Tag Archives: trade deficit

China and India are Winning the Jobs War

China and India are winning the “jobs war”.  American jobs are being lost most to developing countries where the average wage is less than $3,000 per year. What is the impact of trade deficits on jobs? With a trade deficit of about $700 million, and with about 45% of trade volume representing labor and private sector multipliers of 2.0, America’s trade deficit represents about 14 million lost American jobs. 

Do trade deficits harm America? Since the average income for major trade surplus countries is under $3,000 versus the average American at $43,000, many products overseas can be manufactured at far less costs than in America. If all wage differences were passed back to American consumers, our consumers would benefit from lower prices by about $280 billion. But if we net out the loss of $630 billion in lost American wages, America still loses $350 billion every year. 

Which Americans benefit and which are penalized by trade deficits? Laid off workers lose because they collect only a portion of their wages in unemployment. Their unemployment payments are paid by all Americans, so taxpayers lose. Lower wage consumers benefit more by lower prices than by the taxes that they are required to pay, so their households benefit perhaps as much as $2,000 a year. Of course in the long run, trade deficits are borrowed, causing loan rates to go up for both consumers and government, so all America is penalized. 

Does freeing up trade benefit America? Certainly, more American goods and services can be sold to other countries and more foreign goods can be purchased by American consumers. However, unless our government negotiators are savvy enough to remove specific trade restrictions that will reduce our trade deficits, the large differences in wages between America and developing countries would suggest we will not benefit from more free trade. 

Freeing up trade should grow the volume of trade, and therefore the trading class should benefit. The working class American who has a job may also benefit from some consumer savings at the expense of all Americans. Of course, many Americans who no longer have jobs will not benefit. And until the rest of the world’s wages catch up to America’s, or free trade increases innovation to allow Americans to purchase more goods at less cost, it seems that for a period to come, America will lose financially.

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Contain Innovation and Core Skills within America’s Borders Through Full Employment Plan

Like other empires that came before, for its first two hundred years, America increased its wealth by exploiting its natural resources through the increasing innovation of its people. Some of our nation’s innovation was diverted to our military to outpace other nations, protecting our wealth. By exporting our military might around the world, America created a stable trading environment for global businesses, adding to the wealth of all our trading partners.

Until the last quarter century, America accumulated wealth, having trade surpluses. Our government supported free trade with the belief that all countries, including the United States, benefited by a greater abundance of goods. However, during the 1980’s, America’s innovative advances did not keep us from trade imbalances, and we began our path from the greatest creditor nation to the greatest debtor nation on earth.

During this time, many of America’s businesses took advantage of the economic stability supported by our empire’s military, and grew as multinational corporations with allegiances to international shareholders. With the rise of multinational corporations, innovative advantages once contained within America’s borders were increasingly transferred to other countries. America’s trade secrets, core skills, and corporate wealth became fungible international commodities.

Even though free trade continues to be touted as a benefit to American consumers, it is becoming increasingly unclear if free trade is a net benefit to the average American. Even so, trying to slow the regression of American wages by erecting trade barriers is ultimately futile. America’s competitive edge now rests with increasing the productivity of its workforce, with continuing our role as the world economic military stabilizer, and with supporting domestically grown and maintained business innovation.

Critical American success factors for our government include 1. Dramatically improving the success rates of our schools, 2. Slowing the growth of our money supply to sustain our position as the reserve currency of the world, thus allowing us to continue to quasi-tax foreign governments holding our dollars to pay for the economic benefit of our military, 3. Significantly increasing support for small businesses, the engines of American domestic business innovation, and 4. Providing for full employment of all able-bodied Americans.

A solution for unemployment:

Government can take bold steps now to partner with American domestic businesses to create historic advances in innovation and productivity. A partnered solution can replace extended unemployment payments with a hiring voucher plan. Domestic businesses can hire voucher employees at their unemployment rate. In return, Voucher employees can work twenty five hours per week and receive the same pay they would have received through unemployment. The Federal Government can then reimburse employers the employees’ wages without increasing the unemployment budget.

A few benefits include: Employees learn new skills and can continue to seek full employment. Employers lower risks of hiring new employees, spur innovation, and reduce prices of goods and services to compete in the global market. Government supports job growth through direct infusion of dollars into domestic businesses, and lets the free market determine how to maximize resources.

This idea can employ all Americans now, and can move many from the sidelines of our economy onto the field of American ingenuity and global competitiveness. I ask you to share with your representatives thoughts about this voucher plan in hopes that a leader might champion its concept now when we need it most.



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Filed under Multinational Corporations