I have been watching all the activities related to the China trade deal that the administration is working on. How about you? It is not complicated and this blog will point that out.
What is China doing? They have a lot of cheap hard working competent labor. The rest of the world has developed to the point where many have accumulated wealth by both hard work and the exploitation of their natural resources. When you look at how natural resources fit into the situation, you have to "divide" them by the number of people. China has a fair share of natural resources, but they have to divide them by the high number of people that they have.
To negotiate anything, you first have to have an "objective". Do you know what our objective is? I don't. We are not talking about the personal objective of those doing the negotiating. If they were Wal-Mart, they would want cheap products that they could import from China to sell here and make a nice profit. This model would work as long as we still have some wealth or good credit. When those run out the party will be over. If the objective was to grow our economy only, the Wal-Mart objective might work, but you know that my objective is for the USA is to increase our "median" family income.
Now look at natural resources. Farmers exploit our natural resources when they grow corn or soy beans. Since China is short on natural resources, they want to trade their cheap labor for out natural resources, not our labor based products. Here is another point. We have fewer and fewer people involved in farming to day than at any time in our history. This is all while our population has grown. If farmers make more money it has zero affect on the median family income. Isn't that the objective? What lowers our median family income? It is when Wal-Mart imports a bicycle from China for $1.00 less than it could be made for here. For just $1.00, China can put a worker here out of work. Why don't we import corn from China?
If you notice, if the negotiators try to satisfy all the independent desires of different groups, they will sell out the median family income by getting a deal to sell corn to China. A moron could sell corn to China because they need food. China has to buy food from some place and if Brazil sell corn to China in our place, we can then sell our corn to the countries where Brazil used to sell their corn before they started selling it to China. What we need is for a trade policy that assures that our lower skilled workers have a job that can produce a product that we can either use here or sell some place else. If they are not competitive we should not expect them to pay a full load of tax. Our tax policy makes many of our marginal products noncompetitive in the world market. This is where the Europeans are one step ahead of us with their "value added tax". That is the subject for a previous blog.
Think about what our negotiating objective with China should be? If you do that first, you will be able to understand if the negotiations are going in our favor or not. Duties are not bad if that is the only way to deal with China. Is shooting a burglar a bad way to have to deal with a burglar? None of us like the idea of shooting someone, but you can't reject it just because you don't like the idea. I think that is what people are doing who are against placing duties on China imports. I don't like to get rid of rats with rat poison either, but I still use it!
What is China doing? They have a lot of cheap hard working competent labor. The rest of the world has developed to the point where many have accumulated wealth by both hard work and the exploitation of their natural resources. When you look at how natural resources fit into the situation, you have to "divide" them by the number of people. China has a fair share of natural resources, but they have to divide them by the high number of people that they have.
To negotiate anything, you first have to have an "objective". Do you know what our objective is? I don't. We are not talking about the personal objective of those doing the negotiating. If they were Wal-Mart, they would want cheap products that they could import from China to sell here and make a nice profit. This model would work as long as we still have some wealth or good credit. When those run out the party will be over. If the objective was to grow our economy only, the Wal-Mart objective might work, but you know that my objective is for the USA is to increase our "median" family income.
Now look at natural resources. Farmers exploit our natural resources when they grow corn or soy beans. Since China is short on natural resources, they want to trade their cheap labor for out natural resources, not our labor based products. Here is another point. We have fewer and fewer people involved in farming to day than at any time in our history. This is all while our population has grown. If farmers make more money it has zero affect on the median family income. Isn't that the objective? What lowers our median family income? It is when Wal-Mart imports a bicycle from China for $1.00 less than it could be made for here. For just $1.00, China can put a worker here out of work. Why don't we import corn from China?
If you notice, if the negotiators try to satisfy all the independent desires of different groups, they will sell out the median family income by getting a deal to sell corn to China. A moron could sell corn to China because they need food. China has to buy food from some place and if Brazil sell corn to China in our place, we can then sell our corn to the countries where Brazil used to sell their corn before they started selling it to China. What we need is for a trade policy that assures that our lower skilled workers have a job that can produce a product that we can either use here or sell some place else. If they are not competitive we should not expect them to pay a full load of tax. Our tax policy makes many of our marginal products noncompetitive in the world market. This is where the Europeans are one step ahead of us with their "value added tax". That is the subject for a previous blog.
Think about what our negotiating objective with China should be? If you do that first, you will be able to understand if the negotiations are going in our favor or not. Duties are not bad if that is the only way to deal with China. Is shooting a burglar a bad way to have to deal with a burglar? None of us like the idea of shooting someone, but you can't reject it just because you don't like the idea. I think that is what people are doing who are against placing duties on China imports. I don't like to get rid of rats with rat poison either, but I still use it!
