Will We Let Free Trade Finish Its Gutting of America?

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.

Tariffs are a Winning Political Strategy Unless A Political Party Counters with a Solution that is both Populist and Effective

The relative world peace established by the United States’ rise as the world’s sole super power has for several decades lulled the potential for global war. By spending more than all other nations combined on war capability during the previous decades, America effectively eradicated multinational corporations’ (MNCs) only known natural predator. In the absence of other governments organizing their citizens to wage war for control of another country’s resources, multinational corporations have had no natural predators in third world countries for the past 40 years.

In third world countries, where developed and complex economies do not exist, dictators have been easily influenced to enter into one sided contracts and socialist countries’ have had few alternatives to the purchasing power of corporations but to enter into monopolistic contracts as well. Therefore, just as in any ecosystem that is devoid of natural predators, MNCs have proliferated during the previous three decades. While U.S. corporations have led the growth of MNCs, industrialized countries throughout the world have competed for direct foreign investments worldwide.

Two results of this explosion of MNCs have been the driving down of consumer goods prices and loss of jobs in industrialized nations. Since America consumes a quarter of the world’s output, jobs have been lost in countries across the globe to support our consumption. Other industrialized countries have partially subsidized the price benefits that America has received.

However, America has also lost jobs as a result of the transfer of investment to other countries. Some in America claim that we should have imposed limits on our country’s corporations’ foreign investments to limit American job losses. Limiting our investment would have only allowed other countries’ corporations to invest without competition from U.S. corporations. As a result, our corporations would miss opportunities as other nations’ corporations increased worldwide market share. Therefore, America correctly acquiesced to the notion that we must share the burdens of globalization to ensure our corporations maintain world market share of global investments.

Globalization is a worldwide phenomena created by America’s overwhelming military goals. Our military is an economic catalyst transferring the wealth of industrialized nations toward creating household purchasing parity around the globe. And this economic disparity of household incomes is so great that it will continue to provide overseas investment opportunities for America’s wealthy for decades to come unless the disaffection of industrial nations’ middle classes creates another predator. While China is quickly gaining long term worldwide contractual relationships with third world countries and building military defenses for a future military threat to its hegemony, war does not seem a threat to globalization for several decades at least. The more eminent threat to globalization is the political opportunity that MNCs have caused by their increasing structural unemployment in industrialized countries.

America’s Republican Party is now attempting to capitalize on the high unemployment of our middle class by touting tariffs as a way increase employment and to win the 2012 elections. Tariffs do increase employment and America is ready for a populist employment platform. Unfortunately, history has shown that as a government centric solution, tariffs are ineffective and ultimately cost a nation more than they benefit it. However, unless political parties are prepared to counteract waves of populist sentiment, America is destined to repeat detrimental policies. Remember what happened in Great Britain in 1945. Even though Winston Churchill had 83 percent support after the war, his party was overwhelmingly rejected when the Labour Party touted full employment, health and housing platforms.

To win against the party that supports tariffs, the competing party must support full employment that does not raise costs to Americans and that ultimately makes our goods and services more competitive in the world marketplace, two things that tariffs cannot accomplish.

My job voucher plan is a solution that can give the political party that retains it as part of its 2012 platform a winning populist strategy. It makes America competitive without raising costs of foreign goods to our consumers. It creates full employment without creating more social costs than our current unemployment and welfare solution. My job voucher plan does reduce the cost of American goods, does provide full employment for our labor force, does reduce our trade deficits, and ultimately pays back America for its investment in our people.

If you have a member of your political party that would be interested in more details, I would be happy to engage a discussion

Job Voucher Plan is Better for America Than Tariffs or Subsidies

Ultimately, protectionism is not a viable answer for America because of our views on property rights, and because of the costs of tariffs and subsidies. Americans believe in protection of property rights, including a corporation’s intellectual property. It has the right to sell its trade secrets to a foreign entity and to make products overseas to distribute to America.

The U.S. government can dissuade the company’s decision to move offshore through tariffs. This may incentivize the company to maintain enough manufacturing capacity in the U.S. to meet domestic demand, but if scale efficiencies are gained off shore, or if, through lower production costs, more global market can be gained than will be lost in the U.S., a tariff will only provide a form of taxation as a penalty to the multinational corporation (MNC) for transferring jobs.

When the U.S. government imposes a tariff, the U.S. consumer pays more for goods. However, the tariff’s goal of saving U.S. jobs may not be successful. When low cost goods are allowed to enter the U.S. without a tariff, the U.S. consumer pays less for goods, but jobs are lost.

If the MNC has a sizable market share, the MNC can set prices a small percent less than what U.S. companies must charge, and the MNC can still capture a sizable profit. As a result, the marginal benefit to the consumer of lower cost goods is more than offset by the cost of unemployment compensation to those that have lost U.S. jobs. Tariffs, therefore, are ineffective at retaining jobs, and do not stop the transfer of wealth from the consumer to the MNC and international shareholder.

As an alternative, the government can subsidize certain industries. In so doing, they allow that industry’s products to be priced more competitively. This alternative may make sense if the cost of the subsidy is less than the cost of paying for unemployed persons, or if the government finds that the non-competitive industry is nonetheless vital to our national security. However, the subsidy disincentivizes the U.S. company from becoming competitive. In addition, our bilateral trading partners will also retaliate by raising tariffs or providing subsidies of their own, cancelling out benefits and raising prices worldwide.

The U.S. is facing a prisoner’s dilemma. If U.S. MNCs do not use the funds of international investors to build factories in foreign countries, then other countries’ MNCs will fill the void. If other countries build, they will still sell to us at lower prices, we will still lose jobs, and we will still pay unemployment. At least when U.S. MNCs build foreign factories, they generally employ supplemental employees in the U.S., and pay some taxes to the U.S. as well.

Since we will lose jobs anyway, we might as well attempt to share in the MNCs’ profits as a form of payment for the transfer of jobs. I say attempt because while the U.S. government will attempt to share value through taxing profits of U.S. MNCs made in foreign countries, MNCs are adept at staying ahead of U.S. actions through manipulation of foreign subsidiary profits.

Acquiescing to U.S. MNCs building overseas appears inevitable, but America can create a better solution than we have thus far attempted. Just attempting to collect taxes is not an optimum solution. For one, if America must compensate the unemployed as a result of MNC job transfers, we should at least extract value from unemployment payments by employing the unemployed.

We need not use ineffective tariffs or subsidies. With my job voucher plan, unlike tariffs, consumers still get the benefits of lower prices. In addition, our country gains benefits of lower domestic prices as lower employment costs are passed through small businesses to consumers. With my job voucher plan, unlike subsidies which have both domestic and export costs, company incentives are capped at the cost of unemployment, a sunk cost that our government is already committed to paying.