Trade War, Act 17

[machinehead]

"Hynix Semiconductor Inc., the world's third-largest maker of memory chips, faces tariffs of as much as 45 percent after a U.S. trade agency found that exports from the South Korean company are injuring American competitors."

 

Micron strikes again

 

The record shows fairly conclusively (with occasional exceptions such as Harley Davidson) that companies which seek political protection to survive ultimately shrivel and die. Just look at the brain-dead steel and textile industries.

 

"The [iTC], an autonomous agency that measures the impact of trade on U.S. companies, also said catfish imports from Vietnam are injuring U.S. farmers, paying the way for tariffs of 64 percent and raising tension between the two nations."

 

All of this has a distinctly neo-Thirties ring to it. It's not an across-the-board shutdown of world trade such as the idiotic Smoot-Hawley Act caused, but it's the same philosophy at work. And the trend is moving in the wrong direction.

 

If you really want to make people poor, desperate, jobless and hungry on a mass scale, aggressive protectionism is probably the quickest and most effective method -- sort of like a lethal injection for the economy -- fast-acting, immobilizing and deadly.

[Bastiat]

This is how the boyz will try to fend off deflation - protectionism. Of course, it won't work but they don't know that (and I suppose neither do we).

[Pee Brain]

This is how the boyz will try to fend off deflation - protectionism. Of course, it won't work but they don't know that (and I suppose neither do we).

 

good thought. comstock partners has a chart showing the stages to doom and tarriffs and protectionsim are indicated. real beginning of the end if trade wars develop.

[alceringa]

DRAM trade wars have been raging since at least the late 1970's. My memory (no pun intended) on this may be slightly off, but I believe the first big international spat arose in 1985 between US manufacturers and the Japanese. In that case, the claim by US manufacturers was that not only did their government, as in this case, illegally subsidize the Japanese suppliers but also that US manufacturers were also illegally denied access to domestic Japanese markets. In any case, by the time the suit hit the news headlines, the damage had already been done. First INTC and then AMD (which I worked for at the time) pulled the plug on DRAM manufacturing. At that time AMD's DRAM was arguably the most technologically advanced available, but could not be sold in Japan simply because it was "Made in the USA". TXN was left as the sole US source for a while. Then, the best minds in the DRAM business went on to MU. Whatever one may think of MU as a stock, its ability to survive and even prosper as company in the cutthroat DRAM business is truly astonishing. Eventually the Korean's mimicked the Japanese approach to building the DRAM business, literally building entire cities dedicated to DRAM production. The influence of the Japanese in DRAM's declined in the 90's much as the USA's had in the 80's. MU's action against the Korean's is likely meritorious, irrespective of any political aspect it may have associated with it.

 

The point of this rather long-winded discussion is that stoolies should realize that the DRAM wars have been going on for some time. The action taken by the ITC is just one more skirmish. In that sense, it does not represent a new thrust by Shrub, et al, in his administration's protectionist trade policies.

 

The "catfish wars" on the other hand, is an entirely different matter altogether. Catfish may not have the "sex appeal" of DRAMs, but it is a prime example of the worst aspects of the "law of unintended consequences". The rise of the American catfish farming industry began in the south in the late 1960's, mostly through the encouragement of the USDA.

 

A college acquaintance of mine in the early 70's, who was studying biology with the intention of become a physician, was forced to drop out of college and return to the family farm in southern Mississippi when his father unexpectedly died. Not really wanting to be a cotton farmer to begin with, he immediately signed his acreage up for a USDA program that paid farmers not to plant their crops. This mis-guided program was intended to keep domestic cotton prices artificially high by limiting supply. After a two years of being paid by the government to do nothing he became bored, bermed half his fallow cotton acreage and turned it into one of the first large-scale experimental catfish farms. Not only did he continue to receive payments for not planting cotton on that land, he received financial and technical assistance from the USDA as part of a program designed to encourage farmers to diversify into aquaculture. Eventually, with several other interested farmers, he helped found one of the first co-operative catfish processing plants and farm-raised catfish marketing organizations.

