Monday, April 28, 2008

John Torinus: McCain gets an earful about so called "free trade" with China

On April 19, John Torinus, chairman of Serigraph Inc., wrote a great commentary in the Milwaukee Journal Sentinel about free trade, protectionism, and balanced trade. I couldn't agree with him more! He shares our stance that the key to solving our current problems is that the United States insist upon balanced trade. In one commentary Torinus shows:
  • How China is stealing our manufacturing industries.
  • That balanced trade is the middle-ground solution.
  • That the Bush Administration's method of achieving balanced trade with China through talk ("jawboning") hasn't worked.
  • That protecting specific industries, as in Bush's steel tariffs, will produce economic inefficiencies.
The only thing missing from his commentary is a plan for achieving balanced trade so that the United States can resume its economic growth. We supply that plan in our book, Trading Away Our Future. The key component of the plan is imposing Import Certificates, tied to exports, as a way to gradually balance our trade with the mercantilist countries.

He begins his commentary by discussing a confrontation between John McCain and the CEO of a mining equipment manufacturer who is about to have his sales to China eliminated because of the Chinese mercantilist practice of selling to us without buying from us:

Straight talk, John McCain style, met straight talk, Tim Sullivan style, in South Milwaukee last week on the issue of free trade that isn't always so free.

The presumptive Republican presidential candidate has distinguished himself from the two Democratic contenders with his posture as a free trader.

McCain found support for reducing tariffs through trade pacts from business leaders on two panels at Bucyrus International. But Bucyrus Chief Executive Officer Sullivan pointed out that there are still issues.

The issues put doctrinaire free trade, a Republican mantra, to the test.

Fresh from a business trip to China, Sullivan informed McCain that China had slapped a 40% tariff on the kind of giant mining equipment that Bucyrus makes in South Milwaukee.

He also said the Chinese had restricted foreign ownership in Chinese mining equipment companies to a minority position. In other sectors, a majority - even 100% - can be owned. Sullivan said his Chinese competitors are opening three new plants behind the protective tariff walls.

Obviously, such moves are far from "free" trade....

Then he briefly alludes the fact that tariffs lead to counter-tariffs, rather than balanced trade:

The Democrats' position is far from straight talk because their "fair trade" rhetoric is a union-backed euphemism for protectionism. If the unions favor protectionism here, what can they say about tariff walls in China that hurt steelworkers at Bucyrus?

Then he mentioned the Bush Administration's failed attempt to achieve balanced trade with China through "jawboning":

Somewhere in the middle is the pragmatic position. Call it balanced trade. It is what the Bush administration has been trying to accomplish in the face of its failure to stem the relentlessly rising trade deficit with China. One price of that imbalance has been to accelerate the freefall of the U.S. dollar.

Treasury Secretary Henry Paulson has jawboned the Chinese on the deficit and gained only a grudging 7% hardening of the yuan. That helps, as do some subsidy reductions by the Chinese government for its exporters.

Then he gives an example which shows the economic inefficiencies that occur if tariffs are tried by the United States as the solution:

Another piece of straight talk from Sullivan put a harsh light on tariffs that Congress and the administration installed in 2002 on imported steel to protect local steelmakers - much to the disadvantage of steel users. Under foreign pressure, the tariffs were dropped in 2003.

Sullivan said the steel tariff protection has resulted in a virtual steel monopoly in the states. He now has two mills to buy from instead of six, and prices have jumped sharply, including 56% so far in 2008.

He continues with an example that explains the mechanism through which American manufacturers force their suppliers to move abroad:

Here's more straight talk on trade: Wisconsin manufacturing jobs have dropped from 550,000 in 2000 to less than 490,000 today. New layoffs make daily headlines.

I thought the shift of manufacturing jobs to low-cost countries would bottom out, but that's not happening. Multinational corporations continue to push vendors in their supply chains for "the China price." Lately, it's been "the India price."

Often, they mandate that parts come from low-cost countries. Not wanting to lose business, the vendors move to wherever their customers want them.

Further, if the component or assembly is compact and heavily labor intensive, it is almost impossible to compete with 50-cent- and dollar-an-hour wages. Shipping costs only disadvantage the bulky stuff.

Then he mentioned something that I don't know anything about:

One partial cure is the lean disciplines being implemented across Wisconsin. They spur productivity and offset the labor cost differentials. That didn't come up in the discourse with McCain.

The rest of his commentary is worth reading as well. Follow the following link to read it:


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