Trade Deficits: Made in America!

Reason contributor Jon Utley takes on protectionism in the pages of the American Conservative (a hotbed of Smoot-Hawleyism!) and argues that trade deficits are among the things that are still made in America. Writes Utley,

The consequences of protectionism would be far more damaging to America than critics of free trade assume. Most of our trade deficits are the result of our own policies. Protectionism is a two-way street and would injure many American companies without bringing back large numbers of factory jobs—indeed, half of the profits for U.S. firms listed on the S&P 500 index are earned overseas.

American labor has always in the past competed effectively against low-wage foreign competition. Germany today has higher manufacturing wages than those in the United States, yet it has a very favorable trade balance. Obviously there must be other factors responsible for American job losses beside China’s lower wages.

He goes on to list seven reasons that focusing on trade imbalances and, especially, China's growing industrial economy, miss larger points. Here's a snippet:

Much manufacturing in China is done for American companies, which gain most of the profits. For example, the Apple iPhone adds $2 billion to the trade deficit with China, although it is entirely designed and owned by Americans and is made of parts imported from Europe and other Asian nations. China’s actual input is $6.50 out of the $178 wholesale cost, according to a Wall Street Journal analysis, “Not Really Made in China.” It explains that the actual trade deficit with China is about half of what the statistics show.

The same consideration applies to many other imports—sneakers, for example. A pair of Nike shoes may cost $3 to produce, which goes to China. The rest of the retail price is accounted for by advertising, shipping, design, raw materials, and profits, most of which revert to Americans.

Whole thing here.

Reason.com defends free trade, which, along with free movement, is about the best-anti-poverty program ever devised.

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  • Old Mexican||

    Germany today has higher manufacturing wages than those in the United States, yet it has a very favorable trade balance.


    Uh, you were doing well up to this point. Having a "favorable" trade balance only indicates protectionist schemes and higher consumer prices, not the other way around.

    Much manufacturing in China is done for American companies, which gain most of the profits.


    What? Companies, gaining most of the profits? Why, the bastards!

    Next thing you'll know, they'll be passing the savings on to you! Those evil corporashions!

  • JoshINHB||

    Having a "favorable" trade balance only indicates protectionist schemes and higher consumer prices, not the other way around.

    And what does an American borrowing $100 to buy $3 shoes represent?

    Doesn't free trade theory predict that Americans would trade $3 of products for those shoes?

  • Zeb||

    Only if it is some weird kind of Marxist free-trade theory where the only value in the shoes is the labor put into them.

  • Old Mexican||

    Re: JoshINHB,

    Doesn't free trade theory predict that Americans would trade $3 of products for those shoes?


    No. Do you trade $499.99 worth of goods with Best Buy for the 32" TV?

    IDIOT!!!!!!!!!!!

  • JoshINHB||

    So a 3,000% markup is a part of "free trade".

    Even the KOS commies wouldn't make an assertion like that.

  • Old Mexican||

    Re: JoshINHB,

    So a 3,000% markup is a part of "free trade".


    Go and read a book on economics and leave the adult conversation to us, the adults.

    Markups are wishes, that's it. It's the buyer that sets the price, not the seller. Idiot.

  • JoshINHB||

    Really,

    So why isn't anyone manufacture importing the same shoes from China and selling them for $30.

    Competition and all.

  • Old Mexican||

    Re: JoshINHB,

    So why isn't anyone manufacture [sic] importing [sic] the same shoes from China and selling them for $30.


    Please write in complete sentences: subject and predicate; noun, verb, adjectives and/or adverbs.

    I have NO idea what is it that you trying to ask.

  • Sam Grove||

    Do you really think the $3 dollars is the only cost of selling them to Americans?

    Explain how this is possible.

  • Slap the Enlightened!||

    Well, you have consider the type of manufacturing. What Germany is doing is manufacturing the specialized precision equipment used for manufacturing consumer goods, which it then sells to China. China then uses that equipment for manufacturing the consumer goods it sells to the rest of the world, including Germany. Simply saying you have a favorable trade balance doesn't tell you the whole story. It's not like China and Germany are selling each other widgets.

  • Geotpf||

    Yes, they make high-tech specialized machinery used to make other stuff. They also make high-end luxury cars, which are end user consumer goods themselves. GM's and Ford's overseas sales of Cadillacs and Lincolns are laughable, in contrast.

  • Montani Semper Liberi||

    One of the commentators over at Cafe Hayek had the best description of a trade deficit I've read. It went something like this:

    I've sold my house, my car, my furniture, my clothes and everything except this smart phone that I'm using to post this message. I'm sleeping naked on a park bench, but I feel great about how wealthy I am with my huge trade surplus.

