Congress Proposes Protectionist Free Trade Bill: Transforming America into China to Create Jobs

So what Congress is saying is…. We need to be more like CHINA (1840’s America?)????

Currently, the Chinese government is keeping their currency artificially lower than a floating value. The effects on Chinese society of this artificially lowered currency should be a warning to US policy makers who are attempting correct the trade imbalance by having China increase the RMB’s value.  Congress is considering imposing a tariff on Chinese products unless they raise the value of their currency in relation to the dollar, created a de-facto weaker dollar when it comes to trade. If the Chinese will not raise its currency value Congress will pin tariffs on Chinese goods effectively accomplishing the same effect.

Congress is ignoring major consequences of their actions for the sake of increasing manufacturing jobs in the US. When any nation, lowers the value of its currency in relation to their trading partner, a lower the standard of living for their people is generated. When a nation artificially decreases the value of its currency to increase exports, manufactured goods are exported elsewhere rather than kept at home enjoyed by the citizenry who cant afford it. In China the lower valued currency has resulted in China’s huge poverty rate and low standards of living, even though they have a huge manufacturing base.

An undervalued Chinese currency has resulted in a powerful manufacturing base which is a huge benefit to Chinese officials who reap the profits from the labor (because of their tight links with industry and the state). The state’s elite accomplish the second objective of satiating their population with jobs and a functioning economy. Employed people are complacent people. The Chinese government is also attempting to use their artificially low currency in a development plan where a large industrial manufacturing export base is rapidly created that can later be tooled the develop a domestic internal consumer market. The consequence of this strategy is a lower standard of living for everyone outside the elite (Who reaps the profits from overseas trade) until the switch can be made . The Chinese know lower currency and export are not signs of a developed nation.

For America, a developed economy, de-developing isn’t the answer. We already have a domestic consumer base, and a strong currency has allowed our people a high standard of living. We have spent decasedes transforming ourselves from a low tech manufacturing economy to a high-tech and service based economy that has resulted in the greatest era of human prosperity ever seen!  America had its industrial revolution in the 18^th and early 19^th centuries we don’t need it now. We have had during the last two decades virtually full employment at most times even though there was a trade deficit. As manufacturing jobs moved to China, those free laborers were retooled and eventually perused careers in other industries or high tech manufacturing. Now that we have around nine percent unemployment, the trade deficit issue has become a scapegoat for congress to blame for lost american jobs (even though the trade deficit is decreasing on its own without congress’s help and has had a low effect on US jobs).

If we want to eliminate our robust standard of living then Congress’s plan is the answer and the Chinese model will be adopted. America will dumb down its workforce and accept a lower standard of living to please and allowing the All Powerful Congress to waste America’s intellectual and labor capital by essentially creating burger flipping jobs in assembly factories. Wasn’t that the criticism of George Bush’s job numbers in 2003-2004?

Bring Innovation NOT Degeneration to American Manufacturing: Kill Three Birds with One Stone

We cannot have high standards of living and cheap goods without international trade. Some labor must necessarily cost less for a good to be cheaper. Do we want Americans sewing clothing and assembling toys or do we want them producing heavy machine equipment for export or designing the latest technological innovation to increase everyone’s livelihood?

Let’s build a better America, not copy China! Instead of shutting out the competition embrace it and make ourselves more competitive. Since American goods cost too much for a domestic market, let’s make our goods as cheap as the Chinese by helping industry reduce the large cost that have forced them to move and close down. Increasing industrial competition, not reducing it will lower prices, create jobs, and benefit the consumer with the availability better made American goods at the same cheap Chinese priced goods. If Congress truly desired a better America, policies can be pursued where consumers, industry and workers can benefit at the same time and our trade deficit would decrease naturally, making it a win-win for all.

If you agree with this article, TELL YOUR REPRESENTATIVE TO VOTE NO TO THE “CURRENCY REFORM FOR FREE TRADE ACT.”

This bill is nothing mare than PROTECTIONIST ploy to increase low skilled manufacturing jobs at the expense of ROBUST standards of living enjoyed by consumers.

