A new study by the Social Security Administration shows that in 2014, slightly more than 51 percent of Americans made less than $30,000, and nearly 63 percent made less than $40,000. In other words, the middle class is dying and its being sucked dry by a parasite known as the 1 percent. At a time when the cost of living continues to rise across the country even as salaries have stagnated for years, it’s sobering—though not unexpected—news about the economic challenges facing a number of American families. The Trans-Pacific Partnership (TPP) is the latest assault to destroy the middle class. This middle class destroying accord has been ushered through the senate by Wall Street Senator Ron Wyden. Here’s how Wyden’s scam works.
Enactment of the Trans-Pacific Partnership (TPP) will force China to manipulate its currency more than is currently the case, and this will enrich wealthy US corporations that have shipped hundreds of thousand and millions of jobs to China, such as Nike, Microsoft, and Apple, as well as their rich shareholders, and CEOs, while destroying US export jobs, and redistributing massive amounts of income from the 99 to the 1 percent. The TPP will also send millions of undocumented immigrants into the USA, driving down wages here. But let’s begin with currency manipulation.
Vietnam is one of the nation’s involved in negotiating the Trans Pacific Partnership. China’s annual minimum wage is nearly twice that of Vietnam. The wages in China at those Nike and Microsoft and Apple and Hewlett-Packard factories and their suppliers and contractors and subcontractors have been going up rapidly over the past fifteen years. Those labor costs have been able to go up because the Chinese government has increased the profit margins of its US manufacturers by manipulating its currency. But there’s another reason why China needs to manipulate its currency vis-a-vis the dollar.
There are nearly 313,000 Nike workers in Vietnam, and nearly 250,000 in China. Vietnam has lower labor costs than those in China. The Chinese government, however, has been able to offset its labor cost disadvantage by manipulating its currency. So it can keep those jobs in China, and still allow the wages of Chinese workers to expand. But that might not be the case should the Trans Pacific Partnership (TPP) become reality.
Tariff is another word for tax. When a US company like Nike manufactures its products in Vietnam, and then exports them to the US, a tariff is charged against the products of between 10 and 15 percent. So another $10 to $15 dollars is added to the cost of a $100 pair of Nike’s Vietnamese made shoes exported to the USA. That means less profits, lower dividends, and lower share prices than would otherwise be the case without tariffs. The US tariffs on US corporate goods manufactured in Vietnamese factories helps to offset some of the Vietnamese labor cost advantages vis-a-vis the cost of Chinese labor.
Under the TPP, those tariffs will be gone, giving Vietnam a much larger labor cost advantage over Chinese workers. In which case, the Chinese government will have two options; let millions of Nike and Dell and Apple and Microsoft jobs head south to Vietnam, along with the jobs of contractors and subcontractors, or manipulate its currency even more, which means all of those US corporations manufacturing stuff in China for export to the US will see unprecedented and explosive growth of their profits; and all of this will occur at the expense of small and medium sized US companies that make stuff in the United States and export them to China.
That means several unpleasant things will occur to the US economy:
1. US unemployment will grow with the TPP, as exports to China diminish.
2. Inequality in wealth and income will continue to increase, destabilizing the economy further.
3. The stock market bubble will continue to expand, and the coming stock market crash will be even worse than imaginable.
4. US businesses will need to export more US jobs to China, and all of these bad things will trickle down to more crowded classrooms, less government services, reduced wages, fewer jobs, more poverty, and much more negative stuff for the 99 percent, as the taxes from those jobs are shipped overseas.
5. All of which means the US trade deficit will become greater because all of those things made by US companies in China will continue to be exported to the US, and the number is bound to increase with the TPP.
The super rich will become even more super richer, while the middle class will continue to evaporate.
Take a look at the graph below. On the left side (the Y axis) is the Yuan, which is the Chinese currency. The US dollar is on the bottom line (the x axis). Now look at the two intersecting lines, which is the supply and demand for dollars. In this example, 600 yuan can purchase $100 in the currency markets, which is roughly what the two currencies currently exchange for.
