By Mitch Gurney
May 15, 2011
If you carefully inspect your home plus the stores you shop at you’ll find them loaded with American brand name imports from clothing to Christmas and Easter decorations to electronic components and nearly everything in between right down to G.E light bulbs. This includes many of America’s most darling Wall Street companies from Apple to HP and even Ford and Chevy. ABC News with Diane Sawyer recently reported on this in a series Made in America and their revelations have taken some folks by surprise. Perhaps some of us have been buying our goods with eyes wide shut.
I’ve been encouraging people to inspect their homes and conduct store surveys for a while and have reported on this in detail over the last couple of years:
The ABC series Made in America began by removing the imported products from the homes of several participants leaving virtually nothing left right down to the kitchen sink. Diane Sawyer and her team expressed shock over these findings. They restocked the homes with made in America products and found it a bit of a challenge, not impossible, but a challenge. Some products like toasters, coffee makers, and most electronic gadgets are all imported. Interestingly ABC is owned by Disney. Most Disney souvenirs are made overseas but Diane Sawyer doesn’t mention it. They are also careful not to point out the obvious; that most of the cast out imported products were foreign made American brand products. ABC is now promoting a campaign encouraging us consumers to do our part to bring jobs back to America and lower our trade deficit by taking the “Buy American Pledge” and refuse to spend at least $20 on Chinese made imports. They encourage you to inspect the packaging and see where the products are made. I suggest you also note the brand name, in most cases it will be an American company.
It appears a movement is stirring with folks “taking the pledge.” The other day a friend sent me an email chain titled “Did you see Diane Sawyer’s report on ABC” encouraging us to take the pledge. But I have a suggestion, why don’t American companies take a pledge and bring back our manufacturing and hire Americans to make their products?
MSN (owned by a division of Microsoft) weighs in on the subject now in What if you had to buy American but takes a different pitch then ABC. Their angle is to spook the consumer with how disruptive it will be to the U.S economy if we were to buy only made in America products. And in truth it would be disruptive, for the MNC’s. The article gives an accurate glimpse into the complex global economy and the integrated relationships that exist between U.S MNC’s and their overseas affiliates. And it’s true as the article points out consumers prefer to pay less for goods whenever possible. Consumers are like companies who want to pay less as well by seeking cheaper labor and lower their production cost to improve their profits. And it’s true that production cost in 3rd world countries are considerably less in comparison to here in the U.S.
We are fully engaged in a global economy and we’ve traversed a long way down that road now. While the vast majority of America’s consumers slept most of our companies outsourced their manufacturing abroad with few of us noticing other than our jobs were vanishing.
The MSN article goes astray by presenting a ‘what if market economy’ scenario that no longer exists nor is practical by today’s standards. You couldn’t buy only American made products if you wanted to in that as we’ve established a hefty amount of American brands are Chinese made imports themselves. I suspect an underlying motive behind the article is U.S MNC’s need to thwart this movement. They’ve made large investments over the past 30 years establishing the infrastructure and moving their manufacturing abroad for consumers to pull some sort of coup d’étatnow. If the movement were to really gain traction most of America’s biggest Wall Street darlings and many smaller companies as well could see plunging sales.
The propaganda the corporate media and some politicians spin about China, India, and other 3rd world countries as the bad guys in this equation is a smoke screen. Think about it; who took the manufacturing over there in the first place?
The U.S average annual trade imbalance is about $550 billion. Excluding our imported petroleum products which make up about 18% of our total imports, at least 60% or more are American Brands imported as a consequence of outsourced manufacturing. If these products were made here the trade imbalance might not be so large. Since the products are not made here they are not fully credited to our GDP. As most understand our economy loses the wages our workers would earn if produced here and the tax revenue the states and Fed would collect from those wages. In addition it is legal for companies to register their product licenses and shelter income in tax havens abroad to avoid taxes.
Although I single out Apple here bear in mind this issue applies to all U.S MNC’s with overseas manufacturing. It’s been reported that Apple sold over 15 million iPad’s the first nine months when introduced – 15 million units assembled in China. The iPad2 when introduced sold more than 500,000 the first weekend. Only a fractional value of this production is credited to our GDP. Our national economy loses out on the wages and the tax revenue the government would have collected had they been made here. In addition companies like Apple can park their profits offshore to shelter the income from taxes.
Amazon’s retail price for the iPad first generation is $435 and the iPad2 is listed at $569. What does it cost to assemble in China? Would you say perhaps half the retail cost but probably much less? Let’s say Apple has sold 20 million combined iPad units by now. 20 million times an estimated half retail price for an average production cost of $250 equals about $5 billion dollars. As mentioned this is not fully credited to our GDP.
