Tuesday, 10 July 2018 14:14

Cost of labor main reason for US trade imbalance not tariffs

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workers inexpensive 8According to President Donald Trump, the United States cannot compete in global trade because of import tariffs. Ultimately, the president says, the cost at the market is too high for American products. But, is this the only issue for whatever deficit this country might possess as we engage in a trade war of sorts with our closest allies and against one major competitor, China?

According to Tulane economist, Peter Ricchuiti, there are a number of reasons for the inbalance and not just tariffs.  

Below is part four of a conversation I had last week with the Tulane professor. You can read the transcript of that segment and watch the entire interview segment on the video, also below:

SABLUDOWSKY: So Tim Allen Matthews says but how come my next-door neighbor has to sell something three times higher to make a profit than China sending across an ocean for cheaper?

 

Dr. Peter Ricchuiti Tulane Business School--stocks, Louisiana, US eoonomy

Peter Ricchuiti discusses US economy

RICCHUITI: well its first of all it's gonna get it's gonna get worse, because now if he's making something and steel or aluminum or any of those costs, he's gonna have to pay more--to make it and he's gonna have to sell it for a higher higher level.  I don't, we're just gonna have to we get to the point Steve where some things we do very very well and some things can be done very cheaply.  we are not gonna make Christmas ornaments in the United States anymore.  that's ridiculous, but we have all the breakthroughs in technology, and I'd rather be in our position than position where every was a commodity. you don't want to get into a commodity business you want to get into value-added businesses which is a one of the things things Louisiana has always been a little bit off on. you know we have all these chemical plants for instance but we the people that make like pool supplies, you know the chlorine business, that those chemicals are going abroad to be for the value-added production and so I think, you know that's--Louisiana's the great microcosm of that that exact situation. 

SABLUDOWSKY: what is the reason that they're going across seas to China and Asia? I mean I I'm a big fan of Shark Tank. Watch it as often as I can, I've seen some some of the some of the programs five- ten times. you know not exactly, you know what's gonna happen, but you know they always are talking okay-- well you know shipping over to to China manufacturers.   China so is it the labor cost? I mean is that the bottom line that the labor cost is just so low in these underdeveloped and the countries like China which is not really underdeveloped now, they're just can't compete? 

RICCHUITI: You got it.  It's almost all labor costs, and and you know because we have better resources than they do physical physical resources, and I don't know, you look at those labor costs and one of the reasons China's been able to do it is--they had all these people in rural China and little by little they're moving them into the city to be workers, but the funny part is China's now nervous about countries that are more, they're less developed than themselves being able to out price them. you know you look at, for instance, you know I'm originally from Boston, and you you know we were the head for textiles for many many years.  you know we, all those mills there up in Massachusetts, and then the South came in and they had lower cost production because they were non-union and cheaper places to live and so we lost all of that textile to the south and then the next wave was we lost all of it to both the Caribbean and and China. so it's a, this idea of going to the cheaper labor has been around forever. 

SABLUDOWSKY: okay so that now just happens to be Asia and I would imagine that pretty soon be Africa? 

 RICCHUITI: yeah oh I think that would be a good bet and you know we do, uh, I run a startup program 25 years ago called Burkenroad reports, go to Burkenroad.org-- the students write investment research reports on companies in the in the south and had great luck--we sent 750 students off to the investment world and that's been, that's been great, but we we were visiting a company that makes sporting, sports sportswear and this was a perfect example that most people--I wouldn't have got it unless I had the tour--is at the back door they had cotton coming in, bales of cotton and then the next step there they they were turning it into into fabric, and then the third step is that they were cutting the fabric into what it's got to be a shirt or something like that --those were all done in the United States because they didn't require a lot of labor.  Then after all that, they get shipped in a big box to the Caribbean where they're sewn and that is a labor-intensive part of the part of this and then they when that's done the box comes back to the United States and it's sold here. so give me some, so not everything is outsourced. it's just the the labor sensitive parts of the parts of the curve.

 

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