Whereas the previous discussion involved people in different nations exchanging products they produced relatively efficiently for products more efficiently produced elsewhere, the motivation behind much of the current trade carried out by US corporations is of a very different nature. In fact, the term "trade" may not be appropriate, since it is usually a one-way process. The basic concept is to buy goods at low prices in countries that produce them cheaply by grossly underpaying, and otherwise maltreating, those doing the work, and often abusing the environment in the process.
The principal source for such goods today is China, tho several other countries are playing a growing role in this regard (see below). There are several variations of the process. All of them involve the closing of American factories. A common practice is to have production is carried out in China by Chinese companies. The US companies often provide technical assistance to facilitate start-up operations. The product is sold in the US under the original American brand name.
Another path taken is for American companies to set up their own factories in China, leaving their workers behind. Following this approach, big "American" corporations have become, and continue to become, less and less American. Companies such as GE, GM, and Apple, do most of their manufacturing in other countries, and are also selling products overseas. They often have R&D labs outside the US. These companies also pay little in US taxes.
A less common option is for US companies to buy Chinese products and import them to the US under Chinese brand names.
Wages in China are steadily increasing, and are currently something like a fifth of US wages. The resulting price increases have led to some US companies resuming production in the USA. (This often involves opening factories in southern states, where unions are virtually unknown, and wages are minimal.) Perhaps more important is that other countries, such as India, Indonesia, and Vietnam, have wage scales less than a tenth of US wages. These countries are joining, and, to some extent, replacing China as suppliers for American companies. Mistreating workers is not the only factor in the lopsided trade relations between the US and China.
How a beefed up dollar is helping to impoverish many AmericansIn a truly free market, exchange rates between currencies of nations N1 and N2 continually change, usually by small amounts, so that, if a package of goods and services can be purchased with K1 units of N1's currency and K2 units of N2's currency, the exchange rate will be such that one could obtain K1 units of one for about K2 units of the other.
If this is the case, and there are no restrictions on trade, then goods would be exchanged between nations roughly as described in the previous section, with goods flowing in both directions, except that it would not be necessary to link purchases of one product with sales of another. Instead of exporting US-made goods to Blogistan , selling them to obtain yuks and using the yuks to buy Blogistani products to sell in the US, the necessary yuks could be obtained directly in exchange for dollars, and vice versa, so US goods could be purchased with dollars received in exchange for yuks. The bottom lines would be about the same. But a good deal of international trade, particularly US-China trade, does not work this way, because the exchange rate between the yuan and the dollar is not determined by a free market.
Referring to the table used above to discuss US-Blogistan trade, suppose the yuk were very cheap in terms of dollars, so that we could buy Y40 for $1. Then, instead of acquiring Y2000 by buying a unit of tennis balls in the US for $100, and selling it in Blogistan, we could simply buy Y2000 for only $50, and use these yuks to buy the same 4/5 unit of shirts, worth $320 in the US. This yields a gross profit of 320 - 50 = $270, and a relative gross profit of 5.4, as compared with 2.2 figure corresponding to the 2-way trade discussed above.
It is interesting that we could have used the Y2000 to buy tennis balls in Blogistan for export to the US. Altho not as profitable as buying shirts would have been, this would yield a gross profit of $50, and a relative gross profit of 1 (100%). In this case, a profit is made by exporting tennis balls to the country in which tennis balls are more efficiently produced than in the exporting nation! Such an exchange rate could not exist in a free market. But the exchange rate between the dollar and the yuan is not determined by a free market.
In addition to undercutting US production costs by grossly underpaying its workers, China has been manipulating the exchange rate between the dollar and the yuan, to lower the dollar cost of the yuan. This is done by buying US treasury notes, in effect lending money to the US [2]. China currently holds well over a trillion dollars in treasury notes. This makes Chinese goods even cheaper, further encouraging US purchases. It also makes US goods more expensive, minimizing US exports to China. Altho Japan and Brazil have, at some points, engaged in currency manipulation, the effects are minor in comparison with China's massive operations that are having a major effect on the US.
China also has various regulations that discourage imports. The overall result is that US imports from China are well over triple US exports to China.
US corporations are happy with this situation, as they participate profitably by buying Chinese goods at very low prices and selling them in the US at prices somewhat lower than previous prices, but high enough to be very profitable. They are making large profits without the nuisance and expenses involved in manufacturing and outbound shipping. US consumers benefit to a modest extent by somewhat lower prices. US workers take the hit, losing manufacturing jobs or taking wage cuts due to competition from the newly unemployed.
US imports from China are huge, with a massive trade deficit exceeding $318 billion in 2013 (imports $440.5B billion, exports $121.7 billion, both record highs) [3][2].
US imports from China have exceeded exports to China since 1985. The annual US-China trade deficit has exceeded $10 billion since 1990, and $100 billion since 2002. As of January 2013, the cumulative US-China trade deficit was $1.264 trillion. With respect to worldwide US foreign trade, the 2013 deficit was about $472 billion.
The excess dollars received by China could be used in many ways:
- To buy US Treasury notes.
- To buy US companies, including manufacturing companies.
- To buy land in the US.
- To buy goods from some third country X. X may use those dollars to buy things from some other country, Y, etc., with those dollars never returning to the US. I.e., the dollar has become a form of international currency. This does not help most Americans, as the dollars spent by Americans for Country X's products are not being sent back here to buy products made by Americans.
- To contribute to political parties in the US. (This might be done surreptitiously, e.g., by setting up front organizations nominally headed by Americans. The same would apply to the next item.)
- To buy and control news media in the US.
Large US corporations are abandoning the US in many ways. They buy complete products, components, and subsystems from other countries, set up factories abroad, treat American workers like dirt, and do everything possible to avoid US taxes [4][5][6], including moving manufacturing and other operations out of the country.
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