China Doesn't Kill American Jobs, Politicians Do

I am simply exhausted with the notion that seems to have taken over both political parties that trade with China is somehow the source of US economic woes.

Remember that voluntary trade can't happen unless both parties are benefiting from each trade.  Remember the masses of academic evidence that the (largely hard to see) benefits of trade in terms of lower costs and more choice tend to be greater than the (easier to see) job losses in a few trade-affected industries.  But even if none of that is compelling to you, consider that our trade deficit with China is just 2% of GDP.  It's almost a rounding error.

If politicians want to know why lower-skilled laborers struggle to find employment, they need to look past imports from China and Mexican immigration and look at their own policies that are making it more and more expensive for businesses to hire people in this country.   I have written about this many times before, but some of the most prominent include:

  • minimum wage laws, rising to $15 an hour in many parts of the country, and increasingly draconian overtime rules, both of which substantially raise the cost of hiring someone.
  • minimum benefit laws, including expensive health care requirements in Obamacare and a myriad of other state-level requirements such as mandatory paid sick leave or family leave
  • payroll taxes that act as sales taxes on labor  -- we understand that cigarette taxes are supposed to reduce cigarette purchases but don't understand that payroll taxes reduce purchases of labor?
  • employment regulations, such as chair laws and break laws in California, that make employing people more expensive and risky
  • employer liability laws, that make employers financially responsible for any knuckleheaded thing their employees do, even when these actions violate company policy (e.g. making racist or sexist statements)**
  • laws that make hiring far more risk, including those that limit the ability to do due diligence on potential employees (e.g. ban the box) and those that limit the ability of employers to fire poor performing employees.

And this is just employment law -- we could go on all day with regulations that make life difficult for lower income workers, such as the numerous laws that restrict the housing stock and drive up housing prices and rents for these same folks who are struggling to find a job.

Let's say you live in California.  Who has killed more jobs in your state -- China or the California legislature?  The answer is no contest.   The California legislature wins the job destruction race in a landslide.   While California's high-tech community enjoys a symbiotic relationship with China that has created immense wealth, the California legislature works overtime to make sure low-skilled workers in the state don't benefit.

 

**Postscript:  Of all the factors here, I won't say that this is the largest but I think it is the most underrated and least discussed.  But think about it.  If you are going to be personally financially libel for ignorant, insensitive, or uncouth remarks made by your employees, even when you have explicitly banned such behavior in company rules and don't personally tolerate it, how likely are you going to be to hire a high school dropout without a good work history to interact with customers?

  • Jody

    All free exchanges benefit the decision makers of the exchange.

    When you go beyond this (still quite valuable) insight, you go astray as all free exchanges need not benefit everyone nor any identifiable subgroup.

    For example, if the owner of a factory chooses to outsource his factory to China, it benefits both the owner and the new employees. The old employees, however, are obviously made worse off as their revealed first employment preference has been taken from them. Likewise, there is nothing from that exchange that can be said about the benefit for the rest of the US population. Might be good (lower prices), might be bad (increased taxes to support laid off workers).

    Or as my favorite example - see the population of horses in the US.
    No one doubts that the sellers and purchasers of automobiles both benefited from the introduction and proliferation of the automobile. However, a very prominent third party to that transaction - horses - has been made much much worse off.http://www.cowboyway.com/What/HorsePopulation.htm

  • Jim Collins

    Your postscript gave me a laugh. A few years ago when "Occupy Whatever" was going on, I had to pass through an area where the protest was going on. One of the protesters asked me to join them. I told him that I was working and didn't have the time. He said "You're working, that's why I'm protesting. No jobs." I asked him where he lived and if he had transportation? He told me where and that he had a car. I handed him a card and told him to be at the address on the card at 8:00 AM Monday morning and he would have a job. He asked what it payed and I told him $12.00 per hour, benefits after 60 days. He got excited and asked if I was kidding and I told him that I wasn't. As long as you pass the drug test, the job was his. As soon as he heard "drug test" he started swearing at me. I just walked away.

    Last year a national restaurant chain opened a branch in the town where I live. Over 400 people applied for about 40 jobs. Out of the 400 only about 30 passed the drug test.

