Lou Dobbs seems to be the most vocal critic of the Bush administration lately, and the Federal government in general. He slammed the government last month on immigration policy, and now he's hitting hard on China.
I find myself agreeing with him a lot of the time. But I'm also asking "Well, what's your solution?"
quote: But the Red Storm cannot be blamed for its continued manipulation of its currency, for its record $202 billion trade surplus with the United States or for buying up American businesses and hard assets around the globe while restricting access to its market and economy.
The fault lies entirely with the U.S. government, our lack of strategy and our failed policies. This administration and U.S. multinational corporations have lost sight of the national interest. This administration and the Republican-led Congress have permitted the dismantling of America's manufacturing base and created a dependency on China for our clothing, computers, consumer electronics and a host of other products that is greater than our dependency on foreign oil.
He has me hooked, but I want to know how we fix it. China is pushing for global free trade, but at the same time restricts its markets? Why not do the same thing for them? Mirror their trade practices in our own nation and see what happens. I admit not knowing enough about economics to know what that would do, but Dobbs seems to be much much better at tearing down than building up.
Still, I'd rather him keep doing what he is doing. It's better to be informed on what is going wrong than to have him keep quiet while he's trying to think up a solution.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
Essentially, restricting our market would impoverish everyone. Particularly since Dobbs is right... sort of. We are dependent on China. If we shut down trade today, we'd be the ones scrambling in freefall, not China.
As far as shutting down the trade imbalance, I'd love to see that tried. Manufacturing's gone to China for a reason -- it's really cheap there. We can't possibly replicate that here and offer workers anywhere near decent wages. And even if we found some way to manage that, the prices of goods would skyrocket -- it's well and good to talk about reviving American manufacturing, but imagine how you'd feel if everything involving plastic, metal, or silicon suddenly spiked in price?
I don't like the trade imbalance either, but for so long as Chinese laborers are willing to work for peanuts (and we're not), there's only so much sympathy I can really extend. Globalization's a good thing -- and if it ever comes to such a thing, trade's the only real safety from war.
But, yeah, America's in unquestionable decline. The flow of money from our country to Asia will lower our quality of life -- but a great deal of that decline will be offset by rapidly increasing advances in technology. And the small costs we pay are nothing compared to the huge benefits the world as a whole reaps.
Posts: 3293 | Registered: Jul 2002
| IP: Logged |
posted
We don't mirror their trade practices because it doesn't gain us anything. Mirroring their trade practices just makes both greater losers, as any intermediate microecon student can demonstrate.
Furthermore, his portrayal of the Chinese trade imbalance is laughable. First, the trade imbalance isn't particularly large viewed in respect to the vast sizes of both economies (or in respect to the US's overall trade imbalance, which is much larger). Second, there's nothing inherently wrong with a trade imbalance, something economists have been trying to beat into peoples' heads for some time now.
Dobbs is a demagogue. He went off the economic deep end long ago.
Additionally, he's significantly just plain wrong. Most Chinese manufacturing businesses are low value-added. This means that they shift location very easily, and they have been. China's advantages in production are quickly being lost to other countries, and they're fighting to keep up by establishing modern legal reforms that keep the balance in their favor due to decreased operating overhead. There's nothing inherently threatening about those businesses being in China, be they for computers or clothing or consumer electronics. If China ever becomes a less viable place to make them, manufacturing centers will move elsewhere, plain and simple.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
Sure, but what would the situation be like if we could sell all of our stuff to India and China as well?
1/3 of the world's population is nearly off limits to us. Is that really fair to America?
Globalization is only fair long term if we actually get to sell stuff to other people, not just buy it for cheap.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
China is hardly nearly off limits to us, we sell huge quantities of things there. Similarly India.
You seem to be laboring under an illusion, also. Globalization is not about fairness. Globalization is about people doing things because its better for them, on a global scale. Sure, some parties get more out of the deal than others, but that's the way everything works in the entire world.
For instance, its not fair that our economy grows more slowly than China and India's -- but there's no way to change that, because an economy like ours can't grow that fast without serious problems. Its not fair that our economy is better than China and India's (combined), but it doesn't do either party any good to try to rectify it directly. Its not fair that people in China have a lower standard of living than people in the US, but just giving them money won't change that.
You want to know the best way to help poor people around the world? Buy the goods they make. Participate in global markets, not because its the fair thing, but because its the thing that makes you better off. They're doing it because it makes them better off.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Also, its entirely unsurprising we export fewer tangible goods. We ceased being a manufacturing economy long ago, and would be less of one absent our own protectionist practices. For a service economy participating in global markets, trade imbalances are nigh useless measures, because service transfers aren't well-measured.
