Heading for Tougher Times

If a foreign competitor is printing money faster wages in that country should be rising relatively to the country not printing money as fast. This has been happening to some degree but not as fast as it should be with the trading partners we run huge trade deficits with. What they do is first they print money faster than the US does to devalue their currency relatively to the US and then to lessen the inflationary effect from occuring in their country leading to higher wages these countries issue their own government bonds to soak up some of their newly created domestic money. So by them issuing debt they can temporary postpone some of the wage and price increases by temporary soaking up some of the new money they printed but it will eventually catch up. If the domestic money was not soaked up then inflation would hit faster. But by temporary soaking it up they will have to reprint some of that new money again for example like six months later when they have to pay interest on the debt they issued so in the short term it can be manipulated to prevent a rise in prices for things like labor but eventually which may take a while it will start causing inflation. In addition if the country printing money faster to devalue their exchange rate has high reserve requirements relatively to a trade partner for their bank lending, then this also helps postpone the increase in prices and wages for a while.

So if it wasn't for the manipulation then even though a competitor can pay their workers $0.01, if a country is running a huge trade deficit with a country paying workers $0.01 an hour then even though wages may stay the same or just increase slightly by some the techniques menitoned above, based on exchange rates it would be hugely more expensive to import from the country paying $0.01 an hour to their laborers because based on exchange rates it may for example if the free market was functioning take 20 US dollars to equal 1 unit of the foreign competitors currency.

Besides the monetary reason for cheaper wages which is the main one, wages in a competitor country may be cheaper for awhile due to a larger labor supply with less capital in some instances. But once a country starts to accumulate huge deficits even if labor is large based on exchange rates it would be hugely more expensive to import from the surplus country.

Its not true that most American workers are just mediocre. If that was the case then the East Asians would have developed a lot of their own technology years ago for being hardworking without having to rely on gaining new technology from US companies that outsouce if these other countries were so highly productive and hardworking. This argument that Americans cost too much is due too inflation and the declining value of money. When you have a Congress that signs too many spending bills never read that are written by lobbyists and a Federal Reserve that prints money for special interests of course eventually people will complain that besides labor everything costs more. The complaint that goods are cheaper overseas is not due to other countries being smarter or productive, its that they print money out of thin air faster then we do hoping to have industries setup there. So thats where the complaint from business that overseas its cheaper comes from. So a big portion of our trade problem is a monetary one.

Even with wages paid to overseas workers at $0.01 an hour if a country like the US is running hundreds of billions of dollars in trade deficits, then the country with the trade surplus should have an exponentially higher valued exchange rate. So wages might be still $0.01 an hour but based on exchange rates it would be extremely more expensive to import from the country with the large trade surplus. That doesn't happen when a country just keeps printing money faster then the US does.

Additionally there is no free trade at all in the world. Trade is either free or its not. With most countries members of the WTO like the US, we hear US companies going overseas to avoid barriers. I thought the whole purpose of the WTO was to eradicate barriers? If barriers are not eradicated by membership then whats the point of even joining then? I guess as long as a competitor country imposes a barrier not called a tariff or quota then its called free trade.

Requirements that to export in some countries you have to setup a joint venture with local partners so your technology can be copied, undervalued exchange rates by money printing, and VAT taxes are considered free trade by the WTO it appears.

I wouldn't recommend a tariff but VAT taxes on imports from protectionist countries that have an agenda from their governments to put US companies out of business. Remember imposing VAT taxes is free trade becuase its not called a tariff. It makes sense to reduce corporate income taxes down to 5% for domestic US producers and reduce personal income taxes. Id rather be taxed to consume foreign goods from protectionist countries then to pay high personal income taxes or have domestic US producers pay high corporate income taxes.

With VAT taxes on foreign imports rebated to US exporters and a 5% corporate income tax rate it would cause many domestic US manufacturers to expand and cause alot of US companies overseas to come back for two reasons. First most US companies that outsource have as their man strategy to sell goods back to US. With high VAT taxes it would encourage them to come back if they want to avoid it and also a 5% corporate income tax would be a much cheaper tax rate then the country they've
outsourced to.

The argument that US companies produce overseas to gain a foothold in that country only has worked for a few companies not many. Most companies that outsource have to share technology to enter that country so they end up not with more market share but many many more competitors whom have copied their technology.

For countries that don't voluntarily break down the barrier that to export in their country you have to share technology and for countries that keep their exchange rates undervalued by money printing I would impose VAT taxes as high as necessary to compensate for these barriers. Hey VAT taxes is not a tariff according to WTO and is Free Trade, so there shouldn't be any problem with a VAT tax. Why should foreign goods from Protectionist countries come in for free when US individuals pay high income and corporate taxes for making a living and producing in the US.

Giving tax breaks to outsource, giving tax benefits for foreign companies to setup shop in the US, allowing foreign products from protectionist countries that have an agenda from their governments to put US companies out of business come in for free, but charge high income taxes for Americans to make a living and an up to 35% corporate income tax for domestic US producers to manufacture. Plus Congress has outsourced trade authority to the Protectionist WTO that only seems to count the words tariffs and quotas as protectionism but not things like requirements that to export in some countries you have to setup a joint venture with local partners so that your technology can be copied. What a better way to fool a Congress then to call a Protectionist agreement against US industries Free Trade.

This is what happens when you have a Congress mostly educated in law who signs bills they never read. Even if some had an economics background, most have a Keynesian perspective that increasing demand by printing money is the key to prosperity. If that was the case then Zimbabwee would be the richest country in the world.

"f we want to create jobs, can't we give benefits to our own American-owned companies? Why do we need foreigners to produce for us in America or even out of America?"

Hello. The US did give benefits to American-owned companies; not once but many times but if the American-owned companies kept on losing money
and can't sell their inferior product compared to the Japanese, don't expect those companies to survive in a competitive market. These companies contribute to the huge US deficit (borrowing) and it will a reach a point, the US cannot borrow anymore, these companies will go down. Then all their American workers will be out of job. At least providing benefits to these Japanese companies helped them to keep expanding in US and hiring Americans.