Transcript tonelson

Wal-Mart
Business Ethics
Author
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Alan Tonelson
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A fellow at the United States Business and
Industry Council
The author of The Race to the Bottom: Why a
Global Worker Surplus and Uncontrolled Free
Trade are Sinking American Living Standards
The Problem
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Free trade agreements harm
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Small and medium-sized manufacturing
companies
Family-owned companies
Workers
Technological Impact
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China has been gaining market share in the
U.S. at the expense of U.S.-based producers
in a broad range of increasingly
technologically sophisticated manufacturing
industries, industries that have really formed
the backbone of the U.S. manufacturing base
Moved to China
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clothing
toys
sporting goods
furniture
automobile parts
tire
machine tools
ball bearings
electrical machinery
Also Moved to China
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big industrial machinery
construction equipment
agricultural machinery
semiconductors
telecommunications equipment
lasers that send light through fiber optic
communication systems
aerospace parts
Why China?
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a very large pool of very cheap workers
a very large pool of very smart folks who can
easily be trained and who work hard
no labor unions
no labor rights
an enormous unemployment rate
Unfairness
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Business costs subsidized in China
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Land costs
Taxes are very light or nonexistent
Fuel costs
Subsidies are illegal under world trade law
Consequences
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Jobs moving to China
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Not just labor-intensive industries
Also, information-technology and service-type
jobs
Problem
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If you lose the ability to produce things,
eventually you will lose the ability to consume
things
The Hollowing of Smokestack
America
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With manufacturing capacity and jobs moving
steadily offshore over the past 20-plus years,
the US simply lacks the wherewithal to spark
an export-led turnaround in foreign trade. In
all too many cases, the loss of US
manufacturing prowess has been a
permanent, or structural, erosion.
The Hollowing of Smokestack
America
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The list of “lost industries” -- from steel and
autos to textiles and even computers -speaks of a competitive dynamic that makes
it all but impossible for the US to recapture its
once leading market share as an industrial
powerhouse.
The Hollowing of Smokestack
America
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As I noted recently, that leaves the US on the
outside looking in when one of its formerly
large trading partners like Japan springs back
to life (see my 10 February dispatch,
“Rebalancing Made in Japan?” Stephen
Roach Morgan Stanley).
Underlying Fraud
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that China was a big emerging market for
U.S. exports and that U.S. workers and also
U.S. companies -- companies that made their
products here -- could profit tremendously
from the opening of trade flows with such an
enormous country like China.
Trade Deficit
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In December 2005, imports of foreign goods
and services ($177.2 billion) were fully 59%
larger than exports ($111.5 billion).
Moreover, it turns out that a -$70.6 billion
deficit on goods was cushioned by a $4.9
billion surplus on services. Within the goods
component of the December trade gap, the
disparity between imports ($149.6 billion) and
exports ($79.0 billion) was even larger.
Trade Deficit
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This underscores the daunting arithmetic of a
turnaround to America’s external imbalance.
With goods imports fully 89% larger than
goods exports, even if exports grow at twice
the rate of imports, the deficit on goods will
remain essentially unchanged.
In other words, just from an arithmetic point
of view, it will be exceedingly difficult for the
United States to export its way out of its trade
deficit.
Wal-Mart
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Wal-Mart don't have much of an option to sell
to someone else because there aren't that
many big retailers left.
can't really widen profit margins by raising its
own prices very much, but it can widen profit
margins by lowering costs
Self-Defeating
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Manufacturers may be producing all over the world,
but it's mainly for sale here.
If Americans can't earn enough income to buy these
products, the business model breaks down.
If the whole economy is based on this kind of
outsourcing, the whole economy breaks down.
It can't finance it because it can't pay for the
consumption
Social Impact
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the country's wage level gets lowered
deeper and deeper into debt
over the last 35 years, wages adjusted for
inflation have fallen
Unfairness
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relationship benefited China more than it did
the U.S.
subsidies
procedural unfair in bringing complaint
Solution
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to start imposing tariffs on goods coming into
this country
renegotiate lots of the misguided trade
agreements