Monday, July 16, 2012

More on the Idiocy of Our Current Political Discourse re Trade

Last night, I promised that I wouldn't get into the weeds explaining the blatant economic ignorance currently displayed by our political leaders on the issues of trade and outsourcing.  I'm glad I avoided that aspect because today's Wall Street Journal contains a fantastic recap of many of these economic facts.  Not much of this information will be new to readers of this blog, but it is, in my view, the best and most concise summary of many of the economic reasons why free trade, and imports in particular, is undeniably good for the US economy.  After setting the stage with a quick summary of the political firestorm surrounding those made-in-China US Olympic uniform, the WSJ lays out why politicians' anti-import/trade posturing defies all economic sense:
[I]mports of all kinds drive American jobs and export competitiveness. Most goods imported by the U.S. are used to make other goods. The Washington-based Trade Partnership, which studies such things, says that 62% of the $2.2 trillion of imports in 2011 were inputs for producers.

These include oil, precious metals, minerals, green coffee and lumber. But the list also includes motor vehicle parts, semiconductors, aircraft engines and parts, steel products, fertilizers, plastics and machinery and other equipment. American companies buy these products, make other things with them or add value and then sell their output at home and abroad. If they can't buy these imports at good prices, U.S. producers can't compete globally.

Protectionists portray imports as coming from Third World sweat shops that undercut American labor. But half of U.S. imports come from such developed countries as Canada, Japan and Germany. In 2011 imports from low-income countries amounted to less than 1% of the U.S. total.

Even finished goods imported by the U.S. often have a U.S. export component. Today's manufacturers, no matter where they are located, use an international supply chain that employs Americans. U.S. research, development and design—high-paying jobs—are behind much of what is made overseas.

And what about those Ralph Lauren-designed berets? Well, the American Apparel and Footwear Association says that while their industries are now dominated by imports, these two markets in the U.S. employ more than four million people in everything from design to marketing, merchandising and retail. The International Trade Commission says more than half of the value of imported apparel sold in the U.S. is American. The Commerce Department says that more than 50% of direct importing operations in the U.S. are small businesses.

Imports also raise U.S. living standards. According to Cato Institute trade analyst Dan Ikenson, prices of many tradeable goods like electronics, toys, furniture and apparel in the U.S. have been dropping over the last decade even as the price of nontradeables like health care and education have increased sharply.

President Obama says he wants to double U.S. exports from 2009 to 2014, which makes sense even if the government will have little to do with it. As the U.S. Chamber of Commerce points out, 80% of the world's purchasing power is outside the U.S. along with 95% of consumers.

But this export boom won't happen if the U.S. doesn't keep its own markets open. Protectionism will impoverish our best customers. And there is a risk that trading partners will retaliate with their own new trade barriers. Both would be devastating for U.S. producers: Fast-growing middle-income countries like Mexico and China are also the fastest growing export markets for the U.S.
Understanding these facts, as well as the undeniable moral depravity of politicians' anti-trade and anti-outsourcing demagoguery (something known since the time of Adam Smith), I again ask:
Why on earth is the Republican party indulging such garbage (see, e.g., this most recent, depressing example) instead of attacking it?

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