Not The Problem
By Paul Craig Roberts
-- -- 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
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
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
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
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
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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