On July 30th, an American manufacturer in China and Korea will officially announce the move of its tool manufacturing facilities to Houston, Texas. Farouk Systems will open a factory with the goal of creating 1277 jobs at a new 189,000 sq. ft. facility in the South’s largest metropolis.
Farouk Shami, founder and executive chairman, says the new plant will manufacture “three of its top selling flat irons and two top-selling hair dryers, of which the company sells over three million a year.”
How can this be? Thousands of American companies—electronic, machinery, auto supply, and many other sectors—have rushed to the communist dictatorship of China in the past two decades to take advantage of repressed labor and the relative freedom to pollute and get away with activities banned in the U.S.A. Millions of American jobs and hundreds of communities have suffered due to this exodus.
Why are Mr. Shami and his colleagues returning to the U.S.A?
Company officials gave several economic reasons. First, new super-automation in the U.S. increases worker productivity far beyond productivity in China. Second, the company was experiencing levels of product defects in China that were costly. Third, given the increased costs of transportation—bottlenecks to Chinese ports and the burden of crossing the Pacific helped to level the cost playing-field.
Farouk Systems’ lowest wages will be $10.00 per hour or $2.75 higher than the new federal minimum wage effective this month.
The firm expects to have 1,277 employees by the end of this year and intends to expand further into the production of small home appliance such as blenders, toasters, coffee makers, vacuum cleaners and clothing irons.
Mr. Shami—a Palestinian immigrant of considerable entrepreneurial exuberance—says that this move from China “will enable us to assure the best quality, safest, and lead free products and also will help reverse the outsourcing trend by bringing manufacturing back to the U.S.A. in order to stimulate the American economy.”
Is this a harbinger of a trend against industrial flight from our country? That remains to be seen. What is more certain is that trade relations between China and the US challenge put the lie to the ideology of “win-win” free trade.
The US trade deficit with China has deepened over the last quarter-century. In 1985 the trade deficit was $6 billion. In 1995 China sold us over $33 billion more than we sold to China. In 2005, the trade deficit ballooned to over $202 billion dollars. Last year it zoomed to $268 billion.
Imagine exporting so many jobs to a country which has sold us contaminated fish, defective tires, hazardous materials for medicines and housing, and lead-tainted products—to name a few of the hazardous products shipped past the porous portals of the USDA, the Food and Drug Administration, and the Customs Service.
In addition, as detailed regularly in the reports of the U.S.-China Economic and Security Review Commission (www.uscc.gov) there are the manipulated undervaluing of China’s currency, import barriers, violations of the World Trade Organization’s rules and other trade-distorting measures that tilt the balance heavily in China’s favor.
What is the US getting out of this continually deteriorating imbalance of trade and its accompanying technology transfer to a nation that admits it has not had much success in curbing the large volume of counterfeit goods that are exported? Huge indebtedness. China does loan us money, to finance our huge deficits.
Established “free trade” economists like retired MIT professor Paul Samuelson are rethinking the classical principles of free trade and comparative advantage. When the advantages of capital, labor and technology are heavily with one trading partner, “absolute advantage” replaces “comparative advantage.” With such conditions, the 19th century metaphor of trading Portuguese wine for British textiles is not operative.
So anemic is the U.S. government that it cannot even enforce a 15 year old memorandum of cooperation that relates to detecting any Chinese prison labor exports to the United States, which would be WTO-illegal. China has repeatedly violated the bilateral agreement to grant permission for U.S. authorities to visit suspect prison labor sites.
Any demand or request that Congress and the White House re-evaluate this kind of systemically unfair trade with dictatorial regimes is met with the chorus of “free trade, free trade” and the riposte of “protectionism.” Dogmatic proponents of corporate-managed trade masquerading as free trade reject “options for revision”, no matter what the evidence.”
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