Unbalanced globalisation- real cause of crisis

I imagine that is especially the case when those think-tanks present evidence refuting your claims, such as your claim that globalization has caused higher unemployment in the West. If you’re not willing to accept evidence from the relevant scholarly sources, you’re not interested in a serious discussion.[/quote]

It’s obvious globalization has caused unemployment in the West in recent times, as obvious as the nose on your face. Think tanks have an angle to follow and we can all quote from the think tank with the right angle for us, they are not good reference material and not scholarly in the slightest.

:bravo: :notworthy:

Think tanks = ideological agenda = NOT scholarly source

Globalization is not “good”…if it were good why is the US government going to go into quantitative easing 3 soon? Because there is no real economy in the US anymore. What happened when the banks received the money from the US government for QE1 and QE3? They put the money into their offshore accounts and invested in foreign markets to evade taxes and earn wild profits, not to loan it to the American people, who now have to pay back the debt. Wiemar Republic-style days are ahead, it’s the same scenario all over again, the printing of fiat currency can only end in one way: the collapse or an extremely deep devaluation of the dollar.

Very good thread Headhonco2

I’ve always been a champion of free trade but slowly over the last decade I’ve modified my views.

I come from New Zealand, an export economy that when it comes to agricultural products can compete favourably in a free market. In most cases, it doesn’t make sense for us to protect local manufacturing because we’re such a small market (just 4 million). We want access to markets. America, despite preaching free trade, doesn’t follow its own advice for other countries. Their agricultural market is subsidised and protected in various other ways.

This raises an interesting point The US is protectionist on agriculture so why is it so against protecting its manufacturing sector? The notion of free trade with countries like Japan and China is a fantasy. The US has been sold down the river by lobbyists. I think increasing tariffs on manufactured products would be a good start. In the case of the United States, it is such a large domestic market, it does not need to whore itself out to the world.

almas: Yes, a rather curious contradiction exists with respect to agriculture and manufacturing in the U.S.

The British Empire was a large domestic market, right, but how did protectionism work out for it? I don’t know too much about what happened at the collapse of the last round of free trade (in the early 20th century, I believed) and to what extent that was related to the First World War or beyond.

What I do know though is that protectionism about one century before under the Continental System in Europe was an absolute nightmare, particularly for continental Europe. It did hurt the British Empire, but it really hurt those under the Continental System to the point where smuggling was rife, and there were also several military wars as a result: The War of 1812 between Britain and America, the Peninsula War in which France invaded Portugal (and the entire Portuguese court moved to Brazil) and Britain defended Portugal, Russia invaded Sweden for refusing to comply with the Continental System, and then Russia eventually broke out of the Continental System and was invaded by France. All in all, the Continental System (and extreme protectionism) was an unmitigated disaster in the early 19th century.

GIT, Your reference to extreme protectionism in the past is not really relevant. Even an open market a century ago was by our terms protectionist because of relatively higher transportation costs. I’m suggesting minor protectionism - lets say whacking 10% on everything.

almas: Okay, sure, though transportation might not be so cheap for that much longer. Just today I was reading an article about how retailers in the U.S. are doing away with the clamshell (that impossible plastic casing that means you need a knife to get to a knife) because of the cost of oil and its effect upon the plastics industry. Anyway, that aside, even if transportation continued to be much cheaper than before, what do you think the unintended consequences might be of your proposal? (I realise that’s a little bit of a strange question if they are really unintended, but humour me.)

GIT, I don’t see any major unintended consequences. Decreased world trade but on a rather small scale so it would be a return to past decades - nothing dramatic.
I’m not thinking of New Zealand here, but the US-China dynamic. Which economy would you rather have - Germany’s export manufacturing driven one or Britain’s post-industrial financial services economy?

I believe a lot of this new economy talk is bullshit - innovation does not necessarily provide jobs. How many people does Google employ? And anyway, having a core manufacturing sector is vital, because - long term - innovation depends on hands-on experience that manufacturing provides. The idea that you can keep all the R & D in the West and the actual production overseas is a pipe dream.

almas: At the risk of sounding like Dr Seuss, would they, could they, keep the exports, if they, if they, punished imports? If America makes China uncompetitive, then won’t someone else step into the gap? Does America basically slap 10% on everyone then? Would everyone else simply slap 10%, 20%, whatever is necessary on America in response though?

