American Economics Thread

[B.I.B.]

I live in a country that is totally dependent on trade, however, I am not a supporter of TTP. I prefer one on one trade deals.
I believe American agriculture is highly subsidized, but there does not appear to be too much call for its removal.

 

[tphuang]

This is why I have never been a supporter of "bring the manufacturing jobs back to the US". It's not natural and requires heavy government intervention to work. Everything about it goes against basic principles of free market economy.

I firmly believe in a small government and as few government regulations as possible. A system that takes advantage of self interest of individuals and encourages healthy competition among different parties is the best system.

Without government intervention and in a free market economy, business owners seek to lower cost and maximize profit. Two ways to do that: 1) find cheap labor; 2) automate the manufacturing process.

In a nation like the US, where minimum wage is almost a month's/a year's salary in some poor third world country, only heavy government intervention, which slabs heavy taxes and regulations on businesses, would force businesses to hire more expensive labor and allow manufacturing jobs to come back to the States. As you can see, this goes against the basic instinct of operating any business. Then to make these businesses more competitive on the international market, the government will need to heavily subsidize. Before long, the government pumps so much money into these businesses that it becomes partial owner. When you are an owner, you want to have a say in how the business is operated. If owners don't listen to the government, it will stop subsidize them and they go under... Then you get socialist government, where the government owns everything.

Then to be able to afford the subsidizing, the government will need more budget = higher taxes. That obviously comes out our pockets. Then, higher prices for all the goods now made in the USA also decreases the purchasing power = lower quality of life for all. With less sales, businesses will need more help from the Man to stay afloat. Again, more government involvement. To keep the government out, business will then need to lay off workers to minimize cost. then we go back to square one: shrinking manufacturing jobs.

As you can see, this much government intervention is very unnatural.

To get around this, companies will aim to automate manufacturing as much as possible to lower cost. Amazon just opened a brick-and-mortar store in Seattle, where almost the entire store is automated. This of course totally defeats the purpose of bringing jobs back to the US. So what to do next? Burning down all the robots, like what people did in the 1700's and 1800's? Banning the use of machines? we all go back to lines and lines of people working on sewing machines?? Welcome to the third world! Is this the kind of future we want?

The basic idea of Trump's theories are not new. US trade deficit with Mexico, Japan and China are very high and continuous. This cause enormous distortion and is unsustainable. Nobody is saying US gov't needs to own these companies or heavily subsidize them. The idea is that you can negotiate trade deals more in your favor. If trade deficit and surplus doesn't matter, why are people in China so determined to continuously sell more than they buy? Whether or not factories use human or robots to manufacture, factories operating in US will still require more employment, netting in more tax dollars and creating more service jobs.

Now, the circulation of money isn't a simple business. Although China does run a huge trade surplus vs America, it also runs a smaller but still significant tourism deficit and a lot of rich Chinese people take their money out of the country to park them in America. The situation with Mexico is one where US not only runs a huge trade deficit but also looses flow of money from people sending money back home. This kind of economic distortions cannot continue forever, since it creates huge debt. The low interest environment can't last forever. Once it's over and the bond market turns its attention to US treasury, the deficits will go up, the yields will go up, housing prices will crash and the economy will go into a huge recession.

If you look at the Eurozone economy where Germany runs significant surplus against surrounding nations all under same currency, it results in huge debts in these countries that can never be serviced.

 

[Equation]

The basic idea of Trump's theories are not new. US trade deficit with Mexico, Japan and China are very high and continuous. This cause enormous distortion and is unsustainable. Nobody is saying US gov't needs to own these companies or heavily subsidize them. The idea is that you can negotiate trade deals more in your favor. If trade deficit and surplus doesn't matter, why are people in China so determined to continuously sell more than they buy? Whether or not factories use human or robots to manufacture, factories operating in US will still require more employment, netting in more tax dollars and creating more service jobs.