  • marque2

    And there is the rub. If the replacement, like the automobile you mention, or the printing press, opens up many more job opportunities than are lost, then we all benefit. I wouldn't want to go back to horse and buggy delivery. However, if the replacement, Chinese socks instead of US socks does not lead to an increased expansion of our economy, and the more productive use of our money, then we suffer, even if the price is lower. Lower prices for the unemployed doesn't benefit us, as you rightfully point out.

    One problem we have is that low skilled workers, the ones making the socks, have many more obstacles to changing jobs. They must take $15 per hour, they must comply with a zillion regulations designed to keep big sock in power. It isn't like the 1920's or even the 1980's where folks could just set up a shop and start selling radios, or home built computers. And then welfare is fairly comfy too, so between these three issues, we don't have folks looking for more productive ways to use their talents when the previous job goes overseas, we have folks that find the job market is closed, the welfare is nice, and it can be used to buy cheap Chinese socks, to keep the feet warm while watching Judge Judy all day on the couch.

  • McThag

    "All free exchanges benefit the decision makers of the exchange."

    And how many decisions do we get to make here anyways? The business forced to move its manufacturing overseas because of mandatory increases in labor costs didn't freely make that decision. Nor did the workers most likely.

    Although I've watched unions several times make a "we prefer 100% of $0 an hour" rather than accept a smaller than demanded raise from the company. Seems to me that minimum wage is the new unrealistic union demand and Congress is the union.

  • GoneWithTheWind

    You are over simplifying and leaving some things out. Suppose your wife and the bartender decide to indulge in some free trade. "Both parties are benefiting from each trade" but YOU are now unemployed. Would you still say no harm no foul? The problem with your evaluation is not everyone benefits but those who do have representation to protect their interest. You can put all the lipstick you want on this pig but the Chinese and big business benefits and the American worker and taxpayers lose.

  • Scott

    Foreign Governments providing artifiicially low priced debt to favored industries so they can price cut American competitors - doesn't help. Certainly agree that our own self-imposed regulations kill more jobs than international trade, certainly agree that the minimum wage is more harmful than international trade, but let's say Japan provides Fuji with essentially interest free debt, they scale up & decease marginal cost of production, therefore they can afford to price cut Kodak. Of course Kodak had its own management problems, and didn't innovate into digital etc., and of course "we" do the same thing here in the US with our own favored industries, and of course international free trade is morally correct because all people are created equal, etc. but all I am saying is that foreign governments funding private companies - even to their own disadvantage - can really suck, and it's often overlooked in the trade is good/evil debate.

  • Scott

    There you go, go right for the wife, even for an Internet troll that's true class you creep. I'm sorry you feel that marriage and employment and good comparable concepts. The problem with your evaluation is that "big business" and the "American worker & taxpayer" are most often the same thing. Try reading a book sometime.

  • John Moore

    You left out: illegal immigrants competing for low wages; H-1B replacements for American workers because the rules make them captive of the corporation.

    But, very importantly: free trade increases the global economy. That does not mean it is beneficial to everyone. This is especially true of free immigration, which would be/is suicidal for wealthy countries.

  • Gil G

    The free market analysis would be that the bartender is a better offer therefore she left you for him. You have to shape up or ship out.

  • irandom419

    California is a leader according to the NYT.

    http://www.nytimes.com/2016/07/31/opinion/campaign-stops/the-path-to-prosperity-is-blue.html?_r=0

    In all seriousness, I agree with you. Politicians don't address the issue how can I make more businesses pencil in. A coworker didn't see any problem with a business owner having to spend one day a week on regulatory compliance. The funniest thing for me is that people don't see business as subsidizing the poorly skilled who would otherwise be totally on welfare.

  • Broccoli

    The question I have is why does one need to be drug free, especially marijuana which is probably the drug the majority of the applicants failed the test for, to work at unskilled restaurant job? My guess is the company uses it as an indicator of a higher probability of unrelated bad traits in the applicant. Kind of like jobs that require college degrees even though the job skill set doesn't need it; it is a proxy for an IQ test and a proof that the applicant can finish something.

