Tuesday, July 10, 2012

How globalization destroys Western prosperity

Liberal economists committed to the cause of globalization reassure those concerned about cheap Third World imports destroying jobs in the West with some vague reference to David Ricardo's principle of comparative advantage, which so they imply, proves that unrestricted international trade is always beneficial to all parties.

Thus Joseph Stiglitz, in his latest pot-boiler, makes a hand-waving reference to "China's comparative advantage," while Jeff Rubin assures his readers that concerning the invariable benefit of free trade, Ricardo "nailed it."

But what the shills for globalization fail to mention is that comparative advantage, as Ricardo defined it, presupposes immobility of capital, a condition that certainly does not apply in a globalized economy, where international corporations readily move capital and technology from high- to low-wage countries, thus robbing the latter of the benefit of the capital and technical expertise accumulated through the sweat and toil of generations.

But in any case, the principle of comparative advantage can only apply where there is two-way trade. But today, in its trade with the Third World, the West imports massively greater quantities of goods than it exports, the resultant deficits being covered by loans.

For example, in 2011, the US imported from China, alone, goods valued at $399 billion while selling to China goods valued at only $104 billion (Source), the difference being largely covered by Bank of China investment in pieces of paper, aka US Treasury bills.

The 27 nations of the EU are also buying their brain out in China, running up a trade deficit of around $200 billion a year (!56 billion Euros in 2010, Source).

No wonder Vladimir Putin has announced the decline of the West.

US GDP per capita is $48,000 per year. Applying that figure to the EU also, the half-trillion-dollar annual US/EU trade deficit with China represents the loss of over six million jobs, assuming that the imported goods could be produced at home for the same price that they are sold for in China.

But firms such as Dell, Microsoft, Hewlett Packard, Apple, Walmart go to the trouble of outsourcing to China, Brazil, Indonesia and Bangladesh only because it greatly lowers their cost.

How much it lowers their costs overall is hard to estimate. But according to the Wall Street Journal, a pair of American-made jeans that retail for $300 would retail for only $40 if made in China.

So the Western trade deficit with the the Third World displaces a disproportionate amount of local output. And whether the overall displacement ratio is two, three, six or eight, it is certain that cheap imports from the China and the rest of the Third World explain why, despite mass legal and illegal immigration plus natural population increase, the US has seen no gains in employment throughout the entire Obama presidency.

Likewise, the trade deficit with the Third World must explain much of the economic stress in Greece, Italy, Spain and Portugal, as well as the resumption of recession in Britain, a nation once the Workshop of the World, but now able to export little other than financial derivatives, marmalade and biscuits.

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