Chile's Hour of Need

The government of Chile is still restoring order after the magnitude 8.8 earthquake that struck the southern half of the nation last week. After some initial confusion, they have requested international aid. According to an interview with the US ambassador to Chile, the confusion was because Chile does not have a history of receiving international aid. In fact, Chile is a donor nation.

Still, the devastation is widespread, and they could use a hand.

So I'm going to go out and buy some grapes, and grape by-products.

Located south of the equator, Chile's seasons are the reverse of ours. Their summer is just ending, and their winter takes place during our summer months. This shift in growing seasons means Chile is in an ideal position to supply fresh fruit and vegetables when fresh produce is in short supply from our own growers. Ordinarily I try to buy American to the greatest extent possible, but due to the emergency I'll make an exception and stock up on Chilean grapes for the next few weeks.

And the grape by-products? I plan on picking up a case of Chilean cabernet.

I just figure it's better to help the Chileans by trading with them, then by giving them some kind of handout. If we help Chile's businesses, those businesses will take the lead in rebuilding the country. If we give handouts, we only encourage dependency.

Of course, I feel the same way about charitable giving in this country as well, and for the same reason.

Politicians are the same all over the world.

There was an article in the New York Times today, regarding the reaction by Indian economists and politicians to comments made by President Bush about the increase in global food prices. In a news conference in Missouri on May 2, part of the President's answer to one question was the following, referring to the growing middle class in India:

“When you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.”

This has apparently ignited a storm of criticism in India. You can read the article here. The comments cited by the Times ranged from insulting President Bush's intelligence (nothing new there) to claims that Americans are causing food shortages in Africa by overeating. This puts me in mind of those dinner time conversations growing up. You know the one:

"Billy, you clean your plate. Think of the starving children in Africa." "But ma, I already weigh 190 pounds, and I'm only 12."

That the Indians have taken umbrage with the President's remarks shows that they have collapsed the distinction between explaining an event, and placing blame for the same event. Globally, grain prices have risen significantly in the last year or so. Why?

Part of the answer is that demand for grain is up. Not from Americans. We're huge overeaters, but we've been the most obese people in the world for at least a decade now. Well, with the rapid development in China and India over the last decade, meat consumption in those countries has gone up, right along with rising incomes. Not to American levels, but higher than it has been. The increase in meat consumption helps explain why global demand for grain has increased.

The situation in India and China has changed, and knowing that helps our understanding of the situation. That's a long way from blaming them. Americans are the last people in the world to blame anyone for wanting to eat better. If anything, we're more likely to start sharing recipes. Still, the Indians are insulted, and their politicians have turned around and started blaming us for the rise in food prices.

And in an odd way, that gives me some hope for a better world. Their politicians are just as capable of knee jerk reactions that make them sound like idiots as ours are. Maybe by focusing on our similarities (even the embarassing ones) instead of our differences, we can build bridges of understanding to other parts of the world. This incident may help us to realize that despite our surface differences, we're really all the same inside.

Nah!

NAFTA: Scourge of Ohio?

In their shameless pandering for primary votes, both Barack Obama and Hilary Clinton have attacked NAFTA. The North American Free Trade Agreement is the treaty that largely eliminated tariffs and trade barriers between Canada, the US, and Mexico. Obama's/Clinton's attacks on NAFTA were particularly strong in Ohio, which has suffered serious job losses in the manufacturing sector.

I can understand why Ohioans would be interested in increasing jobs in manufacturing. Those jobs tend to pay more and have better benefits. Also, manufacturing has higher multiplier effects on a community's economy. That is to say, that to produce a dollar of sales, a manufacturing company will have to buy more from their suppliers, who in turn will have to buy from their suppliers, and so on. Manufacturing job are good.

The only problem is that repealing NAFTA will not do anything to help Ohio.

The real threat to American manufacturing is product imported from China, NOT Mexico. Through October of last year, the trade deficit with Mexico reached $4.8 billion. Not good, but largely driven by rising oil prices. Meanwhile, the trade deficit with China was $20 billion. For October alone. For the first ten months of 2007, our trade deficit with China was over $200 billion.

In my previous job, I worked for a job shop company. We made components that other companies used in their assemblies; parts for everything from cars to cosmetics. Over the years several of our customers set up operations south of the border. In every case the purchasing decisions were still made in the US, and we continued to hold those contracts. We shipped components to Mexico for assembly, and then the products were shipped back across the border for sale.

Starting in the late '90's a different trend emerged. Product started coming in from China. Sometimes we would make one or two shipments of parts across the ocean before being told "thank you, we have local sources now, we will not be buying any more parts from you." More often we were just told that our customer was closing his doors.

To an American manufacturer, China is a threat, Mexico is an opportunity.

But let's say repealing NAFTA would bring jobs back to the US. That still wouldn't help Ohio. Why not? Because if companies move operations back to the States, they will move them back to Tennessee, Alabama, or Missisippi, which is where the foreign automotive plants and their suppliers are setting up shop. Ohio has a high tax, union friendly business environment, unlike the more probusiness states of the Southeast.

Maybe Ohioans should look at themselves, before buying the line that their problems lie south of the border.