    Also, I wonder how many job applicants are serious for these type of jobs or just doing it to meet the unemployment or welfare job search quota the state may have.

  • Matthew Slyfield

    "Chinese socks instead of US socks does not lead to an increased
    expansion of our economy, and the more productive use of our money, then
    we suffer, even if the price is lower. Lower prices for the unemployed
    doesn't benefit us, as you rightfully point out."

    Of course you leave out a number of possibilities. A binary US economy either shrinks or grows due to Chinese socks is a drastic oversimplification.

    Even if the economy shrinks, it's possible that the economy would have shrunk even more without cheap Chinese socks.

    The biggest problem with the notion of "dumping" in international trade is the fact that if it were actually happening, the dumper would be doing certain damage to their own economy now in the hope of uncertain gains later.

    Of course, if China was doing that, if they were damaging their own economy to prop up ours, why on earth should we stop them?

  • steve

    I am surprised at the number of commenters who point to other government interventions as a justification for intervention in free trade. I would have thought more free marketers would haunt this site.

  • marque2

    Interesting point, but you are talking about something completely different than we are. And also to ignore the fact that a cheap good under circumstances can hurt us and make some claim about a binary economy isn't really valid.

    Besides, even if it is binary, economists go on about binary trade all the time, and binary production as well (should we produce guns or butter)

  • Jim Collins

    Insurance. Plain and simple. The job I was offering was in an industrial environment where there are some hazards.

  • Broccoli

    I was talking about the restaurant job.

    I understand why industrial jobs and jobs that require driving screen so heavily.

    I find hiring practices in general fascinating. Why would a restaurant spend a ton of money testing applicants? Is it because it is cheaper than having the local manager interview so many candidates, or is it for insurance, or is it because of some legal liability? In general, there are so many distortions from regulations, insurance, and liability in the hiring process,

  • marque2

    We don't have free trade, never did. What we have is a system, where the USA is relatively easy to other nations in regard to importing their products, but the other nations won't reciprocate and give our US companies a much harder time, unless they relocate a factory to their nation. In Free trade, I should have as good a shot of trying to find a buyer for my goods in the foreign country as they do in ours.

    And the 12000 page free trade deals, are free only in the Orwellian sense. If it were truly a free trade negotiation, you would need no more than three pages to spell it out.

  • marque2

    I have been frustrated with pot heads at restaurant type establishments. Frequently they are the ones that can't figure out your order no matter how many times you try - and then they get fired for incompetence. I try to be kind, because I want them to be able to succeed, but I know 20 customers having my issues, and the guy will be gone just for being too slow.

    Severe drunks tend to lose their jobs as well, nothing different.

  • marque2

    That is kind of the way dating works. You have to win your significant other. Maybe the government can come in and assign us all significant others, with strict quotas. - But I don't want to be in a dual-trans relationship. Sorry bub, we have a 2% quota.

  • https://www.facebook.com/ritchietheriveter Ritchie The Riveter

    While I agree with you on immigration, free trade benefits all those who exercise the initiative to build upon the opportunities it creates. OTOH, when one is led to believe they have a right to work the same job the same way in the same place for a lifetime and expect others to assure their prosperity, they might not benefit from free trade.

  • CC

    Mutual benefit is why both parties at retail say thank you. The politicians who rail against big business totally ignore that no one is forced to shop at Walmart or buy Exxon gas. There are alternatives.
    The incredible increase in rules recently stems from 1) lack of trust that employers are anything but careless and venal, 2) no concept that every regulation takes effort to enforce and 3) no concept that reduced wages or lack of jobs is also a harm that should be prevented. Finally, politicians seem to imagine that employees are slave labor and can't quit a company with bad working conditions. Any company that treats employees badly will start to find that productivity goes down and turnover goes up. Hurt employees mean that workers comp and insurance costs go up. They can either fix these problems or go out of business. It is largely self-correcting. If driving was treated like labor law, the maximum speed limit would be 10mph so that no one would ever die in an accident and there would be a traffic cop at every intersection.

