Tyler Cowen — New results on the China shock, furthermore the China shock is largely over

Is the US trying to lock the barn door after the horse is gone left over offshoring jobs to China? A new paper suggests so.

Marginal Revolution
New results on the China shock, furthermore the China shock is largely over
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center

Dean Baker — Trade: It’s Still About Class, Not Country

It is truly incredible that most of the advocates of this trade policy do not even seem to understand the class nature of their agenda, equating the interests of a tiny group at the top with the interests of the whole country....

Truthout
Trade: It’s Still About Class, Not Country

Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

See also

Robert Reich
China Tariffs are a Regressive Tax on Americans, and Risk a Recession

Gwynn Guilford — The epic mistake about manufacturing that’s cost Americans millions of jobs

So when Trump won the presidential election, the true-blue data believers dismissed his victory as the triumph of rhetoric over fact. His supporters had succumbed to a nativist tale with cartoon villains like “cheating China” and a shadowy cabal of Rust Belt-razing “globalists.”

But it turns out that Trump’s story of US manufacturing decline was much closer to being right than the story of technological progress being spun in Washington, New York, and Cambridge.

Thanks to a painstaking analysis by a handful of economists, it’s become clear that the data that underpin the dominant narrative—or more precisely, the way most economists interpreted the data—were way off-base. Foreign competition, not automation, was behind the stunning loss in factory jobs. And that means America’s manufacturing sector is in far worse shape than the media, politicians, and even most academics realize....

Quartz
The epic mistake about manufacturing that’s cost Americans millions of jobs

Gwynn Guilford, reporter for Quartz

“Free trade” seems to be in deep trouble in the United States, with serious implications for the rest of the world.

Opposition to free trade or trade agreements emerged as a big theme among the leading American presidential candidates.

Donald Trump attacked cheap imports especially from China and threatened to raise tariffs. Hillary Clinton criticised the Trans-Pacific Partnership Agreement (TPPA) which she once championed, and Bernie Sanders’ opposition to free trade agreements (FTAs) helped him win in many states before the New York primary.

That trade became such a hot topic in the campaigns reflects a strong anti-free trade sentiment on the ground.

"Free trade" is a centerpiece of neoliberalism, and the key to transnational corporatocracy and marginalizing national sovereignty.

Triple Crisis
“Free Trade” In Trouble in the United States

Martin Khor | Executive Director of the South Centre

Marshall Auerback — Donald Trump Understands the Nexus Between Trade and Immigration

Embedded labor in imported goods is vicarious immigration. Both reduce the real wage of the importing country.

Net imports are a benefit in real terns of trade, but only under full employment. Otherwise both result in either lower domestic wages (immigration) or lower domestic employment (net imports).

Naked Capitalism
Marshall Auerback: Donald Trump Understands the Nexus Between Trade and Immigration

Marty Kaplan — The Real Reason Scout Prouty Leaked the Famous Romney "47%" Video -- It Was Over Romney Profiting from Slave Labor

Yep, it's worse than you thought.

AlterNet
The Real Reason Scout Prouty Leaked the Famous Romney "47%" Video -- It Was Over Romney Profiting from Slave Labor
Marty Kaplan

Is offshoring the problem it is made out to be?

In the last decade, U.S.-based multinational companies have been on a hiring spree, adding over 2 million new jobs. They're just not adding them in the United States.

In the last decade, U.S.-based multinational corporations cut nearly 864,000 jobs in the United States, according to a new report from the Commerce Department's Bureau of Economic Analysis. At the same time, they added 2.87 million jobs outside the country, including 1.61 million jobs in Asia and the Pacific region.

Multinational companies are focusing their hiring largely in emerging markets, where economic growth has been faster than in other regions. China, which grew at an average 10.3 percent per year between 1999 and 2009, was the country that enjoyed the most job growth from U.S.-based multinational companies, with 691,100 jobs added, according to the report.

In India, where the economy grew an average 7.2 percent per year during that time frame, U.S.-based multinational corporations added 425,800 jobs. The U.S. economy, in contrast, grew an average 1.7 percent per year.

U.S.-based multinational corporations also added 532,300 jobs in Latin America, the study found. Economies in the region have been growing nearly four percent per year on average, according to the Conference Board.

"They're going abroad mainly to sell their products," said BEA economist Raymond Mataloni, who co-authored the report. "Most of the sales in these emerging markets are to local customers."

Read the rest at The Huffington Post

U.S.-Based Multinationals Added Jobs Abroad In 2000s, But Cut Jobs At Home

by Bonnie Kavoussi

This headline is somewhat misleading. It suggests that the US lost workers bu offshoring production, whereas the numbers indicate that US multinationals not only produced but also sold more products abroad. This is going to be an increasing feature of the global economy as the emerging economies continue to grow rapidly. Viewing it as a bug is counter-productive, and this will only serve to disadvantage US multinationals in the arena of global competition. Scapegoating "big corporations" is not the way to go here, as intuitive as it may seem.