We sell vast quantities of services in China that don't appear on the trade balance sheet.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Fugu is right. Also, the trade practices of China aren't sustainable over the long haul. Cheap labor, except in a slavery state, simply can't be maintained forever, inflation just happens.
And of course the economies of China and India are growing faster than America's. Those are two countries with basically a third of the entire world's populations. Both are ramping up manufacturing like never before. And remember, that growth is coming from a level closer to zero on the economic scale than we've had for 150 years.
Posts: 2848 | Registered: Feb 2003
| IP: Logged |
posted
I dont believe you can look at China and India by their population, because of the 1.3 billion of China's population only 300 million are economically enpowered. I believe what Mr. Dobbs is fearing is that China could use its economic power to cripple the U.S. Although it sounds scary it is far from reality. Truth be told China needs us as much as we need China. Just over 65% of China's exports comes to the United States. Even though China is still a Communist Nation many barriers are being broken. I believe Wal-Mart has opened its 10th super store in China this past year and more are scheduled to come. As for India well I dont believe we need worry economically for a while. From my expierence when i vistited the country 2 years ago. The rural parts of India looks as mid 1800's United States (with vehicles). One story i tell to my friends is when me and my family were in a taxi going down a street the taxi driver stopped and got out of the car, curious to what was going on we also exited the vehicle and i asked the driver why we had stopped. He pointed out the Cow that was lying in the road, so then I asked cant we just go around it? he then replied to me who was I to disrespect the Cow she was there first. We waited 5 HOURS before the Cow decided to leave and we could get on our way. Reason I told that little story is to show how other countries work and how Americans work. Even though the reason we were held up was for a religious reason there is still no country that works harder and longer then Americans. There isnt another country in the world that is better economically, socially and polically( by that I mean our system of government) then U.S. Plus U.S and China relationship has nothing but grown since Nixon reopened trade with China.
Posts: 29 | Registered: Apr 2006
| IP: Logged |
posted
65% of China's exports? Last I checked we were under a third, and Japan and the EU were pretty similar to us. Some slightly out of date statistics here:
quote:Originally posted by fugu13: China is hardly nearly off limits to us, we sell huge quantities of things there. Similarly India.
You seem to be laboring under an illusion, also. Globalization is not about fairness. Globalization is about people doing things because its better for them, on a global scale. Sure, some parties get more out of the deal than others, but that's the way everything works in the entire world.
For instance, its not fair that our economy grows more slowly than China and India's -- but there's no way to change that, because an economy like ours can't grow that fast without serious problems. Its not fair that our economy is better than China and India's (combined), but it doesn't do either party any good to try to rectify it directly. Its not fair that people in China have a lower standard of living than people in the US, but just giving them money won't change that.
You want to know the best way to help poor people around the world? Buy the goods they make. Participate in global markets, not because its the fair thing, but because its the thing that makes you better off. They're doing it because it makes them better off.
I worded my post wrongly. I know we aren't entirely shut out of Indian and Chinese markets, but it wouldn't be fair to say that we have the same unfettered access to them that they have to us would it?
I hope/expect that to change over time. I'm curious as to what the total sum of the services we're doing over there comes to. And I'm wondering why no one has stepped up and used that number as a defense of the trade deficit. To be honest, though I know you've explained it before fugu, I still don't understand why a trade deficit, especially one so high, is not a bad thing.
And so far as services go, I've read a bit on Chinese workers working for American companies in China, becoming skilled, and then leaving the American companies to go work for Chinese companies. It's been awhile since I've seen anything like that in the news though, maybe it's not as widespread as the last article I read made it sound.
If you have figures, or a link to something concerning American services in China I'd love to read it.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
We don't know what the numbers are on services, and there's no good way to measure. Services are fuzzy, unlike goods, so its difficult to say if certain services taking part in China were more "from" the US or "from" China, absent revenue figures far more detailed than companies are required to provide.
And no, China's markets are not as open as ours, but opening them up more would be nothing but a good thing for both of us, and closing ours more would be nothing but a bad thing for both of us. Why do things that hurt everybody because of perceived unfairness?
posted
If there is no way to measure it specifically, can you give me a ballpark figure? I assume you have some sort of indicator, otherwise you wouldn't have said we sell China "vast quantities" of services.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
Here's a good discussion of what I was mentioning regarding value added:
quote:The structure of Chinese export industries provides another reason for not worrying about U.S.-China deficits. More than 55 percent of Chinese exports consist of "processed" goods assembled from imported parts and components. The financial capital, equipment and technological know-how needed to produce these exports are mostly supplied by companies headquartered in the United States, Japan, South Korea, Europe, Hong Kong and Taiwan. Many of these companies moved their manufacturing operations to China from locations elsewhere in Asia in order to take advantage of low-cost Chinese labor.
