What the world needs now in addition to love is wisdom.
Friday, February 19, 2016
King Solomon, Donald Trump, Fair Trade Post Five
Profit and greed are not the only reasons American companies outsource their products or move their plants to other nations.
In my previous post I stated I will explore what else happened to explain why many American Corporations decided to outsource their products to foreign suppliers because of inept free trade agreements negotiated and approved by Congress.
He who is greed for gain destroys his household (NATION).
But he who hates a bribe lives on. (Proverb 15-27)
I admit I am stretching the Biblical interpretation of this proverb to apply to this post. But then again am I? You decide.
Reality of Price Competition
If a company moves its production to another country which keeps happening in the USA, in a sense it will destroy the households of the people who had a livable wage job in the USA.
But does he (Corporation) even though he hates to be bribed, be instead intimidated to close its plant, in order to live on? This verse interpretation may have been meant to apply to a spiritual aspect, but it does in a certain sense also apply to the reality that most business products must be price competitive if it wants to “live on.”
This post will address competition as being a underlying root cause other than greed or profit of why many American businesses are forced to outsource in order to survive. I know because the Corporation I retired from at one period of time advertised to “Buy American,” and labeled their products “Made in America.”
However, after experiencing the reality and futility of trying to compete price wise with products made in China, our company changed its tune and our motto to “Buy American” disappeared into the Eastern sunset.
Numerous product lines and components were outsourced to be manufactured in China. In order to do so, our company financed building a plant and equipment in China and accepted the Chinese terms of ownership control which is to only own a 49 percent share of the plant in China.
Why did they? They did it because the terms were not negotiable. If they did not agree, they would not be allowed to sell American designed and engineered products in the China market. And if they did not meet the price completion in the USA from the competitor who imported the same product, they would be out of business.
The reason the product was the same is because the China manufacturer duplicated the American product design including mounting dimensions so anyone in the USA could easily interchange the China manufactured product with the American made product. The product had no patents and even if it did, by the time an international suit would go through the courts or WTO, the company would be bankrupted and out of business.
The end result was to change the company motto from “Made in America” to “if you cannot beat them, join them or go out of business.”
What is my Point
My point is to make known what Donald Trump said about US trade negotiators. The Chinese trade negotiators are smarter than American negotiators.
Also, I want to make clear that Chinese workers are not bad guys. Chinese workers are hard workers same as most American workers. Chinese workers are paid less because they have no choice. Same as American workers have no choice that they need to be paid higher wages than Chinese workers because the cost of living in the US is higher than in China.
A Chinese worker may earn $750 a month. An American worker has to pay $800 a month in rent alone. Rent ideally should not exceed one third of a household income. Ten years ago, a Chinese worker was paid $200 a month. Ten years ago, an American middle class worker made a higher wage than they do today.
In other words, free trade in time will increase the living standard of foreign workers and lower the living standards of American workers. What a great deal our trade negotiators and Congress approved for American workers, huh?
Retailer Big Box Stores in the USA
Anyone who wants to buy any clothing today and looks at the labels to see where it was made would probably witness a miracle if it reads “Made in America.”
Why, because big box stores make higher profits selling clothing made in foreign countries.
If for example they buy a shirt made in the USA, their cost might be $25. If they buy the same shirt from an foreign supplier, they pay $5 and put a $40 price tag, The store net profit is of course much higher assuming no one would pay more than $40 for the same shirt.
Is the big box store greedy? Perhaps, but then stockholders like to see big profits on their annual report and CEO’s like big salaries and bonuses, and, it costs a lot of money to build and maintain, stock, and beautify your shopping experience in a big box store. Meanwhile, many retail clerks work for minimum wages as they stock or sell foreign goods on big box shelves.
In My Next Post
I will explore the Germany economy, which also enjoys huge favorable trade balances. The reason is not wages. It is because German political leaders are smarter than our Congressional leaders. I will explain why.