  • Fist of Etiquette||

    So what you're saying is that my Nikes should only cost me $3 plus material? We need to do something about that trade deficit with the bringers of overhead.

  • creech||

    What is fascinating is that an automobile tire made in America can be had for less than the pair of Nikes made abroad. Not only is there more raw material in the tire, but more designing and the huge cost of product liability insurance that Nike doesn't face.

  • ||

    product liability insurance that Nike doesn't face.

    The NBA really dropped the ball on that one.

  • DNS||

    The NBA really dropped the ball on that one.

    When will the WNBA's finally descend?

  • Geotpf||

    Generic versions of tennis shoes are available for not much more than that at a wholesale level (that is, before retailer mark up).

    The rest of the cost is mostly for the brand name and advertising costs to prop up said brand name.

  • Old Mexican||

    American labor has always in the past competed effectively against low-wage foreign competition.


    Comparative advantage, anyone? It's not competition, you fucking moron! You're not competing against a car mechanic one on one, and neither are American workers against tennis shoe makers or plastic cup manufacturers.

  • JoshINHB||

    What's the comparative advantage of a fiat currency that the world wants, how long will it last?

  • Old Mexican||

    Re: JoshINHB,

    What's the comparative advantage of a fiat currency [sic][....]


    Go to your local library and get a couple of books on economics - even the Samuelson book is good enough for starters, and then come back.

  • JoshINHB||

    Explain to me how a twenty year persistent trade deficit comports with classic free trade theory.

    If you're going to claim the reverse flow is investment, then where is that investment?

  • Old Mexican||

    Re: JoshINHB,

    Explain to me how a twenty year persistent trade deficit comports with classic free trade theory.


    To YOU? Why would I?

    And there's no such a thing as a 'trade deficit.'

    If you're going to claim the reverse flow is investment, then where is that investment?


    "Reverse flow"? What the FUCK are you talking about? What does that have to do with trade?

  • JoshINHB||

    And there's no such a thing as a 'trade deficit.'

    Of course there is not.

    And I though you were a semi serious person.

  • Old Mexican||

    Re: JoshINHB,

    And I though you were a semi serious person.


    I never took you for one, semi-serious or otherwise.

    There is NO such thing as a "trade deficit", for two reason:

    1) It is NOT countries which trade, it's people, ALWAYS (only humans act), and
    2) Trade is ALWAYS mutually profitable. A person that trades obtained something he valued more for something he valued less. There's no "deficit" involved at all.

    You're simply applying the macroeconomic concept of "trade balance" but it is nothing more than a misunderstanding of how trade works. You cannot apply simple accounting to explain an ECONOMIC phenomenon: that's the pseudo-economist mistake.

  • JoshINHB||

    Great theory, unfortunately states exist in the real world and exert great influence of the the interactions of individuals.

    Your theories might mplay out the way you imagin in an anarcho-capitalist fantasy land (well they wouldn't but that's another topic) but they do not in this world.

  • Old Mexican||

    Re: JoshINHB,

    Great theory, unfortunately states exist in the real world and exert great influence of the the interactions of individuals.


    Like how much influence, Josh? Enough to make people not make any choices by themselves? Is the State God?

    And what does that red herring have to do with the concept of trade? Trade is the exchange of goods in a mutually profitable way - that's the CONCEPT. That's REALITY.

    Only PEOPLE act, as each person has a brain and has reason. That's REALITY. Saying that States have influence over people is no better than saying rain has influence, or cold, or colors. It is STILL PEOPLE that make the decisions.

    Your theories might mplay out the way you imagin in an anarcho-capitalist fantasy land (well they wouldn't but that's another topic) but they do not in this world.


    Actually they DO work in the real world, Josh, as people are ACTIVELY trading across oceans, with no government oversight (not counting Customs), making deals on quantity and price. ALL THE TIME. Millions of times a year, all with a contract and a handshake. That's REALITY.

  • JoshINHB||

    Like how much influence, Josh? Enough to make people not make any choices by themselves?

    Well gosh OM, I guess the states that intervene in trade don't put any restrictions up and don't manipulate currency exchange rates.

    I can't tell if your a useful idiot for the financial sector or whether you really believe this crap.

    The fact that you instantly throw out ad hominems when your precious religious beliefs are challenged implies the latter.

  • Old Mexican||

    Re: JohnINHB,

    Well gosh OM, I guess the states that intervene in trade don't put any restrictions up and don't manipulate currency exchange rates.


