https://www.oftwominds.com/blogmar18/game-trade3-18.html
By: Charles Hugh Smith
There is No “Free Trade”–There Is Only the Darwinian Game of Trade
March 12, 2018
Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.
Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:
1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.
2. Extract foreign resources at low prices.
3. Deny geopolitical rivals access to these resources.
4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources, a dynamic I explained last week in Forget “Free Trade”–It’s All About Capital Flows.
All the blather about “free trade” is window dressing and propaganda. Nobody believes in risking completely free trade; to do so would be to open the doors to foreign domination of key resources, assets and markets.
Trade is all about securing advantages in a Darwinian struggle to achieve or maintain dominance. As I pointed out back in 2005, the savings accrued by consumers due to opening trade with China were estimated at $100 billion over 27 years (1978 to 2005), while corporate profits expanded by trillions of dollars.
China Trade Surplus: Gusher Profits for U.S. Corporations (August 13, 2005)
In other words, consumers got a nickel of savings while corporations banked a dollar of pure profit as sticker prices barely budged while input costs plummeted. Corporations pocketed the difference, not consumers.
As longtime correspondent Chad D. noted in response to my essay on capital flows, restricting trade may be one of the few ways smaller nations have to avoid their resources and assets being swallowed up by mobile capital flowing out of nations with virtually unlimited credit (the US, the EU, China and Japan).
Protecting fragile domestic industries with tariffs has a long history, including in the US, but the real action isn’t in tariffs: it’s in the bureaucratic tools to limit trade and the soft and hard power plays that secure cheap resources while denying access to those resources to geopolitical rivals.
The bureaucratic means of restricting imports have been raised to an art in Japan and other export-dependent nations: there may not be any visible tariffs, just bureaucratic sinkholes that tie up imports in red tape.
Then there’s currency manipulation, for example, China’s peg to the US dollar. What’s the “free market” price of Chinese goods in the US? Nobody knows because the peg protects China from its own currency being too strong or too weak to benefit its export-dependent economy.
Those bleating about “free trade” are simply pushing a Darwinian strategy that benefits them above everyone else. US corporate profits have quadrupled since China entered the WTO; is this mere coincidence? No: global corporations arbitraged labor, credit, taxes, environmental/regulatory and currency inputs to dramatically lower their costs (and the quality of the goods they sold credit-dependent consumers) and thus boost profits four-fold in a mere 15 years while tossing the hapless consumers a few nickels of “lower prices always” (and lower quality always, too).
The Neoliberal Agenda trumpets “free trade” because “free trade” is a cover for “free capital flows.” Once capital is free to flow from central-bank fueled global corporations, no domestic bidder can outbid foreign mobile capital, as those closest to the central bank credit spigots can borrow essentially unlimited sums at near-zero rates–an unmatched advantage when it comes to snapping up resources and assets.
If we ask cui bono, to whose benefit?, we find the consumer has received shoddy goods and paltry discounts from “free trade,” while corporations, banks and financiers have benefited enormously.
Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows: the winners are few and the losers are many. Tariffs will not solve the larger problems of reduced employment, stagnant wages and rising income inequality. To make a dent in those issues, we’ll need to tackle central bank and central-state policies that have pushed financial speculation to supremacy over the productive economy.
Smith, with his keen engineer’s eye, neatly summarizes the systemic impact of the current “free (cough, cough) trade” regime.
He unfortunately gives no consideration to comparative and differential advantage nor does he consider the obvious fact that many under-developed countries must import capital to build a domestic infrastructure and capital stock. This is too bad, because it undermines his argument, even though he gets it right in the main.
“many under-developed countries must import capital to build a domestic infrastructure and capital stock.” Between remittances, trade deficits and drug profits, we are Mexico’s economy. They’ve done wonderful things with our money (NOT), it’s one of the most corrupt and dangerous places on Earth. Even the longtime resort areas are becoming State Department warning zones. How long do you think we should keep sending them our money? Can’t we say that the experiment failed at some point. When we started this project, Mexico was not known as a violent place.
Like water that seeks the lowest possible level unless something prevents it so it remains at a higher elevation, so wages and living standards seek the lowest possible level without tariffs to prevent them ending up there.
The laws of physics apply to more than just physical matter, they’re the manifestation of universal principles.
We can learn from them or try to oppose and alter them, but they will still prevail in the end.
We have never had “free trade”. Foreign governments place trade restrictions on U S products while freely shipping us their products. The “Value Added Taxes” that many countries impose are a way for foreign governments to “protect” their industries. Most people are unaware that every country with a “value added tax” system “rebates” the “value added tax” on exports while slapping the “value added tax” on imports.
For an economy to truly prosper, consumers (employees, workers) have to be part of the equation. What good are “cheap goods” when you have outsourced (offshored) your manufacturing capabilities? What is the difference between making 5 million dollars and keeping your USA-based workforce employed (and able to purchase your goods) and offshoring (and getting rid of your US workers) for another mere million in “profits”? Message to all you wall street types and banksters. UNEMPLOYED AMERICANS DO NOT MAKE GOOD CONSUMERS.
Wall street types praise Wal-Mart for “keeping wages low and corporate profits high” while criticizing companies such as Costco for paying their employees decent wages (and still prospering handsomely).
The same thing happened in the last century when Henry Ford paid his employees $5.00 per day (when the average wage was $1.50 per day). Of course, the same wall street and banksters howled that Henry Ford would destroy capitalism by paying his workers a decent wage. The OPPOSITE happened. Henry Ford CREATED a good portion of the “middle class” (of which the wall street types and banksters are presently destroying). Henry Ford (among others) KNEW who was behind wall street and the banksters, published his findings and was roundly (and unjustly) criticized for speaking the TRUTH. Radio priest Father Coughlin had the same message and was muzzled by the Catholic Church…WHY??
We are at a “race to the bottom”. . .
Business “schools”, wall street, banksters and politicians–there are many more of us than there are of you . . .
There is a commensurate movement among the Fortune 500 corps to “offshore” most of the professional staff and only hire management levels and above in the US, who have to manage the overseas staff or vendor (if completely outsourced).
This is extremely short sighted, because “managers” need to have spent some time in their career actually doing the work to learn the skills they will need to manage. If everyone uses this strategy, there are no opportunities for anyone to gain the experience required to be an effective manager! So much for “career growth from within” or needing to develop employees.
Confessions of an Economic Hit Man….
Free Trade is just a phrase that means government advantage for its advocates. What it boils down to is this. American workers make shoes that cost $100 to make. We pay $120. Chinese workers make the same shoes for $50 . We pay $110 . The importer gets the $60 and the American workers be damned.