America's massive trade deficit: Why BIG tariffs won't hurt the United States [View all]

[Zalatix]

America is running a trade deficit with almost the entire world.

Here is a list of important nations with which we run deficits:

http://www.census.gov/foreign-trade/balance/c1220.html
Trade in Goods with Canada:
2012: -17,418.3 (so far)
2011: -34,456.9
2010: -28,542.5

http://www.census.gov/foreign-trade/balance/c2010.html
Trade in Goods with Mexico:
2012: -33,923.4 (so far)
2011: -64,486.9
2010: -66,434.9

http://www.census.gov/foreign-trade/balance/c0003.html
Trade in Goods with European Union:
2012: -51,866.3
2011: -99,881.0
2011: -79,611.5

http://www.census.gov/foreign-trade/balance/c5800.html
Trade in Goods with Korea, South:
2012: -7,245.7
2011: -13,246.7
2010: -10,028.9

http://www.census.gov/foreign-trade/balance/c5330.html
Trade in Goods with India:
2012: -9,698.1
2011: -14,651.5
2010: -10,282.5

http://www.census.gov/foreign-trade/balance/c4621.html
Trade in Goods with Russia:
2012: -9,413.2
2011: -26,332.8
2010: -19,684.7


Put succinctly, this means that all the major nations of the world, plus the EU, are exporting more goods to America than they are importing. This means that Globalism is generating jobs over there, and draining jobs from over here.

Globalism is not generating jobs for the United States. We're running big trade deficits with both so-called free trade nations like Europe, Mexico and Canada, and we're running big trade deficits with mercantilist nations like China.

America is generating jobs for the world, and the world is thanking us by draining jobs from us. Free traders like to deny this, but they cannot. The facts show that this is true.

You must ask yourself now, has America's working class been better off with low tariffs than they were without? Look at these charts and see:

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Notice the correlation between shrinking tariffs and shrinking union membership and the middle class? That's because Globalization, by its nature, empowers employers to use cheap foreign labor to bust unions. They busted unions by closing union factories here and opening cheap labor factories in places like Mexico and China. This is a historical fact. Globalization is nothing short of a SUPERWEAPON against the working class. It is as effective against the working class as nuclear weapons are in war.

History shows in specific detail that offshoring, or global labor arbitrage, is destroying America's working class.
http://businessfinancemag.com/article/economic-amp-business-focus-global-labor-arbitrage-resets-wages-0401

Offshoring will flatten wages in the United States and other advanced economies.
Global labor arbitrage -- the practice of constantly replacing expensive labor in one location with cheaper labor in another -- has been a cornerstone of corporate strategy for more than a century. This strategy matured over the past decade as technology and higher levels of development in the low-wage nations enabled their workers to take on service jobs and knowledge work; no longer is the practice limited to low-level production jobs. As developing countries provide an increasingly skilled workforce, developed nations' ability to differentiate themselves is dissolving, and the companies operating in those countries no longer need to pay their workers a premium. The most widespread and lasting impact of the maturation of global labor arbitrage is the decline in real wages in the developed nations. CFOs of U.S. companies can prepare now for a permanent resetting of wages for many workers in the upper salary ranges.

Increased global competition and low pricing power are driving the more aggressive forms of arbitrage: overseas sourcing, offshoring and foreign direct investment. In the IT industry, these practices are already moving into their second generation; Indian companies that took work from the United States and Europe are now offshoring less-skilled jobs to lower-cost locations such as China and Malaysia. IT wages in the United States dropped by an average of 3 percent in 2004.

Outsourcing to foreign countries has eliminated high-paying manufacturing jobs and replaced them with low-paying service jobs. In fact, right now we are seeing an explosion in low paying jobs as part of the post-2008 recovery. High paying work? Not so much.


Now how do we get out of this? There are two ways out of this. The voluntary way is by tariffs.

Free traders bring up the Smoot-Hawley myth whenever the issue of tariffs is brought up. Do note, for one, that when the Republican-led Smoot-Hawley tariffs were passed, trade dropped at a level COMPARABLE to the drop in economic activity that occurred as a result of the Great Depression. Trade went down not because of Smoot-Hawley, but because everyone was poor and were more interested in keeping their goods and resources at home to consume. Smoot-Hawley neither caused the Depression, nor did it exacerbate it. The drop in trade would have happened if Smoot-Hawley never occurred. Furthermore, trade increased and America's trade surpluses did not occur because Smoot-Hawley was dropped. It occurred because America emerged as the lone manufacturing superpower. The United States also devalued its currency by inflating away its postwar debt in the late 1940s. Which is exactly what China has been doing. America's dollar skyrocketed thereafter against the world's currency, and tariffs dropped. Globalism then proceeded to go to work on the American economy like colonies of Formosan termites, and now we see the damage that it has done.

There is one other thing that free traders have forgotten when it comes to the Smoot-Hawley myth: America wasn't running the kind of monster trade deficits that we're running now. Make no mistake, had America been running gargantuan trade surpluses in the 1930s and the Depression was NOT in effect, Smoot-Hawley might have been disastrous. MIGHT HAVE BEEN.

Free traders fear to talk about this basic fact: When you are running hundreds of billions of dollars in trade deficits with other nations, it hurts you less to put up tariffs than it hurts them. Especially when you have the kind of manufacturing capacity that the United States has.

Big tariffs, big enough to totally cancel out mercantilist advantages, mean prices go up for America, but jobs disappear elsewhere. China, Europe, Mexico, India, etc., their job growth in part depends on exports to America.

