Free trade cheerleaders casually dismiss concerns about a trade deficit. “No need to worry,” they reassure us. “All that money is reinvested back in America!” With a patronizing smile on their faces, they pat us on the head and send us off like little children, too unsophisticated to understand the complexities of trade and globalization. They are very much like the accountants at Enron.
What they’re talking about is the way in which the trade deficit is financed. Yes, all that money returns to America because, ultimately, America is the only place where dollars can be spent. So those dollars come back to purchase various investments, of which there are several kinds: U.S. treasuries, stocks and bonds in publicly traded companies, equity in private companies, and direct investment in the construction of factories and other facilities. The latter category is the only one that actually creates jobs, and such investments are quite small. The vast majority is spent on treasuries, stocks and bonds. In effect, we are selling off American assets to finance the trade deficit.
In the past, I’ve warned of a sinister consequence of this sell-off. (See “The United States Corporation.”) With ownership comes control. As an ever-greater percentage of America falls under foreign ownership, our owners gain more control over our companies and our public policy. I think we’re seeing a perfect example of the latter playing out in the debate over the auto industry rescue plan.
Isn’t it interesting that all of the foreign auto manufacturers have concentrated their assembly plants in the Southeastern states? Every time a new plant is proposed, every state has competed vigorously for the business, yet they end up in a Southeastern state without fail. Is it mere coincidence that they have located where the “Big Three” are not? They knew that by relentlessly attacking the American market with more and more brands, while virtually barring the export of American cars to their own markets, GM, Ford and Chrysler would eventually be driven to the point of needing the government’s help. Now that that time has arrived, we can see how their strategy is paying off with the influence they’re exerting through their block of southern senators, preventing any rescue of the domestic automakers. A whole block of senators, bought and paid for by Japanese, Korean and German automakers, has been turned against the best interests of the American economy, workers and taxpayers in a clever plan to destroy the industry and achieve total market domination.
Take away the Big Three and watch what happens to wages in those foreign plants as millions of additional workers are unleashed to compete for those jobs. Take away the competition of GM, Ford and Chrysler and watch the price of foreign cars soar. And with unemployment high back home, there will be great political pressure to shut down American operations and bring those jobs back.
If they successfully block the rescue of the domestic auto industry, Senator Richard Shelby of Alabama and his fellow stooges of the foreign automakers may be remembered as the traitors who kicked the American economy off the cliff and drove us into the 2nd Great Depression. But, of course, they’ll be hailed as the heroes of free trade and globalization.