What are the other differences between Britain and Germany? Also, the U.S. is 300 million people. That’s like putting most of Western Europe together. Germany is a fraction of that, but lumped in there you have Britain, not to mention the PIIGS. Would the Americans be as efficient as the Germans?

Would American consumers be willing to pay more for things? Maybe. They might because they 'd have jobs, right?

Aren’t there two real issues here? The first is that America essentially pulled the rug out from under Britain to become the industrial giant because it could do things cheaper or more efficiently and now that China is doing that to America, America is screaming bloody murder.

The second is that after WW2, America pretty much had an easy run of things. Half the world lay in ruins and the other half was so arse-backwards they weren’t even in the race (and in the case of Britain and Greece, the two both still hold!). For a long time, America had a few rivals in Europe and Japan, but it was still much bigger than them. Once China, India and other nations awoke from their communist and socialist fantasy lands, all of a sudden, the competition pool went from a few hundred million white people in North America, Europe and the Antipodes to including several billion Asians. Would America’s domestic market alone be enough for it to retain its standard of living and position in the world? Because it seems that if it isn’t, then this addition of several billion Asians to the pool is a problem America can’t solve unless it can do something at a much higher standard. Let’s say it’s manufacturing a widget and trying to sell that widget to another country. Are the consumers in that country going to buy that widget at $50 from America because of the higher labour costs, compliance with environmental laws, etc., or are they going to buy it at $10 from China, India, Indonesia, Vietnam, etc. because of their lower costs to do with labour, compliance with environmental laws, etc.? Maybe you can pull off having really high quality manufacturing in very niche fields if you’re a country with a population a fraction of the U.S.'s, but how do you do that with 300 million people, many of whom are no better educated than the average Asian (and quite possibly worse educated)? There has to be a downward pressure on American wages, and consequently, the standard of living, as a result of the increased competition.

I think this whole China dynamic is a massive scam too, but I don’t know that there’s a magic bullet here.

That’s not so minor for low-margin products. An across the board 10% increase in tariffs would decimate the Chinese export industries, and China would surely retaliate. The Sino-American market would effectively collapse on both sides.

The only justification I see for agricultural protectionism in the US is that many other nations do the same. I would be happy to see it all go away, but we’re not going to accept that unless other countries agree to follow suit.

That’s not so minor for low-margin products. An across the board 10% increase in tariffs would decimate the Chinese export industries, and China would surely retaliate. The Sino-American market would effectively collapse on both sides.

The only justification I see for agricultural protectionism in the US is that many other nations do the same. I would be happy to see it all go away, but we’re not going to accept that unless other countries agree to follow suit.[/quote]

“Decimate” is overstating things. I prefer the phrase “major realignment.” Remember, I’m a free trade guy - I’m just getting real to the realities of the West suffering from one-sided free trade.

Of course, if I had answers I wouldn’t be some semi-alcoholic loser part-time Enrish teechur / wannabe writer in Chiayi County posting on forumosa.

The term “realignment” implies that markets would just shift around. There would be a huge aggregate loss in production in both nations - US and China are each other’s primary markets, I believe, despite the trade imbalance. The economics are the same between nations as between states/provinces within nations, between counties, between townships, etc.

It isn’t one-sided. American consumers have benefited tremendously from the option of buying low cost products. There is always the presumption of mutual benefit in uncoerced trade. It doesn’t matter if Nation X buys more from Nation Y than vice versa. Maybe Nation X is buying material to build products that can be marketed for more money in Nation Z than Nation Y. So what does it matter that a trade deficit exists between Nations X and Y?

:laughing: Hah! We’re all a bunch of arm chair pontificating amateurs here.

