Import Penetration Still Outweighs Reshoring Trend
Michele Nash-Hoff | March 13, 2013
In January, the U. S. Business and Industry Council released a report, “Import Penetration Rises again in 2011; Challenges Manufacturing Renaissance, Insourcing Claims,” by Alan Tonelson. According to the report,” the share of U.S. markets for advanced manufactured goods controlled by imports reached another all-time high in 2011… and domestic manufacturing’s highest value sectors keep falling behind foreign-based rivals.”
The USBIC report shows that “imports captured 37.57 percent of the collective $2.01 trillion American market in 2011 for a group of more than 100 advanced manufactured products,” up from 37.07 percent in 2010. When government data to calculate import penetration rate were first issued in 1997,”imports controlled 24.49 percent of substantially the same group of U.S. manufactured products.”
“Fully 29 of the 106 sectors for which reliable data were available featured import penetration rates of 50 percent or more in 2011. In 2010, 31 of these industries had lost half of their home U.S. market to imports, and in 1997, only 8 of the 114 sectors initially studied were in this situation.”
Between 1997 and 2011, 98 industries lost shares of their home market while only 8 gained shares. The industries that gained shares are: “semiconductor machinery; saw mill products; paperboard mill products; motor vehicle stamping operations; transformer, inductor, and coil manufacturing; electron tubes; computer storage devices; and heavy duty trucks and chassis.”
The 98 industries include: “semiconductors; electro-medical apparatus; pharmaceuticals; turbines and turbine generator sets; construction equipment; farm machinery and equipment; mining machinery and equipment; several machine tool-related categories; and ball and roller bearings.”
The report states that “from 1997-2011, output fell in 38 of the 106 total industries studied over this time span – nearly 36 percent of the total. These ‘declining’ industries include electricity measuring and test instruments; relays and industrial controls; motors and generators; motor vehicle engines and engine parts; several machine tool-related categories; and environmental controls.” In 11 more sectors, output growth was less than 10 percent, “including semiconductors; semiconductor production equipment; motor vehicle transmission and power train equipment; miscellaneous industrial machinery; and medicinals and botanicals.”
Mr. Tonelson writes, “High and rising import penetration rates for this many critical domestic industries over nearly a decade and a half represent powerful evidence of chronic, significant weakness in domestic manufacturing.”
In a section titled, “The Manufacturing Renaissance that Isn’t, he disputes the predictions of the Boston Consulting Group’s 2011 report, “Made in America, Again: Why Manufacturing Will Return to the U.S.” This report contends that American manufacturing would experience a renaissance because of rising costs in China and other parts of Asia so there would be a convergence in the total costs of manufacturing by some regions of the U. S. by 2015.
If U. S. manufacturers are still losing market share to foreign competitors through import penetration in their home market, this is a sign that “the United States has not even started to become “increasingly attractive for the production of many goods sold to consumers in North America” as predicted by the Boston Consulting Group, much less experiencing a Manufacturing Renaissance.
What is even more troubling to Mr. Tonelson is that the USBIC report focuses on the capital-and technology-intensive sectors that are “keys to maintaining national prosperity, technological leadership, and national security.” The report shows that “dozens of America’s most advanced manufacturing industries are becoming just as vulnerable to import competition – and in some cases to import domination – as labor-intensive industries like clothing and toys.”
He concludes that the conventional stimulus strategies have had the disappointing results of “less growth and employment bang per investment-target stimulus buck with each passing year” because “U. S. imports of capital goods as such generates much less American output supported by much less American employment than purchases of domestically produced capital goods.”
In his opinion, President’s Obama’s goal of doubling exports during the 2009-2014 period isn’t going to improve the situation either when imports keep rising faster than exports. While there was a 15.45 percent improvement from 2010 to 2011, the January-October 2012 period only showed a 4.56 percent improvement.
Mr. Tonelson points out that negotiating new trade agreements isn’t producing the desired effect of increasing exports. The latest agreement negotiated with Korea has had the opposite effect ? U. S. exports to Korea dropped by more than 18 percent while imports from Korea are up 4.74 from when it came into force in March 2012.
He concludes that the continued rise of import penetration in the U. S. indicates that American industry is losing ground relative to foreign-based competitors and “the nation is not making enough of the structural changes needed to create healthy growth and avoid reflating the last decade’s credit bubble.”