 

I once visited his facility. Working conditions were shockingly dangerous and barely sanitary. Most faces in the processing room were old, female and black. Wages, at least at the time, were solely "piece work", paid in cash daily based upon how many trays of catfish fillets the worker produced. Few workers wore protective garments of any kind such as safety glasses or leather gloves. The reason was not due to indifference, but rather because such things slowed their work.

 

By age 30, he was a multi-multi millionaire. A small part of his success was his own determination and willingness to take risks. However, the majority of his financial success was a result of government largess. Not having to worry about such cost adding irritants as safety regulations or union activists helped, too. He later returned to college and became a cardiologist, one of the few who achieved financial success before taking up medical practice, not after.

 

One would hope that since the 1970's working and sanitary conditions in these processing plants have improved. Evidence given before the ITC by the catfish farmers and processors is that 13,000 jobs are at stake "in some of the least-prosperous areas of Arkansas, Mississippi, Alabama and Louisiana." For many workers at these plants, that job may be their only hope for work of any kind. However hellish the filleting room may be today, working there is better than the alternative, which is no work at all.

 

No doubt my acquaintance's experience is similar to others in the industry. The government was his partner in his own financial success in the past. Today, he pays his taxes, he employs people and he likely writes checks to the catfish farmers PAC. When he needs help from "the government", he expects to get it.

 

One would imagine working conditions within the Vietnamese catfish processing industry are equally suspect as they are in the USA. Ultimately, however, the "catfish wars" are not about protecting the livelihoods or safety of the workers. It's probably not even about "global protectionism" as an abstraction, though clearly there are other prime examples, especially from Shrub's record.

 

It's about protecting the ?fat cats? of the industry.

[machinehead]

Thank you for that GREAT historical perspective, Al. Who'd a thunk a Stoolie would have personal experience in both the DRAM and catfish industries? If anybody can produce chipped catfish, it's you.

 

Hey, I don't doubt that Hynix DRAM is state-subsidized by Korea Inc. They've faithfully copied the Japanese mercantilist mentality, which has left Japan an economic basket case. In his latest book Adventure Capitalist, Jim Rogers offers some scathing comments on the limitations and probable failure of the Korean economic model.

 

An argument can be made that if hapless Korean taxpayers are willing to send us below-cost DRAM, that's a wonderful thing for every American business other than MU, and a net benefit to the country. If this were a duel, after Korea clumsily shoots itself in the foot and goes hopping about on one leg, Uncle Sam emits a triumphant cry and slices off his own nose in retaliation.

 

The catfish industry sounds like a case where competitive advantage is conferred by low labor rates and low land values, which third-world countries have in spades. Subsidizing the U.S. domestic industry, then protecting it with tariffs, just repeats the failed models of the U.S. sugar and peanut industries. The good ole boys in South Mississippi are clever enough to exploit the "political poster child" value of their poor black female workers to the max, but I ain't buyin' it. They're ripping me off.

[Pee Brain]

more fish stories

 

well here is the type of person they are competing against.

 

about 20 years ago i was in school in tokyo and took a trip to the south to work on a tea farm. i met a guy whose dad was head of fisherman's union. (if we ever meet ask me about the time we went to the "house of ill-repute"). mama mia!

 

anyway, this guy first got paid to dredge the harbor/bay/whatever. so then used the sand in his contract to build a seawall of some sort. he then but this big net behind the wall and started farming fish in the ocean. i remember going down to the dock in the morning and seeing them scoop out these huge fish in the dark and the light from the boat made them look like silver bars, except more valuable by the pound .

 

they loaded the fish into the back of trucks in water that was regularly oxygenated.. the fish were driven to market and essentially arrived FRESH. they were then sold and were probably on someone's sushi order that night in tokyo.

 

ill never forget that... that guy made money coming and going, and he didint even have to feed the friggin fish. if i had to bet on a deadbeat catfish farmer vs. the japanese entreprenuer, id take the latter... however, he actually could end up competing against Uncle, which is a whole different story.

[EasyAl]

There is another area for trade friction: textile sector

 

Trying to stem a flood of imported gloves, dressing gowns and bras from China, the U.S. textile industry intends to seek trade relief under a never-before-used provision that China agreed to when joining the World Trade Organization in late 2001.

 

In a petition to be delivered Thursday, the industry will ask U.S. trade officials to impose a 7.5% annual cap on the growth of imports of those products -- as well as on the knit fabrics that are used to make such items as golf shirts.