So when Nike, Microsoft or Apple Inc. manufacture a product in China that costs the consumers, say, 600 Yuan in China, given the exchange rate, the same product will cost $100 in the United States, after, of course, it is exported from China to the USA. Assume these US corporations have a 25% profit margin. That means these companies get 150 Y profits in China per product, and $25 profit when they export their products to the United States.
Under the same conditions, this is true for companies that manufacture products in the USA, and then export them to China. American manufacturing companies earn $25 per $100 of product sold in the USA, and 150 Y when their products are exported from the USA to China.
The government of China has often manipulated the value of its currency. So what happens when it does this? It purchases dollars. This shifts the D1 line to the left, because there are less dollars on the market, which is shown in the graph below as line D2. This makes the Yuan less expensive in terms of dollars.
Why are the higher up folks at Nike, Microsoft, Apple and hundreds of other US corporations that are producing goods in China for export to the United States against any legislation that seeks to address Chinese currency manipulation? The answer is easy; it increases their profits!
When the Chinese government manipulates it’s currency by purchasing dollars, 800 Y will now purchase $75. Do the math; 600 Y will purchase now $56. What does that mean?
It means that when Nike manufactures a pair of shoes in China which costs 600 Y there, in the US it should cost $56 rather than $100, thanks to China’s currency manipulation, but that rarely happens. The US corporate propaganda machine will lie to you and tell you it makes Chinese imports less expensive. However, the truth is China’s currency manipulation increases the profits of Nike. Rarely, if ever, do prices go down for US citizens in this scenario.
Nike still gets 25%, or 150 Y, in profits when its shoes are sold in China. When it exports the same shoes to the USA from China, Nike still gets 25% profit on $56, which is $14 dollars. However, Nike still sells its shoes for $100 in the United States, which means another $44 in earnings per pair, in addition to the $14.
That means Nike’s profit margin on a $100 pair of shoes goes from 25% at the old exchange rate to 58% at the new exchange rate. This sends its earnings and stock prices higher. The same thing occurs with Microsoft, Dell, Hewlett-Packard, Apple, and all US corporations manufacturing in China, and exporting their products to the United States.
So who pays the price for this?
The 99 percent do; if you work for a living in the United States, or if you’re a small or medium size business owner. Here’s how.
Suppose you are a US manufacturer producing shoes in Oregon that sell in the USA for $100. You ship them to China at 600 Y for $100, and earn 150 Y, or $25, in profits. Now suppose the Chinese government manipulates its currency by purchasing tens of billions upon tens of billions of dollars. The supply of dollars on the international currency markets shrinks, making dollars more expensive, and as noted above, the D1 line shifts to D2, which represents the new supply of money. BTW, the space between D1 and D2 represents the amount of dollars the Chinese purchased.
Those $100 US made shoes now costs 1000 Y in China. Okay, my graph isn’t too high tech, but the actual figure is 1066 Y, if you do the math, but let’s stick with the 1000 Y, for simplicity sake. There’s still a 25% profit margin per pair of shoes, but at the 1000 Y price, there’s not a whole lot of buyers in China. The US manufacturer could lower the price of the shoes to 750 Y, but he or she isn’t making a penny at that price, and they’re still overpriced for the Chinese market. Say goodbye to the Chinese market for all US products at the new exchange rate.
US exports to China are going to shrink quite rapidly under this scenario. This means fewer American jobs, and declining wages for everyone. It means less tax dollars going to schools and other government services; it means no retirement pay for a larger percentage of the 99 percent.
Over the past fourteen years, since China was granted most favored nation trade status, Nike’s stock price has risen over a thousand percent, from $10 a share to over a $100. Chinese currency manipulation has helped fuel this bubble. So if you purchased a million shares of Nike in the year 2000, today the value of those shares would be over $10 million. With the TPP and Chinese currency manipulation, the value of Nike’s stock will continue to increase, but only at the expense of everybody else. Much of the US stock market bubble is fueled by the same force, and that goes for the stock prices of Apple, Microsoft, Dell, Adidas, Hewlett-Packard and many more. And if the TPP passes through congress, more US manufacturers will need to shift production to China.
