Outsourcing Bonanza: Vietnamese Trade Normalization

**~~unlawflcombatnt~~** · 13 Dec 06,, 11:04

On Friday, December 8th, the House of Representatives passed H.R. 6406, by a vote of 212-184 This bill allows for "normalization" of trade with Vietnam.

This new "permanent normalization of trade relations" (PNTR) with Vietnam is the first step in opening up their labor market to exploitation by Corporate America and to the outsourcing of American jobs to Vietnam.

What are the relative "benefits" to the United States? It allegedly opens up the Vietnamese "consumer" market to American goods. However, the benefit of such market opening is minuscule. The exchange traded value of Vietnam's entire GDP is only $43 billion. (See Vietnam: CIA assessment ) This is approximately 3/100ths of a percent of U.S. GDP. To put it another way, if Vietnam's entire GDP was spent on American imports, it would raise U.S. GDP .03%. So a U.S. GDP growth of 2.20% would rise to 2.23%. Again, this is assuming ALL of Vietnam's GDP was spent on American goods, which is certainly not going to happen. Vietnam's Exchange Rate per capita GDP is only $521/year. {Vietnam's Purchasing Power Parity (PPP) per capita GDP is listed as $2800. By converting this to an exchange rate value this becomes a per capita income of only $521/year. It's the Exchange Rate income that is important here, because this measures the ability to purchase American imports.} Given these numbers it's very unlikely that we can sell significant U.S production to Vietnamese consumers.

What's the downside? Vietnam has a labor force of 43 million workers. Once Vietnam is opened up to investment by Corporate America, this could become a virtual addition of 43 million workers to America's 152 million participating labor force. If Corporate America replaced 43 million American workers ( averaging $17/hour ) with 43 million Vietnamese workers, it would reduce American labor & consumer income by $1.52 trillion.

(43 million X $17/hr. X 8 hrs./day X 365 days/yr. X 5 days/wk divided by 7 days/week = $1.52 trillion. )

This would also reduce American consumer spending power by $1.52 trillion dollars. A decline in consumer spending by that $1.52 trillion, subtracted directly from our $13 trillion GDP, would amount to a direct decline in our GDP of almost 12%. (Applying any multiplier would drop our GDP far more than 12%) Of course, we could "gain" that whopping 0.03% in GDP from selling our exports to Vietnam.

These are theoretical calculations only, designed to show the magnitude of relative benefits vs. costs to Americans from "normalization" of trade with Vietnam. While Corporate America is not likely to hire all 43 million Vietnamese workers, it's clear that the potential loss to our economy is much greater than the potential gain. We'll gain an almost non-existent consumer market from Vietnam, while adding a virtual 43 million workers to America's labor pool. And the direct loss of jobs is only the measurable effect. The decline in American wages from the supply & demand effect of competition with another 43 million impoverished workers hasn't been calculated. Clearly this would decrease American wages and labor income MUCH more than just $1.52 trillion.

To the majority of Americans, permanent normalization of trade with Vietnam is exclusively negative. Once again, it'll put American workers (and their wages) in direct competition with impoverished 3rd world workers.

Clearly the goal here is not to open up the Vietnamese consumer market to American goods. The goal is to open up the Vietnamese labor market to American Multinational Corporations. The true goal is to replace even more American workers with easily exploitable semi-slave laborers of another impoverished country. It'll be another disaster for American workers, and another windfall profit gain for rich Globalist Corporations.

unlawflcombatnt

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**Ironduke** · 13 Dec 06,, 12:09

From the author of the website:

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

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2. GDP = 12. M = 3. V?

3.
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Find equilibrium GDP.

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After coming to the realization of what a massive waste of time and energy your blog and forum has been.

There used to be saying to encourage enlistment in years past... at the bottom of every private's knapsack there is a field marshal baton... and you're not even a private.

**gunnut** · 13 Dec 06,, 19:57

Originally Posted by unlawflcombatnt

Vietnam has a labor force of 43 million workers. Once Vietnam is opened up to investment by Corporate America, this could become a virtual addition of 43 million workers to America's 152 million participating labor force. If Corporate America replaced 43 million American workers ( averaging $17/hour ) with 43 million Vietnamese workers, it would reduce American labor & consumer income by $1.52 trillion.

This study is flawed.

All of Vietnam's 43 million workers won't work exclusively for US companies. Some of them will need to work the farms, their own service industry, their own manufacturing...etc.

Come on unlawflcombatnt, you can do better than this.

