The Ethics of an Imported Bearing

Posted by Jeff 06/10/2015 0 Comment(s) The Bearing Market,

huge carge shipI spent years living in Asia and while there spent a lot of time on ferries.  


I remember pulling into ports and seeing all of the huge container ships being loaded.  These massive ships would usually leave Asia filled beyond belief with cars, textiles and electronics and return from the U.S. loaded with raw timber, hay or scrap plastic.  It is one thing to read about America's trade deficit with the rest of the world, but it is quite another thing altogether to see it in action.  The ports in Asia are huge and modern and full of goods ready to be shipped out.  


This massive trade imbalance has clearly hollowed out America's industrial heartland and been a disaster for the U.S. but it is allowed to continue year after year.  Proponents of free trade would have us believe that China has an advantage in unskilled labor and so they should concentrate on making everything.  These same free trade proponents argue that the U.S. has an advantage in intellectual property and should concentrate on designing cool things (Apple) and handling the money (Goldman Sachs).  This has lead to strict enforcement of our copyright laws which, in turn, has created sky high prices for things like prescription drugs and software. For an entertaining documentary on this, watch RiP: A Remix Manifesto which has a great discussion about how these trade laws came into being during the Clinton era.


The argument that Americans are more well-equipped for the brainy work of designing things and handling money while the Chinese are more well-equipped for dirty factory work is, of course, absolute bullshit.  When Ricardo (the father of free trade) came up with his theory of free trade, he spoke only of productivity.  The climate and geography of Scotland favors the production of wool (sheep).  The climate and geography of France favors the production of wine.  If the Scots concentrate all their efforts on producing sheep and the French concentrate all their efforts on producing wine and then they trade--it's more wine and wool for everyone involved.


There was no great difference, in Ricardo's world, in living conditions between France and Scotland.  Ricardo never made the case that Scotland was full of dirty, poor people so they should do dirty, boring work like following sheep around while the sophisticated Frenchmen were more suited to the refined art of wine making.  But that is essentially the case that "free-traders" are making today.  The argument one always hears is that China is full of unskilled labor that should be making shoes and bearings and lots of other stuff for America, while America's advantages are in design and services so we should concentrate on holding all the money (banking) and designing new and interesting products (Apple).  


But the fact of the matter is, a factory in China is no more productive than a factory in America.  American factories move to China not because the productivity is higher there but because the wages are lower.  It is not Ricardian free trade.  It is wage arbitrage.  Bearings are produced in China not because Chinese factories are more productive per man hour (the standard Ricardo was using) but simply because wages are far lower there.


This wage arbitrage does allow us to sell (and you to buy) incredibly low-priced bearings.  But it is not free trade in the Ricardian sense and, though this wage arbitrage does benefit the American consumer, it has been hell for workers in the U.S.  Nevertheless, it is time for the U.S. to vote on a new free-trade treaty (the TPP) and we will be hearing all about Ricardo again and the benefits of free trade.  Remember when you hear these arguments that these trade laws have nothing to do with free trade but are about extending corporate control over our government and laws, increasing corporate profits and allowing huge bonuses for CEOs.




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