Thursday, September 30, 2004
The NAFTA/GATT genie is out of the bottle!
The NAFTA/GATT genie is out of the bottle!
The exportation of American industries and jobs is a top election issue. If America supports the politicians that make us feel good about reintroducing economic protectionism in any form, we will enter an economic black hole! Kiss your savings, equity in your house, stocks and mutual funds, IRA’s 401K’s goodbye. Gone to inflation!
Now that NAFTA/GATT and globalization is firmly entrenched it is impossible to turn around and go back. It is no accident that deflation along with low inflation happened at the same time NAFTA/GATT and globalization was fully implemented. Offshore competition took away the ability of American companies to raise prices, in turn taking away the unions ability to increase wages. I don’t know about you, but I am paying the same for a pair of jeans as I paid in the 90’s, along with a whole host of other imported products.
As soon as tariffs, quotas, or other politically disguised mechanisms are reimposed, high inflation will ensue. It will be automatic! You and I will still need the products and the American manufacturers will not have the capacity to fill our needs. You and I will not have a choice but to pay the tariffs in the form of higher prices. Your purchasing power will automatically be reduced proportional to tariffs! Does this not equal inflation? Quotas, the same thing, scarcity of products will cause prices to skyrocket.
Hypothetically if the tariffs are reimposed it will recreate American jobs lost to foreign suppliers, in turn labor rates will sky rocket. Why? Because there will be severe shortages of American workers. America only has a 6% unemployment which is somewhere near a historical mean. Sure, in theory there will be lots of new high paying jobs to go around. Guess what, where is the money to purchase the new high priced American made products going to come from? Our savings will have long been tapped out by the first round of inflation. The high cost of American made goods, will automatically cause a second wave of inflation totally wiping out our savings. Unions long held back by free trade will have a field day. With the shortage of labor, unions will hold hostage the industries they serve. High interest/mortgage rates will choke off construction of all types. Business will not be able to borrow to invest in inventory, new products, and business expansion. The country along with the world’s economies will spiral down into depression.
The same scenario applies to job exportation. If penalties are imposed on companies that export jobs they will simply be made non competitive with the offshore companies. The offshores will simply come in and provide the products at lower prices which we have come to demand. The American producer will go out of business leaving a worse situation than currently exists.
This is not a prediction, its pretty simple logic. Just about any combination of politically popular fixes (Tariffs, import quotas, job export penalties) will have the same outcome. To make matters worse, when the offshore countries which I held constant in the above scenario start to retaliate by not buying our domestically produced exports, the world will understand the meaning of economic black hole!
If we go back to isolation it will set the USA and the world back for at least a decade. The next time you listen to political rhetoric that even hints of protectionism, think about the reality and blow it off as demagoguery. A politician (vote whore) will tell you anything you want to hear for your vote. The genie is out of the bottle and he’s not going back in! Ever hear of a rock and a hard place?
I don’t have the solution but I do know that protectionism in any form is not the solution!
Just for perspective, I was against NAFTA/GATT before it was ratified. At the time, I lead a team that created a new product along with the manufacturing process, in turn creating about 300 medium to low skilled jobs. I remember how proud I felt, creating those jobs. NAFTA/GATT made it very obvious that jobs could not stay here. The companies that employ us wound not be able to compete with the off shore companies. A gradual relaxation of tariffs made much more sense, our economy and people would have had time to adjust to the new reality.
The exportation of American industries and jobs is a top election issue. If America supports the politicians that make us feel good about reintroducing economic protectionism in any form, we will enter an economic black hole! Kiss your savings, equity in your house, stocks and mutual funds, IRA’s 401K’s goodbye. Gone to inflation!
Now that NAFTA/GATT and globalization is firmly entrenched it is impossible to turn around and go back. It is no accident that deflation along with low inflation happened at the same time NAFTA/GATT and globalization was fully implemented. Offshore competition took away the ability of American companies to raise prices, in turn taking away the unions ability to increase wages. I don’t know about you, but I am paying the same for a pair of jeans as I paid in the 90’s, along with a whole host of other imported products.
As soon as tariffs, quotas, or other politically disguised mechanisms are reimposed, high inflation will ensue. It will be automatic! You and I will still need the products and the American manufacturers will not have the capacity to fill our needs. You and I will not have a choice but to pay the tariffs in the form of higher prices. Your purchasing power will automatically be reduced proportional to tariffs! Does this not equal inflation? Quotas, the same thing, scarcity of products will cause prices to skyrocket.
Hypothetically if the tariffs are reimposed it will recreate American jobs lost to foreign suppliers, in turn labor rates will sky rocket. Why? Because there will be severe shortages of American workers. America only has a 6% unemployment which is somewhere near a historical mean. Sure, in theory there will be lots of new high paying jobs to go around. Guess what, where is the money to purchase the new high priced American made products going to come from? Our savings will have long been tapped out by the first round of inflation. The high cost of American made goods, will automatically cause a second wave of inflation totally wiping out our savings. Unions long held back by free trade will have a field day. With the shortage of labor, unions will hold hostage the industries they serve. High interest/mortgage rates will choke off construction of all types. Business will not be able to borrow to invest in inventory, new products, and business expansion. The country along with the world’s economies will spiral down into depression.
The same scenario applies to job exportation. If penalties are imposed on companies that export jobs they will simply be made non competitive with the offshore companies. The offshores will simply come in and provide the products at lower prices which we have come to demand. The American producer will go out of business leaving a worse situation than currently exists.
This is not a prediction, its pretty simple logic. Just about any combination of politically popular fixes (Tariffs, import quotas, job export penalties) will have the same outcome. To make matters worse, when the offshore countries which I held constant in the above scenario start to retaliate by not buying our domestically produced exports, the world will understand the meaning of economic black hole!
If we go back to isolation it will set the USA and the world back for at least a decade. The next time you listen to political rhetoric that even hints of protectionism, think about the reality and blow it off as demagoguery. A politician (vote whore) will tell you anything you want to hear for your vote. The genie is out of the bottle and he’s not going back in! Ever hear of a rock and a hard place?
I don’t have the solution but I do know that protectionism in any form is not the solution!
Just for perspective, I was against NAFTA/GATT before it was ratified. At the time, I lead a team that created a new product along with the manufacturing process, in turn creating about 300 medium to low skilled jobs. I remember how proud I felt, creating those jobs. NAFTA/GATT made it very obvious that jobs could not stay here. The companies that employ us wound not be able to compete with the off shore companies. A gradual relaxation of tariffs made much more sense, our economy and people would have had time to adjust to the new reality.