Sources:

BBC NEWS http://www.bbc.co.uk/news/business-11407254

House Ways and Means Committeehttp://waysandmeans.house.gov/hearings/hearingDetails.aspx?NewsID=11347

Open Congress (good resource for Bill information): http://www.opencongress.org/bill/111-h2378/show

Nancy Pelosi’s Press Release: http://www.speaker.gov/newsroom/pressreleases?id=1888

Hoover Graphic: http://www.artdiamondblog.com/archives/2007/08/

Congress Planning Trade Sanctions Against China: Supporting Manufacturing at the Expense of the Consumers

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Trade Sanctions Bill Against China!

Congress’s Aid to Big Business and Unions at the Expense of American Consumers!

THE FACTS

This week, congressional Democrats and Republicans under the leadership of Sander Levin approved through the House’s ways and means committee the “Currency Reform for Free Trade Act” sanctioning import duties on nations who artificial depreciate their currencies. The bill is directly targeting China’s artificially low currency in comparison to the dollar which has allowed it to export cheap goods to American Consumers, fueling its economic growth and currency reserves. This bill will come to a vote in the house next week.

The US trade deficit with China in 2009 was $227 billion down from 2008. It is projected to decrease again by the end of this year due to a decrease in the value of US currency and China’s cutbacks on growth and lending.

According to Speaker Nancy Pelosi’s press release: There are approximately 150 Co-sponsors of the bill 45 of them are Republicans.

http://www.speaker.gov/newsroom/pressreleases?id=1888

Manufacturing Industries and Unions have enthusiastically supported the bill according to the Ways and Means Committees website. These supporters are: The Fair Currency Coalition, AFL-CIO, Coalition of Agricultural Producers, United Auto Workers (UAW), United Steel Workers, American Iron & Steel Institute, American Manufacturing Trade Action Coalition, Alliance for American Manufacturing, National Council of Textile Organizations

http://waysandmeans.house.gov/hearings/hearingDetails.aspx?NewsID=11347

CONGRESS’S JUSTIFICATION/LOGIC

The bill’s intent according to its sponsor Congressman Sander Levin  is to restore the balance of trade between the US and China. China’s artificially low currency has allowed the dollar to have a higher exchange rate, increasing the dollars purchasing power for Chinese goods. This stronger currency allows American consumers to purchase cheap Chinese goods rather than paying higher prices in dollar terms for US equivalent products. Congress wants to impose import tariffs on Chinese goods so that the price of those goods will increase to be on par with the already higher cost American products. Therefore American goods will be purchased over tariff imposed higher priced Chinese goods.

This increase in domestic consumption of domestic goods and decrease in imports will create manufacturing jobs for American workers, replacing the labor outsourced to China. According to Levin: “[The yuan] has a major impact on American workers and therefore American jobs. That’s what this is really all about.” If China doesn’t increase the value of the Yuan in relation to the dollar, Congress will impose tariff duties to correct its effect on the price of Chinese exports to the US.

JOBS MAY BE CREATED!!! BUT…..

If penalties and import duties are imposed as this bill outlines, it will result in a favorable outcome for US manufacturing industries. If China decides to retaliate with its own trade tariffs to reciprocate a trade war, US exports to China will decrease and nobody will benefit. This tit for tat policy is unlikely but still a possibility, and has happened in the past. The benefits for manufacturing industries that do not rely on cheap Chinese imports for parts or equipment will benefit from this policy by increasing market share.

Domestic demand for American goods will increase for comparable products imported from China that have the duty tariff imposed on them. American products will gain an advantage as cheaper priced and consumers would be left with the only rational option being the cheaper US product. The price increase from the tariff  results in a higher market price and less demand. The loss of supply for China subtracting the loss of demand of goods at the higher price will equal the gains and amount produced  by American industries. Less demand will result in fewer products being sold. While fewer products will be bought overall, the American industries would keep the money from production and sale inside the US.

With this increased supply to meet domestic demand, manufacturing jobs in the US would be created to service the increased US market share. Ultimately, the US will gain industrial jobs to build the products once imported from China.

