Framing the Dialogue

The Chinese Are Stealing Our Jobs

CalvinEconomicsAbout a year ago I was asked to participate on a committee (I know yikes a committee) from our local school district.  The idea was to pull together the community to work with district personnel to better prepare students for college and working life.  Our district has an outstanding track record in academics and that is one of the main reasons that we moved here long before we had children of school age.  At one of the first meetings we brainstormed about topics where more emphasis was needed to better prepare our children.

I was somewhat surprised and disappointed when parents, teachers, and members of the business community started listing ideas like “diversity,” “social justice,” etc.  I piped up and stated “economics.”  They asked what I meant and I said that most folks really do not know anything about real economics and our children should be better prepared to evaluate economic issues.  The topic was listed, but not very enthusiastically.

Fast forward to a story that appeared in a local paper where “U.S. elected officials accused China on Tuesday of stealing American jobs.”  I was trying to visualize how the Chinese snuck over and stole these jobs.  They would certainly have used the largely unprotected southern border with Mexico to take the jobs, but how did they transport the jobs? 

steel pipeThe “U.S official” turns out to be Pennsylvania’s Gov. Ed Rendell who is an expert in jobs losses as he has lead Pennsylania from 5.5% unemployment when he was first elected in 2002 to a whopping 9.5% today (data available through September 2009).  Playing on our fears about job losses and a terrible economy, Rendell equates the fact that the Chinese are able to sell steel pipe to Americans cheaper than it can be made here with job theft.  We must act now as Rendell claims that, “This country has been a patsy for too long, and we are getting the you-know-what kicked out of us.” 

Them fightin’ words were swiftly followed by a call for import tariffs on Chinese goods.  Of course the United Steelworkers Union and manufacturers agreed with the call.  These are the folks who cannot compete with the less expensive Chinese products and will have their jobs “stolen” by the Chinese.

Here is where understanding economics comes into play.  If Americans really understood economics a series of logical questions immediately come into play. 

  1. How can the Chinese afford to make a product like steel pipe and ship it across the world (this pipe is heavy) and still sell it cheaper than when it is made much closer to where it is used? 
  2. How does the claim that Chinese subsidies allow the cheaper prices make sense when subsidies are then paid for by the same Chinese people?  Chinese workers will be required to receive higher wages to pay for the subsidies resulting in higher prices for their produced goods.
  3. Why would the United States government impose a tariff on a product that will have the very real effect of raising energy prices for virtually all Americans?  These pipes are to be used in the oil and gas industry to provide energy to American businesses and homes.  Most Americans get at least a portion of their energy from these sources.  If the price for the materials needed to produce this energy increases, does it not follow that the price to consumers for this energy will also increase?
  4. What segment of the population benefits from the imposition of these tariffs?
  5. Won’t the imposition of tariffs cause other countries to impose tariffs on our goods?

None of these questions were raised in the Reuters story, but the answers are certainly there.  Governor Ed Rendell is calling for a tariff on goods to protect a few of his union buddies even though the net result will be an increased cost to all Americans.  There will be a large and direct benefit to the union workers and to the businesses while the increased costs are spread around to many people.  I guess this is kind of like to each (unions) according to their needs and from each (the rest of us) according to our ability.  The harms are spread our so that their impact is less noticeable. 

GOOD POLITICS = BAD ECONOMICS

As more and more people call for “protection,” “tariffs,” and ” subsidies” these incremental harms really start to add up as protectionismevery industry wants their piece of the pie.  One can only surmise that politicians like Rendell know enough about economics to understand the ramifications of tariffs.  So what is their motivation?  Who gains?  The only ones who really benefit are the politicians who gain power.

“See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong.  See if the law benefits one citizen at the expense of another by doing what hte citizen himself cannot do without committing a crime…[this law] is a fertile source for further evils because it invites reprisals.  If such a law is not abolished immediately, it will spread, multiply, and develop into a system.”

Frederic Basiat (The Law, 1850)

I probably should have included History as a subject where students (and adults) could benefit from more instruction.

6 CommentsLeave one

  1. The Law - Framing the Dialogue says:

    […] a few days ago I commented on my desire for Americans to learn more about economics.  I also finished the post adding the need to learn about history.  The writings of Frederic […]

  2. fours says:

    “I was trying to visualize how the Chinese snuck over and stole these jobs. They would certainly have used the largely unprotected southern border with Mexico to take the jobs, but how did they transport the jobs?”