    WHAT THE FUCK does this have to do with the fact that it is PEOPLE that trade, moron? Why are you throwing these red herrings around? WHO CARES ABOUT THE EXCHANGE RATE?

    I can't tell if your a useful idiot for the financial sector or whether you really believe this crap.


    I can't tell if you only have half a brain. Maybe I am half wrong - in the optimist side.

    The fact that you instantly throw out ad hominems when your precious religious beliefs are challenged implies the latter.


    You haven't challenged anything! You are jsut throwing red herrings around!

    What the FUCK does the fact that political entities exist have to do with the concept of TRADE I posited?

  • JoshINHB||

    What the FUCK does the fact that political entities exist have to do with the concept of TRADE I posited?

    Are you really this obtuse?

    Maybe your name should be Ivory Tower Douchebag.

  • pmains||

    Let's agree that states exert influence. Would you like to connect that idea to OM's comment, or should we ignore you as not even being a "semi-serious" person?

  • JoshINHB||

    How can you describe a situation as free trade when the states on both sides of the transaction are intervening to twist it to their own purposes.

    Purists like OM ignore that and the fact that this distorted trade is enabling the growth of state power.

  • Old Mexican||

    Re: JoshINHB,

    How can you describe a situation as free trade when the states on both sides of the transaction are intervening to twist it to their own purposes.


    Who said that such is free trade? You asked to have the so-called "trade deficit" explained, and I explained to you that trade deficits don't exist: they're an economic oxymoron. Why are you now bringing up free trade?

  • Sam Grove||

    Do you realize most businesses operate with a running account deficit with their suppliers?

    They aren't in debt because of that, it's just much more convenient to do business that way.

  • JoshINHB||

    Are your referring to accounts payable?

    Because they most certainly are a liability, aka 'a debt' in common usage.

    They can be sold to a third party, or forcibly collected through civil court action and often the vendor charges interest on an open delinquent balance.

  • ||

    I always ask this question and never get an answer, lets say that all the countries of the world suddenly realise that the path to wealth is to set up protectionism and make sure they export more than import ? One does not have to be an economist to see the flaw here.

  • ||

    Clearly the excess exports are sold to interstellar trading partners. Duh.

  • robc||

    There is no such thing as a trade imbalance (other than very short term). For example, during our trade deficits with Japan in the 80s, we were exporting Hawaiian golf courses and NYC skyscrapers. For some reason those werent counted in our export numbers though.

  • sarcasmic||

    This trade balance I have with the grocery store is unsustainable!
    I give them money, they give me groceries, but they never buy anything from me!
    It is completely one sided!
    That's it. I'm not buying anything from the grocery store until they buy something from me.
    From now on I'm going to quit my job and grow all my own food. I'll live in poverty rather than have unbalanced trade with the grocery store.

    That'll show 'em!

  • Fiscal Meth||

    They do buy something from you. They buy your dollars, and you choose a particular grocery store because they are willing to pay a higher price for them(give you more groceries per dollar) than anyone else.

  • sarcasmic||

    They never give me any money!

    The trade is not balanced!

    Just like when we buy more from China than they buy from us, the trade is imbalanced!

    They have more dollars and we have more stuff!

    The grocery has more dollars and I have more stuff!

    That's the road to poverty!

    I need to be self sufficient!

    I'll give dollars to no one!

    Then I'll be rich!

  • Fiscal Meth||

    Oh shit. I never looked at it that way. Fuck grocery stores.

    PS: Now that self sufficiency is my goal, I'm gonna need some gardening tips. Can you make fertilizer out of dollar bills? How do I make sure not to develop a trade imbalance with my garden? I'm afraid I will be giving it all my fertilizer and it won't give me any fertilizer back and I'll just wind up with a buch of vegetables and no fertilizer left to trade with any other gardens. That's assuming plants will even be around for much longer. You see, because of a process called photosynthesis, plants have a huge and unsustainable trade deficit with the sun.

  • sarcasmic||

    You see, because of a process called photosynthesis, plants have a huge and unsustainable trade deficit with the sun.

    Now you understand. The sun is an unfair trading partner. It never buys anything from us.

    Shutter your windows! Boycott the sun!

  • Fiscal Meth||

    Wow, bold stance! Count me in. Sustaining myself by gardening all my own food while boycotting the sun will certainly be difficult, but it will be a small price to pay in order to pay tribute to the Platonic idea of balanced trade.

  • sarcasmic||

    You can always live off mushrooms.

  • JoshINHB||

    They do buy something from you. They buy your dollar...

    And it would still be free trade if I just printed my own dollars.

  • Old Mexican||

    Re: JoshINHB,

    And it would still be free trade if I just printed my own dollars.


