“So unlike an across board tax cut, China proposes subsidizing certain industries - a clear trade violation.”
In the 1980’s the industry in which I was employed was targeted by the Chinese. Chinese government allied banks provided interest free 20 year loans for construction of new factories in China producing the products. In addition the Chinese government gave a 15% export incentive on all products from the factories exported. This was a pure subsidy which my company complained about to the deaf ears of the US government officials responsible for negotiating and overseeing the “free trade” deals the two Bush and Clinton administrations took great pride in implementing. In addition US “too big to fail” Wall Street banks worked closely with the US companies outsourcing production, and the Chinese companies building the new factories, to facilitate the transition. This included stock buybacks and often ill advised acquisitions to consume the capital freed up by outsourcing and sale of US assets, not to mention favorable stock analyst buy reports circulated in the business press and to financial advisors. The securities of companies actively disinvesting in US production were touted by the securities industry and their executives accumulated great personal wealth due to incentive packages tied to stock price appreciation.
The industry in which I worked employed 1.2 million Americans in 1980. Today employment is 116 thousand and still declining by approximately 3,000 per month as the remaining middle management product development and administrative jobs move overseas. So much for the free trade advocate assertion only low value jobs would move overseas.
The deindustrialization of the US has been the result of a 30 year plan in which specific industries were targeted by the Chinese government. Entire supply chains were gutted in order to ensure they could not easily be reconstructed. Once one industry was gutted, the process began on another industry. This was done with the active complicity of US politicians, bureaucrats, financial institutions, executives of targeted companies, and the press which was a propaganda organ for those benefiting from offshoring. Those assisting in the manufacturing exodus were rewarded handsomely and this economic transformation was a key factor in the erosion of the middle class and the concentration of wealth in the hands of 1% of the population. The price of the transformation was paid by American blue collar laborers, middle class managers, towns and cities dependent on manufacturing, and ultimately the US economy.
We were told the loss of industries was due to high US labor costs and restrictive union work rules. The truth is few jobs were lost due to labor costs alone. Millions of manufacturing jobs in the nonunion southern US were lost. Many of those workers were paid not much more than minimum wage and had few benefits. If labor costs were the only factor in the gutting of the US economy, the Chinese government would not have subsidized the building of factories in China or directly subsidized exports.
Government contributed greatly to raising the cost of US production by imposing onerous regulations on US factories which foreign countries do not impose. Add to that
The US has been fighting a trade war since the 1980’s. The nation and the US middle class lost the war because its politicians and business leaders were actively working for the other side.
China has been violating the terms of trade agreements by directly and indirectly subsidizing its industries for decades. Don’t expect the free trade advocates in government and industry to hold them to the agreements. There is still too much money for individuals to make by looking the other way.
Bump that! Excellent post.
“China has been violating the terms of trade agreements by directly and indirectly subsidizing its industries for decades.”
It has been their deliberate strategy - perhaps their greatest focus, second only to policing their people to secure communist party rule.
They cheat in every possible way to gain trade advantages, including massive systematic theft of technology/intellectual property by their Intelligence Services, as well as the world’s largest program to corrupt politicians in other countries.
Bill Clinton’s time as President was a pivotal period of wholesale sellout of American interests, in return for Chinese bribes: https://www.amazon.com/Year-Rat-Clinton-Compromised-Security/dp/0895263335/ref=sr_1_2?ie=UTF8&qid=1514568534&sr=8-2&keywords=year+of+the+rat
He set them up for admission into the World Trade Organization in 2001, which is when the trade deficits exploded. They should not be in the WTO, as they are not free traders.
Thanks for this complete posting. Let me take a different perspective on why the US enabled the transfer of manufacturing and production to Communist China: our own economic policies to begin with. Start with Sherman Anti-Trust Act. Add income tax which Americans in the early 20th Century were unaccustomed to. Add the slow but steady assumption that “robber baron” industrialists required regulation in order to make them law abiding. Then the final blow occurred in my lifetime: the end of the gold standard thanks to a Republican President!
And what we had by the time he also pulled back the “iron curtain” of Red China was a sagging US economy. By the 80’s the value of the US dollar was in steady decline. And Americans could not afford to buy basic items let alone the luxuries like trips, entertainment, household goods, due to massive regulation, taxation and inflation. Instead of embracing small government, the United States sent production overseas where slave labor rates and unregulated economies could manufacture goods and ship it back for less than an American company could charge the consumer.
Red China has blasted past us because their citizens only had to deal with bribery and corruption rather than regulation and unions and OSHA and workmen’s comp, etc. They are freer in some ways than any American business owner.
That’s my take on what I’ve been watching and learning about (economically) over the past 40 years. I’m happy we have a President who understands the fundamental economics, but there is no way he can end the massive over-regulation even if he wanted to. I’m sad to say. I’m not even sure he would eventually try to get the dollar tied to the gold standard once again. I won’t be around anyway. But at least we’ve had a bit of a reprieve to allow the better thinkers to have time to spread ideas to the masses.