In an interview by Richard McCormack in the January 15, 2013 issue of Manufacturing & Technology News, Mr. Tonelson, stated, “I think the only way that these trends reverse meaningfully is if American trade policy changes. Unless we reduce the incentives of U.S. companies and companies all over the world to supply the U.S. market from overseas, this tide will not turn.”
While reducing the incentives of U. S. companies and foreign companies to supply the U. S. market from overseas is an important step in turning the tide, it would be the first of many steps we need to take. As I have written previously, we need to change our trade, tax, and regulations policies to help U. S. manufacturers be more competitive in both their home market and the global marketplace. We need to develop a national manufacturing strategy that would address all of the various factors that are resulting in the decline in the decline in the United States’ share of the global manufacturing output.
I did take exception to Mr. Tonelson’s dispute of the predictions of the Boston Consulting Group’s report and told him that the data is lagging reality ? “reshoring” is happening. As a manufacturers’ sales rep for American companies that perform fabrication services, I am in the “trenches” competing with offshore companies. Nearly every manufacturer I represent has experienced gaining new customers that are “reshoring” manufacturing from China. I have interviewed dozens of companies at trade shows over the past year and a half, and every company I interviewed had experienced “reshoring.” Nearly all of the San Diego region’s contract manufacturers of electronic manufacturing services have benefitted from “reshoring” in the past year.
The Reshoring Initiative, founded by Harry Moser in 2010, has documented case studies of companies reshoring. In the article, “Pumping Muscle into U.S. Manufacturing,” by Craig Barner in the March 6, 2013 issue of Forbes magazine, Mr. Moser said, “For example, about 220 to 250 organizations have brought manufacturing back to the U.S….with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010, he said.”
“The top reshoring industries include electrical equipment, appliances and components; transportation equipment; and machinery, Moser said. Key reasons for returning to the U.S. include rising wages offshore, better quality of goods produced in the U.S., easier access to repairs and lower delivery costs, he said.”
On March 4, 2013, Prime Advantage, the leading buying consortium for midsized manufacturers, announced the findings of its eleventh semi-annual Group Outlook Survey. “A large majority — more than 70% of respondents — have increased their material and service purchases from American suppliers and service providers. Mexico is the second choice for sourcing, with nearly 28% of respondents moving sourcing to that region. The most frequently cited benefits that manufacturers hope to see in nearshoring are shorter lead times, as indicated by 67% of respondents, and lower inventories (49%). Among other benefits, companies cited better supply chain control (40%) and better overall communication (39%).”
If more American manufacturers would utilize the free Total Cost of Ownership Estimator™ developed by Harry Moser, more companies would understand the benefits of “reshoring” and foster a true renaissance in American manufacturing.
In my opinion, this is one of the most important articles provided by this blog. The first part is correct (data showing increased manufacturing production overseas). But the second part is also correct (signs of production increasing in the U.S).
It is easy to overstate the size of the return to the U.S. Another magazine article told us about GE returning some appliance manufacturing to previously closed factory buildings in Louisville, KY. The inside story said that it was only the very high end appliances being produced. High end is better than nothing but the large market is not the high end.
Why should any Congressman or economists want to wait to see how much production is returned to the U.S. absent any U.S. action to counter the actions of other nations? This is no time for complacency. Tariffs targeted on exports to the U.S. from Japan,
Germany and China are essential to force the current trade deficit to decline rather than grow (as it will absent U.S. action - due to growth of the U.S. economy).
“Tariffs targeted on exports to the U.S. from Japan,
Germany and China are essential to force the current trade deficit to decline rather than grow (as it will absent U.S. action – due to growth of the U.S. economy).”
Agreed, and ASAP:
Cutting taxes may help a bit, but a national manufacturing plan will put people back to work generating revenue for all levels of government.
Huge trade surplus:
http://www.tradingeconomics.com/china/government-debt-to-gdp
Incomprehensible trade deficit numbers:
http://www.tradingeconomics.com/united-states/government-debt-to-gdp
Thank you Michelle Nash-Hoff for another incisive article so relevant to the fate of our country. Displacement of American manufacturing by imports costs our nation millions of jobs, not to mention dismantling our industrial ecosystem in a way that weakens our ability to create wealth in the future. Loss of manufacturing also means loss of design, engineering and the innovation needed for our long-term competitiveness and prosperity. The social costs include mass unemployment (disguised by deceptive official statistics, see John Williams’ “shadow stats” website), spreading poverty, and the fiscal crises at local, state and federal levels, caused by shrinking tax base and higher safety net costs.
