In view of the xenophobia that seems to be rearing its ugly head in various parts of the world, I broach this topic with hesitation. To be very clear from the outset, I am not an opponent of international trade. I do think there need to be controls and safeguards, and the ideal should be ‘fair’ and ‘managed’ rather than so-called ‘free’ trade. I think it is in the interests of any nation to develop a broadly based network of production to enable self-sufficiency in the event of external conflict. And moves to weaken sovereignty and democracy (such as through the Trans-Pacific Partnership Agreement and similarly notorious “trade” deals) need to be resisted. When it comes to the negative impacts of global capitalism, I am not inclined to privilege the interests of disgruntled westerners over workers in lower-income countries. Many westerners, judging by post-Second World War voting patterns, appear to have thought it perfectly okay for much of the world to be poverty-stricken and war-ravaged just so long as they retained their relatively high-paid jobs. It’s not clear why the workers of any particular country have the right to a job or income over anybody else. If somebody is going to miss out, why not westerners who only now react against the social and ecological calamity that is global capitalism, and even then in a misguided manner? The problem is the existence of war and environmental destruction per se; poverty amidst plenty per se; exploitation per se; the fact that many who want decent living conditions and the opportunity to contribute to society in a meaningful way are denied their chance. The mistreatment of a westerner is abhorrent; the mistreatment of anybody else, equally so. Having spelled out my starting point, I want to comment on a statement tweeted out by Donald Trump (hat tip to Matt Franko, who reproduces the actual tweets in this post).
Here are the tweets in consolidated form:
The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies wanting to sell their product, cars, A.C. units etc., back across the border. This tax will make leaving financially difficult, but these companies are able to move between all 50 states, with no tax or tariff being charged. Please be forewarned prior to making a very expensive mistake! THE UNITED STATES IS OPEN FOR BUSINESS.
As with anything Trump says, it is unclear whether the statement comes with genuine intent, but for present purposes, we can take it as read. Setting aside the low corporate tax bias, there is, in my opinion, a degree of legitimacy to one aspect of the policy position expressed, though also a hole (or double standard) in it that would limit any benefit it could have for US workers.
The legitimate point is this. Corporations that relocate production to low-wage regions with the intent of selling back into the high-wage region are, in a sense, ‘free riding’. Every consumption-goods-producing firm wants to sell its product into a relatively high-wage market where consumers, due to the higher wages, have the capacity to pay higher prices. The firms want access to the high-wage market. They just don’t want to pay the higher wages. If they can get away with it, they will gladly place their production sites where wages are low and sell the resulting product where wages are high. The dynamic set in place, globally, is a race to the bottom on workers’ pay and conditions.
But the statement is also misleading and to a degree empty once the misleading aspect is taken into account. What is misleading is that there is much the same dynamic in a federal system (such as the US system) to the extent that pay and conditions and other relevant regulatory requirements are determined at the state rather than federal level. When corporations relocate production to low-wage states with the intention of selling the product back into high-wage states, they are basically free riding on the demand for consumption goods that is created in the high-wage states. This is very similar to the practices of a multinational corporation that engages in this behavior globally. Again, a race to the bottom on pay and conditions is set in place as states try to entice corporations to set up inside their boundaries.
I do think there is a clear distinction between this kind of activity, in which a corporation relocates production outside its chief target market(s), and what might be called genuine international trade.
The multinational corporation that locates production in one area to sell into another essentially conducts a transfer of resources internal to itself that bypasses whatever competitive pressure might apply when exporting products in a more conventional way. The competitive pressure that applies in export markets will tend to reduce the price markup over wages. But if this competitive pressure is bypassed, it will not be surprising if the price markups for corporations with substantial market power are extreme. Either the workers in the low-wage country will be drastically underpaid relative to the product’s price or consumers in the destination market will be charged excessive prices. In all likelihood, a combination of these two things will occur – both ‘super exploitation’ and over pricing.
In contrast, a locally owned private corporation or government-owned enterprise that engages in international trade locates production in its own country, pays wages commensurate with the level of development in its own country, and attempts to export its output into high-wage markets. The danger of super exploitation will be reduced if workers have a greater capacity to win concessions when pitted against domestic, rather than foreign, capitalists. The scope for over pricing will be narrowed provided competitive forces are operative in export markets.