Brazil Fights For Its Manufacturing Life
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  • Bart Hall (Kansas, USA)

    Many years ago I read an interesting technical treatise in economics examining then-current differences in the economic situations of Argentina, Australia, and Canada, which in 1930 had nearly identical economies.

    It looked in detail at what each nation had done by way of economic policy from 1930 onward that might explain Argentina’s utter failure to progress at anything like the pace of Australia and Canada.

    The principal culprit? Argentina maintained, and even tightened protectionist policies, decade after decade. The other two countries rapidly abandoned protectionism in the 1940s.

  • Jacksonian Libertarian

    Consumption taxes are regressive, hitting the poorest who spend everything on every day needs, the hardest. Protectionism is self defeating shrinking the markets and therefore the efficiency of those markets, and hurting the businesses they are meant to protect. The best strategy is to accept the increased competition, and demand that the businesses rise to meet the challenge. This strategy creates strong well managed and productive businesses that will gobble up world market share when the economic conditions reverse themselves, as they always do to preserve balance. The best thing a Government can do in the face of increased competition, is nothing.
    What has China gained from decades of currency and trade manipulation? It’s products are of poor quality, it’s businesses provide poor service, they have no world class brands, and so no loyal customers that won’t drop them for a lower price elsewhere.

  • China is so big and so poor that it can ruin the manufacturing sector of any country whose private firms are free to do business there. Look at what happened to poor Mexico after Nafta: Gatt soon followed and all those American companies that were supposed to move operations to Mexico went to the far east instead. Meanwhile corn imports from the US ruined a lot of peasant farming communities in Mexico, many of whose members ended up emigrating to the US illegally. This particular “unintended consequence” was widely predicted at the time but our free trade lobby in Washington refused to listen. Just one more instance of our governing elites not having the interests of their own country at heart.

  • Brett

    I’m not sure being a commodities exporter is what’s held Brazil back. The Canadians, Australians, and New Zealanders have diverse domestic economies, but their exports are still largely natural resources (and a big chunk of their industries are built around the extraction and processing of natural resources).

    I think it has more to do with internal protectionism. The US may have had a fair amount of tariffs back in the late 19th century/early 20th century, but we had a big internal market with sporadic regulatory capture that allowed for a great deal of competition and business development.

  • Kris

    [email protected]:

    I once again issue my periodic invitation for you to look up actual data on US manufacturing, which does not support the idea of an absolute decline, let alone devastation. What has indeed declined is manufacturing employment, but as this is a result of the constant increase in productivity, this can hardly count as an indication of ill health.

    Now there certainly is room for concern about this job loss, but blaming China for this seems like a mistaken diagnosis.

    [Given my last few comments directed at you, I will emphasize (hopefully unnecessarily) that I am hardly the biggest fan of the Chinese regime. (The preceding was an understatement.) But if we want to improve things, we need a clear view of the true situation.]

  • Kris @5:

    Point taken. Labor-saving technologies by definition reduce the demand of labor.

    But you are simply mistaken if you think it is the only factor. Trading with poor countries that are relatively well-endowed with low-skilled labor (which most manufacturing labor is) will specialize in labor-intensive industries leaving those relatively well endowed with capital to specialize in capital-intensive industries.

    Furthermore, when a country like China uses government policy to over-value its currency so that it will export more than it imports from a country like the U.S. this further reduces the demand for our manufactured goods for export to (in this case China), thus further reducing manufacturing employment.

    I don’t think this controversial.

  • @ Kris — I wasn’t trying to argue that the total value of goods manufactured in the U.S. had gone down, only that whole industries — those that employ a lot of people, which includes a lot of vital industries — have been badly hurt. We are strong in high-tech goods, obviously, and they are important. But they are not the only thing that is important.

  • @ Kris – one further note, on the positive side: eventually our balance of trade with China will be restored whether they like it or not. And when that happens our manufacturing employment will pick up and a lot of new factories will be built, making things not only for export but also things for consumption here which we currently import. I like that because it might be a chance to try my idea for factories in the countryside run on four-hour shifts. See my website.

  • Kris

    Luke: My concern is that there are loud voices which basically blame our economic/employment problems on a Chinese bogeyman. Given the obvious limits of blog comments (we don’t all have the time or assurance to write WigWagian essays 🙂 ), you could be understood to be one of them. The trouble with this outlook is that it could precipitate actions which, in my opinion, will cost us the substantial benefits of our Chinese trade without solving any underlying problems.

    I am happy to read your clarifications (6-8), and I certainly agree that our increasing ties with China have not been costless. I won’t insult anyone with any facile answers, I just want us to be careful not to throw out baby with the bathwater.

    (All of this is purely on the economic plane.)

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