Do You Support Or Oppose Free Trade Agreements?:
I am redirecting this discussion to this new thread herein because the aforementioned was started with a different intent...
Please feel free to post supporting or opposing arguments to Free Trade Agreements herein...
I will start/Continue the fray off with...
Toyota Nation The Bankrupting of America from Sanctuary Economics September 26, 2009:
Toyota Nation: The Bankrupting of America
Introduction Want to know the secret (literally since the media rarely talks about it) of Japanese automakers' success? They compete from a sanctuary. Japanese automakers do not face external competition in their home markets which gives them a sanctuary and profit cushion to export in the U.S. market and gain market share.
"So what," you say? The U.S. government finances foreign trade by borrowing up to $2 billion every day ($6.5 trillion in cumulative annual trade deficits) to cover the annual trade deficit. Approximately two-thirds of the trade deficit is in merchandise (the remainder is due to oil imports) and a significant portion of this is due to importation of automobiles from Japan (and to a lesser extent, South Korea). Clearly, our overconsumption of imported automobiles and other merchandise is unsustainable, leads to higher taxes to service the increasing debt, lower standards of living for up to eighty percent of the population, and will ultimately bankrupt the country.
Think it's okay to buy a U.S.-assembled vehicle from a Japanese manufacturer? If you do, then you're endorsing a system of unfair trade that says it's okay for Japanese automobile manufacturers to have access to the U.S. market even though U.S. manufacturers don't have access to the Japanese market. I believe it's important that not only U.S. workers share in a nation's prosperity but U.S. entrepreneurs have the opportunity to create businesses and hire U.S. workers without being put out of business by foreign cartels operating from economic sanctuaries.
So, what does the title of this commentary mean? Toyota Nation is simply a metaphor for a nation that doesn't care whether it produces what it consumes and believes there are no consequences for overconsumption of imported merchandise. The title of my commentary is not related to, or affiliated with, Toyota or any other organization or web site that uses "Toyota Nation" as their name, in part or whole. The title could just as easily have been Wal-Mart Nation since Wal-Mart is a major retailer of imported products and, according to documentaries, has encouraged manufacturers to move their factories to China and other low-wage countries for increased profits as a condition of selling their products in its stores. I chose the automobile metaphor since the U.S. still has a domestic auto industry, albeit a rapidly shrinking one. Unlike most electronics and other manufacturing industries that first disappeared to Japan in the 1960's and 1970's and since have gone to S. Korea and China, we still have a choice of a domestic automobile manufacturer.
Want to know why the U.S. government allows a system of trade that places U.S. workers and companies in competition with foreign cartels operating from economic sanctuaries? If so, then I invite you to continue reading below.
Denial and Deceit
Contrary to what John McCain parroted last year during the financial industry meltdown, the fundamentals of the U.S. economy are NOT strong. Too much of the economy is based on debt and borrowing from foreign countries, including almost thirty consecutive years of annual trade deficits. During the past thirty+ years, corporate lobbyists and government officials have aggressively promoted the nostrum that it's good to ship millions of manufacturing jobs overseas or to let so-called free trade agreements eliminate whole industrial sectors (auto's, electronics, apparel, furniture, other manufacturing). What has been the result? The economic playing field has significantly tilted against the U.S. manufacturing industry and for the financial industry and foreign policy interests. People who profit merely by moving money around have been increasingly favored by the U.S. government and corporate economists over workers who actually produce something tangible. Consequently, the U.S. has accumulated over $6.5 trillion in new debt due directly to the trade deficit from foreign trade (again, approximately two-thirds of the trade deficit is merchandise imports, one-third is oil imports).
The Federal Reserve has been saying for awhile now that the U.S. trade deficit is not sustainable. Like so many other problems, nothing gets done until it becomes a crisis. The U.S. now has no choice but to begin producing much more of what it consumes and/or drastically reduce its consumption of imported products. Otherwise, personal and national financial ruin will ultimately be the consequence of continuing the status quo. The current credit crisis should be a wake-up call as to what can happen if foreign countries stop financing our consumption of imports.
