This is a very good question, and will probably lead to problems in the future. But I personally think it’s always s been a problem.
Imagine a guy in an auto plant grumbling about how machines do all the welding, so how are new workers supposed to get good at welding? Well, they don’t need to weld any more.
We don’t need gets learning how to place type face in the printing press.
To me, the stuff we’re offshoring now isn’t all that different from the stuff we’ve been automating before.
The other aspect to consider is that new engineers will end up specializing even further. So instead of getting years of training, their 4 year degree will focus more closely on the work they’ll be doing.
When Bill Gates started coding was high level work. It required brilliance to punch those little cards just right. A few years later engineers specialized into it. A few years later Computer Science as a degree emerged. No kids can pick it up as a high school credit.
The “real” work is in the design and development of what ultimately gets coded.
To put it another way, the real genius is coming up with a great story. The act of writing it down isn’t a scholarly pursuit any more. We don’t have the art of running a printing press any more. We want the guys that come up with great stories to spend as much of their time creating as possible, and as little time printing novels. Let a kid in China hit ctrl-p and let kids in the US be creative.
No…what it means is that the labor of those young people, if it’s valuable, can and will be used for something else. Labor is a resource, just like oil or gold. If it’s worth getting or using, then someone will get or use it. If it’s not…then not. Here’s the crux…what do you suggest we do about this ‘problem’? Should we make work for those youngsters? Work built on the backs of the consumers? Force them to pay a tax for premium labor so that those folks will have a job? Because, essentially, that’s what you and others are hinting out or outright saying…we have to fix this problem of shipping low end jobs overseas (or, what we are actually doing, which is automating a lot of that labor to increase productivity). But the only way to ‘fix’ this ‘problem’ is to basically do stuff just like we always have…IOW, to ‘fix’ the ‘problem’ we have to stay static. We can’t automate because that would take away jobs. We can’t offshore or outsource because, well, that will take away jobs. AMERICAN jobs, that is. We would have to protect the local labor force, and protect their wages and benefits, because in the end that’s really what we are talking about here…if US labor was cheap enough, there would be no incentive to offshore or outsource or automate. The trouble is, that by doing this it would make US products, our goods and services, and US flagged companies uncompetitive with foreign companies who CAN take advantage of cheaper labor or higher levels of automation and efficiency. So, to ‘fix’ that ‘problem’ you are back to Le Jac’s standard line…tariffs and lots of them. And punitive sanctions against ‘low wage’ countries so that, artificially, they will HAVE to pay the same costs for labor we do…which really is just another way of saying you are protecting US companies and giving them the pick of the domestic US market.
This loss of elan, can you give an example of it happening? I can’t think of a country that was not threatened militarily, but just rolled over and died in response to international trade. If any countries were going to lose their elan, it would have been Japan and Germany in 1945. Yet, these countries are now amongst the richest in the world. Going back a little further, but Britain and France were once the most powerful countries, then faded in power. But they also remain rich. Russia and China were world powers that languished during the last century, but both were under the thumb of murderous dictators.
Loss of elan is something that just doesn’t happen.
Another thing that just doesn’t happen. Unless China starts slinging nukes around, it’ll never happen that all companies will be owned by the Chinese. The states in the US have completely free trade, yet it never happens that all the jobs, or all the companies, go to one state. It doesn’t happen in the globalized economy. What makes China so different to change things?
Chinese one-sided protectionism and inadequate protection of intellectual property are legitimate concerns for some time to come, but the effects of one-child policy will hit China hard in the coming decades and the rising standard of living is putting a brake on increasing labor in export industries already.
Solution Number One: Americans need to stop buying so much crap.
Solution Number Two: Stop treating our school systems like we will operate in the economy of old.
It would appear that free trade policies are dominated by domestic politics and perceptions.
Free trade seems to hurt the same people it helps: Wal-Mart & manufacturing is a great example. I’m also not convinced that ‘free trade’ with some countries won’t eventually result in some kind of unfortunate balance of economic power for America in the not-so-distant-future.
