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Well, by far the major issue would be the disruptive influence on offshoring manufacturing. Consider Ford or GM manufacturing cars in Mexico. These cars are '

Well, by far the major issue would be the disruptive influence on offshoring manufacturing. Consider Ford or GM manufacturing cars in Mexico. These cars are 'products of Mexico' and if sold in Mexico (to the exporter division of Ford and GM) then that cash could not be transported back to Wall Street without the Mexican government taking a significant cut, say 20%, which would make the whole offshoring of manufacturing uneconomical to the Wall Street architects of US free trade deals. This would force manufacturing back to the country of ownership, which would be good for domestic manufacturing and middle class prosperity, and very bad for the current global tax evasion and money laundering system.

JumpCrisscross 5y ago
> Consider Ford or GM manufacturing cars in Mexico. These cars are 'products of Mexico' and if sold in Mexico (to the exporter division of Ford and GM) then that cash could not be transported back to Wall Street without the Mexican government taking a significant cut We don't need to use hypotheticals: China is heavily capital controlled on the outbound side of the equation. On the other side of the coin, the U.S. corporate tax regime, until recently, penalised bringing capital home. That acted as a limited inbound capital control. So when considering a U.S. company investing in China, one would have symmetric capital controls. The result? Not less offshoring. Just more money sitting uselessly in various accounts being tended to by teams of lawyers and accountants.
- photochemsyn 5y ago
  A condition of China's WTO deal in 2001 was that in not employ capital controls with trade partnets: > Commitment No 9: Non-tariff measures > "China shall eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements made effective through laws, regulations or other measures." Thus, there's been no 'test case' to date of the results of forcing manufacturers to pay real costs for outsourcing domestic USA manufacturing to sweatshop low-rate labor zones overseas. This is probably the most pushed aspect (and least reported on by the media) of all the 'foreign trade deals' the US government has pushed from the 1980s onwards - relaxation of capital controls by the target country. Notably, countries that agreed to wholesale removal of all restrictions typically get gutted by pump and dump schemes, currency manipulation, and so on (see Asian crisis 1997 etc., which China avoided) run out of Wall Street and London financial centers. Incidentally, from an economic perspective, Ricardo's Theory of Competitive Advantage (sheeps wool from Britain, grapes from France being the traditional example) which shows how two trade partners can mutually benefit. The concept only applies if profits from trade stay in the countries of origin; Britain setting up a slave plantation in France in 1750, for example, and exporting profits and wine to Britain would not be what Ricardo had in mind.
  - JumpCrisscross 5y ago
    > China's WTO deal in 2001 was that in not employ capital controls with trade partnets One, it's an open secret that China rusn roughshod over its WTO accession commitments. (Including the language you cite. For example, with respect to local content and local partnership requirements.) Two, that language doesn't deal with capital controls, but with currency manipulation and tariffs. (Both of which, again, China does.) In reality, anyone who has done business in China knows that converting yuan from local sales to dollars is a tedious process [1]. Capital controls have little to do with what makes offshoring enticing: the labor cost and regulatory gradient. Ford making a car in Mexico to sell to Mexicans isn't an offshoring problem. It's Ford making cars in Mexico to sell to Americans. Tariffs are the direct solution to the latter. Capital movement is irrelevant. [1] https://www.tradecommissioner.gc.ca/china-chine/control-controle.aspx?lang=eng https://www.tradecommissioner.gc.ca/china-chine/control-cont...
    - photochemsyn 5y ago
      Let's say we transfer ownership of Ford and GM factories in Mexico to a new Mexican auto manufacturer controlled by Mexican banks, for example. If this manufacturer sold a similar car to American buyers at a lower price (due to low labor costs) than GM or Ford could, without violating IP, that would be the Ricardo Competitive Advantage concept. The US govt could slap import tariffs on those imported autos (as it does with imported Chinese solar panels) to flatten price differentials. However, the Mexican government could also apply export tariffs (even bans) in order to keep domestic auto prices down. (Notably the US banned crude oil exports from 1970-2015). Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals?
      - JumpCrisscross 5y ago
        > Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals? Except it’s not a form of capital control. It’s a trade tariff. You want tariffs, which are typically what’s reduced in trade deals. Capital control or not, without tariffs the offshoring you describe would make sense. (You just wouldn’t repatriate the profits from Mexico in a world without free movement of capital.) Also, why would Mexico implement an export tariff in this example? To decrease the domestic price of cars? More realistic: the U.S. would implement an import tariff. Capital controls on either side would, again, do nothing.

