Mercantilism by China and Japan is Screwing America: Enjoy It or Fight Back!
January 19, 2011 | Business, Manufacturing, Uncategorized
China and Japan are destroying American manufacturing. The World Trade Organization WTO has rules about international trading that attempt to make free trade fair. Those rules prohibit many of the practices which are commonly used by China and Japan. For example, China’s currency is undervalued by 20% to 50%. Both countries end up with look alike products of items imported from the U.S. Both countries focus on taking over specific industries (Remember when the U.S. used to build TV sets? Remember we invented them?) Theft of intellectual property occurs frequently and export incentives are common and significant.
Mercantile trade practices, which are used by China and Japan, create uneven trade resulting in significant trade imbalances. If trade is uneven for an extended length of time the results are disastrous. During the last decade America has loss approximately 16,000 manufacturing companies and an estimated 500,000 jobs per year. The largest economy in the world, the United States is being undermined by supposedly friendly trading partners who are using unfair trade practices.
It was England who initiated the first large-scale approach to Mercantilism. Some of their policies were objected to by their colonies in America. These mercantile polices enabled three major powers in Europe, England, Spain and France to build major empires during the period 1500 and 1750. The United States itself used some Mercantile policies up to the end of World War II.
Austrian lawyer, Philipp Wilhelm von Hornick in his book “Austria Over All, If She Only Will” of 1684, identified nine items which he felt defined Mercantilism and made it an effective national economy. Those items are:
- Every inch of a country’s soil be utilized for agriculture, mining or manufacturing.
- All raw materials found in a country be used in domestic manufacturing.
- A large working population be encouraged.
- All export of gold and silver be prohibited and all domestic money be kept in circulation.
- All imports of foreign goods be discouraged as much as possible.
- When certain imports are indispensable they be obtained in exchange for other domestic goods instead of gold and silver.
- Imports should be confined to raw materials.
- Opportunities for selling a country’s surplus products to foreigners for gold and silver should be constantly sought.
- No importation be allowed for goods that are sufficiently and suitable supplied at home.
Mercantilism practices became less popular after about 1850, and after World War II became almost extinct. Until Japan built their national economy around the concepts. In addition, China has picked up the torch; utilizing many of the policies and has become a world power, primarily at the expense of America. Several other Asian countries are attempting to implement the same plan, primarily at the expense of the U.S. workforce and taxpayers.
Where is the outrage? Why is Congress and the White House ignoring this outrage. Where is Lou Dobbs when you need him? The balance of trade issue has been with us for decades, how many jobs, homes, communities and industries have to be loss before the United States of America takes action?
For those that do not realize it, we are in a trade war with some of our supposed partners. It is like any other war, we better start fighting to win. The future of this great country is at stake! Maybe Warren Buffett can help us, I think I will ask him for my next blog post.
Comments (2)
The United States has not had a current account surplus since 1975. We have not had a trade surplus with Japan since April, 1976. We have been in deficit with the EU since 1983. We have run trade deficits with both Russia and China for more than 20 years. How did America go from being the largest creditor nation in 1975 to the largest debtor nation by the end of the 1980’s? To understand what has happened one must go back in time. Prior to 1860 much of the Western World practiced Mercantilism. After 1860, led by Great Britain, Mercantilism was abandoned in favor of the teachings of John Locke and the free trade principles of Adam Smith. Trade barriers throughout Europe came down. A great debate on economic policy took place in America. Lincoln for instance was a Mercantilist. For the next 110 years the Western World basically traded with itself. Good flowed across the Atlantic and trade disputes if they arose were generally settled quickly. By 1970 the world was changing. The post world war II era produced the eventual rise of Japan as an economic machine. Goods started to flow from Japan to the United States and to Europe. The problem was that goods were only flowing one way. America for instance was banned by Japan from selling rice or apples to Japanese consumers. While disputes like this in many industries were festering, Japan was quietly becoming a world power in automobile and electronics manufacturing. Auto’s and electronics were exported out of Japan at an ever faster clip. By 1977 Japan was running steady trade surpluses with the United States and American politicians were raising alarms that Japan was simply practicing protectionism. What Japan was really doing is practicing a new form of Mercantilism which I have pegged, “Asian Mercantilism.” Japan was more concerned with full employment in Japan than the loud voices of western politicians. By the late 1980’s the United States and Europe were both running huge trade deficits with Japan. After 15 years of trade deficits America had found herself in the position of having gone from being the world’s biggest creditor nation to being a debtor nation. The rise of China over the past 20 years has given the world another Japan but this time on steroids. If Japan practices Mercantilism then China practices Supra Mercantilism: Goods are exported, imports are controlled. The currency is massively controlled, not free floating. Production is favored over consumption. With a population of 1.5 billion China has been able to give Mercantilism a whole new dynamic. What we have in the world today are two competing economic models for prosperity. We have the Western model with relies on the system of Free Trade and we have the Asian system with relies on a super sized form of Mercantilism. We have the West running trade deficits and the Asians running trade surpluses. China, Japan, and South Korea are the producers of goods while Europe and America are the consumers. Who is winning the battle between Western Free Trade and Asian Mercantilism? Asia is clearly the winner. The question going forward needs to be how we reverse a trend that is leaving America and much of the western World indebted and economically broken. What the West now calls protectionism, the Asians call Mercantilism
I can’t believe it. Warren Buffett’s article was pure political drivel. If he wants to pay more taxes no one is stopping him. Does he really think Obama can spend the cash better than he can?