Harry Moser’s “Total Cost of Ownership Estimator” is indeed an important tool towards promoting reshoring of manufacturing. But the sad fact is that, from the point of view of a corporation that has zero loyalty to any particular country, offshoring American jobs still makes financial “sense” given America’s absurd “free trade” policies and lack of any industrial policy to coordinate tax, regulation and trade policies around strategic national economic goals.
According to Paul Craig Roberts:
“US politicians, such as Buddy Roemer, blame the collapse of US manufacturing on Chinese competition and “unfair trade practices.” However, it is US corporations that move their factories abroad, thus replacing domestic production with imports. Half of US imports from China consist of the offshored production of US corporations. The wage differential is substantial. According to the Bureau of Labor Statistics, as of 2009, average hourly take-home pay for US workers was $23.03. Social insurance expenditures add $ 7.90 to hourly compensation and benefits paid by employers add $ 2.60 per hour for a total labor compensation cost of $ 33.53. In China as of 2008, total hourly labor cost was $ 1.36, and India’s is within a few cents of this amount. Thus, a corporation that moves 1,000 jobs to China saves saves $ 32,000 every hour in labor cost. These savings translate into higher stock prices and executive compensation, not in lower prices for consumers who are left unemployed by the labor arbitrage.”
Roberts, Paul Craig (2013-02-02). The Failure of Laissez Faire Capitalism and Economic Dissolution of the West (Kindle Locations 1655-1664). Atwell Publishing. Kindle Edition.
That labor price differential is a very good reason to believe our country needs an effective industrial policy (including a protective trade policy) to revive our employment and manufacturing and long-term economic and social well-being. If corporations want to operate only for the profits for shareholders and bonuses for executives, then the political representatives of the American people must step in and make rules that compel production and investment in country if the goods are to be sold in this country. Right now the global corporations are the ones benefitting from the rules made in Washington,.
And thanks also to Ms. Nash-Hoff for her recent article on the disastrous implications of the TPP:
http://www.tradereform.org/2013/02/the-trans-pacific-partnership-would-destroy-our-national-sovereignty/
The loss of sovereignty and constitutional government in the USA that treaty would bring are just one more warning to the American people that global corporations care nothing for our fate as a people or a country.
Will - You make valued contributions to this blog. Can you help me unravel the apparently discordant numbers?
“Half the imports from China are supplied by affiliates of U.S. corporations”. “The large increase in the value added of affiliates in manufacturing in China ..mainly reflected expanded production to serve the large and growing local market…The share of these affiliates’ total output sold to U.S. customers was 10% in 2009″. (Operations of U.S. Multinational Companies in the U.S. and abroad, Survey of Current Business, November, 2011,pg.38). The total value added by U.S. affiliates located in China was 41 billion. Ten percent of 41 billion is 4 billion. The U,S, received 425 billion of imports from China in 2012.
These numbers are not directly comparable. But their disagreement is so radical as to raise the suspicion of something wrong. John Craig Roberts is a reliable reporter. I don’t know how to square the circle.
This issue bears on the question of the morality of U.S. firms sending production abroad. I think U.S. firms are being made the scapegoat. It is Chinese corporations, aided by the Chinese government, that is reducing domestic production. Corporations owned in the U.S. are responding to outside pressure. They need help, not condemnation.
Hello Ray,
PART ONE
Here are some supporting articles for Dr. Roberts’ claim that half of US imports from China are offshored production of US corporations. (Due to CPA website robot blocking posts with multiple links, I will post each one separately.)
To begin, your low low $4 billion figure hardly covers just US imports from China of Apple products alone.
http://www.businessinsider.com/apple-and-samsung-just-revealed-their-exact-us-sales-figures-for-the-first-ever-time-2012-8
Apple is, of course, a “US corporation,” based in Cupertino CA.
Hello Ray,
PART ONE
Here are some supporting articles for Dr. Roberts’ claim that half of US imports from China are offshored production of US corporations. (Due to CPA website robot blocking posts with multiple links, I will post each one separately.)
To begin, your low low $4 billion figure hardly covers just US imports from China of Apple products alone.
http://www.businessinsider.com/apple-and-samsung-just-revealed-their-exact-us-sales-figures-for-the-first-ever-time-2012-8
Apple is, of course, a “US corporation,” based in Cupertino CA.
