Wal-Mart’s Low Prices- A High Cost for America

American consumers believe that they get a benefit from Wal-Mart's low prices, while American workers believe that they pay a high price in jobs, dignity, security, and even national survival. So who is right? The answer is that they both are. But the costs and benefits are not symmetric.

Americans do get lower prices, in the short-term. But only at the cost of enormous and unsupportable trade imbalances, imbalances that most, sooner or later, come out in higher prices, taxes, interest rates, and “reduced” employment (e.g., replacing well-paying factory jobs with poorly-paid “service” economy jobs, like maids or hamburger flippers).

Wal-Mart happens to be Communist China's largest trading partner, but its “low prices” are not the result of either a free market or of free trade. Rather, it is the beneficiary of government manipulation of the markets.

The Chinese have a way of “cheating” in the game of international trade. They simply “peg” their currency, the Yuan, at an artificially low rate. In effect, this is an export subsidy and an import tariff by another name.

What's to be done?

If the Chinese Communists persist in this trade war (to call it what it is), then we should “adjust” their currency for them, by gradually raising tariffs over a three to five year period to bring the costs of Chinese products to what they should be if their currency were correctly priced. On a level playing field, Americans can compete even with subsistence wages and low-cost lead painted products.

Of course, such a policy will not be painless. Prices at Wal-Mart will rise and the happy-face price-cutter will not be quite as happy. But the pain will be short-term, the gain will be long-lasting.

*The above article has been excerpted from John Médaille’s article “Subsidizing Wal-Mart,” featured in the blog The Distributist Review. Médaille teaches “Social Justice for Business Students” at the University of Dallas and has been a businessman for over 30 years. Read the entire article at http://distributism.blogspot.com/