services. Free market economists simply ignore the facts and proceed with their ideological justifications of open borders, a policy that is rapidly destroying the ladders of upward mobility for the U.S. population.” ~ Paul Craig Roberts [...]
8 Pingback by Eunomia · The Roundup on 1 September 2007:
[...] and writes here on the Newark killings and here on Karl Rove. Paul Craig Roberts writes on China and U.S. media hyping “the China threat.” From the August issue, Fr. Hugh [...]