Posted on 27 August 2012 by Michael Stumo.
Michael Stumo appeared on a radio show called Healthy, Wealthy and Wise on WNZF in the Daytona, Florida region. The program was entitled, “Trade Deficits – What’s That Mean to Me?” You can hear the recorded show here.
Excellent job, Michael.
Thank You Mr. Stumo for your courage to reach out to the millions of brain dead Americans who have not figured out that China is eating our breakfast,lunch and dinner all because we choose or opt for everyday low prices. They are now stealing our industries and all the high value jobs that go with them. They are manipulating our congress and representatives in Washington. Many of our largest and brightest corporations are content to off shore all their production in the name of profit with no regard of its effect or cost on our own economy in the way of job loss. I wish more voters,citizens and consumers who vote with their dollars would be less penny wise and more job-industry conscious. Like the radio host lady said we all rush to get guns to defend our homes but fail to realize that we have been attacked and are loosing the trade war badly in defending our homes,jobs and economy because of our own failure to see what is really happening with fair trade. Fighting for ones job,industry and economy is defending ones home and future and is worth fighting for if you ask me. I hope all the politicians in Tampa get to hear your views from the radio broadcast and I still believe that we need to push for the “Congressional Reform Act of 2013″ to make the many needed changes in the way government is being run in Washington regarding trade and off shoring.
Thanks Michael for explaining in layman’s language why trade imbalance is bringing our economy down.
It seems to me that, in the tradition of Frank Luntz, we need to rename some of the terms that have been foisted on the American public by industry.
We should start by changing the phrase “free trade” to “trade rape”. How could the land of the free be against “free trade”? But it is much easier to be against “trade rape”.
If we look at the history of tariffs (e.g. The Myth of Free Trade by Ravi Batra”), we see that every country has had import tariffs of 30% or more during periods of growth of their middle class. The only exception to this was the US after WWII at which time most of the rest of global industrial capacity had been destroyed.
We are currently witnessing the undermining of the US and European economies by open trade with countries having wages below the Western world’s poverty levels. If we continue down this path, we will be putting the economies and democracies of the West at great risk and ultimately, this weakness will be seen in reduced exports from China, India etc. which will put their economies at risk. In short, trade rape is a path to worldwide economic ruin.
We need to phase in of a 30% tariff on all imports except food, clothing and non-starategic raw materials. We should be willing to make trade arrangements with higher wage countries like Canada (but not for example Mexico), if they agree to the same tariffs and restrictions on their trading partners. In this manner we can achieve a tariff barrier between the high and low wage countries which will ensure the survival of all.
I agree that a tariff would be better than nothing, but I can’t think of a product where a 30% tariff would make it feasible for a U.S. manufacturer to start-up a facility and go into production. Companies don’t usually manufacture a single product; they manufacture a “line” of products. We would be starting from scratch, unless we were to copy the products that are coming from China now. Even with a 30% tariff, the Chinese can still produce anything we could produce for one-third to one-tenth the cost. The cost to come up with designs, facilities, equipment, engineers, managers and trained production workers would be tremendous. A company would have to be guaranteed a period of zero competition in order to take that kind of risk. That could only be accomplished as part of a national manufacturing strategy, of which “balanced trade” would be the primary factor.
I do agree with you that “trade rape,” is a more apt term for China’s mercantilist response to our generosity of granting them free trade status. Paul Craig Roberts says that “The offshoring of American jobs is the antithesis of free trade.” “How The Economy Was Lost,” p155.
Trade rape or “predatory trade” would work. Maybe both. Every time one uses these terms they should go on to add who the predators are and who the victims are and the same with trade rape.
Excellent presentation of our need for “balanced trade.”
Warren Buffett, who recommended that we impose “balanced trade” back in 2003, has had Obama’s ear for the past four years. Other than a feeble attempt to beg China to stop manipulating its currency, which was rebuffed, Obama has made NO effort save or bring back our manufacturing jobs. If he were to suddenly “get religion” now, it would be a phony election year tactic.
I have heard rumors that the Romney campaign is taking a look at “balanced trade” as a way to bring back the manufacturing jobs. I would have a lot more confidence in a Romney/Ryan administration to do the right thing to save U.S. manufacturing.
I believe that Obama sees every lost job as one more family on government assistance and hence, two more votes for the Democrats. He would be a fool to stop the flow of high-paying jobs out of the country. Obama is no fool.
Well done! Let me offer a mild comment.
Re item 3: The trade deficit “helped cause the Great Recession.” There are those who would claim that the “Great Depression” of 1929 was caused by runaway speculation leading to a fiscal meltdown. Glass-Steagall was then passed to protect bank depositors. It was cancelled in 1999. It took only 8 more years to duplicate in 2008 the fiscal meltdown of 1929 and create the Great Recession.
I agree with Michael, American trade policies have been an unmitigated failure. However, they are not the fundamental root causes of our trade deficit. The trade deficit was spawned by incoherent U.S. monetary policy that tolerated trade competition, unilateral exchange rate changes such as 49% by China and 7% by South Korea along with a half century of self-induced inflation.
Allen B. Rosenstein
For 100 years, it was American policy to protect, nurture and fund U.S. industry/manufacturing to dominate the American domestic market. Our protectionism heritage.
Goldschmidt is correct. A 30% tariff would help but would not close the trade gap. When China pegs its currency while unilaterally changing the China/U. S. exchange rate by 49%, American goods become 49% more expensive. When South Korea unilaterally increases the Korea/U. S. exchange rate by 79%, U.S. goods become 79% more expensive and Korean equally less expensive. In the long run, monetary costs will decide the financial and trade issues. For the past 60 years, U.S. monetary policy beggared our nation. High bank prime rates have inflated the international exchange value of the dollar and fed the trade deficit precipitated by the arbitrary exchange rate actions of the successful trading nations.
In 1981 China’s trade surplus was $2.27 billion. Japan’s was $4.761 billion. Germany’s was $4.638 billion. The U.S. was + $5.030 billion.
By 1994 China’s trade surplus had grown to $6.90 billion. Japan’s was $130.55 billion. Germany’s was -$30.52 billion. And, the U.S. was -$121.62 billion.
By 2005 China’s trade surplus was $160.8 billion. Japan’s was $165.69 billion. Germany’s surplus was $140.65 billion. And, the U.S. was -$747.59 billion.
In 1994 China unilaterally increased the China/U. S. exchange rate by 49%. Five other nations, including Japan, Germany and South Korea followed suit.
Bruce Bishop is very perceptive when he points out that even with a level trade playing field:
“The cost to come up with designs, facilities, equipment, engineers, managers and trained production workers would be tremendous. A company would have to be guaranteed a period of zero competition in order to take that kind of risk. That could only be accomplished as part of a national manufacturing strategy. . .”
This will lead to “state capitalization” and picking winning industry a’ la our competitors.
However, the exchange rate problem can be readily corrected in one day. The Federal Reserve is mandated “. . . the main aim of Federal Reserve foreign currency operations has been to counter disorderly conditions in exchange markets through the purchase or sale of foreign currency . . .” ¹ ¹ The Federal Reserve System – “Purposes & Functions,” August 24, 2011, P 53 and P 17.
Thank you Mr. Allen Rosenstein for your valuable insight regarding the federal reserve’s role and responsibility to”counter disorderly conditions in the currency exchange markets” as in currency manipulation by China and South Korea…If this is the purpose,role, ,function and responsibility of the federal reserve to keep fair and balance and orderly currency values for fair trade then why are they not doing their job?
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