Also, D. Love, are you suggesting that China respects intellectual property rights?
Like another Doper said: the genie is out of the bottle.
Just a generation or two ago, moms could make their kids’ clothes. Now I can buy a pair of $6 jeans from Target for my son on sale…or spend $30 and make my own. I’ve gotten great at up-cycling clothing for him: khakis with ripped knees become cute shorts with cuffs made from quilting leftovers.
There’s an argument that trading policies with countries like China (who are now under fire for recalls, lead paint, poisoned toothpaste and the like) hurt old-school American craftsman when Congress wants to tighten certain regulations. I’d rather make (or buy) my kid a handmade toy than buy him a plastic piece of junk from the dollar store. Unfortunately, most American craftsman can’t pay for the testing and regulations requirements it takes to get their products into retailers. Sigh. Long live Etsy.
disclaimer: I support the Handmade Toy Alliance and secretly fantasize about Paul Krugman
No, he’s saying that this (among other things China does) is going to eventually bite them squarely on the ass…and it is. Eventually, by not respecting intellectual property from other countries, they will find that any innovations they make will equally not be respected. Similar to what happened in Japan.
People in these threads seem to always think that China is some huge, unstoppable Juggernaut. The truth is that there are a lot of things, both internal and external, that could trip China up and see them either slow down or halt their economic progression. Their currency is one of those things. Their lack of respect for intellectual property is another. Others are their lack of respect for their own ecological laws and the fact that they are pretty inconsistent about how they apply those laws, or their labor laws, or myriad other laws that they have on the books but in practice decides seemingly on a case by case basis whether to ignore them or ‘set an example’ using them.
And it’s the exact same argument made historically about automation and mass production verse hand made craftsmanship and cottage industries. The only difference is that the playing field has changed.
The fully-formed classical idea of comparative advantage was from David Ricardo (and apparently Robert Torrens), not Adam Smith, who was himself just a bit fuzzy on the concept.
Maybe this might seem like piddly nitpicking on my part, but this is an important topic and I hope that we can get it right from square one.
I assume you’re getting this from the article you cite: “Prior to China’s accession to the World Trade Organization almost a decade ago, free trade proponents argued that the move would create American jobs and eliminate the country’s trade deficit. Neither prediction has proven accurate.”
This is just a complete load of crap.
First, one of those “predictions” isn’t even a genuine theoretical argument for free trade. Maybe it’s true that some “free trade proponents” claimed that the country’s trade deficit would be eliminated. Those people don’t know what they’re talking about. Free trade isn’t a recipe for an elimination of any trade deficit, at least not unless you’re looking at a planning horizon of decades. The trade deficit is actually based in large part on relative differences in savings. The trade deficit will persist for as long as the US saves comparatively little. As long as we keep spending and not saving, that’s going to be reflected in how many things we buy from foreign countries compared to what we send them. I suppose it’s likely that many “free trade proponents” wouldn’t understand that point. The Wall Street Journal opinion page especially will print bloody anything that supports their viewpoint, no matter how false it is. I’m not going to pretend that free-trade types are all fact-based themselves. Even so, the trade balance argument is spurious and always has been.
Second, their claim that American jobs were not created, is completely fatuous nonsense. There is zero reason to focus exclusively on manufacturing. The US economy made plenty of jobs, until the financial crisis and its aftermath. Now, US manufacturing employment was going down, sure. But manufacturing output was going up, as was total employment. Which is to say that the US economy was creating more stuff with fewer people. That’s a fantastic thing. That’s how countries get richer. We don’t use 99% of our population growing food anymore. We can grow more food with fewer people, and all those extra people we have around are free to do other things. The same is true in manufacturing. If US factories can produce more with less, then they’ve improved efficiency, and in the end, there’s more for everybody.
That Reuters news article could not be more wrong in that paragraph.
To repeat myself: That is not the actual argument, at least, not among people who actually look at trade. It does no good to read a Reuters journalist’s misrepresentations. (To be fair, it also does not good to read the Wall Street Journal opinion page’s misrepresentations.)