PART TWO
http://www.thetrumpet.com/article/2061.904.80.0/economy/the-death-of-american-manufacturing
EXCERPT:
At the dawn of globalization, the elimination of trade barriers opened up access to foreign markets for American manufacturers in return for building factories abroad. In due course, more and more manufacturers set up shop overseas, producing goods to be sold to Americans. Today, the trend is so severe, analysts predict that in some industries, a quarter to a half of all jobs are likely to migrate (Daily Reckoning, Aug. 5, 2005).
With the birth of the North American Free Trade Agreement in 1994, Mexico became a major recipient of outsourced U.S. manufacturing jobs. Mexico is now a global leader in auto parts manufacturing and one of the world’s largest TV set producers. Now, with the startup of the Central American Free Trade Area (CAFTA) this January, analysts are anticipating another exodus of U.S. jobs to south of the border. U.S. household names such as Dell, IBM, Sara Lee/Hanes and Maytag have already been moving business into the Central American region.
Asia has also been a long-time recipient of outsourced American manufacturing. A study by the universities of Cornell and Massachusetts-Amherst found that India alone may be responsible for up to 700,000 outsourced jobs. China has also received hundreds of thousands of outsourced jobs.
END EXCERPT
PART TWO
http://www.thetrumpet.com/article/2061.904.80.0/economy/the-death-of-american-manufacturing
EXCERPT:
At the dawn of globalization, the elimination of trade barriers opened up access to foreign markets for American manufacturers in return for building factories abroad. In due course, more and more manufacturers set up shop overseas, producing goods to be sold to Americans. Today, the trend is so severe, analysts predict that in some industries, a quarter to a half of all jobs are likely to migrate (Daily Reckoning, Aug. 5, 2005).
With the birth of the North American Free Trade Agreement in 1994, Mexico became a major recipient of outsourced U.S. manufacturing jobs. Mexico is now a global leader in auto parts manufacturing and one of the world’s largest TV set producers. Now, with the startup of the Central American Free Trade Area (CAFTA) this January, analysts are anticipating another exodus of U.S. jobs to south of the border. U.S. household names such as Dell, IBM, Sara Lee/Hanes and Maytag have already been moving business into the Central American region.
Asia has also been a long-time recipient of outsourced American manufacturing. A study by the universities of Cornell and Massachusetts-Amherst found that India alone may be responsible for up to 700,000 outsourced jobs. China has also received hundreds of thousands of outsourced jobs.
END EXCERPT
PART THREE
Click this link:
http://obamanomicsoutsourced.com/
Run your mouse over the map and click China for several examples of US production being moved to China with the help of the Obama administration. It is a Republican party website, and thus hypocritical in ignoring that the free trade and tax and procurement policies promoting offshoring of production by US corporations have very much been a bipartisan project.
PART FOUR
http://www.businessweek.com/stories/2007-06-17/the-real-cost-of-offshoring
EXCERPT:
…Pat Byrne, the global managing partner of Accenture Ltd.’s (ACN
) supply-chain management practice, goes even further, suggesting that “at least half of U.S. productivity [growth] has been because of globalization.” But quantifying this is tough, he notes, because most companies don’t look at how much of their productivity growth is onshore and how much is offshore. “I don’t know of any companies or industries that have tried to measure this. Maybe they don’t even want to know.”
Phantom GDP helps explain why U.S. workers aren’t benefiting more as their companies grow ever more efficient. The cost savings that companies are reaping “don’t represent increased productivity of American workers producing goods and services in the U.S.,” says Houseman. In contrast, compensation of senior executives is typically tied to profits, which have soared alongside offshoring.
IMPORTING EARNINGSBut where are those vigorous corporate profits coming from? The strong earnings growth of U.S.-based corporations is still real, but it may be that fewer of the gains are coming from improvements in domestic productivity. In fact, holding down costs by moving key tasks overseas could be having a greater impact on corporate earnings than anyone guessed-or measured….
…Paul B. Toms Jr., CEO of publicly traded Hooker Furniture Corp., (HOFT) recently closed his company’s last remaining domestic wood-furniture manufacturing plant, in Martinsville, Va. It was the culmination of a wrenching process that started in 2000, when Hooker still made the vast majority of its products in the U.S. Toms didn’t want to go overseas, he says, but he couldn’t pass up the 20% to 25% savings to be gleaned from manufacturing there.
