Bobco23

The Great Shift: China Rising, U.S. Falling

I too am a simple accountant. The rationale for "free trade" never made sense to me, although like you, I have had that "religion" crammed down on me throughtout my university and business years. What corporation would open its market's freely to a competitor? The core business concept is to create a unique product or service or to obtain a competetive advantage to preclude others from entering (destroying) the corporation's market.

On a more philosophical sense, what good does it do America to open it's markets to elevate the overall prosperity of the world if in that process, the overall prosperity of the US declines? We have grown the pie through free trade, but greatly deminished the size of our slice.

We should begin build a system of "market access" fees to level the playing field against cheap labor and other market advantages enjoyed by foreign producers. Call these tariffs if you will (our country was initially financed on tariffs, until we discovered the wonderful concept of income taxes), but I prefer to think of them as "slotting" fees, similar to those used by supermarket chains.

In any event your post on the question of social cost in the quest of lowest cost production (for conspicious consumption) is one we hear too infrequently. Seeing your post gives me hope we will someday move past the alter of "free trade", because it isn't.

> A few comments on the Chinese ascendancy / US decadence meme:
>
> 1. China has developed and presently recognized the other side of
> the aggressive mercantilist policy. For example, so much of the state
> funding has gone into heavy industrial capacity, that the state has
> imposed a prohibition on the construction of new aluminum smelting
> plants, etc. This overcapacity can only be absorbed by steady foreign
> buying, and the US market will continue to be an important element.
> Just based on the size and maturity of its markets, the US can only
> fall so far, even if it is nowhere near its former heights .
>
> 2. US deindustrialization has been a long ongoing process (I remember
> writing papers and debating the matter as a university student in
> the 1980s, by which time there was already a considerable literature).
> The only possible remedy is a governmental policy solution which
> will be highly controversial. For example, the firm in which I work,
> a US manufacturer, was late to the Asia import game and entered only
> reluctantly. At that point, our competitors were "all in" and began
> to undercut our prices materially, so we faced a stark choice: either
> join the foreign sourcing party, or go out of business. In either
> case, we could not sustain the same level of domestic production
> and employment.
>
> We chose the lesser of two evils, and still employ some US manufacturing
> workers. Margins have eroded anyway, because buyers know the foreign
> sourced product is cheaper, and nobody in our industry has much pricing
> power. We live and raise our families in these communities, and would
> have preferred to maintain full employment. That would only have
> been economically feasible if something like a tariff had decreased
> the cost gap between foreign sourced and domestically produced goods.
> Is that an argument for protectionism? Would such a thing be viable?
> I understand perfectly well what economists say, having been educated
> by them.
>
> What about the indirect hard and soft social costs of deindustrialization?
> Unemployment insurance, law enforcement and prisons, falling property
> values, etc, social stability, human happiness. How much do any of
> these matter? Certainly the economists will have their answers for
> these as well.

Do Foreign Currency ETFs Have a Place in Your Portfolio?

Thanks for a very useful article. With an Obama win likely, I am looking for a way to play stagflation. I thought the Swiss Franc might be a good place to put a portion of my growing cash position (45%) to work for both safety and income reasons. Your article gives me more ideas and options. My equity portfolio is heavily weighted to energy, commodities, and pipeline utilities; with a smaller exposure to technology and electric utilities. Currency ETFs will give a bit of diversification on the cash side.