This export structure has implications for who gains from U.S.-China trade. Because a high percentage of the value of Chinese exports derives from imported parts and components, much of the benefit from sale of these exports does not accrue to Chinese investors or workers. Even in cases where import content is low, high levels of foreign ownership and investment in Chinese export industries mean that many of the profits are repatriated abroad.
All this suggests that the value added in China to Chinese exports is quite small. In fact, according to one study, $1 worth of aggregate Chinese exports to the United States back in 1995 induced a direct domestic value-added worth of just 19 cents. To equate Chinese merchandise surpluses (the counterpart to U.S. merchandise deficits) with Chinese power and profit is to misunderstand the nature of China's export industry.
Note that in the outlined case it is reasonable to say that the services provided by US (and other countries') companies include the management of those plants, yet these statistics are not included in any measure of current accounts.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Conservative ballpark figure is ten to twenty five percent of the current accounts deficit is actually covered by services.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Thanks. Either I'm getting smarter, or you're getting better at dumbing things down, cause I think I actually understood all that.
Posts: 21898 | Registered: Nov 2004
| IP: Logged |
posted
The US sells paper with some printing -- with not much more intrinsic value than used newspapers that China imports from the US -- in exchange for the electronic(IOU)blips flitting through the banking system that Americans use to buy Chinese-made clothing, electronics, etc.
Then China can't afford to damage the US economy cuz that'd cause those (IOU)treasury(IOU)bonds to lose some sort of mystical value that makes people covet them so mightily. They can't even say "Nope, we ain't gonna send you more stuff until you pay up." to USconsumers without collapsing a major portion of the value of their electronic(USdollar)blip and USbond holdings.
Who's got who over the barrel?
BTW: Money is a bunch of IOUs backed by a government guarantee. A treasury bond is an IOU backed by a government guarantee that the holder will eventually be reimbursed with that government'sIOUmoney.
posted
The government plays an important but minimal role in the action of money. What really gives money its value is that people accept it as a value holder, something the government helps guarantee but by no means is absolutely needed to do so. Think of all the companies that accept other value holders they aren't required to, like checks, credit cards, et cetera.
Even if governments stopped guaranteeing money, there would still be money. I think there would be annoying inefficiencies in that new money supply, but it wouldn't stop being money, even if we called it "gold", or "silver", or "McMoney".
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Note: that view of value has been altered in a major way by modern economic thinking. The revised version is that the marginal value of a good is how much the purchaser will pay for it. This understanding has significant explanatory power for prices that seem disparate from value (such as the water vs diamonds paradox).
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
Blayne Bradley
unregistered
posted
i didnt know water could be worth more then diamonds under that logic.
IP: Logged |
quote: Even though the reason we were held up was for a religious reason there is still no country that works harder and longer then Americans. There isnt another country in the world that is better economically, socially and polically( by that I mean our system of government) then U.S.
Americans work hard, and there are many reasons why it is a strong country economically, socially, and politically.
But to say it is the best in the world at all these things? Seriously?
Posts: 155 | Registered: Apr 2005
| IP: Logged |
posted
Water is worth more than diamonds, collectively. Without water we would all be dead; without diamonds we would . . . well, have fewer pretty things, and there are some useful industrial applications (though there are also substitutes).
However, there is a lot more water than there are diamonds, so the value of the marginal unit of water (be it a bucket, a swimming pool, or even a reservoir) is minimal in comparison. If there were a similar quantity of water in existence (compared to the quantity of diamonds), the price of water woud be vastly greater than the price of diamonds (assuming it were possible for humans to survive with so little water in existence).
This explains/corrects a seeming problem with Smith's original statement, by dealing with water having a much lower price than diamonds.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
Yep, you'd be willing to pay an awful lot in diamonds for a jug of water if you're stuck in a desert.
And while you are correct in a general sense about money, fugu13, expecially inregard to action, the Federal government strongly gives value to the dollar by its guarantee: The comparatively weak one of laws making "this note is legal tender for all debts, public and private". And the strong one that if you can't pay your taxes in dollars, the Feds strongly guarantees that they'll seize your property and sell it to whoever does have dollars to purchase that property, until the Feds' sales receipts equals your tax debt. With income/etc tax making up a substantial portion of monetary transfers for ordinary citizens, that possibility of property seizures&sales forces folks to view the dollar as having value.
