Monday, May 13, 2013

Global development paid for by U.S. middle class

I'm not ready to say that  the global economy is zero-sum, where China's gains are always our losses. At the same time, nobody disputes that we're all interdependent.  What China or Taiwan produces, somebody must buy.  So if China is exporting and we're not, that would tend to be our loss.  If we're not buying then they're not producing that is China's loss.  

It's kind of a moral not an economic argument, nevertheless Paul reminds us that trade, not simple production, is what has lifted record millions out of poverty in the last 50 years, and the U.S. is largely responsible for allowing that trade to happen, not least by serving as the largest market/buyer of all the fastest-developing countries' exported goods.

Fairly, Paul also mentions the global companies like Apple and Google that are in fact without country and who benefit the most from increased global trade. Indeed, more than 60 percent of global trade takes place within multinational companies (MNCs).  

We can think of these as "great American" companies but we're kidding ourselves, we say so only to feed our vanity: it gives us a vague sense of self-worth to say we have a stake in a huge multinational company's success. (It's not unlike Americans who cheer on their local pro team which is probably a net drain on the local economy, yet it gives millions of local residents a great sense of pride that the privately owned sports franchise is "theirs.")

Unlike citizens and workers who are not so mobile, these MNCs go where the lowest cost of production and lowest taxes are.  Often they play off localities, regions and countries against each other -- who can offer them the cheapest labor, the lowest tax rates, the biggest subsidies, etc. -- in what has been called the "race to the bottom."  

Wrote Paul:
Companies such as Apple and Cisco Systems, and nations such as China, that have benefited from free trade are part of a closed system that has been built in large measure on the strength and confidence of the U.S. consumer. Yet those beneficiaries have been largely indifferent to the plight of the American middle class -- whose economic well-being and confidence in the future has been undermined by the expansion of free trade -- focusing instead on their own self-interest and entitlement to the benefits of trade. The leaders of Apple and Cisco gripe about tax rates, while the leaders of China disdain American concerns for their predatory trade practices.
Finally it's worth noting that no other major economy has adopted the U.S. approach, which is basically to open its markets to everybody and let domestic producers die.  

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