  • GoneWithTheWind

    '"big business" and the "American worker & taxpayer"'

    Well, only in your dreams. When the Carrier company decided to move from Indianapolis to Mexico the workers were taxpayers but once the move takes place they will be unemployed. Are they still the "same thing"? No! Because "free trade" turned them into the unemployed. This has happened tens of thousands of times to tens of millions of American workers. It isn't the same thing.

    Here is the answer: Place a tax on everything manufactured overseas (including services) of 20%. After all we tax American companies a lot more. Than to encourage American companies cut corporate/business taxes to 0%. Kind of level out the playing field. You can still make your iphones in China but you will have to pay a 20% tax on the retail value of each one. You can make your cars (or parts of cars) in Mexico but when they come into the U.S. you pay 20% of the retail value. You can out source your phone/internet services to India but you will pay the federal government 20% of the value of that service.

    Second step: If you want "free trade" let's make it fair trade. China can sell us $5 trillion of their junk but they must buy an equal amount of our junk. That's why it's called "TRADE" and not "dumping". Mexico can build our air conditioners but they must buy an equal amount of goods and services from us. India can answer our phones and program our internet but they must buy an equal value of our stuff. Revolutionary!! Actual trade!

  • John O.

    Have you SEEN a import-export ledger? The types of trade that goes on between many countries is "imbalanced" because value has been added at some point in one country and not the other. Generally in the case of China they buy TONS of scrap metal that is shipped to them from the US. The scrap metal is viewed as low value because its not all that useful until its recycled into usable forms. One of the complaints of the US Steel industry was the exporting of scrap steel at higher prices than the US Steel recycle was willing to pay for it locally. It lead to the US Steel industry becoming increasingly uncompetitive when foreign mills could output the same amount of steel for significantly less cost and still at the same market rate for scrap steel. The major difference was the costs imposed on the US Steel industry made them uncompetitive (higher wages, higher mandatory employment benefits, higher taxes on employment) and had some of the costs reduced or removed, the Steel industry could have remained competitive with foreign competitors but unfortunately the government continues to impose more. The idea of imposing tariffs on the foreign steel during the Bush administration actually caused more economic harm as the higher price of steel only caused new construction to not use as much and instead use cheaper alternatives, which doomed the higher tariff on steel imports as it barely lasted two years as the situation became untenable. https://en.wikipedia.org/wiki/2002_United_States_steel_tariff

    Trying to get a trade deficit eliminated is idiotic because the economic trade is not zero-sum. Fair Trade would merely slow our economy and increase prices on both imported and domestic goods.

  • John O.

    A large amount of protectionism goes into "free" trade deals as well. Look at the TransPacific Partnership which seeks to impose US copyright law on the rest of the trading bloc because the influence of Hollywood in protecting its copyrights in foreign markets. The costs imposed on the US is minimal but the initial costs imposed on the rest of the trading block is substantial if it disrupts the local economic value of US made movies. Eventually the system would come to equilibrium but it would take quite some time and be very disrupted to foreign markets that are forced to adapt to the US copyright system.

    A truly free trade deal would just impost low tariffs on imports and let the free market settle it. However this is generally only seen in places that lack large amounts of natural resources like Hong Kong, Taiwan, and a few other nations known for their strong trading economy. In a large nation like the United States or a large common market like Europe, the idea of free trade that interferes with natural resource extraction usually ends up becoming bureaucratic in order to keep a balance in protecting domestic production while still allowing imports at low tariffs.

  • Johnnyreb

    Because pot heads will somehow stick their hand in the fryer if they are not drug free, that's why.

  • markm

    My viewpoint on this: If it was really about safety, the first test they'd require is to blow in a breathalyzer before starting your shift, and on coming back from lunch. Drunks are 10 times as common as stoners. Drunk is more dangerous than stoned - someone stoned on pot knows he is impaired and wants to do as little as possible, but all too often, alcohol gives delusions of competence, along with recklessness and aggressiveness.

    And most of all, a breathalyzer will tell you that a man is drunk _before_ you hand him the keys to a forklift. A pee test will get results back in a week or two, much too late if the employee is actually drugged to the point of being dangerous. And these tests are not designed to be able to distinguish whether the guy came to work stoned, or smoked pot Friday night a few weeks before the test. Drug tests are about controlling the off-duty behavior of employees, not about safety on the job.