[A-List] Free Trade, Open Immigration Dogmas Must Be Rethought

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

by Paul Craig Roberts {1}

vdare.com (August 16 2007)


At a time when even the Wall Street Journal {2} has disappeared into the
maw of a huge media conglomerate, the New York Times remains an
independent newspaper. But it doesn't show any independence in reporting
or in thought.

The Times issued a mea culpa for letting its reporter, Judith Miller
{3}, misinform readers about Iraq {4}, thus helping the neoconservatives
{5} set the stage for their invasion. Now the Times' reporting on Iran
seems to be repeating the mistake. After the US commits another
senseless act of naked aggression by bombing Iran, will the Times
publish another mea culpa?

The Times editorials also serve as conduits for propaganda. On August
13, a Times editorial jumped on China for "irresponsible threats" {6}
that threaten free trade. The Times' editorialists do not understand
that the offshoring of American jobs, which the Times mistakenly thinks
is free trade, is a far greater threat to America than a reminder from
the Chinese, who are tired of US bullying, that China {7} is America's
banker {8}.

Let's briefly review the "China threat" and then turn to the real problem.

Members of the US government believe, as do many Americans, that the
Chinese currency is undervalued relative to the US dollar and that this
is the reason for America's large trade deficit with China. Pressure
continues to be applied to China to revalue its currency in order to
reduce its trade advantage over goods made in the US.

The pressure put on China is misdirected. The exchange rate is not the
main cause of the US trade deficit with China. The costs of labor,
regulation and harassment are far lower in China, and US corporations
have offshored their production {9} to China in order to benefit from
these lower costs. When a company shifts its production from the US to a
foreign country, it transforms US GDP into imports. Every time a US
company offshores goods and services, it adds to the US trade deficit.

Clearly, it is a mistake for the US government and economists to think
of the imbalance as if it were produced by Chinese companies
underselling goods produced by US companies in America. The imbalance is
the result of US companies producing their goods in China {10} and
selling them in America.

Many believe the solution is to force China to revalue its currency,
thereby driving up the prices of seventy percent of the goods on
Wal-Mart shelves. Mysteriously, members of the US government believe
that it would help the US consumer, who is as dependent on imported
manufactured goods as he is on imported energy, to be charged higher prices.

China believes that the exchange rate is not the cause of US offshoring
and opposes any rapid change in its currency's value. In a message
issued in order to tell the US to ease off the public bullying, China
reminded Washington that the US doesn't hold all the cards.

The NYT editorial expresses the concern that China's "threat" will cause
protectionist US lawmakers to stick on tariffs and start a trade war.
"Free trade, free market" economists rush to tell us how bad this would
be for US consumers: A tariff would raise the price of consumer goods.

The free market economists don't tell us that dollar depreciation would
have the same effect. Goods made in China would go up thirty percent in
price if a thirty percent tariff was placed on them, and the goods would
go up thirty percent in price if the value of the Chinese currency rises
thirty percent against the dollar.

So, why all the fuss about tariffs?

The fuss about tariffs makes even less sense once one realizes that the
purpose of tariffs is to protect domestically produced goods from
cheaper imports. However, US tariffs today would be imposed on the
offshored production of US firms. In the era of offshoring, corporations
are not a constituency for tariffs.

Tariffs would benefit American labor, something that the US Chamber of
Commerce, the National Association of Manufacturers, and the Republican
Party would strongly oppose. A wage equalization tariff would wipe out
much of the advantage of offshoring.  Profits would come down, and with
lower profits would come lower CEO compensation and shareholder returns.

Obviously, the corporate interests and Wall Street do not want any tariffs.

The NYT and "free trade" economists haven't caught on, because they
mistakenly think that offshoring is trade. In fact, offshoring is labor
arbitrage. US labor is simply removed from production functions that
produce goods and services for US markets and replaced with foreign
labor. No trade is involved. Instead of being produced in America, US
brand names sold in America are produced in China.

It is not China's fault that American corporations have so little regard
for their employees and fellow citizens that they destroy their economic
opportunities and give them to foreigners instead.

It is paradoxical that everyone is blaming China for the behavior of
American firms. What is China supposed to do, close its borders to
foreign capital?

When free market economists align, as they have done, with foreigners
against American citizens, they destroy their credibility and the future
of economic freedom. Recently, the Independent Institute, with which I
am associated, stressed that free market associations "have defended
completely open immigration and free markets in labor" {11}, emphasizing
that 500 economists signed the Independent Institute's Open Letter on
Immigration in behalf of open immigration.