There are winners and losers in everything in life, if I was an American I would ask why is the government promoting a policy that makes losers of it’s manufacturing base and working class while turning their strategic competitor into a global powerhouse. There is a strange tendency to be afraid of change when it’s actually the current reality that isnt working and is the problem. There is an interesting fact that US multinationals have 1 trillion in cash reserves and made record profits in 2009 and 2010 yet unemployment has not budged, I think there is plenty of room for pressure to be applied to realign their business interests to be more in line with their home base, its not necessarily negative for them either, businesses ultimately fall into line as long as they can continue to make money. For example see what has happened in China, they occasionally bleat and moan but know their place.

What government policy are you referring to?

What specific policies are you advocating?

Policies like NAFTA or FTA agreements with certain countries, hard to see the benefit in many cases. For instance just saw a Discovery show about the Dodge Challenger, the all American muscle car. The engine was built in Mexico, then it was shipped to Canada for assembly, market is still the US though. I think it illustrates perfectly what has been going wrong there. It’s one thing to aim towards a free market, it’s another to ENCOURAGE your industry to actively set-up outside your borders!

The government in the US has clearly made winners of the US defense industry and also agribusiness and the finance industry through low interest rates and lax regulation. There is no such thing as free trade in the real world, just different interests constantly competing and rebalancing. There is outsourcing of parts of the chain when it suits certain groups profit margins to do so but that is not the same as free trade. Just take China as an example. Could anyone argue that there is free trade with China because it is part of the WTO? As I have stated many times before, free trade doesn’t suddenly happen when you abolish tariffs. The Chinese must have thought this was the best deal ever…they can still manipulate their currency, investment laws, regulations and certifications. What they don’t follow the ‘spirit’ of the agreement? Who cares when you are China…this is not a banana republic that is going to roll over at the first sight of a US destroyer parked off-shore.

I would advocate the American government to reinstate 5-10% tariffs on goods imported from certain countries (or perhaps all countries to make it fair) and to roll back NAFTA and give incentives to setup manufacturing in deprived areas of the US instead. I would advocate they they increase taxes on financial industry but decrease tax levies on manufacturing. There should be taxation amnesties where companies can bring money in from off-shore accounts tax free as long as they invest capital locally (may have something like this already). They should promote skilled work more like in Germany. They should promote purchasing of locally manufactured products through ‘innovation’ and ‘environmentally friendly certification’ schemes and other favouritism methods like in China. They should continue dropping value of the dollar to inflate their debt away and make US goods competitive at home and abroad.

Globalization was a dream invention of multinational companies to cut costs and preferably lower wages earned in western countries due to pressure from undeveloped ones.
Unions had changed too much in favor of the worker, so multinationals saw a chance to turn the cards in their favor. They still do. They don’t care of people being unemployed, they don’t, care about poverty. They never thought they have a social function, it’s all about money, no matter how or where they make it.

If you think this is far fetched, please be free to do so.

Not so hard, really. From the Office of the United States Trade Representative:

[quote]Trade and Investment Flows Have Substantially Increased
• From 1993 to 2006, trade among the NAFTA nations climbed 198 percent, from $297 billion to $883 billion.
• U.S. merchandise exports to our NAFTA partners grew more rapidly – at 157 percent – than our exports to the rest of the world, at 108 percent.
• As of 2006, each day the NAFTA countries conducted nearly $2.4 billion in trilateral trade.
• Canada and Mexico are our first and second largest export markets; last year, U.S. exports to our NAFTA partners alone accounted for 35 percent of total U.S. exports.
• For agriculture, Canada and Mexico alone account for 50 percent of the increase in U.S.
agricultural exports to the world since 1993.
• NAFTA has been good for Mexican agriculture. Trade growth has been remarkably balanced,
with U.S. agricultural exports to Mexico increasing by $7.3 billion and U.S. agricultural imports
from Mexico increasing by $6.7 billion during the last 13 years.