The power to tax and the power to define what constitutes acceptable payment for taxes gives the Feds great strength to give value to what they issue as money.
posted
Eh, the taxing power doesn't mean all that. Assuming some other currency came to be popular (Euros? ), even if someone did business all in Euros, he'd exchange for dollars in order to pay taxes. As the government would be using some similar rate to determine how much he should pay, the dollar could become heavily devalued or overvalued and it wouldn't matter much to him.
It does give the dollar substantial staying power, but it contributes little to its role as a carrier of value.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
posted
As I said, I agree with you on a theoretical level. But on the practical level of the here&now, another currency cannot displace the USdollar except gradually over the long term; ie without causing chaos in the world economy. There are too many governments using their USdollar holdings in their central banks as reserve backing their own money.
Prior to 1970s, USdollars were backed by gold; ie a USdollar was a promissory note, an IOU that could in theory be redeemed for a fixed amount of gold held as the reserve backing USmoney. In practical terms, UScitizens had already lost that right of redemption in 1935, and the speed&volume of international monetary transfers by businesses had already made gold transfers between governments impractical by the time that Goldfinger*decided to nuke FortKnox.
Due to the level of destruction of capital assets afforded to all economies of the nations in which WWII was fought -- and since Argentinian and Brazilian governments squandered the wealth they gained from supplying WWII combatants -- the USeconomy and USwealth became the backbone of the world economy. And so the USdollar was the strongest&steadiest and therefore the safest currency with which businesses could conduct international trade.
Hence when Nixon discarded the fiction that the USdollar was backed by gold (Take that, Goldfinger!), foreign nations pretty much had to convert their own gold-backed currencies to being backed by the dollar reserve that they actually held. Similarly, foreign businesses had to accept that the USdollar retained pretty much the same value as always. That or band together to boycott the dollar, and destroy a major portion of their international capital reserves in the process. In the 30years since then, the USdollar has entrenched itself even more deeply into international trade, in large part because the USdollar has remained the most steadfast in terms of the ratio between the amount of USdollars to the amount of tradegoods that USdollars can purchase. Yes there has been inflation, but most of it has been at a fairly steady rate. But it is the unexpected market fluctuations between the value of money and the value of goods which harm businesses by making it difficult to forecast what is a good purchase price and what is a good sales price. And the USdollar has held its value when measured against trade goods more steadily than any other monies, including gold.
Equally important is the ultimate backing of money: the ability to exchange it for property of the nation which issues that currency. And here again, the US has other nations beat hands down in the ease of acquiring US properties. eg France used "national security" to prevent a foreign purchase of Dannon(yogurt)Corporation. Similarly, many of the other EuroZone nations. How many businessmen are going to want to hold excess Euros for international transactions when they don't have (nearly) equal access to being able to spend their money where they want and buy the goods that they want as the natives do. When you hold USdollars, Americans pretty much don't care what you buy in America. There are some small exceptions, but nothing as egregiously xenophobic as not being able to buy a yogurt company, or not being able to buy a house on the beach in Mexico (many nations have similar native-purchasers-only restrictions on certain types of real estate, artworks, etc).
And thus the USdollar will remain the world currency for the foreseeable future. And for that reason, US tax-policy (including the US power to define what is acceptable in payment of US taxes) is a disproportionately strong guarantor of the value of the USdollar as a medium of capital exchange.
* I used that JamesBond tale as the demarcation point because the value of gold itself was always mostly fiction. Gold's main value as money came from being essentially counterfeit-proof and from its relatively constant scarcity. There is no way to increase the gold supply quickly with less labor and energy expenditure. And due to gold's softness/ductility and color, it's pretty easy for the common man to tell whether or not a piece of metal is gold, a gold alloy, or fake; and it takes only a wee bit more sophistication to determine it's degree of purity. If one excludes its value as a symbol of wealth, there is vast vast vast oversupply of gold in terms of intrinsic utility.
posted
Most of those reasons have nothing to do with it being fiat currency, you're upholding my points regarding the fiat aspect having little to do with money being a value carrier.
Fiat currency has a lot to do with which money is the value carrier, but very little to do with the fact that there's money out there carrying value.
Posts: 15770 | Registered: Dec 2001
| IP: Logged |
Printer-friendly view of this topic
![[Wink]](wink.gif)
), even if someone did business all in Euros, he'd exchange for dollars in order to pay taxes. As the government would be using some similar rate to determine how much he should pay, the dollar could become heavily devalued or overvalued and it wouldn't matter much to him.