Now, the circulation of money isn't a simple business. Although China does run a huge trade surplus vs America, it also runs a smaller but still significant tourism deficit and a lot of rich Chinese people take their money out of the country to park them in America. The situation with Mexico is one where US not only runs a huge trade deficit but also looses flow of money from people sending money back home. This kind of economic distortions cannot continue forever, since it creates huge debt. The low interest environment can't last forever. Once it's over and the bond market turns its attention to US treasury, the deficits will go up, the yields will go up, housing prices will crash and the economy will go into a huge recession.

If you look at the Eurozone economy where Germany runs significant surplus against surrounding nations all under same currency, it results in huge debts in these countries that can never be serviced.

It is not so much the deficit of trades but rather the cost of living and the availability to meet the basic needs that are too high in the US as compare to the EU, China, and Mexico.

 

[PanAsian]

This is why I have never been a supporter of "bring the manufacturing jobs back to the US". It's not natural and requires heavy government intervention to work. Everything about it goes against basic principles of free market economy.

I firmly believe in a small government and as few government regulations as possible. A system that takes advantage of self interest of individuals and encourages healthy competition among different parties is the best system.

Without government intervention and in a free market economy, business owners seek to lower cost and maximize profit. Two ways to do that: 1) find cheap labor; 2) automate the manufacturing process.

In a nation like the US, where minimum wage is almost a month's/a year's salary in some poor third world country, only heavy government intervention, which slabs heavy taxes and regulations on businesses, would force businesses to hire more expensive labor and allow manufacturing jobs to come back to the States. As you can see, this goes against the basic instinct of operating any business. Then to make these businesses more competitive on the international market, the government will need to heavily subsidize. Before long, the government pumps so much money into these businesses that it becomes partial owner. When you are an owner, you want to have a say in how the business is operated. If owners don't listen to the government, it will stop subsidize them and they go under... Then you get socialist government, where the government owns everything.

Then to be able to afford the subsidizing, the government will need more budget = higher taxes. That obviously comes out our pockets. Then, higher prices for all the goods now made in the USA also decreases the purchasing power = lower quality of life for all. With less sales, businesses will need more help from the Man to stay afloat. Again, more government involvement. To keep the government out, business will then need to lay off workers to minimize cost. then we go back to square one: shrinking manufacturing jobs.

As you can see, this much government intervention is very unnatural.

To get around this, companies will aim to automate manufacturing as much as possible to lower cost. Amazon just opened a brick-and-mortar store in Seattle, where almost the entire store is automated. This of course totally defeats the purpose of bringing jobs back to the US. So what to do next? Burning down all the robots, like what people did in the 1700's and 1800's? Banning the use of machines? we all go back to lines and lines of people working on sewing machines?? Welcome to the third world! Is this the kind of future we want?

No answer will be found for wealth distribution problems by talking about wealth generation.

 

[advill]

The Trump Administration as of now appears inward looking, fanned by the President's supporters and sections of US domestic politics. It would be very unfortunate if the US intends to scrap or make major changes to established Trade Pacts like NAFTA, and perhaps eventually ignore the WTO rulings and most Free Trade Agreements. Most countries hope the US will rethink its foreign trade policies and not based them on some domestic emotionalism and brash self-interests. Whether any country likes it or not: US, China, Japan, India, UK, Germany and others, it is still an interdependent world. If there are disagreements on certain economic/trade issues, let them be discussed/negotiated sensibly - there should be the Give & Take attitude in most negotiations, BUT no country should initiate a Trade War. It now appears Trump and his close advisors are itching for a fight. We hope this is just rhetoric and the euphoria of winning the Presidential Election will soon subside. There will be NO winners in trade disputes that are nagging and unresolved; and looking at History they could eventually lead to a shooting war.

 

[delft]

As you can see, this much government intervention is very unnatural.