The problem is not as much offshoring US jobs as the US technocrati being unable to understand that the real issue is lagging demand, largely due to flat worker incomes and excessively high taxation, FICA in particular. 

It is true that corporations have been allocating a larger share of revenue to profit at the expense of wages. However, worker compensation has remained pretty stable over this time. While wages have been stagnant to falling in real terms, benefits have been rising, driven by exploding health care costs and rising insurance premiums. This has meant a transference of revenue to FIRE, along with interest and mortgage payments. As a result, the proportion of GDP garnered by FIRE has increased dramatically.

Demand was supported for a time through credit-based consumption, which finally reached unsustainable levels when private debt ballooned, hit historically high levels.

The solution is not bringing "back the jobs." Rather, it lies in an understanding that the real issue is effective demand and that this can be addressed fiscally through the sectoral balance approach and functional finance, as recommended by MMT.

Some will counter with the rising level of imports and assert that the US needs to grow it export market to take back jobs. MMT economists point out, however, that imports are favorable in real terms of trade, whereas exporting involves domestic workers using national resource to supply foreigners rather than the country's own nationals.

As long as the issue is understood correctly and the sectors kept in balance at full employment, there is no problem with multinationals producing and selling abroad, or the country running a persistent current account deficit as long as other countries want to save in its courrency.

Why Tax Economic Rent Rather Than Productive Contribution?

Destruction of U.S. Manufacturing: The Unusual Suspects by Andrew Butter

That line is probably an under-estimate of the value that was sucked out of USA and sent elsewhere.

Because when you set up a factory in a Special Economic Zone in Guangdong Province or somewhere, to manufacture something that you know you can sell, particularly in USA; because you own the patents and the distribution and the brand. You also have the luxury of “transferring” intellectual capital, outside of the beady eyes of US tax-inspectors reading up the statutes on “Transfer Pricing”; so a lot of what get’s transferred is “intangible” (as in the tax-man can’t get his sticky fingers on it).

Here is a statistic, 80% of China’s exports have “value-added”, added, in what they call “Special Economic Zones” (and what I call Free Zones). That’s huge.

Here’s another one, 50% of the earnings of S&P 500 corporations (that’s the “E” in “P/E”) are generated outside of America...

There is a popular idea that cheap labor is why America lost its manufacturing jobs, perhaps that might play a part in something (although if it did, why didn’t Germany and Japan lose more?), but there is nothing I ever saw to support that notion....

Follow the trend-line on the chart from after the War to 1979, and extrapolate, if the investment had not piled out of America, there would perhaps be 24 Million people employed in manufacturing in USA today, as opposed to just under 12 Million....

The point of Free-Zones is to create an environment where free-enterprise, and free-markets can thrive; and when all the rest is so corrupted by silly laws, regulations, and special interests, sometimes you just need to start over.

And don’t talk about the 38% corporate tax which would be “lost”, you can only lose something you got, and there are plenty of ways to make that up taxing rich people, and people with jobs.

This is an interesting post in its entirety, and it shows the thinking behind the move of manufacturing offshore. In Butter's view, the reasons are primarily corporate taxation and regulation.

This relates to Michael Hudson's proposal to tax away economic rent instead of productive contributions in order to discourage rent-seeking and promote productive activity. Since a majority of the wealth that funnels to the top is the result of economic rent, there is an alternative to taxing factors of production that are not parasitical.

Taxation is operationally unnecessary to fund government with revenue, since a government that issues a non-convertible floating rate currency is not operationally constrained and funds itself directly. Taxation serves two purposes, first, to withdraw non-government net financial assets in order to dampen effective demand when inflation threatens, and secondly, to discourage negative economic and social behavior. Taxing economic rent discourages parasitical rent-seeking while promoting efficient use of capital and labor in production.

The other question is regulation. Regulation is required for several reasons. The first and most important is to minimize cheating and ensure a level playing field. Another is to set minimally acceptable social standards such as workplace safety. Another is to limit negative externalities.

As globalization proceeds, developed countries have to choose whether to forego social gains made over the past century or to allow the lowest common denominator to operate. This is going to be an ongoing issue as capital seeks "efficiency" and citizens look to government for effectiveness in pursuing public purpose and general welfare.

Chinese and US Wages Converging

From a BCG (The Boston Consulting Group) press release:

"With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.

“'All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,' said Harold L. Sirkin, a BCG senior partner. 'We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.'

"After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said."

Read the full post, Press Release May 5, 2011

(h/t Zero Hedge)

The great leveling is proceeding apace as the emerging world rises and the developed world sinks to meet it.