    If that is what someone's willing to trade, so be it.

  • sarcasmic||

    Do your dollars have value?

  • JoshINHB||

    They do if you can't tell the difference.

  • Old Mexican||

    Re: JoshINHB,

    They do if you can't tell the difference.


    That's what the Fed says as well.

  • JoshINHB||

    That's what the Fed says as well.

    And you write apologetics for their distortions, you're just to dumb to realize that that is what you are doing.

  • Old Mexican||

    Re: JoshINHB,

    And you write apologetics for their distortions, you're just to dumb to realize that that is what you are doing.


    Ha ha ha ha!!!

    Gosh, are you an idiot.

    http://www.lewrockwell.com/paul/paul504.html

  • JoshINHB||

    I've been talking to Ron Paul.

    Wow,

    You're as big a dumb fuck as people say, if that's true.

  • JoshINHB||

    Gee, you're missing the role that monetary expansion plays in enabling a perpetual tade deficit. The role that that deficit plays in enabling productivity destroying regulations. The fact that monetary expansion and regulations prevents capital formation within the US.

    So yeah, you're a useful idiot.

    But what the hell, who gives a fuck about about America anyway.

    Isn't that the anarcho-capitalist creed?

  • sarcasmic||

    I don't think you know what value means.

  • robc||

    For some reason, when on the gold standard, the balance of every transaction is more obvious.

  • ||

    I know a guy that has an anti-biotic resistant case of Smoot-Hawleyism. They gave the poor guy less than a week to trade freely.

  • Mango Punch||

    Friday's XKCD was poking fun at online libertarians and our awesome political box chart, pretty funny (much better than our friday funnies).

  • kinnath||

    You're late; twice even.

  • The Chinese||

    Why is a trade surplus good for you humans but not good for us humans?

  • Old Mexican||

    Re: The Chinese,

    Why is a trade surplus good for you humans but not good for us humans?


    You see, because it's better when a country (the arbitrary political line in the earth) keeps the money, but sends out stuff to sell... and, uh, the others to buy it... more of it and... uh... not to buy their stuff... but then how do they buy our stuff... but it's better when we, uh, no them are... uh...

    Stop asking these questions and finish your fiat currency!

  • Monty||

    2nd Interviewer: What did he do?

    The Chinese: He used... sarcasm. He knew all the tricks: dramatic irony, metaphor, bathos, puns, parody, litotes and... satire. He was vicious.

  • Old Mexican||

    Re: Monty,

    The Chinese: He used... sarcasm.
    So... Did... I.
  • Peggy Farabaugh||

    Great post, Nick. It's doesn't have to be an all or nothing response to the call to buy goods that are Made in America though. Certainly we will and should continue to buy imported goods when it makes sense to do so. But currently it DOES make sense to buy many types of American goods. Unfortunately consumers are unaware of this. My industry is furniture. Over 90% of the furniture you see in stores today is imported and it's much cheaper than American made furniture. But the quality is awful, the finishes are sometimes toxic and the furniture is out on the curbside in an average of 7 years. Those researching American made furniture will find it is non-toxic and is often given a lifetime guarantee-- which makes it a much better value over the long run than imported furniture. Information like that shared in the ABC News Made in America Series helps consumers realize that there are plenty of American made goods that make economic sense for their families as well as their compatriots.

    peggy at
    http://VermontWoodsStudios.com

  • Old Mexican||

    Re: Peggy Farabaugh,

    But the quality is awful, the finishes are sometimes toxic[...]


    What finishes are toxic?

    Information like that shared in the ABC News Made in America Series helps consumers realize that there are plenty of American made goods that make economic sense for their families as well as their compatriots.


    Yet somehow people ignore their better choices for the "toxic" furniture - why would that be???

    Eeconomics - how does that work, again?

  • Geotpf||

    Well, one could argue that this is a situation where one side of the transaction is ignornat of some of the specifics of the transaction; that is, the consumer doesn't know that the furniture is "toxic". Assuming it actually is, of course (definitely a [citation needed] here).

    In general, I think a lot of "Made in China" stuff is 80% as good for 50% of the price. So, yeah, it sells well.

  • ||

    leverage our huge consumer market by imposing tariffs on all imports then use the monies to retire our debt.

  • Old Mexican||

    Re: OhioOrrin,

    leverage our huge consumer market by imposing tariffs on all imports then use the monies to retire our debt.


    Ha ha ha!!! That's funny!

    Oh, my God! You're serious....