Some in the corporate news media (print and corporate-sponsored broadcast commentators/entertainers) are increasingly defending the status quo (see Corporate Big Media and the Myth of Free Trade). The arguments I hear from them typically are: "The U.S. must not resort to protectionism because it could harm the economy" or, "If you 'buy American', then foreign-owned companies may not employ as many U.S. workers." These arguments are disingenuous, in my opinion. My response: First, seventy percent of the U.S. economy is consumer-driven and the U.S. is the locomotive that pulls the global economy. When the U.S. economy sneezes, the global economy catches cold. If you wreck the U.S. economic locomotive with unsustainable trade deficits and elimination of too many consumers, then the global economy is derailed. Second, the argument about foreign-owned companies not employing U.S. workers ignores the flipside that U.S. foreign trade policies have always resulted in millions of U.S. workers losing their jobs to foreign workers. The U.S. is THE market and everyone wants to compete in it. It is doubtful that foreign-owned companies would pull up stakes and move their tents back to their home countries or other countries ...but if they do, U.S. companies would likely hire more workers to fill in the void and reap the benefits.
While foreign trade may very well increase the U.S. GDP and the profits on Wall Street, probably eighty percent of the population suffer lower living standards as a consequence (see PBS FrontLine - Is Wal-Mart Good For America?). Despite low inflation, the middle class works harder than ever but never seems to be able to maintain their standard of living, let alone get ahead. The U.S. is deeply in debt to Japan, China, and other countries it trades with due to consumer's excessive consumption of imports.
I agree with New York Times columnist Thomas L. Friedman when he wrote on March 3, 2009 (Obama's Ball and Chain):
"As a country, too many of us stopped making money by making 'stuff' and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game."We must get back to what works: Produce enough to support your consumption of imports.
Foreign Economic Sanctuaries: "If Detroit Were As Good As The Japanese Automakers ..."
All too often, U.S. politicians and the corporate media blame the "Big 3" automakers for their problems. Unfortunately for the U.S. economy, it's become fashionable to bash U.S. manufacturers and labor and ignore the core reasons why they (and the U.S. economy) are in such a bad state of affairs. One of the core reasons for Japan's success in eliminating U.S. manufacturing companies (cars/trucks, electronics, motorcycles, etc) and workers is that it competes from a sanctuary.
Japanese vehicle manufacturers have full access to the U.S. market without experiencing competitive pressures from reciprocal trade competition in their home market. This means Japan competes from a sanctuary which gives them a profit cushion that allows it to compete aggressively and unfairly in foreign markets, particularly the U.S. market. "One of these days, Japan will wake up to the fact that subsidizing exports to the United States is no way to ensure long-term economic growth," said Peter Morici, a business professor at the University of Maryland and a former chief economist at the U.S. International Trade Commission (Washington Times, Feb 17, 2009).
Since at least forty years ago, trade barriers have existed in Japan that prevent significant levels of foreign competition in its home markets. Efforts by the U.S. government to negotiate with the Japanese for wider market access during this time have had little success. One primary reason is that U.S. trade policy has also been a key foreign policy tool following World War II. Clyde Prestowitz, former counselor to the Secretary of Commerce in the Reagan Administration and founder and President of the Economic Strategy Institute writes in Global Asia:
“[U.S. Leaders, following World War II] along with most western economists, believed that unilateral free trade was an advisable policy. In other words, they thought that the United States should reduce its tariffs and trade barriers even if other countries kept theirs in place.As the New York Times documents in a 1995 story:
“As a result, in the trade negotiating rounds of the 1950s and 1960s, the US made more and deeper cuts in its trade barriers than most other trading nations. It also allowed the dollar to be overvalued for long periods of time, partly as a kind of foreign aid to countries trying to export to the US market and partly because it was advantageous to US consumers and financiers. Although it was disadvantageous to US manufacturers, they were initially considered so competitive that currency values wouldn’t matter. On the domestic side, the US, fearing a return of the unemployment and depression of the 1930s when World War II ended, adopted numerous measures to stimulate domestic demand and encourage consumer spending as the main engine of economic growth.”
