I’ve written before about the plight of American industry, how this plight affects the country and its industrial base, and how it can possibly be addressed. I’ll not repeat those arguments here but instead focus on just one aspect of that plight. Sadly and regrettably our politicians have structured the economy such that our tax laws adversely affect manufacturing labor costs creating an imbalance with respect to foreign manufacturing. This non-level playing field favors importing goods from abroad rather purchasing those same goods from domestic manufacturers. In short we happen to be in the midst of an undeclared economic war and currently it’s a war we are losing!

It’s no surprise then that domestic companies have decided to globalize with the result that jobs and manufacturing facilities have been actively exported from the US. The result is unemployment and a steady depletion of our industrial base. What company in there right mind would set up manufacturing facilities in the United States when they can import those same goods, sell them cheaper while making higher profits hence the wholesale export of jobs and facilities.

Tax and tariff laws are just one aspect of this insane imbalance but are illustrative of the larger problem imposed by misguided policy decisions. Take labor costs for example. The cost of labor in the US imposes a heavy burden on US industry. You might think that I am just comparing wages but labor costs include many other components. In particular they include the cost of benefits (e.g., health insurance, unemployment insurance, holiday pay, vacations, etc.) and taxes which pay for social programs (e.g., social security, Medicare, schools, environmental regulations, retirement benefits, etc.) among other desirable programs. In summary the total labor burden on American industry compared to foreign competitors which don’t have these hidden labor costs is huge.

Personally I would like to preserve and, if possible, expand these benefits but as things stand now we’re in deep trouble. One bad consequence of these imbalances is the marginalization of traditional methods of stimulating a faltering economy. For example, a stimulus package that pumps money into the economy does little good for the domestic economy because most of the money ends up in the pockets of foreign manufacturers which stimulates their economy but does little good for us. In fact in the long run it actually makes the US economy worse because it strengthens foreign competing industries to the detriment of domestic industries while at the same time removing a source of revenue which supports domestic social programs.

So how can we fix this? One improbable way would be to only allow imports from countries which provide comparable benefits to their citizens. I believe that this “solution” is unworkable on a number of levels. First we already have treaties which supposedly require countries to maintain minimum environmental and labor standards but they’re generally ignored unless some political punishment is desired. In addition these treaties are effectively unenforceable. Second a simple way to bypass any such regulations or laws is available. If a country which produces a product in violation of any such laws will simply export their product to an intermediate before the product is imported into the US.

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Tags: Economics, free trade, politics

This entry was posted on Wednesday, December 9th, 2009 at 6:44 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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