The lure ofoffshoring works the same way for large companies. Byrne of Accenture is working with a “major transportation equipment company” that’s planning to offshore more than half of its parts procurement over the next few years. Most of it will go to China. “We’re talking about 30% to 40% cost reductions,” says Byrne….
…The numbers for Chinese imports as a whole are equally out of step with reality. Over the past three years, total imports have climbed by 89%, as U.S.-based companies have rushed to take advantage of the enormous cost advantages….
END EXCERPT
Good stuff, Will. I must agree with what you say. I have two additions. 1. The data I quoted was for the year 2009. Apple was not producing its current products in China at that time.
2. China is the major contributor to our trade deficit. China controls what goes on in their country. As of 2009, China was not allowing U.S. companies to establish factories in China for the purpose of serving the U.S. market. The data available for 2009 says that affiliates of U.S. firms sending products back to the U.S. were located all over the globe, except for China.
Hi Ray, I emailed Dr. Roberts to inquire about this. Here is my question and his response.
WW: Another commenter questioned your claim that “half of US imports from China consist of the offshored production of US corporations.” I cannot find any citation in your book to support that claim, so I am asking if you can please provide your source for that information.
PCR: I investigated this some years ago when I testified before the US-China Commission, and in 2006 when I was in China authorities in the Chinese coastal cities told me that 60% or more of their exports to the US was the offshored production of US firms. I suggest that your opponent go to WalMart, look at the American brand names and look at where the items are made. As a director of a multinational manufacturing company, I experienced it directly.
Actually, Apple has been making products in China for the American market since the 1990s, and through Foxconn, presently employs over a quarter million workers in China:
http://thediplomat.com/pacific-money/2013/01/22/apple-and-china-a-match-made-in-heaven/
That link says Apple will soon be leaving China in a search for even lower wages and less regulation: “…growing scrutiny from international human rights groups has already forced Apple to pressure Foxconn into raising the working standards of its employees in factories that make Apple products. More regulated working conditions reduces the “flexibility” of these factories, which Apple executives have cited as a key advantage China offers over American factories.”
Anecdotally, Ray, regarding the amount of Chinese exports that are the offshored production of so-called “US companies,” I recall my last “big” purchase, a barbell weight set and bench for my son for Christmas. I went to Dick;s Sporting Goods, Target, Sears and Walmart. ALL of them sold only made-in-china weight equipment, so I broke down at Walmart and bought a “Gold’s Gym” brand set -another so-called “US company.” As another example, I am an electrician by trade and last spring bought a full set of power tools, choosing that formerly-revered American brand, Milwaukee Tools. Despite the wikipedia article on Milwaukee Tools that claims their main mfg is in Mississippi, my whole set says MADE IN CHINA right on the tools. Finally, callin g AT&T Friday regarding my phone bill, I asked the service rep where she is and she said “offshore.” I said “any particular country?” and she said “I’m not allowed to say, but I am in Asia.”
And so I return to my main point, that the demonization of China and exoneration of US corporate executives for the disintegration of the American economy is the wrong target. The culprits start with the US Senators and Congress and Presidents of both the Republican and Democratic Parties that have written the free trade treaties and policies to please the global corporations that have bought America’s political system through unlimited campaign financing, think tanks, and the revolving door of govt work and corporate lobbying and BOD obs awarded to the traitors from both political parties. They serve the American 1% whose share of national income and wealth have skyrocketted along with their companies’ share prices and profits, all of it obtained by systematically destroying America’s industrial ecosystem and offshoring of our jobs by the millions.
Will and I are in agreement that the Congress and the President are directly responsible for the laws and administrative practices that have led to the loss of production capacity in the U.S. that follows 36 years of a continuous trade deficit. But he goes further. He says that the multinational corporations that are profiting from this situation are ultimately responsible because they use their wealth to influence or control the legislation that is passed.
I agreed that money is powerful in our political system. But I think it is a waste of time to lay all the blame on the firms and people who profit from this situation. I take this position because I am looking for levers to push to change the situation. Those who profit from this situation are NEVER going to agree that we must change. Even if they are 100% the villains, that does not change the reality that we must find some other allies if we are to create change.
The organization that provides this blog is working with firms and people who have been harmed by our trade deficit. They are likely allies. I want to support another group of allies - those economists that recognize the harm done to the U.S. economy by our current trade policy. These natural allies exist. We need more people like Paul Craig Roberts, Pat Choates, Ian Fletcher and Eamonn Fingleton. A big part of the blame for our current predicament is lack of intellectual leadership on the part of mainstream economists.
