My observations about foreign trade.
Some readers may not know much about importing and exporting. Why get into it? Because, many games are played against us poor US citizens, and importing is near the top of the list of scams and tricks that hurt our economy. In my opinion, imported goods are robbing us of industries and jobs, and overall aren’t all that beneficial for us.
My previous post was about tariffs, but importing and exporting (with or without tariffs) is complicated. You haven’t lived until you’ve tried to import something. My son and I did so a few years back.
There are snares and pitfalls in importing. It’s easiest to import from Canada or Mexico, due to the North American Free Trade Agreement (NAFTA) which passed under President Clinton. Many (but not all) goods can cross freely into the United States from those countries without tariffs having to be paid at the port of entry. Canada and the US have comparable costs of production, but Mexican goods are generally cheaper, due to lower labor costs. Importing from other countries is often much more difficult. An importer into the US must deal with U.S. Customs and Border Protection (CBP), and follow their extensive regulations.
This article isn’t intended to teach you how to import. It’s easiest to deal with a licensed import broker, who knows the ins and outs. What I’m trying to express here is the overall pit we’ve fallen into for the sake of obtaining cheap foreign goods.
You already know that cheap labor costs can lower the cost of production of goods, to the point where our US industries can’t compete. Remember the big US steel-refining companies? Bethlehem Steel? US Steel? Gone forever. Remember when the Big 3 (General Motors, Ford, Chrysler) produced most of the cars for the entire world?
The Japanese began building cars when their labor was cheaper than now. Americans bought some, and immediately noticed substantial differences in quality. The cheapest Japanese cars were Cadillac quality at slightly less than Chevrolet prices, and to make things tougher for us they gave better gas mileage. Instead of selling Chevrolet equivalents at half the price, they invested more of their labor cost to produce a higher quality vehicle at a price close to ours. This was very astute. Japan grabbed first place in the world auto market. Lesson 1: foreign goods can be of higher quality. Cheaper labor allows foreign companies to compete on either quality or low price, or any combination of the two.
Lesson 2: foreign goods can be of comparable quality but far cheaper. During the competitive period, when the foreign product is taking over the US market and driving our companies out of business, they can simply sell their thing at half price. They still make a profit.
Lesson 3: Once the foreign goods have dominance, they can raise their profit margin. Without competition, they can set prices at whatever level they want, or whatever customers will pay, thus iPods might be $600.00. Thus, imported goods don’t have to be cheaper. Fortunately, there is almost always competition from some other foreign country.
Lesson 4: Other countries can cheat. China, for example, has a closed economy. They pay their workers in yuan, but they control the exchange rate, rather than letting the market control it. If they undervalue the yuan, they effectively reduce the price of their goods to the US. They have apparently been doing that for years, even though their labor costs are much lower than ours. Donald Trump, among others, has complained strongly about that.
Exporting is just importing in reverse. Every country is different. Let’s say we want to export to Germany. We have to mark our products according to their rules, and probably in German. We have to provide invoices, packing lists, and certificates of manufacture in German. We have to follow all their regulations. We may have to meet quality standards, pay tariffs, observe quotas, and the smallest quantity we may be able to ship might be a full container. Our competitors to selling goods in Germany don’t pay US corporate tax (the highest in the world.) That means our goods are more expensive than theirs. Germany was just an example; the same problems occur in trading with almost all foreign countries.
In my previous post, I suggested raising tariffs on imported goods to equalize costs of production. That was an oversimplification, because the other countries would raise their tariffs on our goods. However, where our exports to a country are much smaller than our imports (a big trade deficit), we should seriously consider doing just that. We should definitely equalize with China, since they deliberately make it difficult for us to export our goods into their country.