Result: U.S. Economic Growth during the 14 years of NAFTA Has Been Strong
• Jobs. U.S. employment rose from 112.2 million in December 1993 to 137.2 million in December
2006, an increase of 25 million jobs, or 22 percent. The average unemployment rate was 5.1
percent in the period 1994-2006, compared to 7.1 percent during the period 1981-1993.
• Manufacturing. U.S. manufacturing output rose by 63 percent between 1993 and 2006,
exceeding the 37 percent increase achieved between 1980 and 1993.
• Compensation. Growth in real compensation for manufacturing workers improved dramatically. Average real compensation grew at an average annual rate of 1.6 percent from 1993 to 2006, compared to just 0.9 percent annually between 1980 and 1993.
• Investment. Productive investment, central to rising living standards, has increased. Even
excluding housing, U.S. non-residential fixed, or business, investment has risen by 107 percent
since 1993, compared to a 45 percent increase between 1980 and 1993.[/quote]

Isolated cases of the US losing jobs are not relevant. The question is whether there has been a positive net benefit in terms of jobs, output, investment, and living standards, and the facts clearly show there has been in all categories. Canada and Mexico are huge export markets, and the result has been an increase in manufacturing and services jobs, the latter of which are most easily exported to nearby countries. Of course, it is true that we build lots of cars in Canada and Mexico, and there have been plenty of companies go under and folks lose their jobs. But the gains outweigh the losses by an order of magnitude. To say NAFTA was a government attempt to “ENCOURAGE” outsourcing is simply ridiculous.

I repeat, once again, that such a tariff would be a tremendous burden on low-margin foreign exporters, effectively wiping out entire industries dependent on US buyers. Foreign governments would respond with tariffs of their own, and the potential for trade wars would quickly become a reality.

You seem to be under the impression that poor areas of the US do not already offer incentives to companies looking to set up manufacturing plants. We are more than happy, here in the South, to take business away from the unionist chuckleheads of the North. Toyota, Honda, Hyundai, Volkswagen, BMW, among many others have set up shop down here and we’re glad to have them.

It’s not the US government that discourages manufacturing, it’s the fanatic unions and the long-term liabilities they foist on their employers. Maybe you think that’s just my opinion, but it’s not.

You’ve got some good ideas there, some of which are already in practice. But I don’t see what raising taxes on the financial industry would do for us, other than to raise the cost of capital for American companies. Demand for capital is relatively inelastic, so a fair bit of the tax would be passed on to firms.

What do the young, cool people say? “Word” I believe?

So I wrote out a big reply regarding the Trade Representative figures but promptly got logged out.
There are lots of problems with that summary such as the years chosen for comparison, the lack of data and the very simple presentation of the statistics and then ‘ergo’ the conclusions.
So NAFTA is a success because ‘trade increased’, that’s the conclusion? What about the balance of payments problem that directly feeds into the national debt? One country e.g. US build up a massive debt, the other e.g. China builds up a massive surplus of funds. If trade increases but imports increase faster than exports you have a big problem.

Also choosing the success of a trade policy by numbers of dollars alone is just a really poor way to analyse the situation, you’ve got to look at it from a macro economic and societal impact level. Finally what happened over the last few years, I mean every turkey has a healthy and happy life until Dec 25th rolls around.

I know there have been problems in the auto sector in particular. It’s part of a larger problem of making uncompetitive and poor quality products suited for the global marketplace. It’s also tied into the way health benefits are handled in the US. I think they are working their way through the problems though.

There’s a balance to everything though, unions have their part to play too. If we look at Taiwan we can see a society with almost no union power, on the other hand South Korea is a country with relatively strong unions. One has shown strong growth in working/middle class income over the last 10 years, the other absolutely no growth. One has acheived huge leaps in many manufacturing industries, the other has not. One has grown it’s domestic economy by leaps and bounds, the other has not (yes there are other reasons behind the differences between the countries by I am illustrating the point that it is a mistake to focus too much on union issues, by and large the American workforce is not unionised even in manufacturing. Only 7% of American private sector workers are in a union. I could as easily turn the argument that union power is too little in the US and that is the reason for the relative decline in importance of the domestic market (in the federal government’s eyes) and therefore unions should be promoted. Sometimes it depends on the viewpoint you started with.