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Trade with China gets the gold
Commentator Will Wilkinson
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TEXT OF COMMENTARY
Scott Jagow: I've told you that the dollar is starting to rebound, but it's weakened state the past few months has really hurt American demand for foreign goods. That's helped the U.S. export more. So our trade deficit is shrinking. Good news. But commentator Will Wilkinson has some more thoughts.
Will Wilkinson: The lavish opening ceremony of this summer's Beijing Olympic Games was, well, wow -- $100 million of wow. That comes to about $8,000 per second of wow.
Thirty years ago, the average person in China lived on less than $2 a day. Not so much wow. What happened? How can they afford this kind of extravaganza? By opening their economy and trading with us, is largely how.
Unlike in the 100-meter backstroke, in trade everybody can win. Thanks to China's greater global integration, hundreds of millions have been lifted out of grinding poverty. But due to trade with China, America's poor are doing better, too.
A recent working paper by University of Chicago economists Christian Broda and John Romalis shows that trade with China -- as brought to you by beloved institutions such as Wal-Mart -- has done more for poor families than rich families. Trade even helps to hold real income inequality in check.
How rich you are in real terms depends both on how much money you have and the prices of the things you tend to buy. Poorer families spend a bigger share of their budget on goods whose prices are affected by international trade -- like cotton shirts and canned fish. Wealthier families spend a bigger share on services that don't face the same kind of global price competition -- like yard work and psychoanalysis.
This means the rich have faced a higher effective rate of inflation than the poor have -- so much so that the gap in real incomes has stayed put, even as the nominal gap has gone through the roof. According to Broda and Romalis, prices of consumer goods heavily used by poorer Americans have fallen most rapidly in sectors where the Chinese have become most involved.
Sure, zero-sum nationalistic athletic spectacles are great. But a positive-sum system that helps most everyone is even better. So go ahead and root for America. But don't forget that when it comes to improving the welfare of the American poor and reducing inequality, Chinese trade gets the gold.
Jagow: Will Wilkinson is a research fellow at the Cato Institute.
Mr. Wilkinson, I agree, but I have something to add to your note; Merck & Co. Inc. has a big factory located in Albany, Georgia that in January of 2008 layed off 500 people in order to move the operation to China, The same time they merged with a company called WIXI Pharma Tech. Ref. Trads Commission documents Washington DC.Merck used 3 million dollars from economic development grants to improve the facility so they could provide jobs for Georgia and when the 5 years period was up and the tax abatments ran out they pulled up stakes and is wanting to sell the factory and leave. I filed a judgment against them in the 5th Circuit Court of Appeals in a RICO Case and requested an emergency hearing to stop the sale of the property until I received compensation. The Court deceided to deny all my briefs. Presently I have a Petition for a Rehearing. I am discussed with Merck because they are liquidating their plants here in the US so the FDA can not regulate their operation and experiments on the American Citizens. Merck is a foreigh Corporation owned by a German parent Company located in Germany.they have subsidaries all over the world in 90 countries. they used American Tax dollars to expand and build the facility and now they are selling the property and taking the 3 million dollar improvment and putting it in their pockets. leaving Georgia holding the bag.By the way the drugs made in China and sold in the US will not have any safty regulation on them either. No Law. Federal or State Law for product liability. and the FDA will not have any regulatons over these drugs imported into the US, that can be distributed from Wal-Mart, CVS or Walgreens or any others.
I'm sure Mr. Wilkinson gets his numbers right, but this is a dangerously reductive argument. I don't buy the idea that the influx of cheap foreign goods somehow offsets the massive growth in income inequality we've seen in the USA. The glaring omission here is the outsourcing of family-wage American jobs to places like China - as if that has nothing to do with these low Wal-Mart prices or the decline in real wages. I'm not saying this is a zero-sum game. But all things considered, I think the benefit of all this outsourcing has been dubious at best. Sure, the average American can fill their home with flimsy, lead-painted junk that will donated to Goodwill in 2 years. But how much value does that really add to the economy at large? In my opinion, not much.
Finally the truth.It is refreshing to have somebody tell the treuth for once. I live in an area that used to be a steel tow. The stell orkers shopped at the cheapest stores and drove foreign cars. They are the compaliners Thanks for the truth.
Competition has winners and losers. We cannot operate in a closed system. We must trade. So quit complaining and suggesting income redistribution which serves no purpose other than making people on both sides of that equation want to work less. If people want to ameliorate the effect of losing jobs on the poor try finding ways to help. We must become a more educated people. We have to give our workers the tools to compete and if we do economically support displaced workers we must provide incentives to acquire new skills.
Christian Broda & John Romalis are taking a myopic view of the problem. Saving a small percentage shopping at Walmart is no match for the great benefit the wealthy have by not paying taxes on enormous sums of passive income. Also look at hikes in local/state sales taxes and fees because we can't tax the influential wealthy voter. All this takes a much bigger percentage bite of an already tiny, unsustainable income. Focusing on the WalMart *advantage* is a bit disingenuous, don't you think?
Mr. Wilkinson, While I agree that trade with China has helped the poor of America to afford more and better goods I disagree with your view that it's good for America. If you've ever driven through towns that have lost their industry to China as I have done this week, you'd see that all that China is doing for America is creating a new wave of lower income citizens. I guess that means that I agree with you on another point. China has reduced inequality in America, it has made many more Americans poor.