**astralis** · 13 Dec 06,, 20:06

ironduke,

that is excellent!

the guy spews nonsense and demonstrates his knowledge (or rather lack there of) regarding free-trade, so ya bash him in the head with a macro-econ 101 test.

oh man, that put a grin on my face.

**gunnut** · 13 Dec 06,, 20:12

Originally Posted by astralis

ironduke,

that is excellent!

the guy spews nonsense and demonstrates his knowledge (or rather lack there of) regarding free-trade, so ya bash him in the head with a macro-econ 101 test.

oh man, that put a grin on my face.

Oh the horror!!!

I felt like back in college again!!!

I might be able to answer #5 and #7...

**Shek** · 13 Dec 06,, 21:25

My answer to #4 is that Ronald Reagan becomes president.

**GVChamp** · 13 Dec 06,, 21:48

I can answer all of those except 5, because I believe in the quantity theory of money.

Vietnam will be like China and India; crawling with cellphones and American capital goods, while they send us consumer goods.

And, if concerned about the trade deficit...that has stabilized, and thus is shrinking in terms of our total GDP. If you exclude oil purchases, anyways. http://www.econbrowser.com/archives/...ber_tra_1.html

**~~unlawflcombatnt~~** · 14 Dec 06,, 03:03

Originally Posted by gunnut

This study is flawed.

All of Vietnam's 43 million workers won't work exclusively for US companies. Some of them will need to work the farms, their own service industry, their own manufacturing...etc.

Come on unlawflcombatnt, you can do better than this.

Fine. What if only 5 million Vietnamese were hired by U.S. companies instead of Americans. That would still put a huge dent in American employment and American labor/consumer income.

unlawflcombatnt

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**Shek** · 14 Dec 06,, 03:09

Originally Posted by unlawflcombatnt

Fine. What if only 5 million Vietnamese were hired by U.S. companies instead of Americans. That would still put a huge dent in American employment and American labor/consumer income.

unlawflcombatnt

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Which companies? Doing what?

**ZFBoxcar** · 14 Dec 06,, 03:13

Fine. What if only 5 million Vietnamese were hired by U.S. companies instead of Americans. That would still put a huge dent in American employment and American labor/consumer income.

Assuming your theory about it actually having some small negative effect on the US economy was valid:

So fu<k those dirt poor Vietnamese! Clearly jobs are something to be allocated by the state and not the business that creates them

.

**Ironduke** · 14 Dec 06,, 04:54

Originally Posted by unlawflcombatnt

Fine. What if only 5 million Vietnamese were hired by U.S. companies instead of Americans. That would still put a huge dent in American employment and American labor/consumer income.

unlawflcombatnt

I see you've failed to respond to my questions. Are you unable to answer them? If you are unable to answer them, you are unqualified to make these types of economic statements.

It's wonderful to take hourly wage, multiply it by this number and that number -- but the fact is, economists do not do this.

I'm going to make my first point.

You ignore comparative and absolute advantage. Let's say that the United States has a production possibilities frontier of 10 million television sets or 8 million computers, and Japan, with the same amount of input, has a PPF of 9 million televisions or 9 million computers. Each television or computer has a retail value of $1000.

Let's say half of the US and Japan's input is dedicated to each product.

The US can produce 5 million televisions and 4 million computers.
Japan can produce 4.5 million televisions and 4.5 million computers.

A total of 18 million computers and televisions.

Now, if the United States produced all televisions, and Japan all computers, and each country trade half of its output with the other.

US 5 million televisions, 4.5 million computers.
Japan 5 million televisions, 4.5 million computers.

As you can see, production under the first example totaled 18 million. After specialization, trading half of their output with the other nation, the US nets a gain of 500,000 computers, and Japan nets a gain of 500,000 televisions, for a combined economic gain of $1 billion, split evenly. In all, there is an output of 19 million televisions and computers are produced with the same amount of input.

Let's take another example.

Saudi Arabia can produce 1 million bushels of wheat at a cost of $100 million.
The United States can produce 1 million bushels of wheat at a cost of $10 million.

Saudi Arabia can produce 1 million barrels of oil at a cost of $10 million.
The United States can produce 1 million barrels of oil at a cost of $100 million.

Each nation need 500,000 bushels of wheat and 500,000 barrels of oil.

If each nation dedicated half of its input to each product, and did not trade, the cost for each would be $55 million.

If each nation dedicated its entire input to the product it's more efficient at producing, and traded half to the other, at cost, the cost for each would be $10 million.

This represents a net of $45 million apiece gained through trade.

