Originally posted by SIK1
The decline of manufacturing definitely is a bad thing for the United States. If you are not manufacturing products then all you are doing is consuming products. The United States is already the largest single consumer market in the world, if it was not for our manufacuring that we still have helping offsetting the trade deficit that we currently have we would be so far in debt to foreign countries that you might as well plant a Chinese flag on the capital and call it done.
I guess it is all a matter of what you consider a bad thing. More efficient use of capital is a good thing. I am a firm believer in capitalism and free markets. If a local company costs $10 to make a widget, and another company in another country can produce the same widget for $8 (including shipping costs to send it around the world), one of two things will happen in the long run. 1) the local company will improve to produce the widget at $8, or 2) the company will go out of business and the capital will be redistributed to more productive uses. How am I any worse off?
The notion we might as well plant a chinese flag is ridiculous. It almost sounds like the comments from the late 80s with the Japanese. Look at the how well they did with investing our $. They sure did good with alll the capital investments in the US. Pebble Beach? Rock center?
Tariffs and taxes just create inefficiencies. As far as trade deficit, the can and do continue for long times. Last fall I had the opportunity to have lunch and speak with Art Laffer down at Torrey Pines. He has interesting comments and thoughts about trade deficits, and how the persist because of the strong financial structure of the US. Some of his writings on the subject are a worthy read.
With my job, we invest capital around the globe, both private and public investments. A main focus is highest return on our $ for the given level of risk. If I buy shares of company X, they better be focused on return. It is their duty. I own a piece of the company. They better not be trying to transact in $10 widgets, if the market for widgets is $8. If they do, I sell my shares with everyone else and the company goes out of business. Hell, my goal is to invest with the next guy that can produce widgets for $4. It will turn out to be good return, much better than the company that produces widgets for $10.
Edited, just found article from Laffer about trade deficit. I am only econ graduate, no phd. Art is pretty well qualified though.
Destination USA