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Tuesday, November 29, 2016


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Chanson de Roland

Even if Apple could successfully bring the manufacture of not merely the iPhone but of all or at least most of its products to the United States, that wouldn't, by itself, do much to restore manufacturing as a significant source of employment in the U.S. For manufacturing to return as a significant source of employment, a President Trump would have to arranged matters so that large numbers of firms, which don't presently manufacture in the U.S., begin to do do. Many of those firms have never manufactured their products here, so they would be doing so for the first time.

There are good reasons why a lot but not all manufacturing left the U.S. A primary reason for that move was cheaper labor elsewhere. But now places, such as China, Taiwan, et al., have suppliers and other sophisticated supports for manufacturing products, which the U.S. either no longer has or even never developed. Those business reasons mean that many firms either can't manufacture their products in the U.S. or would require a long time to develop the supporting service before they could manufacture their products here. And then there is the expenses, labor and otherwise, of manufacturing here. The greater costs of manufacturing here means that American consumers will have to pay more for their goods, which means that those consumers will be poorer, as they pay more to get the same thing or less.

And the diminished wealth and income of the consumers will slow down the entire U.S. economy, causing it to be poorer and less productive than it would otherwise be. That would result in less wealth and less income and economic stagnation, with probably persistently higher unemployment and/or underemployment. In short, assuming that the loss of income and wealth would be equitably distributed, which they never are, everyone in the U.S. would be made worse off without making anyone better off.

And the bad effects of forcing manufacturing back to the U.S. just begin with perversely overriding the business reasons for locating manufacturing wherever it makes the best business sense to do so, because our treaty obligations under the WTO and other trade treaties forbid us from using tariffs, subsidies, quotas, legal mandates or other means of protectionism to suppress free trade. If Trump were to do any of that, the response would be trade wars, as our trading partners, many of whom are essential allies, retaliated against the U.S. by similarly blocking our exports. Now, a great many Americans and American firms earn their money exporting to the rest of the world pursuant to our trade treaties. The U.S. could reasonably expect the income from its exports would be loss or at least great impaired, as others block our exports to them, as Trump blocks their exports to the U.S. So we would have trade wars that would have a devastating effect on the U.S. economy, because we make a lot of money exporting, and the impairment of that income would costs far more jobs than those just in our export industries, because of what economist call multiplier effects. And trade wars have the nasty tendency of maturing into real wars, which is not only bad for business but result in death and destruction.

Therefore, why would we even think of disturbing sound business judgement in locating manufacturing and of violating our trade treaties from, which we and the entire world so greatly benefit from and which have brought us much peace and prosperity. It is a commonplace proof that every senior student in economics must master to show that free trade on fair terms--by which I mean terms of trade that aren't biassed in anyone's favor so that trade is won or loss based on competition--maximizes the GDP, which is another way of stating national income, and wealth of every nation and the world over what would be the case without free and fair trade. The problem isn't that free fair trade make us poorer; it is that, though such trade makes us far richer, there are winners and losers from free and fair trade and that the gains from free and fair trade are rarely equitably distributed.

The problem with the free and fair trade of globalization is the problem of how to equitably distribute the gains from that trade and how to compensate the losers for their losses. Though free and fair trade, as a matter of economic theory and observable fact, makes us richer, rich enough to make everyone better off without making anyone worse off, it does nothing about the political problem of how to fairly distribute the gains from free and fair trade to make most of us better off economically with more income and wealth.

The political problem of how to fairly distribute the gains from free and fair trade is what afflicts the U.S. and every other nation. By mistakenly and falsely targeting the loss of domestic manufacturing as the problem, instead of how to fairly distribute the gains from trade, President-Elect Trump is both misdiagnosing the problem and its cause, and, therefore, must inevitably fail to improve the economic lot of the U.S. and of most of her citizens. The only question, if he persist in this folly, is how bad things will be: Will it be merely economic stagnation and less wealth and income, with the inevitable loss of U.S. power and influence? Or will it be war, which among nuclear-armed states, would threaten the very survival of humanity?

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