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What Globalism Did Was To Transfer The US Economy To China

Authored by Paul Craig Roberts:

The main problem with the US economy is that globalism has been deconstructing it. The offshoring of US jobs has reduced US manufacturing and industrial capability and associated innovation, research, development, supply chains, consumer purchasing power, and tax base of state and local governments. Corporations have increased short-term profits at the expense of these long-term costs. In effect, the US economy is being moved out of the First World into the Third World.

Tariffs are not a solution. The Trump administration says that the tariffs are paid by China, but unless Apple, Nike, Levi, and all of the offshoring companies got an exemption from the tariffs, the tariffs fall on the offshored production of US firms that are sold to US consumers. The tariffs will either reduce the profits of the US firms or be paid by US purchasers of the products in higher prices. The tariffs will hurt China only by reducing Chinese employment in the production of US goods for US markets.

The financial media is full of dire predictions of the consequences of a US/China “trade war.” There is no trade war. A trade war is when countries try to protect their industries by placing tariff barriers on the import of cheaper products from foreign countries. But half or more of the imports from China are imports from US companies. Trump’s tariffs, or a large part of them, fall on US corporations or US consumers.

One has to wonder that there is not a single economist anywhere in the Trump administration, the Federal Reserve, or anywhere else in Washington capable of comprehending the situation and conveying an understanding to President Trump.

One consequence of Washington’s universal economic ignorance is that the financial media has concocted the story that “Trump’s tariffs” are not only driving Americans into recession but also the entire world. Somehow tariffs on Apple computers and iPhones, Nike footwear, and Levi jeans are sending the world into recession or worse. This is an extraordinary economic conclusion, but the capacity for thought has pretty much disappeared in the United States.

In the financial media the question is: Will the Trump tariffs cause a US/world recession that costs Trump his reelection? This is a very stupid question. The US has been in a recession for two or more decades as its manufacturing/industrial/engineering capability has been transferred abroad. The US recession has been very good for the Asian part of the world. Indeed, China owes its faster than expected rise as a world power to the transfer of American jobs, capital, technology, and business know-how to China simply in order that US shareholders could receive capital gains and US executives could receive bonus pay for producing them by lowering labor costs.

Apparently, neoliberal economists, an oxymoron, cannot comprehend that if US corporations produce the goods and services that they market to Americans offshore, it is the offshore locations that benefit from the economic activity.

Offshore production started in earnest with the Soviet collapse as India and China opened their economies to the West. Globalism means that US corporations can make more money by abandoning their American work force. But what is true for the individual company is not true for the aggregate. Why? The answer is that when many corporations move their production for US markets offshore, Americans, unemployed or employed in lower paying jobs, lose the power to purchase the offshored goods.

I have reported for years that US jobs are no longer middle class jobs. The jobs have been declining for years in terms of value-added and pay. With this decline, aggregate demand declines. We have proof of this in the fact that for years US corporations have been using their profits not for investment in new plant and equipment, but to buy back their own shares. Any economist worthy of the name should instantly recognize that when corporations repurchase their shares rather than invest, they see no demand for increased output. Therefore, they loot their corporations for bonuses, decapitalizing the companies in the process. There is perfect knowledge that this is what is going on, and it is totally inconsistent with a growing economy.

As is the labor force participation rate. Normally, economic growth results in a rising labor force participation rate as people enter the work force to take advantage of the jobs. But throughout the alleged economic boom, the participation rate has been falling, because there are no jobs to be had.

In the 21st century the US has been decapitalized and living standards have declined. For a while the process was kept going by the expansion of debt, but consumer income has not kept pace and consumer debt expansion has reached its limits.

The Fed/Treasury “plunge protection team” can keep the stock market up by purchasing S&P futures. The Fed can pump out more money to drive up financial asset prices. But the money doesn’t drive up production, because the jobs and the economic activity that jobs represent have been sent abroad. What globalism did was to transfer the US economy to China.

Real statistical analysis, as contrasted with the official propaganda, shows that the happy picture of a booming economy is an illusion created by statistical deception. Inflation is undermeasured, so when nominal GDP is deflated, the result is to count higher prices as an increase in real output, that is, inflation becomes real economic growth. Unemployment is not counted. If you have not searched for a job in the past 4 weeks, you are officially not a part of the work force and your unemployment is not counted. The way the government counts unemployment is so extraordinary that I am surprised the US does not have a zero rate of unemployment.

How does a country recover when it has given its economy away to a foreign country that it now demonizes as an enemy? What better example is there of a ruling class that is totally incompetent than one that gives its economy bound and gagged to an enemy so that its corporate friends can pocket short-term riches?

We can’t blame this on Trump. He inherited the problem, and he has no advisers who can help him understand the problem and find a solution. No such advisers exist among neoliberal economists. I can only think of four economists who could help Trump, and one of them is a Russian.

The conclusion is that the United States is locked on a path that leads directly to the Third World of 60 years ago. President Trump is helpless to do anything about it.

