Tag Archives: free trade

Free trade only works where there is trust

All other things being equal, free trade is ultimately phenomenal for countries and individuals.  Using money as a medium of exchange, I trade my finance/accounting/leadership skills and experience with people who are good at making groceries, building cars, giving dance lessons, etc.  Win-win.

But the key part is about things being equal.  When one party – let’s say, China – has the system rigged in their favor by world trade organizations, is manifestly corrupt and evil, steals from you, spies on you, lies to you about pandemics, abuses their citizens, has no free speech, etc., then things are obviously not equal.  It would be foolish to continue to buy, say, 95% of your antibiotics from them.  Keep in mind that they are so evil that NBA players, coaches and leaders will criticize Trump 24×7 but punish anyone daring to offer the mildest criticism to China.

So this was good to read: Coronavirus pressures US manufacturers to bring plants home from China:

The COVID-19 pandemic has America rethinking its reliance on China for not only key medical supplies but production capacity in general after Beijing clamped down on exports of critical items used to combat the disease. . . .

“One of the things that has happened with this pandemic is it’s revealed to everybody the limits to our digital superiority and our software and all the things that we’ve innovated in technology,” Sen. Marco Rubio, R-Fla., told FOX Business’ Maria Bartiromo. “You still have to be able to make things. You still have to have industry and industrial capacity as a country. And we’ve given a lot of it away.”

Indeed, only about 11 percent of U.S. gross domestic product comes from manufacturing today, down from almost 40 percent in 1945. . . .

Although cheaper Chinese labor remains a factor in companies’ decisions to make their products in that country, it’s not the advantage it once was, Freeman said. Instead, China lures companies with tax breaks and other incentives, as well as the appeal of its domestic market.

That’s one of the many reasons that Trump’s tax cuts were so important.  When countries have lower taxes that often swings  financial decisions.  Back in the 90’s Compaq sent tons of business to Singapore because their tax rate was zero while the U.S. rate was 35%.  That meant that even if you got free labor, buildings, machines, etc. it would still be more profitable to build in Singapore than the U.S.  Our corporate tax rate doesn’t need to be zero, but keeping it lower will remain important if we want jobs back.

President Trump has repeatedly called on U.S. companies to bring their operations back home, moves that would likely provide a spark to a labor force that has over the past four weeks seen 22 million workers lose their jobs, at least temporarily.

That’s one more reason the Left will fight the obvious.  Although temporarily the Democrats realized they need to have their Joe Biden Talking Doll (TM) pretend to be harder on China than Trump has been.  Of all their lies, that is a grand one.  Anyone paying attention knows how hard he has been on them long before Covid-19 and how Biden has been in bed them for a long time.

He believes the COVID-19 experience will cause many companies to “rethink the safety and security of reliance on global markets,” and that there will inevitably be some movement of capital-intensive — not labor intensive — production back to the U.S. . . .

The U.S. Chamber of Commerce “supports a robust commercial relationship with China,” he added, but also understands the “need for some rethinking of that relationship.

I quit trusting the Chamber of Commerce years ago.  Those “Republicans” are the ones who brought us ridiculous levels of illegal immigration.  The Dems get the votes and these country club Republicans got cheap labor.

Rubio agrees. He told Bartiromo that the current level of U.S. dependence on China’s industrial capacity has put our country “in a very dangerous situation.”

“I hope that one of the things that will come about now is a broad consensus in this country that we have to be able to make things in the United States,” he said.

The same goes for oil and gas.  Fracking and such has been one of the greatest wins in our history, as it has provided jobs and reduced dependence on foreign oil.  Guess which side fights that 24×7?

I’d gladly pay more for clothes and such knowing that it created jobs in the U.S.  I hope we do bring a lot back from China.

Fair trade and the law of unintended consequences

Some businesses cynically promote “giving” that is more about making us feel good about ourselves than truly helping others.  Think of companies who sell marked up water where a deliberately undefined percentage of the proceeds goes to charity.  Instead of paying an extra 50 cents for a commodity where perhaps a nickel goes to some ill-defined charity and the other 45 cents profits the company, I recommend donating the whole 50 cents and buying your water elsewhere.  Or drink tap water.  Now you get to release endorphins for being generous and wise.

Fair trade coffee is all the rage in many churches.  Does it really help those it attempts to, or is it another counterproductive measure? Read some interesting thoughts at Is fair trade really fair? | Reason To Stand.

  • Fair trade trades in the same markets of empathy that charities do.
  • It does not have the power to lift whole nations out of poverty like free trade has because it ignores basic market principles.
  • It preys on the desire to feel good (as opposed to actually doing good) that many people (mostly liberals) have.
  • It assumes an unsubstantiated predatory view of markets.
  • It encourages inefficient economic practices (by discouraging mechanization)
  • It encourages people to stay in agriculture when they could move to other industries which could produce more wealth for more people.
  • It fosters a moral hazard where lower quality goods can be foisted onto artificially captive markets (ie. moral-minded churches) while higher quality goods are sold on the free market. I’ve been the unlucky recipient of this sort of deal where a local church provides fair trade coffee which costs as much as Starbucks but tastes like burnt rubber. This is wholly unfair to the consumer.
  • Fair trade is based on a Marxist economic understanding where equality of outcomes is held to be the standard of “justice”. For this reason you’ll hear a lot of talk of “social justice” in pro-fair-trade material.

Tax and free trade basics

money2.jpgCorporate taxes: If corporate taxes are too high it sends jobs overseas.  When I worked at Compaq the company shipped tons of jobs to Singapore, and it wasn’t for the lower wages.  They would have been offset by the logistics costs (freight, handling and timing). 

We moved the jobs because the corporate tax rate in the U.S. was 35% and Singapore gave us an extended tax holiday – a rate of 0%.  Even with the added freight and duty costs it was a no-brainer.  The tax break was like getting free labor and overhead (buildings, equipment, etc.). 

The U.S. added duties to the notebook computers we built there, but it took about 30 minutes to get around that.  We just assembled the maximum amount we could and added a couple parts once they got to the U.S. or Europe.  That avoided most of the duties.

All this took place when I was managing the factory finances for our Houston plants.  We cut costs where we could but it was impossible to compete with the Singapore model.  Lots of jobs went overseas.

Later, when I was the controller for the Notebook Division, my favorite meeting of the year was with the Singapore Economic Development Board.  They always had all sorts of incentives for us – training grants, tax breaks, help with partnerships and more. 

Taxes affect behavior.  You get less of what you tax.  More tax on investments = less investments.  More tax on businesses = less businesses to tax (and less employees to pay taxes and more people needing welfare).

Keep this in mind when you want to soak those big, bad corporations.  I’m not saying they should pay zero taxes.  But it is a fact that higher tax rates send jobs overseas.  Obama either doesn’t know that or doesn’t think it would be a popular campaign idea.  Either way it is bad.

Free trade: Free trade hurts some people, though usually temporarily, and is very visible.  Free trade helps most people, and for a longer period, but the benefits aren’t as visible.  Free trade is always best in the long run.  Avoid politicians who oppose it.

Estate taxes: Death taxes are ghoulish.  You do not want the government to profit from your death.  Just sayin’.