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FOREIGN INVESTMENT, TARIFFS AND CITRIC ACID

July 31, 2015

FOREIGN INVESTMENT, TARIFFS AND CITRIC ACID

Not all industries in international trade produce bigger and better known products such as steel, plastics, cars, heavy equipment, paper and tires for export, though I find it hard to forget that Chinese rather than American steel was used in repairing the Bay Bridge in California in a mammoth project after an earthquake there several years ago, a travesty that made me a protectionist, albeit temporarily, but at the ready to rejoin the protectionist ranks when the next super trade travesty is unveiled. I will discuss the foibles of the citric acid industry in international trade after some preliminary observations on foreign investment and labor costs in this essay.

Foreign car-makers build factories in our country because labor here is controlled by right to work and other such labor suppression means, and is cheaper than at home (read wage inequality and lack of unions in our south, where most of such cars are assembled). There is an additional plus to building foreign cars here since cars produced here are within the market for their sale or lease, thus saving on transportation costs of the finished product had they been assembled at home (though increasing use of robots may tend to level the playing field down the road, offsetting such a comparative advantage).

For the moment it is fair to say that American labor, underpaid and underappreciated, qualifies for “coolie” status in our globalized economy. It appears that it will get worse before it gets better. I read recently that Iceland and Norway, both booming, were bragging that their labor makes 50% more in wages than the high-wage members of the EU such as Germany and others. That to my mind only reinforces just how far behind we are and also gives the lie to the desirability of bringing new foreign-based industries to town (see Volkswagen to Chattanooga) to avail themselves of coolie wages. Perhaps we should require (even without a union) that such foreign manufacturers pay wages here at no less than that paid to comparable labor at home. Why should we come on bended knee begging for coolie wage status (and dampen aggregate demand in the process)? Why settle for poverty status?

When such newcomers from overseas come to town, it is not necessarily a local coup politicians and Chambers of Commerce hacks can boast about; it can also be seen as a testament to our medieval treatment of labor and its dampening effect on aggregate demand. Some coup that is! When politicians arrange for their labor to work for slave wages (perhaps appropriately and largely in the south), I am not at all certain that they deserve reelection. While I am for foreign investment here, I am opposed to subsidizing it with coolie wage rates which are paid not by politicians but by those who labor.

Now to citric acid in international trade – Our trade partners, and especially the Chinese, dump and cheat and subsidize exports of steel and other such large export items but also commit breaches of our trade agreement(s) within smaller and more obscure markets as well. Take citric acid, for instance. This small and little-known substance in international trade is a commodity chemical. More than one million tons are produced each year by fermentation. It is widely used as a soft drink flavoring and as a pH adjusting agent in creams and gels, among other uses. Its main producers are Archer Daniels Midland Co., Cargill Inc. and Tate & Lyle Ingredients America (located in Dayton, Ohio).

Not only China but our good friend and neighbor Canada was rightly subjected to a continuation of duties on citric acid made there. The International Trade Commission agreed with petitioners that their dumping would likely continue or recur if the Commission’s previous order were revoked, so it was continued as of May 2009. Citric acid imports from China’s 18 producers dropped significantly as a result as the ITC acted on behalf of American producers who were victims of China’s predatory practices that benefit their producers and workers at the expense of American labor and business.

The Tate & Lyle Ingredients America facility located in Dayton was in serious jeopardy prior to the Commission’s order for tariffs but has since recovered nicely. This is not a matter of shutting down foreign competitors via government fiat; on the contrary, it is a matter of making sure that there is in fact honest competition by singling out illegal trade practices and adjusting tariffs and duties to bring equilibrium to the pricing process. Tate & Lyle provide good manufacturing jobs with relatively high pay. It is estimated that the Tate & Lyle plant supports four to five other jobs for each of its manufacturing jobs (think ancillary employment and stimulation of local demand, all to the benefit of the larger local economy as well).

Those who work at Tate & Lyle are not resting on their laurels just because of their ITC victory. They know that they must work together and with management to improve efficiencies in their competitive position in the market. This is competition at work – the antithesis of monopoly where competition is non-existent and efficiency is unnecessary.

So, again, hurrah for tariffs! They are a necessary tool in dealing with the predatory (who are legion) in international trade. But for such adjustments to insure competition among those subject to trade agreements, signatory states could be literally bankrupted and risk failed state status. The citric acid mess (before duties were imposed) is such an example and Lincoln’s dictum of the propriety of using tariffs “to protect nascent labor and business” makes more sense every day in this international den of greed and manipulation we call “international trade,” even though labor and business these days are not nascent but rather fully matured. It’s still a jungle out there, and we are well-advised to bring our guns such as tariffs along if we are to avoid serious economic injury.    GERALD    EFOR

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