Many other forms of government intervention are unnatural too. Ever since the war against Vietnam US government has borrowed too much. That was the reason for Nixon to end the dollar being a hard currency, i.e. one whose value is backed by gold. That borrowing took the place of taxes and to keep the borrowing down to now nearly 20T dollars the maintenance of infrastructure has been insufficient, of high roads, rail roads, dams and locks, bridges and sewers, and investment in new infrastructure has also been kept down. We saw what happened to New Orleans, we don't see high speed rail. Only the rich have the influence to game the system and even the middle classes are suffering.
But that war wasn't the cause. It was already going in that direction. And it has happened earlier in free market economies. A Dutch professor, Bas van Bavel, wrote a book about three earlier free market economies that ended badly: The Invisible Hand? - How market economies have emerged and declined since 500. Oxford University Press, 2016. ISBN 978-0-19-960813-3.

 

[B.I.B.]

Good move by Samsung and LG to locate factories in the US, and they'll profit by avoiding border adjustment taxes. But, the flip side is automation would limit blue collar jobs creation, plus the companies in question are still dependent on the global supply chain for components.

Samsungs washing machine and drier they propose to make in the U.S. look quite snazzy. The washing machine has two different compartments for washing different clothing or shoes at the same time, while the dryer does the same thing.

 

[B.I.B.]

In a nation like the US, where minimum wage is almost a month's/a year's salary in some poor third world country, only heavy government intervention,

IMO the US does not really believe in free/fair trade, rather it continues to do what suits herself and like any large country she can get away with it.
Despite GATT and WTO cotton, for example, continues to be subsidized and dumped on the world market to the detriment of Indian and African producers.

 

[b787]

Now, the circulation of money isn't a simple business. Although China does run a huge trade surplus vs America, it also runs a smaller but still significant tourism deficit and a lot of rich Chinese people take their money out of the country to park them in America. The situation with Mexico is one where US not only runs a huge trade deficit but also looses flow of money from people sending money back home.

Mexicans sending money to Mexico allow those Mexicans to buy American goods in Mexico, basically Trump will shoot in his foot, if Mexicans have less dollars, they will buy local goods, thus you are wrong, per capita Mexicans consume more American goods than Chinese, first Because Mexicans buy more from the USA and Mexico has 1/11 of the Chinese population

 

[b787]

IMO the US does not really believe in free/fair trade, rather it continues to do what suits herself and like any large country she can get away with it.
Despite GATT and WTO cotton, for example, continues to be subsidized and dumped on the world market to the detriment of Indian and African producers.

that is not true, the USA can not force people to buy american goods any where in the world, if the USA tax goods, the other nations can do the same, in fact once Mexico forced the US to give up they did not want the Mexican trucks to pass to the USA to delivered goods, the Mexican government taxed US goods and the Americans allowed the Mexican trucks to pass

Mexico slaps tariffs on U.S. goods in truck feud



By

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, | MEXICO CITY/WASHINGTON

Mexico slapped tariffs on 90 American agricultural and manufactured exports on Monday in retaliation for Washington's move to block Mexican trucks from using U.S. highways.

Mexican Economy Minister Gerardo Ruiz said about $2.4 billion worth of exports from 40 U.S. states would be affected and that his government would soon publish a list of them.

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WASHINGTON — The U.S.-Mexico trucking dispute, the oldest sore point in NAFTA, apparently came to an end Friday when the U.S. Department of Transportation said Mexican truckers are now welcome to apply for long-haul trips in the United States.

U.S truckers fought hard to stop this aspect of free trade with Mexico, both in the courts and in Congress. Other opponents focused on perceived safety hazards and pollution. But the risk to some U.S. jobs seemed the point that caused the most concern in Congress.


Allowing untested, Mexican trucks to travel our highways is a mistake of the highest order, and it’s the driving public that will be put at risk by the DOT’s rash decision,” he said.

Because Mexican truck drivers were barred from U.S. highways, goods imported from Mexico are transferred at the border to U.S. trucks. A whole industry of trailer transfer stations and short-haul trucking rose up in cities like McAllen and Laredo to handle the restrictions.

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