    HA HA HA HA HA HA HA HA HA HA!!!!!!!!!

    http://www.economist.com/node/12798595

  • ||

    Now, now. Tariffs are actually regressive taxes. I'm interested in OO's scheme to retire the debt on the backs of the poor.

  • Old Mexican||

    "A planet where marxoid statist fucks are logically consistent?"

  • sarcasmic||

    Except that by making imports more expensive, people will have less money with which to purchase them. The huge consumer market will shrink and everything becomes more expensive. Foreign nations will likely respond to our tariffs by imposing tariffs of their own, causing our exports to shrink. So not only will imports be more expensive, but there will be fewer people employed in creating goods for export. If history is any guide our government will not use that revenue to retire debt, rather they will use the economic crises created by the trade war to incur even more debt.

    You've got to think past step one.

  • ||

    Personally I would want to run a business that leverages the largest market, the entire world. Remember protectianism works both ways, if America sets up all kinds of barriers then people from other places will be less likely to buy their stuff.

  • ||

    leverage our huge consumer market by imposing tariffs on all imports then use the monies to retire our debt.

    You're no libertarian!

  • joemoe||

    Why is it ABC World News can run a "Made in America" series and catch no flack from the politically correct crowd yet those who want to "protect the border" are seen as xenophobic?

  • robc||

    I cant answer for the PC crowd, but I can for us:

    Use of force.

    Made in America doesnt suggest forcing people to buy American, it encourages it. We can then choose to or not.

    What is so fucking hard to understand about libertarianism?

  • joemoe||

    Ok, here's another question. Why can those opposed to H-1B visa workers catch no flack but those who want to "protect the border" are seen as xenophobic.

  • Old Mexican||

    It's "flak", not "flack".

    And those opposed to more H-1B visas are xenophobic and economics-illiterate fools. Happy?

  • joemoe||

    Ok, thanks. Thanks for the correction of "flack," too. No need for the hostility. Just want to know why opposition to foreign workers south of the border gets a negative reception but opposition to foreign goods and highly skilled workers gets a positive reception.

  • pmains||

    By whom?

  • joemoe||

  • joemoe||

  • ||

    Apparently you haven't been around here when people have opposed H-1B visas!

    Opposing high skilled immigration is truly one of the most indefensible positions that can be taken, and those who take it here get a lot of flak.

  • Slap the Enlightened!||

    Bullshit. "Highly skilled" and "rare and valuble skills" are not necessarily the same thing. Considering we already have a surplus supply of Ph.D level scientists in this country relative to the demand for their services, what's the point in importing more of them?

    If you're name is Einstein, there may be a case for allowing you entry. Short of that, the domestic supply is more than adequate.

  • Old Mexican||

    Re: Slap the Enlightened!

    Short of that, the domestic supply is more than adequate.

    "More than adequate" for whom?
  • ||

    First, they are not imported: they willingly migrate.

    Second, they are so far from receiving welfare -- as are the 'Mericans whose God-given jobs they are taking -- that they are always a net benefit to the economy as well as the government budget.

    Third, jobs are not scarce. If a PhD is not doing PhD level work, he is still doing work that he is more apt to do than someone who does not have the capabilities to get a PhD.

    Fourth, freedom is better than oppression -- regardless of where one was born. Is that really a hard concept to grasp?

  • ||

    In truth, there is a flak and a flack.

    Men can attest the word 'flak' to 1938, from the German Flak, condensed from Fliegerabwehrkanone, meaning "pilot warding-off cannon." The use of "anti-aircraft fire" happened in 1940; and the metaphoric use of "criticism" entered into American English around 1963.

    Flack entered American English in 1945 and means
    "publicity or press agent." The word derives from Gene Flack, an advertising executive in the U.S. during the 1940s.

  • Old Mexican||

    There's also aflac, which is an all-encompassing insurance package.

  • Robert Barrows||

    If you want even more perspective on the state of manufacturing in America, you might want to take a look at a poem I wrote called "It used to be made in America." You can see it online at www.itusedtobemadeinamerica.com.
    The poem is about the loss of jobs and the consequences of the outsourcing of jobs to other countries.
    The power to reverse this trend lies with the people! If people decide, even for one day, to
    do something like boycott companies that import so much of their goods, you will see how quickly the major retail chains and major manufacturers will start changing their buying patterns and manufacturing policies to offer more goods that are made in America.

    For additional information, please give me a call at 650-344-1951.
    Sincerely,
    Robert Barrows
    R.M. Barrows, Inc. Advertising & Public Relations
    Burlingame, California
    www.barrows.com

  • Equipment Shipping||

    Seriously excellent entry to study on.! I am actually intrigued with this post. Searching forward for more information.

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