“Five previous Presidents, starting with Richard M. Nixon, have promised to break through the system of corporate relationships that keep outsiders from prospering in Japan. Five have failed. Dr. Ulrike Schaede, Professor of Japanese Business at the University of California, San Diego, School of International Relations and Pacific Studies explains on page 11 of her paper, “Self-Regulation and the Sanctuary Strategy: Competitive Advantage through Domestic Cooperation by Japanese Firms" (PDF), one aspect of how the “sanctuary strategy” works in Japan:
“Certainly, there has been no shortage of trade agreements in that time, in everything from citrus fruit to window glass, and in some cases American suppliers have prospered. But in this fight, Mr. Clinton has promised to change not the trade numbers but the system. His objective, he and Mr. Kantor have said many times, is to end the days when Japan can make its home market a sanctuary for Japanese producers, where they can charge high prices free of the kind of competition they face around the world.”
“By [Japanese firms] using self-regulation to structure the [Japanese] domestic market and limiting competition in order to attain stable and above competitive profits at home, exporting firms can sell products at a discount in foreign markets. Lower profits in export markets are counterbalanced by stable, high profits in the domestic market. To implement this strategy, self-regulation may include entry barriers through restrictions in the distribution system, boycotts of foreign competitors and discount stores, or retail price maintenance and other means to ‘maintain stable prices’ in the home market. Economist Dr. Peter Morici writes in his paper Antitrust in the Global Trading System: Reconciling U.S. Japanese and EU Approaches (if prompted for a password, click cancel to view):
“The obvious problem with self-regulation is the danger that it results in collusive practices which harm the efficiency of the industry and its firms. To be sure, if companies block market entry and rig prices, over time they are likely to become cost inefficient. Indeed, many of Japan's domestically oriented industries, especially in basic materials, have succumbed to this type of slack. Yet, some of Japan's export-oriented industries, such as automobiles and electronics, have been able to avoid the pitfalls of collusion.
“There seem to be three ways in which industries can benefit from self-regulation while escaping potential pitfalls: (1) by focusing on their international competitors, in addition to their domestic ones, as the measure for competitiveness and bench marking, companies can avoid being blindsided; (2) by sharing cost and other strategic information for the domestic market, companies can make more informed business decisions and reduce waste of resources; and (3) by limiting self-regulation to those activities that do not harm efficiency, companies can leave room for competition; for instance, even under price agreements they can agree to compete on quality, or they can limit self-regulation to entry barriers and rules on distribution which increases their margins but does not affect domestic competition. Therefore, while domestically oriented industries may suffer a loss in efficiency from increased self-regulation, competitive industries can use self-regulation to increase their competitive advantage by successfully setting up a sanctuary without being dulled into inefficiency in the process.”
"The notions that too much competition is harmful and that competition should be managed to ensure stability remain deeply ingrained in Japanese business culture. Cartel activities remain prevalent in steel, petrochemicals, cement, fertilizer, paper, glass, automobiles and parts, and many other sectors." An example of Japan's fear of external competition in its domestic markets is documented in these excerpts from Morici's paper:
"Five integrated companies produce most of the steel consumed and exported from Japan. Prices charged domestic consumers are consistently higher than prices charged foreign customers and on the U.S. west coast (appropriately adjusted for transportation and other costs).Much of the trade deficit with Japan is in automobiles and related parts. One of the myths I hear is American cars wouldn't sell in Japan because they are too big, they consume too much fuel, and are left-hand drive. That is probably true. But that line of thinking avoids the reality of what Ford (and other American companies) has done in Europe, Brazil, Australia, and other foreign locations where they are allowed access.
