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The morality of trade with China

Before heading off to recess, the House of Representatives overwhelmingly passed a bill authorizing imposing tariffs on Chinese goods unless China stops manipulating its currency. The House's action has sent off a storm of warnings in The Post and others about the dangers of taking action against China at this juncture. In his latest Post column, Matt Miller even went so far as to question who is more progressive: labor groups seeking to protect American workers or American corporations who creating jobs for millions of Chinese workers.

It is a provocative assertion, but one that is wrong both on the particulars and on the larger "moral" lesson we should draw from the past decade.

Miller suggests that the main beneficiaries of expanded trade have been workers in China, India, and other developing countries, millions of whom have been lifted out of poverty. In fact, the main beneficiaries have been American-based multinationals and Chinese state corporations. Because productivity has increased so much faster than wages in both the United States and China, corporate profits have soared, as has inequality. In America from 2001 to 2006, profits as a share of output exploded from 6.9 percent to 13.6 percent. Comparing profits directly with wages produces even more worrying results, with profits hitting an all-time peak of 26.8 percent in 2006, as Tony Jackson of the Financial Times points out. The figure today is 25.8 percent, just below its all-time high. Meanwhile real median wages in the United States increased only modestly during this period, and real median family income actually fell.

Miller is also wrong to suggest that American workers were the only or even the primary losers from China's rising trade surpluses.

Like other critics of the House bill he likes to point to the number of Chinese workers who were lifted out of poverty. But this ignores that millions more in China and other developing economies could have benefited from an expanding world economy if China had allowed incomes and consumption to rise with production. From 2001 to 2007, consumption as a percentage of GDP in China fell from 44 to 36 percent; by comparison consumption in Brazil makes up 60 percent of GDP. Because China suppressed consumption and incomes to such an extreme degree while subsidizing its exports with an undervalued currency, it stole demand and jobs from the rest of the world, including from our neighbor to the south, Mexico.

In the end, because this pattern of trade contributed to a huge shortfall in global demand -- and to the housing and credit bubble in the United States and Europe -- we all ended up in paying a steep price.

And this is where Miller fails to understand the larger moral lesson, which is the lesson we should have learned from the Great Depression: A capitalist world economy can't function for long if there are huge imbalances between profits and wages, and between production and consumption. That is why in the aftermath of the Great Depression we passed laws empowering labor to bargain more effectively, that is why we put constraints on the freedom of capital, that is why we adopted a steeply progressive income tax and expanded our social protections, and that is why we chose a system of managed trade and investment with the rest of the world.

That is why today we need a new policy toward China and other neo-mercantilist economies that brings an end of the unholy alliance between Chinese authoritarianism and American multinationals. That policy must begin with actions that will prevent China from systematically undervaluing its currency at the expense of demand and jobs everywhere. A much stronger Chinese yuan would increase the wages and incomes of Chinese workers, allowing them to consume more, while reducing corporate profits to something more consistent with a healthy balanced economy. It is not clear why Matt Miller finds that so morally troubling.

By Katrina vanden Heuvel  | October 14, 2010; 12:52 PM ET
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The problem is the morality of trade, not just trade with China but all trade. We solve nothing if we cut imports from China, but then import the same stuff from Vietnam or Bangladesh or some other impoverished place.

The moral question is the building and rebuilding of our country with our assets , or instead dismantling our country so the richest few can move our assets overseas and make a tiny but very risky percentage more somewhere else.

The morality issue is that these are our assets, not just the personal assets of the richest among us. At the level of mass currency moves and investment or disinvestment in whole economies, ours or someone else's, it is more than just one guy's freedom to buy what he wants.

The accumulated surplus of the nation is in a moral sense, collectively, the product of all of us. No matter what is done or not done about income and tax distribution among us, the entire undermining of our life here in this country is a distinct and important moral question. It is not just about China.

Posted by: MarkThomason | October 14, 2010 9:42 PM | Report abuse

I don’t care about raising the standards of foreign workers. I care about raising the standards of US workers, including 94 million who have a 1st to 8th grade education (48% of the US adult population)). These people need life-sustaining jobs. Every job shipped overseas by business means one more person who either goes on the public dole (or prison) because jobs don’t exist and will never exist for them in today’s economy. As business profits go up (and corporate taxes go down), the cost of local, state and federal spending go up….permanently

We have college graduates who can’t find white collar jobs because these are now moving overseas. They are highly qualified, saddled with debt (college loans), and need well paying jobs to achieve the American dream i.e. earning enough so they actually have to pay income tax. Higher paying jobs also means more money for Social Security, Medicare and other programs threatened by “not enough revenue.”

The other issue is national defense. During the cold war, we never traded technology with the Soviet Union nor did we ship US jobs there. Both India and China are building world class offensive militaries and they are using our dollars to do it. Every time I hear a military officer declare we need a new weapons system because of Chinese and Indian military expansion I cringe because US taxpayers end up paying not only for China and India’s improved military capabilities but then pay more for the military that is supposed to defend us against this threat.

If anything, companies manufacturing in China and India are “trading with the enemy” and should be heavily taxed to pay for our military defense to the point that it is less expensive to bring the jobs back to the US. I don’t want my son killed by a Chinese missile paid for by US dollars.

The role of a business CEO is to make money for themselves (1st priority) and their stockholders (3rd priority). They will do it anyway they are allowed to. Dumping chemicals into drinking water, spewing poison in the air, exposing workers to unsafe conditions, raiding retirement funds, selling toxic derivatives, anything they can to make big bucks for themselves. The role of the President and Congress is to protect American citizens from all enemies, foreign and domestic. That will be, at times, at odds with business. If Congress were to increase import duties on imported manufactured goods and increase the taxes on companies manufacturing overseas, businesses would be creative enough to figure out how to bring the jobs back here and still make a profit.

America is all for helping out people overseas once we have our act together in the US. When:
-- We have created middle class jobs, enough to reduce (the real) unemployment from 19% to 5%;
-- Our schools start graduating people who have a real 12th grade education or higher;
-- Our economy is growing as fast as China’s (or ever Germany’s) and
-- Our crumbling infrastructure is replaced,

Then we help others.

Posted by: highexpectations | October 15, 2010 10:41 AM | Report abuse

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