The World Will Never Be Flat
Our Buy American Mention of the Week!
by Roger Simmermaker
January 2, 2017
Contrary to Economist Thomas L. Freidman's The World Is Flat: A Brief History of the Twenty-First Century, the world never has been and will never be flat.
Author and fund manager at Janus Capital Bill Gross says that Brexit marks "the end of globalization as we've known it." If he's right, that's a good thing, and a strong wake-up call to Thomas Freidman and his ardent free trade supporters who are "flatists" and resist those who question their orthodoxy.
A July edition of Bloomberg BusinessWeek says Bill Gross is right about the end of globalization, in a sense. Many Americans have been predicting the same thing for years. After all, the United States ushered in globalization on the thinking that trade inter-dependence would result in greater peace and partnership among nations, giving us greater influence around the world. I guess that means if only we had bought more Yugos in the 1980s, we would have had better ties and foreign influence with Yugoslavia. I doubt it.
Patriotic-minded U.S. consumers, as is evident from the likes of Bernie Sanders on the left and Donald Trump and Pat Buchanan on the right, believe they can reverse what was coined as an irreversible trend of globalization. Some Europeans - as is evident from Brexit - believe they can reverse globalization, too. After all, if there used to be no European Union when it as formed, why could it not as easily return to the way it was? In similar fashion, why could we not reverse NAFTA back to the way it was without the similar disruption that occurred when it was enforced?
The preamble of our U.S. Constitution says we are to "form a more perfect Union" - not a more perfect global economy. Canada and Mexico may be our friends and allies, but even with NAFTA ties, they are not part of the "Union". To my knowledge, no Founding Father ever wrote or advocated a Declaration of Inter-dependence. Why? Because Inter-dependence for the United States was never intended. And if it becomes our national strategy to become inter-dependent with other nations, why do we celebrate July 4th every year? Because we like fireworks? Hardly.
It wasn't long ago that a 'free trade' and 'free market' mentality in the USA guided American companies into what would become an elusive fantasyland of planned gains in the protective Chinese market. We supposedly allowed them into the World Trade Organization (WTO) so they could be part of the global economy when they clearly already were.
The list of American companies subsequently pulling out of doing business in China include Facebook, Apple, Google, Microsoft, and most recently, Uber.
China expects a "home court advantage, which is motivated by culture and language as government influence," said Duncan Clark, author of Alibaba: The House that Jack Ma Built. "Many U.S. companies had got used to the fact that they could succeed overseas through their dominance in Europe. But China is different; it has a ready supply of entrepreneurs and capital, and a government that if anything prizes dominance over competition." In short, China promotes "China first" to their success while free traders in America warn us against the mythical pitfalls of "America first" to our detriment.
We have been giving China a pass in their protectionism for years, watching how Chinese growth eclipses us while they accuse us of the same economic domestic strategy for us as counter to America's growth. China's GDP routinely grows in double digits while ours languishes between 2 and 3 percent at best.
In contrast to our economy from 1946 to 1973 (1973 being the year many economists agree that we switched from a closed economy to an open economy), our Gross Domestic Product (GDP) grew by an average of 3.8 percent. Back then, we didn't celebrate cheap imports made in foreign countries. We celebrated economic growth at home and a 74 percent surge of median household income.
Since 1973, however, we have experienced stagnant wages while household income has increased only 10 percent (0.2 percent annually). Compare that to the median income growth of 2.1 percent per year from 1946 to 1973.
One can argue that we don't want to necessarily return to the times of the 1950s, but the economy sure looked a heck of a lot better than it did before the bargain-shopper fascination of Walmart and cheap imports from China, which was designed to help American consumers save money and bolster household income.
Perhaps President Warren Harding (who admittedly wasn't our most-celebrated president) said it best: "One who values American prosperity and...American standards of wage[s] and living can have no sympathy with the proposal that easy entry and a flood of imports will cheapen our cost of living. It is more likely to destroy our capacity to buy."
Free trade has indeed destroyed our capacity to buy. If free trade does in fact lower prices for American consumers, the only way this can be beneficial to American consumers is if those same prices can fall faster than wages in the wake of increased, lower-wage competition from third world countries. But it obviously does not.
Today, we have easy access to cheap imports, but we have also destroyed our capacity to buy them due to free trade and corresponding slow growth policies. Any economist will tell you (even the most ardent free traders) that persistent trade deficits (like those we have experienced since the 1970s when we actually had a trade surplus) subtract from economic growth.
The answer to these current economic problems is found in our U.S. Constitution, which says Congress has the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."
For American consumers, the other answer is right in our back yard. The answer is to Buy American.
As President William McKinley once said, "I do not prize the word cheap. It is not a badge of honor. It is a symbol of despair. Cheap prices make for cheap goods; cheap goods make for cheap men; and cheap men make for a cheap country."