Managed Trade beats Free Trade and Destroys U.S. Jobs

U.S. has huge Trade Deficit in Cars

The easiest way for an impoverished country to grow rapidly is to adopt a policy known as “Managed Trade.” This policy is almost the opposite of the “Free Trade” policy the U.S. has followed since World War II. By using managed trade strategies, countries limit their imports from the U.S. and maximize their exports. The result is a huge U.S. trade deficit that destroys manufacturing jobs in the Mid-West and other regions.

Managed Trade has two parts: first, imports are limited through a combination of tariffs and regulations that discriminate against foreign goods. Second, investment capital is directed into export-oriented industries that focus on U.S. markets. The price of these exports are held down by keeping wages for industrial workers artificially low. The outcome usually is rapid industrial growth fueled by a large, profitable trade surplus with the United States. I will address this second aspect of Managed Trade in today’s blog and the first one in my next blog.

In my new book, I show how foreign competitors used these policies to re-build after World War II.  Japan, France, Belgium, Italy, and West Germany followed these policies in the 1950s and 60s. For example, in Japan, the Ministry of International Trade and Industry (MITI) regulated major investments, picking out industries that might do well at exporting and directing the country’s major banks to give loans to those companies. The movement of people out of rural areas into the cities in the 1950s and 60s made the cost of labor very low compared to the United States.

New Competitors 

Then, in the 1980s, a new wave of export oriented countries, the Asian Tigers, followed the same managed trade investment strategies. In Singapore, strongman Lee Kuan Yew, who ruled the country as prime minister for thirty years, ignited explosive growth through export-oriented, policies.

In Korea, giant conglomerates like Hyundai and Samsung were given preferential access to bank loans and government subsidies to help them successfully export into the U.S. Corporations in these countries were very anti-union and the national governments used every means available to prevent strikes and keep labor costs down.

China’s Managed Trade 

A powerhouse in world trade since the late 1990s, China is an extreme example of managed trade. Most of China’s larges banks work closely with government planning agencies. Their loans go primarily to export companies controlled by former Communist Party officials, sons of former party officials, and talented men who join the party. Labor costs are low for two reasons: first, the only legal union is operated by the Community Party. Its’ funding comes from dues paid by the companies where the union has a presence. Finally, and this is a head shaker -it is common for managers from the companies to be the top officials in the local unions.

In addition, there are more than 200 million migrant workers from China’s rural areas who pour into the cities each year.  China has a place of origin residential policy which operates much like Apartheid did in South Africa. Residents from rural areas can work in urban industrial areas, but they are ineligible for housing subsidies or to live in locally built public housing. Many of them must live in dreary dorms provided by their employer. In 2007, Chinese industrial workers averaged just $1.14 per hour.

The waves of industrial exports launched, decade after decade, from these Managed Trade economies have flooded the U.S. with inexpensive industrial products – cars, toys, clothing, television sets. Domestic versions of these industries have declined or disappeared in the U.S. – leaving workers who do not possess college degrees with stunted career options and impoverished communities.

Next: Restricting Imports Creates Unbalanced Trade

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4 thoughts on “Managed Trade beats Free Trade and Destroys U.S. Jobs”

  1. Trump is ruining the country with his stupid, uneducated, backward beliefs in not just social issues and economics, but everything else as well. He didn’t even know that you cannot use military forces inside the US borders for law enforcement (or didn’t care). Was there ever a president more unqualified, more ignorant, and more unwilling to listen to qualified people? It’s one thing to be ignorant, but quite another not to listen to people who know. Does he have the good of the country at heart? Nope, and the sooner his “supporters” figure it out the better. Feh. Thanks for writing about this.

    1. I fear that the truth is that Trump stays up late watching Fox News and other right wing distortions of reality and by three in the morning he is boiling with rage – and the tweets go out. It really is like having your weird uncle Harold be the president. The second factor is Trump has been a bully his whole life, so acting like a bully is the only way he knows how to interact with people when he wants something. Note how he is attacking Amazon because the owner also owns the Washington Post, which regularly criticizes him. It is as if this were a tiny nation and a tin pot dictator was trying to squash opposition in the media. Government by personal whim.

  2. You imply managed trade has harmed the US. However, it has helped all the countries mentioned develop and become better and bigger trading partners not to mention allies supporting democracy, freedom of the press, human rights, etc. and the US world order. So overall a positive result for the world. Yes some US workers lost jobs but how could they ever expect to keep competing against the lower wages overseas and the majority of the US population benefited by access to cheaper products. Protectionism won’t solve the workers’ problem. What is needed is retraining and support and even relocation not subsidizing jobs with limited futures while harming the general good by increasing prices.

    1. I agree that mere Trumpian protectionism won’t make the economy better. However, we have really not helped industrial workers move on to other jobs and other lives. Things adjusted here in New England, but not so much in the upper mid-West. Agree that subsidized retraining is the right track and not subsidizing jobs that are declining. However, we can’t just go on with $600 billion trade deficits. The labor and environmental standards in trade deals have not been enforced, so the benefits to the general population in places like Mexico, China, and Brazil are not so great as the benefits for the owners of factories. I am continuing researching on the issue and will have some solid suggestions in a week or so.

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