After having spent a little time in Mexico and down along the Arizona border lately I can sympathize with the Chinese having to explain, justify and rationalize their manufacturing policies. While America pretty much opens the borders and hits Chinese goods with a 2-35 tariff, the Chinese have to explain why American goods should be charged 15% or so coming into their country. While American manufacturers have to pay the cost of complying with environmental and labor regulations, the Chinese can scoff at those concerns and operate as they please. And while American currency is floating on the winds of world affairs, Chinese currency is tightly controlled to subsidize their manufacturing by 25% or so. Justifying all of that to the rest of the world takes some pretty fast talking and some pretty deft tap dancing.
The US allows all of this because we have collectively rejected the economic theory that manufacturing, mining and agriculture create real wealth because they create tangible value, and we have decided that things are no different from services – that selling a $100 insurance policy to another American creates just as much wealth as creating $100 worth of manufactured goods. And we have picked and chosen from the theories of a guy named David Ricardo to twist his Theory of Comparative Advantage to something he would scoff at to justify buying everything we need from countries that beat their people down to slightly better than slave wages.
At least that's how we have rationalized allowing American manufacturing to lose 20 million jobs and run up trillions of dollars in trade deficits. Change the subject from manufacturing to agriculture, however, and the flips and flops will send you into vertigo.
Agriculture, it seems, is exempt from Ricardo's theories (even though he actually wrote about wine and sheep); and while keeping manufacturing on a level playing field is 'protectionist' – economic speak for 'ignorant' – the same does not seem to apply to agriculture. Farming has received $250 billion taxpayers dollars in subsidies over the last fifteen years – because it is critical to the economy, critical to our national defense, the right thing to do for the millions of average Americans working hard in the fields, and on and on. The same arguments that are simple-minded and economically ignorant when applied to manufacturing are clearly in our collective national interest when applied to agriculture. Go figure?
So now we go down to Mexico – the folks who signed onto NAFTA with us. Unlike our deal with China NAFTA is actually about free trade. No tariffs on either country's stuff going in either direction. (I have always thought it curious that those who advocate outsourcing manufacturing loudly proclaim the inherent goodness of free trade when our deals with China, India and Brazil are anything but free trade. We charge them 2-3 % coming in, while they charge us 15%, 35% and 39% respectively for our stuff going into their country. NAFTA is free trade – 0% in and out between us, Mexico and Canada – yet the economic wizards seem to lump all of them into one category. In fact, Mexico and Canada were really dumb to enter into NAFTA. They gave up the right to gouge the US with impunity that China and the others enjoy.)
To appreciate just how silly it is, listen to this Congressman griping about how, when the WTO nails us red handed for skewing agricultural trade with our subsidies, we respond not be reducing subsidies, but by subsidizing the other country's farmers too.
The Mexican farmers – and there are lots of them – look at the USA and they see … China. They see a country that underwrites farmers to the tune of $16 billion a year, slanting the playing field in produce so steeply the Mexican farmer has no chance of competing. To throw salt on the gaping wound, if the Mexican farmer can compete, he has to use US truckers because the lobbies for the teamsters union and American trucking companies have succeeded in preventing Mexican trucks from entering the US as NAFTA dictated they should. Then we take the whole farce to absurdity by slamming Mexico for allowing their folks to hop across the border to work illegally in American agriculture after we have done our level best to make sure there are no agricultural jobs left in Mexico.
No matter how you feel about free trade, Mexico, illegal immigration, David Ricardo and the Theory of Comparative Advantage, you gotta admit that pouring national treasure by the bucketful into farming while throwing manufacturing on the scrap heap just makes no sense. No amount of fast-talking and tap dancing can justify it. And it is awfully hard to defend the policies of the United States to the people in the Sinaloa region of Mexico. This is the heart of Mexico's agricultural region that once thrived, but now has become the center of the drug trade – where young people who used to find plenty of work on the farms are now turning to working for the narcos or jumping the border into the US to find jobs.