Tuesday, September 15, 2009

Now a trade war with China. Great.

This is just what we need during a weak economy, a trade tiff with China.The UAW and the Obama Administration think that they are doing us a favor. Ah, no...they are doing themselves a favor. Yes, union jobs may be saved but others (non-union) like auto retailers will be lost. And since China is now slapping tariffs on chicken parts and auto parts, you can bet that jobs in those industries will be negatively affected. And consumers will have to pay more for goods as this drama escalates while dealing with high unemployment and a weak dollar. This is a train wreck. Larry Kudlow covered this issue nicely on the Kudlow Report. Note that the union lawyer saw no distinction between "protectionism" and being "defensive."


4 comments:

askcherlock said...

The whole issue of NAFTA needs to be revisited. There are times when I think that unions have done themselves in with unreasonable demands. There are other times when it saddens me that I see so little manufactured in the U.S. It is cheaper by far to do that in China, but at what cost to American workers? Unions need to be reigned in so that they are more reasonable and viable.

VH said...

My issue with NAFTA is that it is not a free trade agreement. NAFTA is over 1,000 pages, detailing all sorts of environmental and labor regulations and establishing supranational boards to rule on disputes. If NAFTA really did nothing but establish free trade, it would be one page long and there would currently be no tariffs between Mexico and the US.

One point on manufacturing, the U.S. leads the world in manufacturing productivity. In fact, aside from manufacturing employment, the U.S. leads the world in nearly all categories. In essence, the American manufacturing worker has become far more efficient and productive than everybody else. What at one time needed 5 workers to assemble something now only needs 2 workers. I see this as a postive. Secondly, there's this myth that America doesn't make anything anymore. Not true. It's just that the things made have changed from labor intensive to knowledge intensive. For example things like software, bio-tech medicine, heavy machinery, etc.

As far as modern unions go, they tend to bully the very businesses that afford them their standard of living. General Motors is a perfect example. Now they want Obama to push China around for their benefit.

Roger Yang said...

The trade war with China is inevitable and should have been waged long ago. China has no business in the World Trade Organization. In the best case scenario, China would float their dollar. And that, would in fact save the American economy by a lot. Quite honestly, one man who gets paid 50k a year to run a machine cannot beat 100 people who only get paid 10k a year total.

As for China slapping tariffs on auto parts. Those industries will see a very small change in terms of business in China. There are already high taxes on American made auto parts in China, as they want to promote the growth of their own auto industry (focused around electric cars). American cars in China are held by the wealthy, not by the common man.

To put it bluntly, Chinese goods to America have little taxes. But American goods to China have high taxes, which makes Chinese people more willing to purchase Chinese goods, while Americans still purchase Chinese goods. I'd wager that most of your day to day stuff is now manufactured in china.

This was always the case. It's just that now, the American public is voicing its discontent due to the loss of manufacturing jobs. Yes, I understand that we have also gotten better at manufacturing, but as I said before, we can't compete with China in terms of labor cost.

In a perfect world, we want to force China to abide by Free Trade and float their dollar. But realistically, it's a move to force China to let up on some of their taxes. The British had the same problem with China in this respect, and they solved it via opium wars.

VH said...

Roger said: "Quite honestly, one man who gets paid 50k a year to run a machine cannot beat 100 people who only get paid 10k a year total."

Really, why not? The guy who is making 50K is far more productive than those 100 that are making 10K each since the 50K guy is at least adding 50K in value to his company while the 100 making 10K are adding far less---meaning that the American worker is far more productive which leads to a greater standard of living; labor costs don't tell us the whole story. And I would rather live in the U.S. making 50K than 10K in China for many reasons.

"To put it bluntly, Chinese goods to America have little taxes. But American goods to China have high taxes, which makes Chinese people more willing to purchase Chinese goods, while Americans still purchase Chinese goods. I'd wager that most of your day to day stuff is now manufactured in china."

Yes and who gets hurt by this? Consumers who have to pay higher prices for goods and who may end up with less choices in goods. Chinese people having their choices of goods narrowed due to their government tacking taxes on imports hurts them directly. American consumers (at this point) get the better of the deal because they have more choices, lower prices and conversely a better standard of living.

A excalating trade war with China will only hurt consumers on both sides while doing almost nothing for manufacturing employment in the U.S. Obama is simply pandering to his union backers.

Thanks for the post.