This is also a misrepresentation, or at the very least it comes from a trade-loving ignoramus. However sincere the belief might be, it doesn’t have anything to do with the actual behavior of trading countries, and the benefits that accrue to both countries regardless of how high-tech the products are.
Let’s go back to our Ricardo (not Smith), and see him through correctly this time.
A US company sells 100 dollar gadgets. Suppose they save 10 dollars a gadget with overseas production. That’s a 10 dollar efficiency gain: they are able to produce the same good by using lower-cost resources. That leaves high-cost resources available to do other things. That’s what an efficiency gain is, and some portion of that ten dollars will be passed to the consumer, since one of the driving forces of this sort of shift for lower production costs is competition from rivals. They’re moving to China, in part, to compete on price.
So far, though we’re just breaking even: even given the 10 dollar efficiency gain, there’s also a 10 dollar cost. In the most visible cases of offshoring, the ones that make the news, that cost is borne most predominantly by the workers who lose their jobs. The company is saving 10 dollars per unit by using Chinese labor instead of US labor.
But here’s the thing that people continually seem to miss: There are always other options available. As has already been mentioned, labor is a resource; just like oil is a resource; just like gold is a resource; just like land is a resource. Those workers are not going to sit still and take the 10 dollar loss (per unit) without a reaction. They will find something else to do. They are free now to create value in a different way.
Maybe that sounds harsh, but it shouldn’t. It’s the anti-trade people who are saying that American workers are too worthless to do anything else. I’m saying, in contrast, that they’re too valuable to be doing work that should be done instead more efficiently elsewhere. American workers are paid so much because they’re so productive. Our entire economy is a demonstration of this. We used to have damn near our entire population farming, but we don’t now. The vast majority of us left the farms, to create value in a different way. Trade is not a different process. People talk about manufacturing like it’s some sort of damn holy grail of the economy, but what’s more fundamental than food? Even important as food is, we have only a handful of people working on creating the stuff that keeps us alive, while the vast majority of us work on doing the other cool things that make modern life so appealing compared to the alternatives.
The same sort of shift can and does happen with manufacturing. Labor is a resource, and people can add value in different ways.
If there is a 10 dollar efficiency gain, then there must by necessity be a less than 10 dollar loss to the workers, as workers try to find alternatives. And the more valuable you believe US workers to be – and I think they’re pretty damn valuable myself – the lower this cost is as they manage to find alternatives. Notice that free trade has already won the day. The benefits already outweigh the costs. And yet we still haven’t counted up all the benefits. We previously calculated the efficiency benefit given the old price of the product, but there is yet another round of benefits to brand new consumers who can now afford to enter the market for the cheaper new product. That gain is icing on the cake. There is no trade-off at all. Those consumers are unequivocally better off, with no one worse off. The standard of living of the US improves as more and more people are able to advantage of what the modern markets have to offer. Even if the stuff comes from furriners, the people who can suddenly afford these new wonders are all better off.
And what of the workers? Well, I’m not a laissez-faire “let them eat grass” kind of guy. The case for efficiency from trade is as solid as it gets, but I still think we should have programs in place to ease the transition, since so much of the cost tends to fall on a relatively small group of people. But we have to remember that that same group of people have benefited countless times from the same process, taking it for granted the whole time. That never seems to be what the trade-haters want to hear. They seem more eager to destroy the engine of prosperity, the very same process that got us all off the farm and working on other productive tasks. I don’t much cotton to that. I would much rather take full advantage of the efficiency gains, and use those efficiency gains to make the transition easier. And as I said, our workers are extremely valuable. Regular working folks have historically always been able to eventually find jobs that pay more than the old jobs that were lost. The historical record of economic growth from trade and technology is absolutely clear. Even our poorest are much, much richer than they used to be. (But that is, I understand, small consolation to someone looking at a pink slip and a big mortgage payment in the here and now. The very long run is never the main thrust of any convincing economic argument.)
