Tariffs have long been both the nemesis and the whipping boy of the advocates of free trade. Whenever America falls into recession, advocates of jobs tout tariffs yet free traders nonetheless target them as enemies of consumers. They point to low cost goods that have helped American consumers during our recessions as a universal benefit. What they cannot show is whether the benefit of low cost goods offsets the millions of American jobs that have been lost as a result of free trade. But if free trade with the East has severely harmed America, free traders have somehow thus far escaped the scathe of America for having put free trade in motion and having failed to reverse direction when their message was proven hurtful to our national security.
A disciplined look at the use of tariffs would show that win-win free trading between nations of equals is indeed helpful to both nations and requires no tariffs. However, that same objective review would show that free trade between dissimilarly wealthy nations allows the less wealthy nation to extract the wealth and jobs of its trading “partner” and when this principle is put on steroids, the less wealthy nation can collapse the wealthier nation.
In the case of America, a lack of tariffs allowed China to create a lending practice of “live filleting”. She stripped the meat of America‘s economy right from our bones without even using western anesthesia. Instead she fed us our own dollars as loans to keep our interest rates down while artificially suppressing her currency to keep her product prices low for our consumers, a unique kind of Eastern financial acupuncture.
She is now setting about to pull the free trade needles from the pressure points of America’s political nervous system, having instructed her credit agency Dagong to start this credit downgrading slippery slope. When she does, we will all feel the stinging pain of a raw economy stripped bare of its future. The higher prices of American goods that we thought we escaped through our addiction to China’s low priced goods were just temporarily delayed through borrowing three billion dollars of debt from China. The price we will now pay for decades of higher interest rates as we struggle to rebuild our economy will more than offset the folly of our “free market” dalliances.
Could American’s rights to own property have combined with free trade to allow China’s gutting of our country? Property rights were as an essential capitalist core of our Constitution as they were for the ancient civilization of Rome. Property rights are critical for the creation of elite’s wealth and without them capitalism cannot exist, globalization cannot thrive, and a nation’s elite cannot transfer the wealth of their country to other nations for personal gain. Therefore property rights allow gutting.
How so? People that own the value of a country, let’s say U.S. capitalists, transplant that value as factories to another country, China, who uses them to create goods for the U.S.. That transplanting of capital transfers competitive advantage to China so that American jobs are lost and America’s middle class loses purchasing power. To buy China’s goods, Americans then borrow dollars from international banks and exchange the dollars for the goods created in China. Because jobs are lost, America’s government loses tax revenue and borrows dollars from China who then loans some of those dollars back to the people through their government. The U.S. government then gives the dollars to government employees who buy more Chinese goods.
Some of the dollars that are given to China are given back to the capitalist who then borrows more dollars from international banks who create those dollars from thin air. The capitalist then uses both the dollars given by China and those created by the banks to transfer them back to China as more factories which displace more American workers.
As this cycle repeats over and over, 40,000 factories are transplanted, 8 million workers are displaced, $3 trillion dollars are borrowed from China by the U.S. government, and $8 trillion dollars are borrowed by the American people from international banks who multiply this $8 trillion into $45 trillion of credit default swaps to extract even more capital from the capitalists to invest even more into factories in China.
In the end, China has a bunch of factories to make goods for their 1.3 billion internal customers and has hegemonic relationships with the world’s commodity suppliers because America no longer has factories that need them. China raises her currency’s value because she now needs her citizens to buy her factory goods and she stops funding America’s deficits so that our interest rates rise. The American government and American middle class are indebted to China and now must pay more interest.
The American capitalist has his net worth sitting along China’s shore in danger of being nationalized when China’s currency raises to the point that American people can no longer afford to buy China’s goods. The international banks have a good amount of value invested in these dangerously leveraged Chinese factories and their financial assets, loans to America’s middle class, are stretched wafer thin by Americans who borrowed more than they could afford and by corporate credit default swaps that also rest on a house of cards of American middle class debt.
Middle America’s debt is in danger of default as it is supported less and less by jobs that are pouring one by one as sand granules through the neck of an hour glass to China. When the last grain of sand needed to keep the cycle going slips through the neck, the Western financial system collapses, China retains the factories with over a billion internal customers, and America’s elite and middle class are left to fight over who will continue to pay the debt and who will escape financial calamity through default.
So when we talk of property rights, we are talking about the rights of a country’s elite and international bankers to create massive capital flow engines to drain the wealth of one civilization to another. Absent government intervention of tariffs and other financial tools or ultimately of war, when wealth differentials exist between civilizations, property rights and banking create the opportunity for wealth differential arbitrage. When nations of relatively equal wealth trade or exchange value through direct foreign investment, free trade creates a marriage of sorts. However, when wealth differential exists, arbitrage can destroy the value of the wealthier nation in favor of the emerging one.
This is the awesome power and the fatal flaw of capitalism when combined with international property rights. In 1871, Europe’s power was transferred to America through this frenzied flaw and they were left with a 20 year depression before recovering. Now it is America’s turn to suffer the flaw of property rights that were cemented in our rule of law by the Supreme Court of the United States. Most of the horses are already out of the barn. That does not mean we shouldn’t dust off a modern version of tariffs to reverse what outward flow remains.
Clif Carothers
Job Voucher Plan 