Thursday, April 22, 2010

Identifying that 800 pound gorilla in U.S. trade with China

Why have American companies shifted most of their production for the American market to China? And why do they continue to do so?

The overriding reason is the huge advantage they gain from China’s absolute control of Chinese workers, not from China’s rigid control of its currency. That truth is worth revisiting in light to the exaggerated hope being placed in the benefits that the U.S. would gain if Beijing abandoned its currency manipulation.

The issue came to the fore on business pages last month because the Obama administration decided to postpone the scheduled April 15 announcement to declare the People’s Republic a currency manipulator. In a teleconferenced briefing for some 65 activists, the Citizens Trade Campaign labeled China’s exchange rate policy as “the 800-pound dragon in the room.”

“Currency manipulation is just one of Chinese governments many unfair trade advantages, but it also the largest one,” the Citizens Trade Campaign (CTC) said in summarizing the teleconference.

In acknowledging the unfair advantage (and attractions for foreign companies) in China’s labor market, one CTC briefer mentioned China’s low wages and its government’s labor federation as causes.

That understates the plight of China’s working men and women. The iron fist of the country’s neo-Communist rule deprives them of all rights and makes them vulnerable to a wide range of exploitation, individually and collectively. Ironically, they are deprived of freedoms enjoyed by American business people in China.

It is an arrangement so obviously discriminatory, so immoral, that it should not survive one day longer. However, American business, to its eternal shame, will try to hold on it as long as possible, given the support of the U.S. government through its unfree trade and other policies.

Even some insiders now understand the folly of these policies. Robert B. Cassidy, a former Assistant Trade Representative, recently wrote:

“I now understand why so many of the trade agreements we negotiated never delivered the promises that were made and, if continued, never will.”
Cassidy wrote that as a blurb for a new book by Ian Fletcher, “Free Trade Doesn’t Work: What Should Replace It and Why.” See an article by Fletcher in Truthout titled “Uncle Sam, Global Trade Sucker.

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jeff said...

I agree 100% Bob. But, what's your plan? I have one:

Change the debate from “renminbi & revaluation” to “rights and responsibilities.”

We need to track labor, press and religious rights in China; the regime’s claims on protecting workers won’t stand up to scrutiny. (I researched latter issue in Indonesia with 220 USAID-funded survyors for 2 1/2 years.)

A trip to East Asia by the U.S.'s top Human Rights diplomat will raise some eyebrows - especially if Mr. Posner speaks on “the global economy”; hundreds of bloggers and union newsletters will launch a fusillade of “stupid trade policy” stories, such as the following. (Stuff he cannot say, but we can.)

Listen to Carville who sums it up nicely. When asked about his lucrative ties to Nike (and sweatshops), he berates the reporter for asking, snarling, "I own stock in Royal Dutch Shell, too." This is as if to say that any Democrat who was internationalist and concerned with Human Rights ought to just get with the program; just go get "yours" and don't worry about the other guy. Carville dismissed concern about abused workers as "protectionist."

This approach to the global political economy may make sense for some Republicans and their big business allies, but it’s just plain stupid for a Democrat.

Larry Summers, famous for suggesting that rich countries should dump more toxic waste in less-developed countries was a high-flying economics professor who, as Chief Economist of the World Bank, commissioned a study, “The East Asian Miracle” that explained why suppressing unions was good for business. [ ] Let’s see, economic development in export industries follows the promise to keep wages below-subsistence and send protesting workers to jail – a real “miracle.”

How stupid was this statement, made by a Democrat appointed to the top international trade position at Treasury? We'll just have to "swallow hard" when we see how workers and the environment are treated in the "big emerging markets." (With laws on the books saying we ought to DO something about it? Thanks for nothing, Mr. Jeffrey E. Garten, now at Yale biz school.) More recently, he said he'd have to "swallow hard" to suggest the Chinese authoritarian model for the Mid-East - but that's exactly what he did! [ ]

Rather than get tough with the thuggish Suharto, Clinton dispatched Lloyd Bentsen, then Mickey Kantor and finally the feckless Warren Christopher to ask if the former army general might consider means other than using the Indonesian military to break up strikes in shoe and apparel factories near Jakarta. Of course, Suharto told them all "yes" and the abuses, wage-cheating and interrogation of "troublemakers" continued unabated.

jeff said...

couple more things:
Just last year, Joe Stiglitz said that China’s economic model (mid-1990s to present) was a “resounding success” and that we should all hope that the Communist rulers’ new model succeeds. [ ] Not a word about bringing democracy into the picture. Or a free press. While praising Beijing’s corrupt regime, he chides those who “trump up charges of unfair competition.” And this bit, which sounds like it came from a PR firm, “At every level, there is a consciousness of environmental limits…”

Joe is smarter than that, don't you think?

Most disturbing is that this "unfettered free-trade stupidity" cascades into an "anything goes" mentality.

First example, Nobel-laureate economist, Michael Spence told a business school audience in Singapore that businesses must be “ruthless” about outsourcing. [ ] Since when did “ruthless” enter the lexicon of distinguished biz school deans?

Second example, in September, 2008 in London "emerging markets" investment guru, Dr. Mark Mobius said: “Chinese 'capitalism' will become the global standard” [ ] He continues, “Some emerging market companies like those in South Africa are an effective way to get access to Africa because they know how to bribe and can operate in that environment.”

Such cynicism and amorality would hardly disqualify Dr. Mobius from an exalted position such as joint chairman of the World Bank and Organization for Economic Cooperation and Development (OECD) Global Corporate Governance Forum’s "Investor Responsibility Taskforce." In this “stupid” world, anyway.