This is just absolute and comparative advantage... I could go into other examples of macroeconomics, but I'll leave it at this for now.

And you still haven't answered my questions. Please do so.

**gunnut** · 14 Dec 06,, 23:11

Socialists don't understand what "comparative advantage" means.

**Ironduke** · 15 Dec 06,, 02:54

To follow up on my last post, let's assume that each nation has a GDP of $55 million, all of which is spent on wheat and oil.

Each nation producing half of what it needs, they could each produce a maximum of 500,000 barrels of oil and 500,000 bushels of wheat.

On the other hand, if each nation specialized in which it had a comparative advantage producing, and invested its total GDP into these two products, each could produce and consume 2.75 million barrels of oil and 2.75 bushels of wheat.

unlawfulcombtnt, any of this making sense yet?

This is the reason for the pursuit of trade normalization and free trade. So that each nation can fully exploit its own comparative advantages, in any goods or services, to benefit economically.

Let's take another example relevant to the real world.

The computer industry is more or less somewhere in between a state of oligopoly and perfect competition. Let's assume, for simplification purposes, the latter.

Now Dell is paying US customer support workers $20/hour.

India has real GDP of approx. $800bil, and a PPP of $320bil (2005). Dell can pay Indian customer support workers $5/hour ($20/hour PPP).

American workers cost $200 million, this is 4807 workers earning $41600/year. This figure is lost to US GDP, and 25% of that amount x MPC is added to India's GDP.

Let's assume that the marginal propensity to consume (MPC) in India is 0.75 (DI).

India's economy registers a gain of $37.5 million.
US economy registers a loss of $200 million.

But hold on, I'm not done yet.

Let's further assume that customer support costs a given computer company, Dell, 20% of revenues. By moving their call centers to India, they can cut this cost by 75%. If one output (computer) cost $1000 before, Dell can afford to cut their price per output to $850, and earn the same amount of profit as before.

Each customer keep that $150 savings in their checking accounts. Given 11.8 million outputs, this would result in $17.7 billion in deposits. Assume a reserve requirement ratio of 0.2, this will result in an increase in M1 to the tune of $88.5 billion, a growth of 70.8 billion. (1 + R + R2 + R3 + ... = 1 / 1 - R). The bank then invests this money.

GDP = consumption + investment + government spending + (exports − imports).

US real GDP increases from $1200bn to $1270.5bn.
India real GDP increases from $320bn (PPP) to $320.15bn (PPP)

Let's assume that each customer spends that $150 in savings on goods and services, US real GDP still increases to 1217.5bn.

**Julie** · 15 Dec 06,, 03:39

Originally Posted by unlawflcombatnt

Fine. What if only 5 million Vietnamese were hired by U.S. companies instead of Americans. That would still put a huge dent in American employment and American labor/consumer income.

unlawflcombatnt

Whoa, wait a minute......if that were true, then we would not have a 4.5% unemployment rate with 7.2 million illegal immigrants working right now in the US.

**Ironduke** · 15 Dec 06,, 09:12

Originally Posted by Julie

Whoa, wait a minute......if that were true, then we would not have a 4.5% unemployment rate with 7.2 million illegal immigrants working right now in the US.

He also ignores the fact that American consumption already employs millions, if not tens of millions in other countries, as well as the fact the most jobs outsourced to the other countries produce goods and services that are consumed by Americans.

Let's say that in fantasy world such occurrences as he's suggest can happen... all Vietnamese economic activity geared toward domestic consumption comes to a complete stop, and 43 million American jobs, geared vastly toward American domestic consumption, are outsourced to Vietnam.

America would be unable to consume Vietnam's economic output with such as loss to GDP. Even if 5,000,000 jobs were outsourced, and this was a permanent loss, America would be unable to consume any of Vietnam's output.

I see he hasn't come back to debate ANY of the points made here... so much for our little "student economist".

You want to know something? Your website is detrimental to US economic output, small albeit, by wasting your time, and that of a handful of others who actually read what you post. Stick to your day job, and leave the commentaries to real economists.

Sorry guys if I've failed to observe a few of the rules I myself set into place... but I HATE it when people try to spread useless and xenophobic crap like this on the forum.

As for the 20% of Dell's revenues being spent on customer support, it's an example and if anybody finds it unrealistic, you can reduce it to 5%, or 2%, or whatever, and reduce all my figures (jobs, GDP growth, money stock, investment, consumption, etc.) proportionally by that factor. It will just reduce both net losses and gains to GDP by 75% or 90%, or whatever.