Even though job in manufacturing will increase in the US while their counterparts in China will decrease or move elsewhere, is low skilled manufacturing jobs increasing really beneficial to the US?  Do we really want to retool Americans to do the same low-level, low skilled jobs as Chinese labor? Rather than opening up position for jobs in high-tech industries to increase our exports, or to open business opportunities for export of Americas service labor industries, Congress is declaring that jobs of low skill are desirable. What we should be doing is training this unemployed worker force to retool for high-tech, technical and high paying manufacturing. Rather than dumbing down the work force we should be legislating to make it easier for the US to export high-tech industries around the globe. As much as the green industry is artificial political demand and inefficient it would be  preferable to Americans assembling dolls that unskilled Chinese labor does cheaply and efficiently. Lets produce exceptional engineering rather than exceptional American made plungers.

While the quality of jobs is an issue that should be considered, this policy completely ignores the effects duty tariffs will have to the US as a whole! While the manufacturing industries and its workers will benefit, the American people are getting a bad deal

WHO GETS THE SHORT END OF THE STICK?

THE AMERICAN PEOPLE!!! (as usual). The reason the trade deficit with China, and trade existing at all between the two countries, is that China is able to provide Americans cheap consumer goods. These goods are bought by Americans at a lower price than their American counterparts allowing for more purchasing power by consumers. These consumers are able to enjoy one of the highest standards of living in the world at the expense of losing the manufacturing base that produced them going overseas. When the tariffs take effect there will be no cheap alternative and the American people will be forced to pay higher prices for those goods, or reduce their standard of living. Free Trade and the cheapness of Chinese labor allows for Americans to save a buck and raise their standard of living.  To deny this reality of cheap goods benefiting consumers shows a fundamental misunderstanding of economics. Cheaper products keeps cost of living LOW! Congress is going to raise the cost of living while everyone is struggling to make ends meet.

While one might think this is simply picking a winner and a looser and that in an economic situation like a recession keeping everyone employed is more important than overall living standards, the benefits in the long run and the short run do not calculate to an increase in total welfare for society. In the long run prices will remain higher and those shorter term job gains being sustained by that higher price will not increase standards of living as long as they exist with the tariff. Creative destruction would not eliminate those inefficient jobs!  Also those short-term jobs made possible by the price increase will decrease the number of goods produced because of the price will become unaffordable for some. Therefore, the welfare gain of manufacturing does not compare to the overall surplus and total welfare gained from cheap Chinese goods.

The act of Congress trying to reduce the trade deficit is an attempt to stop the American people from making the most rational choice and buying the cheaper product! Manufacturing industries that depend on cheap products from China to build high-tech will have increased costs. These high-tech industries may be forced to raise prices cutting off one of the main exports the US has; high-tech equipment.

Sanctioning China is also a bad political move. China is and will be a major world power, regardless of US actions to cut off trade with it. China is on a course to become a massive economy, and it has a government geared toward that objective. If we make competitors out of the Chinese rather than partners, that would create an unneeded enemy. A stable friendly China can be a key ally on the world stage where the world is increasingly becoming multi-polar. Chinese relations is an investment with a future world power, being friendly with a nation of 1.3 billion people is more important than a trade balance that helps special interests.

China is actually slowly raising the Yuan but in small increments. Why rush a process that is occurring naturally as our trade deficit equalizes naturally? Congress needs to stop pander for votes and think with smart policy.

The oxymoron of this whole affair is that Congress has cleverly disguised Protectionist trade policies under the guise of a Free Trade bill.

If Congress passes “Currency Reform for Free Trade Act” H.R.2378 the Special Interests will benefit at the expense of consumers! Urge your congressman to vote NO to Protect Consumers!

Other sources:

BBC NEWS http://www.bbc.co.uk/news/business-11407254

House Ways and Means Committee http://waysandmeans.house.gov/hearings/hearingDetails.aspx?NewsID=11347

Open Congress (good resource for Bill information): http://www.opencongress.org/bill/111-h2378/show

Nancy Pelosi’s Press Release: http://www.speaker.gov/newsroom/pressreleases?id=1888

Hoover Graphic: http://www.artdiamondblog.com/archives/2007/08/