This post There is No “Free Trade” — There Is Only the Darwinian Game of Trade appeared first on Daily Reckoning.
A more reasonable standard, of course, would recognize that iPhones and iPads do not have a single country of origin.
More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touchscreen; and Broadcom, in the United States, makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.
Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to what country, but no one disputes that the largest slice should go not to China but to the United States. That intellectual property, along with the marketing, is the largest source of the iPhone’s value.
Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy, in the form of income paid directly to Foxconn or other contractors.
This is no longer the world of David Ricardo. In a world dominated by mobile capital, mobile capital is the comparative advantage.
Mobile capital can borrow billions of dollars (or equivalent) in one nation at low rates of interest and then use that money to outbid domestic capital for assets in another nation with few sources of credit.
Mobile capital can overwhelm the local political system, buying favors and cutting deals, all with cash borrowed at near-zero interest rates. Mobile capital can buy up and exploit resources and cheap labor until the resource is depleted or competition cuts profit margins.
At that point, mobile capital closes the factories, fires the employees and moves on.
Where is the “free trade” in a world in which the comparative advantage is held by mobile capital? And what gives mobile capital its essentially unlimited leverage?
Central banks issuing trillions of dollars in nearly-free money to banks and other financial institutions that funnel the free cash to corporations and financiers, who can then roam the world snapping up assets and exploiting global imbalances with nearly-free money.
There’s nothing remotely “free” about trade based not on Ricardo’s simple concept of comparative advantage but on capital flows unleashed by central bank liquidity.
The gains reaped by mobile capital flow to those who control mobile capital: global corporations, financiers and banks.
No wonder labor’s share of the economy is stagnating across the globe while corporate profits reach unprecedented heights.
Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.
Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:
1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.
2. Extract foreign resources at low prices.
3. Deny geopolitical rivals access to these resources.
4. Open foreign markets to domestic capital and credit so domestic capital can …read more
Source:: Daily Reckoning feed
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