However, it’s going to be worse than you can imagine.
Millions of jobs in Mexico, Central America, Peru and Chile will also be threatened with exportation to Vietnam and China under the Trans Pacific Partnership (TPP). In which case, US exports will decline.
Maquiladora zones are located in Mexico and elsewhere in Latin America. These are free trade zones established by the United States and the host nations, such as Mexico, Honduras and El Salvador. The zones allow US manufacturers to assemble products in the zones, and then ship them duty free to the United States. Wages are bone poor in the Maquiladora zones, as low as $7.50 a day in Mexico’s northern zone, but they are higher than in Vietnam and China. China’s minimum wage is a little more than double Vietnam’s .28 cents per hour.
The parts assembled by US manufacturers in the Maquiladora zones must be made by US companies. This has been negotiated. In 2013, US corporations shipped $51 billion worth of parts manufactured in the United States to the over 3000 US factories in the northernmost Maquiladora zone in Mexico. That zone is twelve and a half miles deep and stretches from the Gulf of Mexico to the Pacific Ocean.
That 51 billion dollars of exports supports 250,000 American manufacturing jobs. The people who earn a living with those jobs spend their hard earned cash in their neighborhood grocery stores, stereo stores, clothing stores, computer stores, automobile dealerships, real estate companies, restaurants and more. That’s how those 250,000 manufacturing jobs keep another 400,000 to 800,000 people employed in other areas of the economy.
That doesn’t count the tens of thousands of Americans that mine the iron ore, or the rock, or chop the trees to make paper and houses, or manufacture cement, or who mold metal into products, and other producers of raw materials, or the people who operate the electric companies that power those 250,000 soon-to-be-lost manufacturing jobs. But that’s not all.
Just like the jobs that will be lost to Chinese currency manipulation via the TPP, all of these jobs pay state, federal and local taxes that support schools, road building and maintenance, forest service jobs, fire and police, and a lot more government jobs.
The TPP appears to be geared toward rendering obsolete the Maquiladora zones. Why else would Vietnam be a party to this agreement? The Vietnamese aren’t going to be purchasing a lot of American goods and services simply because those people can’t afford to do so.
When the TPP becomes law, kiss those jobs in the Maquiladora zones goodbye. Kiss that $51 billion dollars in US exports goodbye. And that’s just for the exports to one of these zones.
In El Salvador, 230,000 apparel workers will likely lose their jobs, which will be shipped to Vietnam if the TPP becomes law. Tens of thousands of workers in other central America nations will also lose their apparel manufacturing jobs in the zones. These people sew many of the clothes people wear in the United States and elsewhere.
Over 200,000 American workers supply the parts necessary to manufacture those clothes. Fabric, yarn and thread are made in US factories, and are then exported to Central America. Kiss those exports goodbye. Kiss those American jobs goodbye, as well as the hundreds of thousands of US jobs supported by those textile jobs.
If the TPP becomes law, we’re looking at the loss of billions of dollars of exports yearly, and millions of US jobs. And that’s only with the loss of two Maquiladora zones. Thank you Senator Wyden!
With the loss of jobs in the zones on such a massive scale, wages will drop like dead flies in Mexico and Central America. That happened in Mexico after Nafta, which drove millions of people into the USA illegally.
Hundreds of thousands, and perhaps millions, of people will be forced to migrate to the United States illegally, and not because they want to migrate. This will depress the wages of millions of American citizens and put incredible pressure on our social service tax dollars, which will be greatly weakened by the loss of jobs.
So who benefits from the TPP? The difference between the old higher wages and the new lower wages will go straight into the pockets of rich shareholders and CEOs via higher corporate profits, rising dividends, and soaring share prices. Working people will pay the price. In other words, the TPP will redistribute massive amounts of income from the 99 to the 1 percent. That’s what it has been negotiated to do.