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 Monday, August 20, 2007

China Is Not the Problem


Paul Craig Roberts

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At a time when even the Wall Street Journal has disappeared into the maw of a huge media conglomerate, the New York Times remains an independent newspaper. But it doesn’t show any independence in reporting or in thought.

The Times issued a mea culpa for letting its reporter, Judith Miller, misinform readers about Iraq, thus helping the neoconservatives set the stage for their invasion. Now the Times’ reporting on Iran seems to be repeating the mistake. After the US commits another senseless act of naked aggression by bombing Iran, will the Times publish another mea culpa?

The Times editorials also serve as conduits for propaganda. On August 13, a Times editorial jumped on China for “irresponsible threats” that threaten free trade. The Times’ editorialists do not understand that the offshoring of American jobs, which the Times mistakenly thinks is free trade, is a far greater threat to America than a reminder from the Chinese, who are tired of US bullying, that China is America’s banker.

Let’s briefly review the “China threat” and then turn to the real problem.

Members of the US government believe, as do many Americans, that the Chinese currency is undervalued relative to the US dollar and that this is the reason for America’s large trade deficit with China. Pressure continues to be applied to China to revalue its currency in order to reduce its trade advantage over goods made in the US.

The pressure put on China is misdirected. The exchange rate is not the main cause of the US trade deficit with China. The costs of labor, regulation and harassment are far lower in China, and US corporations have offshored their production to China in order to benefit from these lower costs. When a company shifts its production from the US to a foreign country, it transforms US GDP into imports. Every time a US company offshores goods and services, it adds to the US trade deficit.

Clearly, it is a mistake for the US government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by US companies in America. The imbalance is the result of US companies producing their goods in China and selling them in America.

Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70% of the goods on Wal-Mart shelves. Mysteriously, members of the US government believe that it would help the US consumer, who is as dependent on imported manufactured goods as he is on imported energy, to be charged higher prices.

China believes that the exchange rate is not the cause of US offshoring and opposes any rapid change in its currency’s value. In a message issued in order to tell the US to ease off the public bullying, China reminded Washington that the US doesn’t hold all the cards.

The NYT editorial expresses the concern that China’s “threat” will cause protectionist US lawmakers to stick on tariffs and start a trade war. “Free trade, free market” economists rush to tell us how bad this would be for US consumers: A tariff would raise the price of consumer goods.

The free market economists don’t tell us that dollar depreciation would have the same effect. Goods made in China would go up 30 percent in price if a 30 percent tariff was placed on them, and the goods would go up 30 percent in price if the value of the Chinese currency rises 30 percent against the dollar.

So, why all the fuss about tariffs?

The fuss about tariffs makes even less sense once one realizes that the purpose of tariffs is to protect domestically produced goods from cheaper imports. However, US tariffs today would be imposed on the offshored production of US firms. In the era of offshoring, corporations are not a constituency for tariffs.

Tariffs would benefit American labor, something that the US Chamber of Commerce, the National Association of Manufacturers, and the Republican Party would strongly oppose. A wage equalization tariff would wipe out much of the advantage of offshoring. Profits would come down, and with lower profits would come lower CEO compensation and shareholder returns.

Obviously, the corporate interests and Wall Street do not want any tariffs.

The NYT and “free trade” economists haven’t caught on, because they mistakenly think that offshoring is trade. In fact, offshoring is labor arbitrage. US labor is simply removed from production functions that produce goods and services for US markets and replaced with foreign labor. No trade is involved. Instead of being produced in America, US brand names sold in America are produced in China.

It is not China’s fault that American corporations have so little regard for their employees and fellow citizens that they destroy their economic opportunities and give them to foreigners instead.

It is paradoxical that everyone is blaming China for the behavior of American firms. What is China supposed to do, close its borders to foreign capital?

When free market economists align, as they have done, with foreigners against American citizens, they destroy their credibility and the future of economic freedom. Recently the Independent Institute, with which I am associated, stressed that free market associations “have defended completely open immigration and free markets in labor,” emphasizing that 500 economists signed the Independent Institute’s Open Letter on Immigration in behalf of open immigration.

Such a policy is satisfying to some in its ideological purity. But what it means in practice is that the Americans, who are displaced in their professional and manufacturing jobs by offshoring and work visas for foreigners, also cannot find work in the unskilled and semi-skilled jobs taken over by illegal immigrants. A free market policy that gives the bird to American labor is not going to win acceptance by the population. Such a policy serves only the owners of capital and its senior managers.

Free market economists will dispute this conclusion. They claim that offshoring and unrestricted immigration provide consumers with cheaper prices in the market place. What the free market economists do not say is that offshoring and unrestricted immigration also provide US citizens with lower incomes, fewer job opportunities, and less satisfying jobs. There is no evidence that consumer prices fall by more than incomes so that US citizens can be said to benefit materially. The psychological experience of a citizen losing his career to a foreigner is alienating.

The free market economists ignore that a country that offshores its production also offshores its jobs. It becomes dependent on goods and services made in foreign countries, but lacks sufficient export earnings with which to pay for them. A country whose workforce is being reallocated, under pressure of offshoring, to domestic services has nothing to trade for its imports. That is why the US trade deficit has exploded to over $800 billion annually.