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Tjoerife kimlerGreen Eggs and SpamScratching My Head Once AgainDoctor Green Spam Recent comment authors
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Pierre Vaillant
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Pierre Vaillant

I was expecting more from this author, but he goes out of his way to make false equivalencies. Trans-national firms by definition don’t have a loyalty to any one country. Regardless of the group of shareholders [which doesn’t include US workers btw] that own factories in China, the products are made in China with the US market as their destination. You cannot say that the profits made from this setup are “US profits.” They are trans-national profits. The 0.1% & the 1% are NOT stakeholders! They don’t care what communities end up dry of jobs, what region’s environment turns to… Read more »

Richard Keller
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Richard Keller

During WWII, FDR gave modernizing-money to business & utilities, but they only used it to pay-out stock earnings & bonuses, which left America with an economic-disadvantage with the rest of the world.

Mad Max the Economist
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Mad Max the Economist

Didn’t hurt the US economy much. A widget paid to China at a dollar is sold in the US for three. maybe four or five. There’s a long way to go, margin wise. Course, knowing the marketers, they’ll just use the opportunity to boost their price by 50% for a 30% tariff. That’s the way it’s done in a short-term thinking economy. Grab what you can while the grabbing’s good. To hell with the aftermath. Just ask the bankers and mortgage brokers in Clinton’s mid 2000’s real estate boondoggle.

Tjoe
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Tjoe

If the debt based money system is not changed to at least a partial equity based money, the house of cards $700 + trillion in Dollar Derivatives could collapse under it’s own weight. US needs a constitutional Amendment that defines the money making powers of the US Treasury and the FED Reserve Note (instrument of debt) as EQUAL for all debts public and private….by law.

CAP the FED’s money making power and provide NEW MONEY with strict growth limits. Or let the FED go Wiemar Republic in the USA.

M4A MMT
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M4A MMT

Keeping the money supply inelastic means the CB loses control over interest rates, which means debtors see their interest rates owed to creditors fluctuate. That’s not a solution. The Weimar Republic printed money to purchase foreign currency to pay war reparations. Reserves, treasury bonds, and cash notes are Government debt. The Treasury and the FED can’t work on their own, but together. The Fed is the scorekeeper. All money is debt. All money is credit. All financial assets are always without exception backed by debt. Someone’s payment is another’s income. Someone positive financial capital is another’s negative financial capital. Financial… Read more »

Tjoe
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Tjoe

A US Treasury Dollar will not affect interest rates, they will move with the demand of debt money. Equity money (limited number of US Treasury Dollars) be used to fund government and limited investment used in rebuilding Americans infrastructure. In my scenario, equity money is spent for value into the economy and retired at some future time, all per US Treasury and congress control. But it is a 50-50 deal…FED Note and Treasury Dollar equal by law. The Declaration of war on Germany in the March 24, 1933 is what happens when the debt money system was thrown out and… Read more »

Regula
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Regula

The move to off shore production to take advantage of lower production costs was not all ill intended: the idea at the start was to produce cheap goods for the masses of minimum pay workers in the US to better their standard of living. That intention went wrong when the cheap goods justified lower wages that in essence have stagnated until they became untenable. But raises are cautious to just barely adjust for inflation – that means maintaining the status quo. That is largely motivated politically: the US 1% wants total hegemony, governed by these 1%. In order for that… Read more »

Doctor Green Spam
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Doctor Green Spam

I’ve been saying for years that China has kept America’s CPI Index in check for decades. Letting loose the inflation banshee on a nation with such incredible debt levels will lead to only one thing, stagflation. Hold on to your bank cards. The fun’s just beginning.

Pamela Storer
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Pamela Storer

Mr. Trump is, I think, fully aware of the fact that his sanctions are hitting US overseas companies. He said that this is what he would do on his first Presidential election trail. In a TV discussion I saw, which involved a big – I think from memory car – manufacturer who re-located to Mexico, that if he didn’t return his facility to America “I will tax your product so high no-one here can buy it. If you want to stay in business, you will have to come back here to do it”. It’ part of his plan to try… Read more »

Green Eggs and Spam
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Green Eggs and Spam

Yep, he’s under some faulty assumption that it will force US companies to abandon foreign production and move it all back home.

I think he’s been secretly taking advice from Alan Green Spam.

Iiona Maxwell
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Iiona Maxwell

Someone should tell Paul Craig Roberts that tariffs aren’t a tool advocated by neoliberal economic ideology. On the contrary, tariffs are inimical to it, as are any forms of economic nationalism or populism.

Econ 101
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Econ 101

Many US companies have invested major time and money in China. I’ve been looking at carbon black producer Cabot for one, who has major plant investments in China. What will they do now, divest? Sell their stake to Chinese investors or European competitors? They ‘ll just export their Cabot-tuned product abroad to tire manufacturers for one without Cabot’s cut and compete with Cabot directly worldwide. Finished goods will then enter the US sans the tariff. US gains nothing. In fact, it weakens domestic companies like Cabot and strengthens its foreign competitors .Same for auto parts manufacturers and a host of… Read more »

Scratching My Head Once Again
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Scratching My Head Once Again

European competitors to US companies will have access to excess-tariff-free Chinese intermediates, increasing their competitive edge against US counterparts. Trump has had a hard time understanding the potential feed-back mechanisms in global warming environments, it seems he has the same problem in world trade environments.

rife kimler
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rife kimler

Steve Keen is an economist who understands it and the role of credit and debt to prop up the edifice

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