Cutting off those imports means we stop bleeding out jobs. No more factories closing, no more tech jobs leaving the country, no more of that bullshit. Period. Full stop.

Let me repeat: cutting off cheap labor imports means a FULL STOP to the exodus of jobs out of the country. FULL. STOP.

I'll let you think about that for a second.





Right now, if you explain this to a free trader, if they're wily enough, they'll hit you with "but... IMPORT SUBSTITUTION!!!" So what is import substitution? It means, basically, the replacing of imported goods with domestic production. If clothes made in India cost $5 today and tariffs make it $50 tomorrow, import substitution means it'll be made in America instead.

Free traders are arguing, when they use the import substitution argument, that when BIG tariffs are slapped on India, the cost of clothes will go up and America will go without clothes instead of buying higher-priced clothes. They often add to this that tariffs will drive the cost of clothes up to $50 when it is Made in the USA.

The errors in their argument go from bad to laughable. The bad logic is that Americans won't go naked. They'll still buy clothes, and they'll be made by Americans. The laughable part is that clothes will go way up in price. You can find Made in the USA clothes quite cheap now.

Let's also take a look at consumer electronics, like Apple's iPad. The iPad's price is not mainly wages, it is profit.

http://www.forbes.com/sites/timworstall/2012/02/15/chinese-workers-get-only-8-from-each-apple-ipad-2/

As Apple desperately tries to repaint itself as a caring company when it comes to workers’ rights, news has emerged that employees in its suppliers’ Chinese factories get just $8 of the $499 sale price of each iPad 2.

Apple's profit margin off each iPad sale is better than 50%. That's a nice fat margin to make off kicking people like YOU out of work and sending the jobs over to a cheap labor place like China.

Now you know who REALLY benefits from this trade deficit.

Using tariffs to bring iPad jobs back to the USA would create 67,000 American jobs on the spot.
http://www.forbes.com/sites/timworstall/2011/12/18/if-apple-onshored-ipad-production-it-would-create-67000-american-manufacturing-jobs/

That’s the conclusion reached in this study here, that if Apple brought the assembly line for the iPad onshore into the US, that it would create 67,000 manufacturing jobs right here in America.

You'll notice, at the end of that last cited article, that the author mentions jobs lost elsewhere to pay for jobs gained by the working class. As you will all remember, the upper elite who own most of Apple's worth, aren't spending much. THAT IS WHY we have no good job growth. 67,000 American jobs means that people who typically spend money, will spend more of it. Money that trickles from the bottom up circulates more than money that trickles from the top down. 67,000 new workers with jobs will rev up the economy more than 67,000 without jobs and 5 investors a total of $1.8 billion saved by outsourcing to China (as the article calculates).

Think about that for a second... putting 67,000 Americans to work. Just for iPads. Henry Ford knew this was a good idea a century ago.



Again, I'll let you think about that for a second.








Despite these facts, however, free traders keep saying tariffs are evil and we owe the third world a living. They argue that we should lower our standard of living so the third world can "have a chance". So what if we have Americans living in squalor for want of a job? Free traders could give a rat's ass about them. They're just filthy Americans, after all. Which brings me to the next issue: the same free traders who accuse the anti-offshoring MAJORITY in America of hating foreigners, couldn't be bothered to piss on an unemployed American if he was on fire. Save the world, to hell with Americans. When you argue with a free trader in real life, be sure to tell them about their attitude and watch them shrug. Catch it on video and Youtube it so the rest of America can see just how disdainful they are of America's working class.

Anyhoot.

So, if we don't run this free trade mentality out of America, we absolutely must come to the second, and unavoidable way out of offshoring: the collapse of the dollar. This is something that free traders will never want to discuss. Try it, bring it up with them. Watch the subject get changed, quickly.

Fact #1: A large trade deficit devalues the United States dollar.
http://www.frbsf.org/education/activities/drecon/1999/9910.html

Fact #2: A large trade deficit increases the national debt, particularly foreign-held debt.
http://www.pbs.org/newshour/businessdesk/2009/03/why-is-the-trade-deficit-impor.html

In short:
Our massive trade deficit is devaluing the US dollar, and eventually it will devalue the dollar to the point that imports will become impossible anyway.

In fact, the Von Mises Institute, a major supporter of offshoring, says that this is already happening.
http://mises.org/daily/2883

The slowdown of the American economy and the ensuing devaluation of the US dollar deliver gloomy headlines as timely as weather forecasts. The weakening currency may excite entrepreneurs anticipating increased exports. As well, it might have a stimulating effect for American professionals who are paid in return for our services.

China, mind you, is doing its best to prevent the devaluing of the dollar against the Yuan. The way they are doing it is complicated, but it falls under the term "sterilization accounts", and basically it means China is propping up the US dollar. Artificially. As we all know, such tactics are not sustainable.


So, basically, if your friendly neighborhood free trader closes their ears and goes "LA LA LA LA LA LA LA LA" about the benefits of tariffs for America, you can explain to them this:

Globalization will eventually devalue the dollar until imports become impossible. A devalued dollar is the most powerful form of natural tariff, and trade deficits are the most natural way to achieve a devalued dollar. Foreign outsourcing, or global labor arbitrage, is the ultimate form of economic Ouroboros. The only question is how long it'll take: as in, how long can China keep propping up the dollar?

Globalization will end. We the People will either euthanize it, or it will eat itself alive. The only question for the free traders is: how do you want it to end?