Among all the countries of the world, only the US can get away with exploding trade deficits. The reason is that the US inherited from Great Britain, exhausted by two world wars, the reserve currency role. To be the reserve currency country means that your currency is the accepted means of payment to settle international accounts. Countries pay their oil import bills in dollars and settle the deficits in their trade accounts in dollars.

The enormous and continuing US deficits are wearing out the US dollar as reserve currency. A time will come when the US cannot pay for the imports, on which it has become ever more dependent, by flooding the world with ever more dollars.

Offshoring and free market ideology are turning the US into a third world country. According to the Bureau of Labor Statistics, one-quarter of all new US jobs created between June 2006 and June 2007 were for waitresses and bartenders. Almost all of the net new US jobs in the 21st century have been in domestic services.

Free market economists simply ignore the facts and proceed with their ideological justifications of open borders, a policy that is rapidly destroying the ladders of upward mobility for the US population.

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 Thursday, August 02, 2007

If the US Strikes the Taliban in PAKISTAN...


(Daniel R. McBride is a writer and wargame designer)

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After recently reading an excellent article in Asia Times by Syed Saleem Shahzad (“Bring 'em on: Militants in Pakistan await US” ) concerning the very real possibility that Pakistan is on the verge of joining the widening front-lines of the Middle Eastern and Asian war with the U.S. and its proxies, I did some more reading on the Pashtuns.

From my own travels in the area years ago, I can, of course, affirm the very strong militant independence of the people in western Pakistan and Afghanistan.

The Pashtuns are the largest ethnic/tribal group without a homeland (numbering at least 40 million or so). The British Durand Line drawn by British colonialists to demarcate Pakistan and Afghanistan goes right through the center of Pashtun territories (and is therefore not terribly respected by the Pashtuns — something the Bush administration can’t seem to figure out in calling repeatedly for Musharraf to “seal” the border).

(The Pashtun) consider their Greater Pashtun homeland to extend from within Afghanistan right to the Indus river in Pakistan.

Musharraf is desperate to remove the prospect of the Americans striking targets with bombs and missiles within western Pakistan (read Pashtunistan) where the Pakistani government has almost no writ.

An attack there against supposed Al Qaeda or Taliban “high-value targets” would boost Pashtun militant forces fighting NATO troops in Afghanistan, and almost certainly trigger a much vaster Pashtun uprising within Pakistan, rendering the entire area even more ungovernable for Islamabad than it is right now, possibly right to the Indus river.

Even worse, in addition to the Pashtun reaction, a broader Islamist reaction within Pakistan could trigger a larger regional war involving nuclear weapons.

Many within the Pakistani military, right up to top generals, are Islamists, or very much sympathetic thereto, and the threat of a coup is very real.

The Bush/Cheney regime has precious few options left globally as they are distrusted everywhere with good reason, but they still have a last card to play in their global game of RISK—a rain of bombs and missiles from the air.

As they don't really have any spare troops for anything above small Special Forces insertions, tempting air strikes has to be the height of folly.

In any case,

  • if they don't attack the militant centers in western Pakistan they will lose the war in Afghanistan in the near future;

  • if they do attack, they will probably lose it even faster.

  • The opportunity to make good as an occupier by the U.S. and NATO in Afghanistan is long-gone.

    Air strikes, if sent in, should be viewed within the context of a failed war, as in Nixon’s Christmas bombing of Vietnam 1972.

    If it occurs along with the predicted Cheney attack on Iran in August, would be Islamic regimes or anarchic regions at war with the U.S., NATO, and probably Israel, from Pakistan to Hezbollah in southern Lebanon.

    The rise of a militant "Caliphate" thereby—another bogeyman used to scare Americans by Bush/Cheney—becomes a self-fulfilling prophecy.

    Add another jolting terrorist attack in the U.S. "homeland" and the senatorial Gauleiters will ditch all resistance to the Bush regime and applaud or remain silent as a martial law regime is instituted.

    The "Enabling Act" has already been drafted and passed allowing Bush to do just that with no chance of avoiding it other than impeachment before it happens, or an American military putsch to remove him at the last minute.

    Sound far-fetched?

    Bush’s Martial Law Act of 2007 modified the Insurrection Act. Section 333 states that in the event of
    "….major public emergencies; interference with State and Federal law, the President may employ the armed forces, including the National Guard in Federal service, to restore public order and enforce the laws of the United States when, as a result of a natural disaster, epidemic, or other serious public health emergency, terrorist attack or incident, or other condition in any State or possession of the United States, the President determines that domestic violence has occurred to such an extent that the constituted authorities of the State or possession are incapable of (’refuse’ or ‘fail’ in) maintaining public order, ‘in order to suppress, in any State, any.
    Beyond U.S. borders, the prospects are even grimmer.

    An attack on Iran would "logically" have to involve small nukes to get at underground Iranian nuclear facilities. This would start WW III in the sense of an unpredictable, drawing in other countries into the maelstrom rapidly, even Russia and China in particular, and Syria certainly as it has a defense pact with Iran.

    Israel would likely be involved in the air attacks (perhaps even leading them to give the US an excuse).

    The bogus "War on Terror" launched by this sociopath in Washington remains the most spectacular public relations disaster for a government since the Germans torched Louvain in late August 1914.

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