 

"China has embarked on the greatest export surge in textile and apparel history," said Cass Johnson, a trade anal cyst for the American Textile Manufacturers Institute, a Washington lobbying group.

 

Should trade officials side with the industry, caps could be imposed within three months. Caps couldn't come soon enough for many U.S. textile makers, which have been rocked by imports and sluggish consumer demand during the past few years. Since January 2001, the U.S. has shed 26%, or 271,700, of its textile and apparel-manufacturing jobs, according to the Labor Department.

 

Still, showing the direct link to China isn't as simple as some may think. The textile industry points to January 2002, when quotas were lifted for some Chinese-made textile products. Since then, bra and glove imports from China have more than tripled, according to Commerce Department statistics.

[machinehead]

There is another area for trade friction: textile sector

 

Trying to stem a flood of imported gloves, dressing gowns and bras from China, the U.S. textile industry intends to seek trade relief under a never-before-used provision that China agreed to when joining the World Trade Organization in late 2001.

 

In a petition to be delivered Thursday, the industry will ask U.S. trade officials to impose a 7.5% annual cap on the growth of imports of those products -- as well as on the knit fabrics that are used to make such items as golf shirts.

 

"China has embarked on the greatest export surge in textile and apparel history," said Cass Johnson, a trade anal cyst for the American Textile Manufacturers Institute, a Washington lobbying group.

 

Should trade officials side with the industry, caps could be imposed within three months. Caps couldn't come soon enough for many U.S. textile makers, which have been rocked by imports and sluggish consumer demand during the past few years. Since January 2001, the U.S. has shed 26%, or 271,700, of its textile and apparel-manufacturing jobs, according to the Labor Department.

 

Still, showing the direct link to China isn't as simple as some may think. The textile industry points to January 2002, when quotas were lifted for some Chinese-made textile products. Since then, bra and glove imports from China have more than tripled, according to Commerce Department statistics.

The U.S. textile industry is the longest-running corporate welfare case in history. Roger Milliken has the Carolina congressional delegation in his pocket, and has kept this quota-driven scam going for decades. Probably no single person on earth has done more to promote third-world poverty.

[EasyAl]

U.S. Lawmakers Ask for GAO Investigation of China's Yuan Peg

 

July 24 (Bloomberg) -- The leaders of the U.S. House and Senate small business committees are seeking a federal study of how China's pegging of the yuan to the dollar is affecting the U.S. economy.

 

Representative Dan Manzullo of Illinois and Senator Olympia Snowe of Maine, both Republicans, requested the General Accounting Office, the investigative unit of Congress, report on whether the Chinese government is hurting the U.S. economy by manipulating the yuan's value.

 

I think competitiveness of Chinese primarily comes from the low labor cost. Even if the exchange ratio of Yuan moves up 100% against the dollar in 5 years, the US will still have large trade deficit with China. From Chinese point of view, the trade surplus with the US is exaggerated since China has to import a lot of goods from other countries to make the products that are exported to the US.

[machinehead]

Good tie-in, Easy Al. The "Yuan pegging" investigation is being pushed by -- get ready for it -- the textile industry and the National Association of Manufacturers.

 

During Al G's Q&A last week, it was positively eerie to hear Senator after Senator spouting the little sound bites from the NAM position paper. These empty suits can be programmed like robots. Too bad it's just "Garbage In = Garbage Out." :cry:

[EasyAl]

Machine:

 

I just thought it is funny. To be polite, the accusation that China's pegging yuan to US dollar is hurting the U.S. economy is at least a simple minded. If I remember correctly, the pegging ratio, 8.25 yuans to 1 US dollar was established in 1992. During Clinton era, when strong dollar was considered to be a national interest, no a single politician complainted about it. Between 1997 and 1998, when Asia financial crises took place, China and Hong Kong are the only two countries in the region that did not change the currency ratios to dollar. I remember there was a big fight between Hong Kong government, who were determined to keep the peg, and hedge funds, who were trying to drive Hong Kong currency down to profit from their short. The battle ended with Hong Kong government's puchase stocks and, a few days later, shockwaves from LTCM blowup. In any case, Clinton Adminstration actually praised China for maintaining the fixed exchange ratio and stablizing the situation in Southeast Asia. Over the last 11 years, the Yuan and dollar ratio has not changed a penny. When dollar rises and declines agains Euro, Yuan also increases and decreases by the same percentage. How can an intelligent and honest person suddenly accuse Chinese manupulating their currency. If anything, the pegging of Yuan to US dollar makes it difficult for the US to devalue its own currency.

