Race to the Bottom

Campaign for America's Future reports:

BUSINESS - RACE TO THE BOTTOM CONTINUES AS CHINA WAGES RISE

Fortune magazine reports that with China's wages and environmental standards gradually rise, corporations are now looking to move their outsourcing operations to countries where conditions are even more desperate. "China's actions to strengthen its environmental and worker protections are unquestionably good moves for the country, its people, and the global economy," writes the magazine. "But for outsourcers focused on rock-bottom production prices, the search is on for new low-cost countries."

Of course, this race-to-the-bottom dynamic is encouraged by a standards-free U.S. trade policy that allows companies to troll the world for the worst conditions, exploit those conditions, and sell the products of that exploitation back into the American market. Put another way, our trade policy is helping foreign governments manufacture comparative advantages out of their horrific labor, environmental and human rights records.

Marx continues to be right.

Hillary Was Not Enthusiastic About NAFTA in 1993

According to an analysis I heard this morning, Hillary might be the choice over Obama for free trade skeptics. More on this as I research it, but from the analysis I heard, based on available biographies, Obama is a lot more accepting of free trade than Hillary is.

Free Trade and Exchange Rates

In some screeds I've written about free trade, I've deliberately ignored the complicating factor of exchange rate policy, in an effort to give mainstream Economics some benefit of the doubt. I'm willing to assume, for the sake of focusing the argument, that Ricardian concepts hold at some level.

But a scenario occurred to me this morning that made the exchange rate policy all the more significant. It is this. What if, after just about 100% of manufacturing (including pharmaceutical) is offshored, which might make bottom-line economic sense with the current exchange rate, the exchange rate starts to shift? What if, as is pretty well documented and understood, the Chinese have held their exchange rate artificially low, encouraging foreign capital investment, for a long enough time to dry up all remnants of capital investment in the United States? This is complicated by the fact that the US Dollar doesn't necessarily naturally float (although supposedly it does so much more freely than the Chinese Yuan).

But then, the Chinese stop artificially keeping the Yuan low. Prices skyrocket, and US Companies are paying much higher rates for the goods that are manufactured in China. In Ricardian Economics, US Companies should now start investing in capital back at home. But will they? How long will that take? Will instead the US, in order to protect all those companies that are getting screwed by the flux in exchange rate, modify its own exchange rate policy because it is politically popular to the wealthy interests (owners of Chinese capital)?

Provocative Statement

I found this interesting point amongst an otherwise near scatalogical post. I think it brings together two of my interests very provocatively, Free Trade and History of Public Education:

If, as immigrationists often claim, the economy benefits so much from low skill workers, why continue to spend money educating native born Americans? Think of the economic boom to result if we stopped funding high schools and colleges in order to increase the homegrown pool of unskilled labor.

Free Trade: Low prices benefit claim is no longer valid

Free trade will and does keep prices low for goods from Wal-Mart. However, is there a threshold below which lower prices for these goods does nothing to benefit even the lowest wage earners? I suggest that there is a price point below which it may even harm US consumers (witness the glut of clothes and toys, so much so that even many Goodwill stores will no longer accept clothes as donations).

An Economist's Take on Free Trade

All economists are taught the beauty of Ricardo's demonstraton of the benefits of free trade. In a nutshell, if countries would just focus on producing what the produce the most efficiently (compared to other countries...see comparative advantage), and trade freely, all countries would be better off.

There are qualifications to this theory, of course. Generally, in the public dialogues, these finer points get truncated. But the most simple to understand is that, since in the short term there will be economic losers as a result of free trade (just about any labor intensive industry in the west, but I think in Ricardo's 1830's example, it was Wine Makers in Britain), it is the Responsibility of the government (sorry Libertarians, you'll have to add that to the list) to smooth such economic transitions. In fact, although not very publicized (on purpose, I would say, under cynical administrations), the United State government does provide programs for workers displaced by foreign competition. My take on this is that the United States government does not do enough (even if it is just a matter of publicizing the programs), and this is probably the result of ideological messiness and lack of clear vision on the matter. Furthermore, I find that Republicans are reluctant to even acknowledge this as a government responsibility, not to mention a priority. They irresponsibly minimize the effects of economic dislocation, just as they do with all policy decisions.