"For example, the big-buyer price in Japan for hot-rolled coil was 67 to 105 percent above the comparable U.S. price from February 1993 to September 1998. To maintain such price differentials, Japanese steelmakers must establish mechanisms for setting prices or limiting production, and must also keep imports from undercutting domestic prices.
"As for setting prices, a Japanese steel executive who once worked for several years in the United States said, 'In the United States you have free competition. Here it's like we're violating the Antimonopoly Law everyday. The steel companies get together and talk about what the price ought to be.'”
"Meanwhile, the consuming industries, such as automobiles and shipbuilding, support the cartel by not purchasing from minimills and foreign companies. Because their principal competitors face the same high costs, they are willing not to look elsewhere."
"In anticipation of competition from imports, therefore, the Japanese government undertook an express effort to replace government-imposed protection with a labyrinth of private barriers to imports. Specifically, the Japanese Cabinet concluded in 1967 that it would be necessary to restrain foreign enterprises coming into Japan after liberalization from disturbing order in domestic industries….
"The establishment of these countermeasures for strengthening the capacity of our industry for international competition and for preventing foreign enterprises from disturbing order in our industries and market would be a basic necessity if the liberalization is to be promoted and if our people are to enjoy its economic benefits."
Ford designs and builds its European cars in Europe ...they do that because it's the best way to design cars that will appeal most to local buyers. And, it works - Ford is currently the number two manufacturer in Europe. In 2005, for example, Ford celebrated its 30th anniversary as Britain's most popular car brand. The Ford Focus (the European Focus is different from the American model) was the country's top selling car. Ford is also doing well in Germany (most trusted brand in Germany), Brazil, Australia and other countries. Until 2006, Japan was the world's 2nd largest automobile market. If there was a way Ford, GM, and Chrysler could design, build, and sell their cars in Japan, as they successfully do in other countries, they'd be in Japan because the volume is there. I know Americans love Japanese products. Japanese products generally are excellent and high quality. There is no reason to deny that. But their products have been and still are essentially designed and produced in a political system that shields Japanese companies from external competition in their home markets and the external competitive cost pressures faced by nearly all American corporations. And, as the trade deficit data illustrates (chart), consumption of those products by American consumers has had, and still has, an insidious high price.
The clearest proof that Japan's auto market is not open can be found by looking at the new registrations-sales statistics that the Japan Automobile Manufacturers Association (JAMA) maintains on its web site. As I mentioned previously, Japan was the second-largest car market in the world until 2006 (it is now third, behind China). According to JAMA, 4,641,732 new cars were registered-sold in Japan. Of those cars, only 248,208 (five percent) were made by non-Japanese manufacturers. Considering all the excellent right-hand drive small cars Mercedes, BMW, Volkswagen, Ford of UK and Germany and others (Hyundai, Kia, etc) produce, five percent combined is they best penetration all of them can do in the Japanese car market? In the U.S., foreign-owned manufacturers have 52 percent of the U.S. market (and growing) and the majority of their cars are imported!
It's interesting to note that South Korea is also emulating Japan's export-oriented, sanctuary/closed-market strategy. Ward's Auto reports that the new Hyundai Genesis is priced 40 percent less in the U.S. market than in Hyundai's home market of South Korea (Re-Importers Conspire to Buy U.S. Hyundai Genesis to Resell in Korea, Report Contends).
I believe it's important that not only U.S. workers share in a nation's prosperity but U.S. entrepreneurs have the opportunity to create businesses and hire U.S. workers without being put out of business by foreign cartels in economic sanctuaries and other foreign interests shielded by U.S. foreign policy. Again, the only way to create and expand business opportunity is to enforce reciprocal trade and for the U.S. government to not look the other way when foreign countries (e.g. Japan and China) manipulate their currencies to artificially favor their exports at the expense of U.S. manufacturers...Continued