How many wage earners are required to manufacturer 20 million iPad units? Chinese company Foxconn a contract manufacturer with companies like Apple make the iPad, iPhone and IPod reportedly has about 450,000 employees. You can review their list of prestigious clients listed here. Other similar contract manufacturers like Foxconn in China and elsewhere often do not have their own proprietary products. They solely produce private label products for companies like Apple, HP and many others. Many of these contract manufactures are affiliates of U.S and other foreign multinational companies (MNC).
It’s important to understand the fundamental dynamics of the U.S – China trade partnership and how U.S. MNC’s benefit through this partnership in terms of the profits they derive beginning with cheap labor to the debasement of the U.S dollar plus other factors. These series of articles by Charles Hugh Smith can enlighten those wishing to gain a better understanding of this partnership:
To reap a fat [corporate] profit, you need to sell the [American branded] stuff being imported from the American-owned factories in China…the Federal Reserve, has run into a spot of bother…the only way to keep [corporate] profits rising is to crash the dollar, and doing that has squeezed the purchasing power of the debt donkeys. By exporting inflation to China and the rest of the world, the Fed has engineered massive profits for U.S. corporations (when profits earned overseas are stated in dollars, presto, a 10% increase) but it has also forced China into raising prices and fueled an oil and import-driven inflation in the U.S. which has caused millions of insolvent households living paycheck to paycheck to cut back on their consumption…
[U.S Fed Quantitative easing policies inject liquidity by]… boosting bank reserves (what QE accomplishes) [that] enables additional leveraged 20-to-1 (or more) lending. QE also keeps U.S. interest rates near-zero, which encourages a carry-trade of dollars flowing around the globe seeking higher returns and offsets to global inflation, which is certainly higher than officially recognized. It’s this flow of cash that’s driving up commodity costs.
The key dynamic is the linkage of the Renminbi (Yuan) and the U.S. dollar. When the dollar tanks, oil rises when priced in dollars–and thus it also rises when priced in Yuan. Thus the decline of the dollar and the consequent rise in commodities has directly fueled inflation in China, which is more dependent on a per capita basis on materials than the U.S…Yes, the Yuan peg has declined from the 8.5 range down to 6.5 to the USD, but it is still firmly pegged. As the cost of materials priced in dollars soars, it feeds higher input costs in China.
For the past three years, Ben has been trying to resuscitate the real economy via “the wealth effect”: if your portfolio of stocks is rising, then you’ll feel richer and your “animal spirits” of borrowing and spending will be aroused. The only proven way to goose stocks is to crush the dollar so overseas corporate earnings will be boosted by the currency depreciation (when transferred back into dollars, even flat profits look like they’re rising), and U.S. exports will be cheaper to our trading partners.
Flooding the U.S. market with liquidity and keeping interest rates at zero had another consequence, one adamantly denied by the Ministry of Truth: it sparked a carry trade in which cheap dollars could be borrowed for next to nothing and exported around the world to seek higher returns.
Unsurprisingly, much of this free money flowed into commodities, which retained their value as the Fed pushed the dollar down. Also unsurprisingly, oil exporters raised the price of their oil in dollars as the dollar tanked.
U.S MNC’s began outsourcing their manufacturing in the late 1970’s accelerating in the 1990s through to the present. There is an observable pattern in these charts of corporate profits (see chart ‘U.S Corporate profits 1980 – 2010’) and the decline of the dollar.
We find ourselves in one a hell of a fix. Whether we like it or not we’re fully engaged in an integrated and complex global economy. Workers around the globe compete for the same jobs. Companies can easily shift production to lower cost areas and countries eager for growth and improved living standards will gladly accommodate. Wages and production cost in the U.S and Western Europe face stiff competition from these lower cost countries. In the U.S wages have been stagnant and declining steadily for several years now. The impact of this global wage competition cast a huge shadow over the U.S standard of living with the effects becoming more obvious every day.
I don’t know what the future holds but situations are ripe for a global trade war but can it be avoided?
Historically when people and the institutions we create have felt threatened some defensive actions eventually follows. Can we transcend our past? The potential of a trade war…is in a real sense the first major test to globalization. It is in essence a clash between old world and new world business and governmental models coming to a head. It is also about striking a balance between the needs that best serve those of corporations versus those that best serve working people around the globe and …today transcend national sovereignty issues with governments finding themselves somewhere in between. It is a test as to whether capitalism can survive in this new world order and whether the world can find a way to share fully in its potential abundance.