Well-said Ray.
When it comes to the theory of free trade, both David Ricardo and Adam Smith were describing free trade in the context of a sound monetary system where money was backed by gold. You can’t have any type of free trade or properly balanced trade when you have fiat money which can just be created at will by any central bank.
Ever since the Bretton Woods system ended which severed the last link of the dollar to gold, the US has been running increasing trade and budget deficits, increasing financial bubbles as well as experiencing declining living standards and income inequality. Without the dollar having any link to gold, money has been increasingly created to fund unproductive activities. The war in Iraqi is a recent example. Estimates have it that 2 trillion was spent directly. This doesn’t include future costs that will have to be paid or the cost of the other ongoing conflicts. Additionally, it doesn’t count the cost of inflation to the economy like oil being $30 a barrel before 2003 to averaging around $100 like it does today.
Just imposing tariffs or depreciating the currency is not going to fix the trade deficit. What is needed to fix the trade deficit is a sound dollar. A sound dollar is not an overvalued or undervalued currency but a currency backed by gold or silver. Without a sound dollar, anytime the US inflates faster then it’s trade partners it will experience trade deficits. For instance during the 2003 to 2010 period, the US dollar depreciated against the major currencies but the trade deficit only got larger. The Chinese Yuan even appreciated against the dollar by about 20% but the trade deficit only got bigger because the US was inflating faster than most of it’s trade partners.
Hi Mo, Although I agree with you that the Iraq war was a colossal waste of blood and treasure, there has not been much price inflation in the USA. This is most likely due to the status of the dollar as a global reserve currency so the increased money supply is absorbed by a much larger sponge than would a comparable increase in, say, pesos. Also the cheap imports dumped in the USA have, for all their disastrous effects on our manufacturing capabilities and employment, kept prices lower, due to the cheapness of the labor used to produce them. No doubt the “QE’s” 1-3 have been inflationary to a degree, but according to James Rickards in his book “Currency Wars,” “by using QE to generate inflation abroad, the US was increasing the cost structure of almost every major exporting nation and fast-growing emerging economy in the world all at once.” (Currency Wars p. 134) “QE worked because the yuan-dollar peg maintained by the People’s Bank of China. As the Fed printed more money in its QE programs, much of that money found its way to China in the form of trade surpluses or hot money inflows looking for higher profits than were available in the US. Once the dollars got to China, they were soaked up by the central bank in exchange for newly printed yuan.” (p. 135)
In other words, because the dollar is a reserve currency and so many other currencies are pegged to it, the US has been, in effect, exporting our inflation to other nations.
In fact, Rickards also argues there is “scant evidence to support a linkage between jobs and exchange rates” and would appear to agree with Paul Craig Roberts when he argues “it seems unlikely the typical North Carolina furniture maker would be willing to work for the $118 per month made by his Chinese counterpart. Even if the yuan doubled in value, the Chinese furniture maker would earn only the equivalent of $236 per month…” (Currency Wars, p. 112).
Finally, Mo, your comment about how conditions have changed since the days of Smith and Ricardo gives me yet another reason to promote Paul Craig Roberts’ book “The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.” In a previous CPA discussion, I excerpted from that book to show his argument that today’s so-celled “free trade” has nothing to do with the free trade arguments made by Smith or Ricardo. Specifically, PCR argues that Ricardo assumed capital would stay in its home country and that comparative advantage was therefore the result of differences in unique national characteristics, different geography and climate, and was therefore an exchange of DIFFERENT goods where the particular countries had comparative advantages in those particular goods.
Today’s so-called “free trade” is NOT based on comparative advantage but rather absolute advantage gained especially through labor arbitrage (exploiting wage differentials). PCR explains that globalization has made capital and technology globally mobile and these are the dominant factors in production today, not geography or national characteristics. Consequently 3rd world workers are easily made as productive as first world workers simply by moving the technology and capital to poor countries, where the huge pools of surplus labor and low standard of living serve to keep wages at a fraction of America’s.
Click this link for some excerpts from Paul Craig Roberts’ book that put this argument in his own words:
http://www.tradereform.org/2013/03/have-you-heard-of-the-tpp-yet-an-important-trade-agreement-you-need-to-know-about/comment-page-1/#comment-189327