Such a policy is satisfying to some in its ideological purity. But what
it means in practice is that the Americans, who are displaced in their
professional and manufacturing jobs by offshoring and work visas for
foreigners, also cannot find work in the unskilled and semi-skilled jobs
taken over by illegal immigrants. A free market policy that gives the
bird to American labor is not going to win acceptance by the population.
Such a policy serves only the owners of capital and its senior managers.

Free market economists will dispute this conclusion. They claim that
offshoring and unrestricted immigration provide consumers with cheaper
prices in the market place. What the free market economists do not say
is that offshoring and unrestricted immigration also provide US citizens
with lower incomes, fewer job opportunities, and less satisfying jobs.
There is no evidence that consumer prices fall by more than incomes so
that US citizens can be said to benefit materially. The psychological
experience of a citizen losing his career to a foreigner is alienating.

The free market economists ignore that a country that offshores its
production also offshores its jobs. It becomes dependent on goods and
services made in foreign countries, but lacks sufficient export earnings
with which to pay for them. A country whose workforce is being
reallocated, under pressure of offshoring, to domestic services has
nothing to trade for its imports. That is why the US trade deficit has
exploded to over $800 billion annually.

Among all the countries of the world, only the US can get away with
exploding trade deficits. The reason is that the US inherited from Great
Britain, exhausted by two world wars, the reserve currency role. To be
the reserve currency country means that your currency is the accepted
means of payment to settle international accounts. Countries pay their
oil import bills in dollars and settle the deficits in their trade
accounts in dollars.

The enormous and continuing US deficits are wearing out the US dollar as
reserve currency. A time will come when the US cannot pay for the
imports, on which it has become ever more dependent, by flooding the
world with ever more dollars.

Offshoring and free market ideology are turning the US into a Third
World country. According to the Bureau of Labor Statistics, one-quarter
of all new US jobs created between June 2006 and June 2007 were for
waitresses and bartenders. Almost all of the net new US jobs in the 21st
century have been in domestic services.

Free market economists simply ignore the facts and proceed with their
ideological justifications of open borders, a policy that is rapidly
destroying the ladders of upward mobility for the US population.

_____

Copyright (c) Creators Syndicate, Inc. {13}

Paul Craig Roberts - paulcraigroberts@xxxxxxxxx - was Assistant
Secretary of the Treasury in the Reagan Administration. He is the author
of Supply-Side Revolution: An Insider's Account of Policymaking in
Washington {14}; Alienation and the Soviet Economy and Meltdown: Inside
the Soviet Economy {15}, and is the co-author with Lawrence M Stratton
of The Tyranny of Good Intentions: How Prosecutors and Bureaucrats Are
Trampling the Constitution in the Name of Justice {16}. Click {17} for
Peter Brimelow's Forbes Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.

The articles on VDARE.com are brought to you by the VDARE Foundation. We
are supported by generous donations from our readers. Contributions are
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Links

{1} http://vdare.com/roberts/index.htm

{2}
http://blog.vdare.com/archives/2007/05/02/immigration-and-the-wsj-murdoch-edition/

{3} http://www.vdare.com/roberts/050727_iraq.htm

{4} http://www.slate.com/id/2083736/

{5}
http://search.atomz.com/search/?sp_a=sp0a298a00&sp_f=iso-8859-1&sp_q=neoconservatism

{6}
http://www.nytimes.com/2007/08/13/opinion/13mon3-1.html?ex=1344657600&en=c24873e178937993&ei=5090&partner=rssuserland&emc=rss

{7} http://www.vdare.com/roberts/050704_dollar.htm

{8} http://www.vdare.com/roberts/070808_china.htm

{9} http://www.vdare.com/roberts/economy_offshore.htm

{10} http://money.cnn.com/2007/08/14/news/companies/china_recalls/index.htm

{11}
http://www.independent.org/publications/the_lighthouse/detail.asp?id=194#914

{12} http://www.independent.org/newsroom/article.asp?id=1727

{13} http://www.creators.com/

{14} http://www.amazon.com/gp/product/067485621X/103-9747828-0329461

{15}
http://www.amazon.com/gp/product/0945999631/002-8915021-8428856?n=283155

{16}
http://www.amazon.com/exec/obidos/redirect?tag=vdare&creative=373489&camp=211189&link_code=as3&path=ASIN/076152553X

{17} http://www.vdare.com/pb/death_of_due_process.htm

{18} http://www.vdare.com/asp/donate.asp

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