[Captain's Log]

"Hynix Semiconductor Inc., the world's third-largest maker of memory chips, faces tariffs of as much as 45 percent after a U.S. trade agency found that exports from the South Korean company are injuring American competitors."

 

Micron strikes again

 

The record shows fairly conclusively (with occasional exceptions such as Harley Davidson) that companies which seek political protection to survive ultimately shrivel and die. Just look at the brain-dead steel and textile industries.

 

"The [iTC], an autonomous agency that measures the impact of trade on U.S. companies, also said catfish imports from Vietnam are injuring U.S. farmers, paying the way for tariffs of 64 percent and raising tension between the two nations."

 

All of this has a distinctly neo-Thirties ring to it. It's not an across-the-board shutdown of world trade such as the idiotic Smoot-Hawley Act caused, but it's the same philosophy at work. And the trend is moving in the wrong direction.

 

If you really want to make people poor, desperate, jobless and hungry on a mass scale, aggressive protectionism is probably the quickest and most effective method -- sort of like a lethal injection for the economy -- fast-acting, immobilizing and deadly.

This probably is probably a hollow victory as most Electronic assembly is not carried out in US. Asia pacific rim is board assembly houses and they will buy direct not from importing into the US.

 

Globalization is great provided your are on the winning side of it. Unfortunately from manufacturing side, US is loosing out on wage costs. China has no social costs factored into their wage structure so we cannot compete on lower value added manufacturing.

 

I agree with your point that political pressure for protectionism will increase.

[stevieo]

I was recently talking to several shop owners in New York City's garment district and they complained that the tariffs on fabric are high enough that it's cheaper to import the finished products--many of which have low or no tariffs--than to import the fabric with which to make the clothes, nevermind the added cost of manufacturing the clothes here. I haven't verified this, but it's an interesting take on the effects of China's favored nation status and how special interests make for a warped system of tariffs. One guy metioned the labor unions as the basic cause of the demise of the garment industry, which traditionally is a farily low wage industry, but these upside down tariffs discourage any chance for the US to compete, sealing the industry's fate. How import quotas are supposed to solve these basic problems (wage competition and upside-down tariffs) is beyond me--it's clearly not targeted at protecting the industry as a whole.

[Guest]

One guy metioned the labor unions as the basic cause of the demise of the garment industry, which traditionally is a farily low wage industry, but these upside down tariffs discourage any chance for the US to compete, sealing the industry's fate.

Blame Norma Rae? Sorry...I could not resist... :grin:

[machinehead]

... it's cheaper to import the finished products--many of which have low or no tariffs--than to import the fabric with which to make the clothes ... these upside down tariffs discourage any chance for the US to compete, sealing the industry's fate.

The same pattern can be found in other parts of the HTSUS (Harmonized Tariff Schedules of the U.S.). The duties are lower on manufactured articles made of metal than on raw metal sheets ... thanks to our 'friends' in the brain-dead steel industry.

 

The HTSUS is on the U.S. International Trade Commission's website. Pick any chapter that interests you, and read through the bizarre, trifling distinctions between items that can produce large differences in tariff rates. We're a LONG way from a simple, flat tariff rate:

 

http://dataweb.usitc.gov/SCRIPTS/tariff/toc.html

 

Llewellyn H. Rockwell Jr. of the Ludwig von Mises Institute isn't fooled:

 

"For all their rhetoric about free trade and free enterprise, you can always count on the Republican Party to back a protectionist plan if it is supported by a big business with good connections. The Bush administration has followed in the footsteps?of the previous Bush administration and even the Reagan administration?and most famously the Hoover administration?in violating its supposed principles to help its friends.

 

"Who benefits from mercantilism is no mystery: look at the list of lobbyists and signatories to the complaints."

 

Mercantilism USA