This whole process has nothing at all to do with high-tech vs low-tech. It is valid regardless of the mixture of the economies. A rich country can become richer by trading with a poor country, and a rich country can become even richer by trading with another rich country. Whether we’re talking sneakers or gadgets, comparative advantage will always be valid.
This error has already been pointed out, but it’s worth repeating. The US manufacturing sector was growing, not shrinking, until the Great Recession. And even that downturn has ended. US manufacturing is growing yet again. It’s alive and kicking and will continue to be so. To a large extent, trade is now financed with promises from the future – we don’t save enough – but we still make huge amounts of real equipment.
Our problems right now are not related to trade. The unemployment nightmare is a problem of money. But for some stupid ridiculous reason, a lot of people are currently suffering from the effects of preventable downturn, as the whole damn country continually gets distracted by self-defeating irrelevancies while missing the real problem.
For the record, the following are countries the US has a trade deficit with:
Year To Date
Deficit in Deficit in
Millions Millions
Country Name of U.S. $ of U.S. $
China -18,841.52 -42,113.01
Mexico -5,263.16 -10,158.31
Japan -5,239.66 -10,220.31
Germany -3,322.10 -6,442.08
Canada -2,890.11 -6,574.12
Saudi Arabia -2,572.77 -4,166.58
Ireland -2,568.85 -4,486.26
Nigeria -2,527.90 -5,403.99
Venezuela -2,073.21 -4,890.48
Angola -1,039.61 -1,728.95
Year To Date
Surplus in Surplus in
Millions Millions
Country Name of U.S. $ of U.S. $
Hong Kong 2,480.86 4,654.70
Australia 1,372.35 2,545.87
Turkey 1,037.57 1,719.77
United Arab Emirates 986.83 1,760.40
Netherlands 973.74 2,628.12
Brazil 948.19 1,936.33
Belgium 786.28 1,651.44
Singapore 778.03 1,550.68
Egypt 482.23 970.06
South Africa 445.37 146.26
A lot of US manufacturers are desperate for new markets, and with over a billion people China is a plethora of new customers. In many ways the US auto sector has been saved by Chinese demand. Those guys love Buicks.
And when looking at the numbers above, few realize that China also had trade deficits of their own, particularly with Japan, South Korea, and I believe Malaysia. For every $2 worth of stuff they send us, China has to import upwards of $1.60 worth of raw materials and advanced machinery. Their net growth is actually very small, and are really only adding cheap labour to the equation. Other countries are getting rich selling to China, and in turn become rich enough to buy stuff from the US–assuming that the US continues producing things other people want.
I also have to laugh seeing Canada show up on the top list as having a $2.8billion surplus when for so long it was the other way around. Canada sold raw products (like wood and auto parts) to the US and bought back the finished product (like furniture and cars).
Thank you for your posts in this thread. It’s obvious that your quite knowledgable in this area and you’ve certainly corrected some misconceptions that I had. However, I have to wonder about the statistics behind the claim that manufacturing has been growing for decades. The thing is that while the government shows us those statistics, we still have the contrary statistics showing manufacturing jobs draining away. From hereI get “Every month George Bush has been in office, America has lost manufacturing jobs. One in seven has vanished since his inauguration. In 1950, a third of our labor force was in manufacturing. Now, it is 12.5 percent.” I realize that strictly speaking the amount of manufacturing is not exactly proportional to the number of jobs in the sector but I find it hard to imagine the two statistics diverging that much. From the same article:
Note that all of this was written before the bust of 2007. In any case, the decline of American manufacturing is plainly visible. I can go to Walmart (or Target, K-Mart, Kohl’s, TJ Maxx, etc…) and check the tags and see where it’s made. I do so frequently, and stuff made in America is extremely rare. I can visit cities that were ruined by factory shut-downs. There’s no shortage of them here in Virginia and plenty of others almost anywhere I go. So I have to wonder, how does all of this correspond to the statistics from the Federal Reserve showing that manufacturing has been growing? How exactly do they define the manufacturing sector?
