"Bruce in Bangkok" wrote in message
...
On Thu, 13 Mar 2008 02:43:51 -0400, "Ed Huntress"
wrote:


"Bruce in Bangkok" wrote in message
. ..

In closing, this subject is spreading rapidly. If we don;t stop we
will be into scientology or illegal immigrants if we aren't careful
(probably also impossible to solve subjects). I suggest that we either
end or chop it up in pieces to cover one subject each.

Ok. Here's my one subject: The idea that costs in the US are too high is a
case of looking at things from the wrong end of the telescope. The fact is
that our costs are based on an equilibrium established when there was
little
foreign competition. There is only one fundamental reason it couldn't be
sustained, and that would be if there was something structurally
unsustainable about isolating ourselves from low-wage competition, in a
limited and selective way, and it cut us out of too many export markets as
well. The only model for this in recent times is Europe, which
self-destroyed its small-computer production capabilities by isolating
itself through tariffs at a crucial time; but which, on the other hand,
did
the same thing with its car market, limiting Japanese imports to 10%
market
share, for example, and actually stimulated its domestic producers in the
process -- producers that are now on top of the world in terms of quality
of
product and demand.

I suppose it is really a matter of where you are looking from. From
the purchaser's point of view cheap is better. But from a structural
point of view you are correct. My question is whether the U.S. public
and more important the companies who took advantage of NAFTA or the
free trade or most favored trading partner agreements that the
government agreed to and now discover that their goods are going to
have a big penality applied to them are going to stand for it.

That's going to depend on how much they have to stand for. It also depends
upon how they, collectively, link jobs and industrial prosperity to
controlling trade. If they think it's necessary to save jobs and/or to cut
our government debt load, they'll probably go along.

You're probably aware that the cost-advantage margins in most products
imported here from Asia are not nearly as great as the disparity in incomes
and costs. Some, however, are quite high: high-volume consumer goods can
sell for less than 50% of their price if made in the US, Europe, or Japan.

Overall, though, the advantages rarely exceed 30% and they're falling, as
the US dollar's value falls and as China eases up its controls on its
currency, the gap may tighten. Some economists and politicians are counting
on it to solve our problem.

A few years ago I wrote a series of three 5,000-word articles on trade, two
of them exclusively about China, and I spent almost a year researching the
three. One thing I learned then disturbs me now: the prices on goods from
China are artificially high, and have an enormous amount of room on the
downside for re-adjustment, should it become necessary for them. I don't
know how that situation is viewed now, by the people who really know those
things, but I doubt if it has changed. This suggests to me that small
changes at the margins are not going to result in a qualitative change in
our trade situation. Without that, we have to find another way to get out of
the debt-financed economy we're in, and I have no idea what the prospects
are for that.


Example: Walmart, from all I read, became the largest retailer in the
world by selling cheap (mostly imported) goods. Assume that the
government proposers a law to add (lets say ) 300% import duty to
chinese made shirts so that they sell for the same price as a US made
shirt. What does WalMart think about that?

Wal-Mart, as you may know, is not very well liked by many segments of the
American population, so they may find that their political throw-weight is
not that great, if the public perceives they're working against our overall
interests. But I don't see 300% duties in any case. I see "voluntary
restrictions," then quotas, and then tariffs -- fairly modest ones. That is,
if it's necessary. If the dollar keeps dropping, it won't be. d8-)


How much political power does a company like WalMart, and all the
other companies that have moved offshore, have?

Collectively, quite a lot. Individually, they'd be vulnerable.

And how much would
they use that power in the next election?

All they could. But it would be reported all over the place. If they got too
rough their reputations would go to hell.

And what is the reaction of
any political party in the world to the news that the opposition is
going to have all the money in the world to contest the next election?

New election-finance laws.


I don't think that whether it is the correct solution or not
isolation, or protective tariffs will work.

Well, they'd certainly work, in the sense that we could limit the growth of
our deficit. Whether they would produce a desirable result is another
question altogether. We could easily wind up killing our economy in the
process if it simultaneously killed our exports, which is a real risk.

Protectionism in this age has real limitations for a highly developed
country. The only place it seems to be relatively invulnerable is in
agriculture, and that's under serious fire everywhere.

Reagan used limited protections to good effect. It was one of the brighter
spots in his economic management. I visualize something like that happening
again.

snip

--
Ed Huntress