    You’re joking, I’m sure, but this struck me as the stupidest line from your post. Clearly millions of manufacturing jobs have been “transported” overseas since the ’50s, either via companies moving their factories moving overseas or by US companies losing out to foreign competition. Outsourcing allows white-collar firms to do the same thing with many other jobs that only require only phone or Internet connections.

    Tariffs are a dangerous tool, to be sure, but certainly each country has a sovereign right to protect its citizens when appropriate. It’s just a question of weighing costs against benefits. For example, the US pumps $10 billion in subsidies to the corn industry each year, which some say has bankrupted the Mexican corn industry. So when faced with a subsidized competitor you can understand the concerns for protecting certain industries.

    Your questions include some implied answers but I think you’re missing some key points:

    1. The Chinese can afford to build and ship steel pipe cheaply because of they have are much lower labor and related costs for manufacturing. There is also much less regulatory oversight in the areas of consumer safety (as we saw with the toothpaste and leaden toys incidents) and employee safety, which saves a ton of money (but adds harm to workers and consumers). Shipping on huge boats is much cheaper and more efficient compared to truck-based shipping.

    2. The claim that “subsidies are then paid for by the same Chinese people … Chinese workers will be required to receive higher wages to pay for the subsidies resulting in higher prices for their produced goods” make sense in a textbook but lacks a connection to reality. The Chinese government currently holds the largest foreign currency reserves ($2.27 trillion) of any nation. They can basically spend or subsidize whatever they want without having to tax their workers.

    3. Construction projects that require steel pipes will be more expensive if tariffs increase their price. But I don’t see any nefarious plot to increase energy prices; just a wish (misguided or not) to provide direct assistance (besides handouts or welfare) to US steelworkers.

    4. Manufacturing employees in the targeted industries (steel) and their parent companies (e.g. the Luxembourg-based Tenaris owns Maverick Tube Corp), mostly, plus the politicians in the districts and states where they live.

    5. Perhaps, but many already do.

  3. Greg says:

    While it always nice to hear that part of one of my posts is stupid the premise is that most Americans fall for this type of hype. My line was meant to poke fun at media types and how they sensationalize.

    My questions do have implied answers, but most people do not pay attention would never recognize that. You make some good points except:

    1. labor is cheaper there while more efficient here, but not enough. Maybe our labor costs are too high? Shipping on huge boats may be cheaper, but living in the Midwest, they still would have to truck the goods to me.

    3. I don’t think that the price increases are nefarious. It is just business. When your costs go up so should your prices and those prices are paid by the rest of us.

    4. I know and you know, but reporters won’t dig just a little deeper to let the rest of the country know. The reporter should have done that rather than let the politician get away with those remarks.

    Thanks for the comments.

  4. Simon @ Social worker jobs says:

    It’s bad news for us in more than one way. Chinese products are renown for quality flaws as I’m sure you are aware, if our buildings are going to be made from this you should run for cover!

  5. Tim says:

    My company purchasing goods from China.
    Why?!
    Because the goods we need are not manufactured in US any longer. US used to be a leader once but now the industry does not exist.
    This will happen and will be happening to other industries as well.
    Why??
    Because labor in China is cheaper.
    Chinese Engineers willing to work and sleep in the office.
    Chinese workers do not have union that can request minimum wage even close to the one in US.
    They consider engineers and not lawyer the elite.
    China tax US goods on the way in
    Even if we have goods to sell in China you have to send them to Hong Kong and then pay huge Tarrif and shipping to get to China.
    Goverment subsidised industries that sell abroad and that is why in China the same chinese goods cost more then here in US.
    China makes sure that they dominate the market till we totally get rid of competing industries.
    Tariff is only one way. Wise up guys.
    Unless we educate our kids with math and physics we are doomed. We learned how to divide pies (thanks to lawyers and other liberal arts professions) but we do not know any longer how to make it.
    So in my opinion as a drastic measure temporary tariff that will subsidize education is must. Maybe some day our leaders will be business people and possibly engineers and they will understand what it takes to invent and deliver to the public.

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