JumpCrisscross 5y ago

> Consider Ford or GM manufacturing cars in Mexico. These cars are 'products of Mexico' and if sold in Mexico (to the exporter division of Ford and GM) then that cash could not be transported back to Wall Street without the Mexican government taking a significant cut We don't need to use hypotheticals: China is heavily capital controlled on the outbound side of the equation. On the other side of the coin, the U.S. corporate tax regime, until recently, penalised bringing capital home. That acted as a limited inbound capital control. So when considering a U.S. company investing in China, one would have symmetric capital controls. The result? Not less offshoring. Just more money sitting uselessly in various accounts being tended to by teams of lawyers and accountants.

photochemsyn 5y ago
A condition of China's WTO deal in 2001 was that in not employ capital controls with trade partnets: > Commitment No 9: Non-tariff measures > "China shall eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements made effective through laws, regulations or other measures." Thus, there's been no 'test case' to date of the results of forcing manufacturers to pay real costs for outsourcing domestic USA manufacturing to sweatshop low-rate labor zones overseas. This is probably the most pushed aspect (and least reported on by the media) of all the 'foreign trade deals' the US government has pushed from the 1980s onwards - relaxation of capital controls by the target country. Notably, countries that agreed to wholesale removal of all restrictions typically get gutted by pump and dump schemes, currency manipulation, and so on (see Asian crisis 1997 etc., which China avoided) run out of Wall Street and London financial centers. Incidentally, from an economic perspective, Ricardo's Theory of Competitive Advantage (sheeps wool from Britain, grapes from France being the traditional example) which shows how two trade partners can mutually benefit. The concept only applies if profits from trade stay in the countries of origin; Britain setting up a slave plantation in France in 1750, for example, and exporting profits and wine to Britain would not be what Ricardo had in mind.
- JumpCrisscross 5y ago
  > China's WTO deal in 2001 was that in not employ capital controls with trade partnets One, it's an open secret that China rusn roughshod over its WTO accession commitments. (Including the language you cite. For example, with respect to local content and local partnership requirements.) Two, that language doesn't deal with capital controls, but with currency manipulation and tariffs. (Both of which, again, China does.) In reality, anyone who has done business in China knows that converting yuan from local sales to dollars is a tedious process [1]. Capital controls have little to do with what makes offshoring enticing: the labor cost and regulatory gradient. Ford making a car in Mexico to sell to Mexicans isn't an offshoring problem. It's Ford making cars in Mexico to sell to Americans. Tariffs are the direct solution to the latter. Capital movement is irrelevant. [1] https://www.tradecommissioner.gc.ca/china-chine/control-controle.aspx?lang=eng https://www.tradecommissioner.gc.ca/china-chine/control-cont...
  - photochemsyn 5y ago
    Let's say we transfer ownership of Ford and GM factories in Mexico to a new Mexican auto manufacturer controlled by Mexican banks, for example. If this manufacturer sold a similar car to American buyers at a lower price (due to low labor costs) than GM or Ford could, without violating IP, that would be the Ricardo Competitive Advantage concept. The US govt could slap import tariffs on those imported autos (as it does with imported Chinese solar panels) to flatten price differentials. However, the Mexican government could also apply export tariffs (even bans) in order to keep domestic auto prices down. (Notably the US banned crude oil exports from 1970-2015). Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals?
    - JumpCrisscross 5y ago
      > Such export tariffs can be a form of capital controls imposed by a government, but aren't they typically banned in free trade deals? Except it’s not a form of capital control. It’s a trade tariff. You want tariffs, which are typically what’s reduced in trade deals. Capital control or not, without tariffs the offshoring you describe would make sense. (You just wouldn’t repatriate the profits from Mexico in a world without free movement of capital.) Also, why would Mexico implement an export tariff in this example? To decrease the domestic price of cars? More realistic: the U.S. would implement an import tariff. Capital controls on either side would, again, do nothing.