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 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 (US Gross Domestic Product) 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
Many believe the solution is to force China to revalue its
currency, thereby driving up the prices of 70 percent of the goods on Wal-Mart
Mysteriously, members of the US government believe that it
would help US consumers, who are as dependent on imported manufactured goods as
they are 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 per
cent in price if a 30 per cent tariff was placed on them, and the goods would
go up 30 percent in price if the value of the Chinese currency rises 30 per
cent 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
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 the fact 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
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.
Craig Roberts [email him] was Assistant Secretary of the Treasury in the
Reagan Administration. He is the author of Supply-Side
Revolution : An Insider's Account of Policymaking in Washington; Alienation
and the Soviet Economy and Meltdown:
Inside the Soviet Economy, and is the
co-author with Lawrence M. Stratton of The
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for Peter
Brimelow�s Forbes Magazine interview with Roberts about the recent epidemic of