Archive for the ‘trade’ category

Pacific Trade Debacle

June 14, 2015

Democrats joined together this week to thwart President Obama’s request for fast track negotiating status on the proposed trade deal among 14 Pacific rim countries. Apparently responding to strong requests from organized labor and environmental groups, Democrats voted overwhelmingly to deny fast track status. Hmmm.

Opponents claim the Trade bill will cost American jobs. I wonder where these people have been over the past twenty years as American company after company has outsourced American jobs to lower wage countries? The consequence has been increased profits for American businesses and huge downward pressure on the average American worker.   To the positive side, it must be recognized outsourced jobs has contributed to a steady low inflation rate (read lower cost of living). So what can be so bad this time?

Outsourcing works (in economic terms) when the country losing the jobs reemploys the workers in other more productive activities. Even though 20 years sounds like a long time, America’s work force has not upgraded itself enough to find gainful work for too many of those outsourced. Accordingly it can be understood why Americans would be worried when Unions tell them how bad this Trade legislation will be.

The only problem is that no trade bill is worse!

Post World War II, the United States possessed over 60% of the worlds manufacturing capacity. Finding a manufacturing job was like finding a local bar, they were everywhere. Business leaders, anxious to make a buck bid against each other in order to attract and retain workers. This became the norm and few people thought that life could or would be different.

During this post war time plenty of countries (like most of Europe, Japan, India, and many Latin and South American countries all engaged in some form of restrictive, protective Trade arrangements. Each of these countries tried to protect their favored industries against “foreign” competitors. Imagine France protecting its industries from German or Spanish ones. That’s like New Jersey building borders against goods from Pennsylvania or New York. The bottom line has been that those trade barriers lead directly to low quality, high prices, and economic stagnation.

The same fate awaits America if we ignore Pacific rim trade.

A far better use of the opponents’ time would be to establish rules on what American businesses can do with overseas profits if outsourcing does occur. Outsourced labor is creating profits for American companies by either lowering the cost of products imported and sold in the US or simply creating new profits in a US subsidiary overseas, or both. Currently that subsidiary’s profit is housed in the lowest tax jurisdiction outside the US and remains there avoiding US taxes. No one wins on that deal.

Taxing US corporate profits attached to our soured jobs and dedicating these revenues to retraining labor might be a useful outside the box move.

Forgetting the greed aspects of business (especially American style), the idea that the US can go it alone ignoring access to 40% of the world’s markets on equal basis is ludicrous. Experience has taught us that we can not expect business leaders to consider the best interests of American labor also.

So, tell me again why the President should not negotiate with fast track authority?

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TPP Or Whatever

May 10, 2015

President Obama is campaigning for public support of the “Trans Pacific Partnership”, a new set of rules and agreements affecting trade between the US and Japan plus 11 other Pacific Ocean facing Countries. The Partnership’s intent is to “level the playing field” and to remove trade barriers.

The President has warned that if the US doesn’t help write the rules, China will. The implication being that China will obtain favorable trade conditions with these Countries and the US will be stuck with the current restrictive trade obstacles. Hmmm.

Supporters promise that with TPP intellectual property will be respected, labor conditions will be the same amongst members, environmental safeguards will be ensured, and protectionist import measures will be eliminated. Trade amongst these Countries today must contend with numerous rules and restrictions, each of which was created to guard against some “offense” while providing advantage to one of these countries.

For example, countries with a different view of intellectual property might choose to reverse engineer an American product and sell it at lower prices back to US businesses. Other Countries might choose not to require environmental protection investments and in so doing allow their companies to produce goods at a lower cost (which would presumably make these products more attractive due to lower price). Use of child labor, prisoners, or unsafe work places also lead to competitive disadvantages.

In Congress, TPP has boiled down to the President and the GOP favoring, and most Democrats against. It seems business interest versus labor and environmentalists. In many regards, The debate rhetoric has the sound of the Iran nuclear negotiations all over. “This deal is a bad deal, keep negotiating for a better deal”. Hmmm.

The status quo protects certain interests and to change the ground rules makes them understandably worry. The proposed new agreements are likely to advantage some interests too and their roaring support is also understandable. So, what’s next?

President Obama will move to put the PTT into effect if he can get “fast track” authority from Congress. With the GOP control of Congress, PTT seems likely.

Democrat opposition, however, runs deep with unions and environmentalists. Hillary Clinton who so far has dodged any commitment or opposition to PTT must consider whether she wants a disgruntled working class voter sitting on the sidelines in 2016. IMO, she could remain neutral and still not fear too much backlash because the GOP represent far more concern to unions and environmentalists.

As I understand the arguments for and against, they all have an element of possible truth. It just seems reasonable that the 21st century ought to warrant trade agreements reflective of a new century.

As always, however, the devil lies in the details.