The disconnect is that you are talking about manufacturing jobs, and Dr. Love is talking about manufacturing capacity. Put it this way…does the US produce more food today than we did a century ago? Assuming you say yes, doesn’t that mean that US agriculture has grown? Yet how can that be…a hundred years ago a lot more Americans worked in agriculture than work in it today. It used to be that a huge percentage of the population worked in the agriculture or agricultural related fields. Today, it’s a very small percentage. Yet, our output of agricultural goods and services is vastly more today than it was a hundred years ago.
It’s not, though. The decline is simply in the number of people WORKING in manufacturing. And this is due mainly to automation. As for your point about going to Walmart and looking for US goods, the thing is…the US doesn’t make as many low end cheap consumer items anymore. We manufacture other stuff these days. Heavy equipment, for instance (which China buys in large quantities from us, btw). Medical equipment (again, which countries like China buy from the US). That sort of stuff. It’s not stuff you are likely to find at the local Walmart…but some of the machines used to build that stuff you buy at Walmart were built right here in the US as well.
Even there, is it the total number of workers declining or the overall percentage? To use your agricultural example, I could easily believe that today we have a similar number of agriculture workers compared to 100 years ago but back then they made up 40% of the workforce but now just 3% (numbers pulled out of my you-know-where).
Not a chance. At the turn of the century over 90% of Americans were involved in agriculture…today it’s like 1 or 2 percent IIRC. One man today can do the work of hundreds of people (maybe thousands) of farm workers from back then…less than a million people, from memory.
But wait, 60 years ago 0% of Americans were working in the software industry, 0% were working IT, 0% with computer hardware. How is it possible that now a large percentage of Americans currently work in the computer industry? Must be all those fureners
Something else to consider: Even though the number of manufacturing jobs has been declining, US unemployment fell 1992 to 2008. Jobs lost in one sector were obviously made up in another sector at a higher rate.
My own post, while pretty horribly written (sorry…doing this on my iPad), was merely meant to address the difference between absolute numbers of farm workers in the past compared to today.
I’ve heard other people warn about that too. Plus they do not have a social safety net like OECD nations do which provide health care and pensions to the elderly, so the middle aged Chinese will likely have to support their elderly parents. So one wonders if this will result in both a labor shortage combined with the middle generation having to provide for themselves, their kids and their parents and as a result rapid wage inflation that prices them out of the market.
I read the article, but it really just confirmed what I already believe. The Chinese seem to be more competent than we are, and because of that they will overtake us. Even if you bypass the fact that their labor costs are lower (tons of nations have lower labor costs) the Chinese seem to be engaging in an intelligently run long term agenda, and are abusing our short sightedness to help them.
They know we only care about quarterly profits, so they offer US companies high quarterly profits in exchange for sharing technology and access to Chinese markets. Then they steal the technology and set up domestic companies to compete with the US companies, and they win the competition due to all the unfair trade practices. But companies still set up shop because the short term benefits are so high. So you want high quarterly profits and access to Chinese manufacturing facilities and markets in 2011, but by 2015 the Chinese have taken all your technology and created their own companies to compete against you, companies which are heavily subsidized by the state to the point where their finished products cost less than your raw materials.
During the economic collapse that started in 2008 China went all over the world and used its savings to buy raw materials at huge discounts. They bought oil, mines, gas, etc. They cornered the rare earth metals market.
By and large I don’t see how we can compete if they run their economy more competently.
Just to clarify - China didn’t “corner” the rare earths market. The U.S. was mining them in California for decades (at Mount Pleasant, with ~60% of global market share) but closed the site down because China was flooding them onto the market at very low prices that could only be attained by ignoring any and all environmental costs associated with mining the metals. Since prices of various rare earths have risen over the last year, new mining sites are coming on-line in half a dozen countries (and at Mount Pleasant), and in 2-3 years the market will once again be oversupplied. Nothing strategic or even particularly clever about causing massive environmental damage to make a few bucks - if anything, Americans should be grateful the Chinese were willing to do the dirty work.
Sorry for the lengthy post - had done some research for work on rare earths and grew tired of reading hundreds of articles about China’s rare earth strategy of world domination.
