Market Adjustment Factor
Using 'The Gouge' To Fix The China Problem
(posted 4/27/05)

Market Adjustment Factor

Buyers hate it when car dealers sell most desirable models above list price, using that dreaded window sticker addition known as the 'Market Adjustment Factor', also known as The Gouge. But, in a free market, such a surcharge will change behavior (capitulate, wait till things get better, buy something/somewhere else), give the surcharger a better standard of living (more money in the dealer's pocket) and encourage the overall market to return to normal. (If The Gouge is too high, people won't buy - forcing prices back down again).

I believe that China needs a dose of the MAF. The value of goods imported from China exceeds the value of U.S. goods exported to China by a factor of more than six to one. The trade deficit with China comprises 20 percent of the total U.S. trade deficit and is the largest trade deficit the United States has with any single nation. China has deliberately kept the value of its currency low - artificially so - in order to sell more goods to us.

The Economic Policy Institute reports that the rise in the United States' trade deficit with China between 1989 and 2003 caused the displacement of production that supported 1.5 million U.S. jobs. Business Week magazine has provided comparable wage figures for China. The cost of Chinese factory labor is estimated to be $0.64 per hour, including both wages and employer contributions. The U.S. rate is $21.97.

We make it so easy to transact business with China, that Chrysler is considering manufacturing complete cars there for export to the U.S. GM now imports the engine of the Chevrolet Equinox from China.

Meanwhile, China hassles us (its best customer) about Taiwan, sells arms to our enemies and refuses to put its size-15 foot down on our nuclear nemesis, North Korea. China's neighbor would have ceased to exist decades ago without China's covert and not-so-covert support. It is not a stretch to refer to North Korea's leadership as China's puppet regime.

We cannot use tariffs to modify China's behavior. In late 1999, the Clinton Administration reached to bring China into the World Trade Organization. When the Bush administration tried to impose increased tariffs on foreign steel, the WTO ruled America had no right to do so, and the tariffs were eliminated.

The U.S. is China's biggest customer. They need our dollars. Our market. There is no one else to replace us as a trading partner. We are The Biggest Game In Town. That's worth something. So, we should do what any savvy car dealer would. Apply a Market Adjustment Factor on all Chinese goods imported into the U.S. Say, 20% or thereabouts. Keep it in force until China starts to act like a 'real' nation that takes better care of its best customer. And that customer's interests.

The Market Adjustment Factor just a little sticker on the side window of international trade. It can be peeled off any time a change in conditions warrant such an action.

It's not a tariff, folks. It's just an entrepreneurial society trying to put a little money back in our pocket. And do a bit of nuts-and-bolts behavior modification. And some auto dealer-style horse trading. That's something the Chinese will understand.


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The facts presented in this blog are based on my best guesses and my substantially faulty geezer memory. The opinions expressed herein are strictly those of the author and are protected by the U.S. Constitution. Probably.

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