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(What’s Left of) Our Economy: More Evidence that U.S. Trade Deals are Really Offshoring Deals

25 Monday Aug 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

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Africa, Asia, Asian Development Bank, exports, incomes, offshoring, poverty, poverty line, third world, Trade, trade agreements, World Bank, {What's Left of) Our Economy

The U.S. trade policy front – thankfully – has been quiet lately. That means dim-looking short-term prospects that Congress will pass new fast track presidential trade negotiating authority, and new trade deals like the Trans-Pacific Partnership that are proven job- and growth-killers.

Nonetheless, these globalization measures still represent a rare point of agreement between President Obama and Congress’ Republican leaders, and the lobbying might behind such deals is still potentially overpowering. Therefore, it’s worth noting the recent appearance of more evidence refuting a prime argument made by supporters of new trade deals: that since 95 percent of the world’s consumers live outside the United States, Washington urgently needs to enable American businesses and workers access all that purchasing power to give the current recovery some real oomph.

Last March, I skewered that claim by pointing out that most of those foreign consumers, concentrated in very low-income third world countries, earn next to nothing, and therefore can’t possibly become strong consumers of U.S.-origin goods and services. This month, comparable findings from three respected sources should help bury the “95 percent illusion” for good.

The first throws buckets of cold water even on the idea that fast-growing Asia presents massive growth opportunities for the U.S. domestic economy. According to an August 20 Financial Times article, the Asian Development Bank, the World Bank, and India’s new government are seriously rethinking current official poverty lines. The former specifically has concluded that its existing $1.25 per day poverty line “was not enough to maintain minimum welfare in many parts of the region.”

Of particular interest to American trade officials, and their supporters and critics, the ADB calculated that raising the poverty threshold to a mere $1.50 per day would boost Asia’s poverty rate from 12.7 percent of its population to 41.2 percent. In other words, even without this statistical manipulation, more than one billion Asians considered to be above the poverty line, and potential customers for U.S. exports, were making only between $1.25 and $1.50 per day.

Moreover, as the Financial Times emphasized, many Asians’ incomes remain not only abysmally low, but highly precarious. Its analysis of World Bank data showed that nearly one billion people in the developing world overall were at risk of falling out of what is charitably called “the middle class.”

And as pointed out by my March article, even the meager income levels revealed in this data are present a thoroughly misleading picture of third world purchasing power. The reason: They’re measured according to a methodology known as Purchasing Power Parity – which adjusts the costs of goods and services down to the rock-bottom levels inevitably found in low-income countries. When these incomes are measured by their ability to buy products and services created at U.S. price levels, they turn out to be much lower.

The day before, the FT also (unintentionally) refuted a sub-myth of the 95 percent illusion – the belief that sub-Saharan Africa could well be the world’s most exciting future growth market. In an August 19 article, the paper reported findings by Standard Bank that the region would by 2030 see “ a burgeoning consumer market for items such as vehicles, insurance policies, property and health products” because of a tripling of its middle class households.

This does indeed sound pretty exciting, until it becomes clear that this tripling would bring the number of sub-Saharan Africa’s middle class households to only 22 million. That’s only slightly larger than the population of greater New York City today. And even the wealthiest of these African households would be earning a mere $42,000 annually. The poorest would be making only one-fifth that much.

Finally, the Gallup polling organization last week released a survey showing that fully 29 percent of the world’s working population is self-employed – and that far from representing “a positive sign of proactive entrepreneurial energy, high rates of self-employment can often signal poor economic performance.” Even more important: “The self-employed are three times as likely as those who are employed full time for an employer to be living on less than $2 per day.” And self-employment rates are by far the loftiest in highly populous developing countries.

These statistics reinforce what should have been clear to American leaders, the media, and the public for decades. The push for trade agreements fueled so prominently by multinational companies has almost nothing to do with finding new foreign consumers for American exports, and nearly everything to do with finding penny wage workers and other super-cheap factors of production for offshoring-happy corporations.

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  • Im-Politic
  • In the News
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  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
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Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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