The American Economy And Wal Mart Economics Essay

This is a summary of the Analysis of a research carried out in order to indicate that the United States of America may become more protectionist of the American economy than it is currently, using Wal-Mart as a case study.

Wal-Mart is accountable for approximately 9.3% of the total United States imports from China, between the years 2001 and 2006. The Wal-Mart trade deficit effect displaced 111,400 jobs in the year 2001 and also 308,100 jobs in the year 2006. This research shows that, Wal-Mart’s effect resulted in displacing at least 196,700 U.S. jobs in this period alone. While Wal-Mart was responsible for 9.3% of U.S. imports in this period, it was responsible for 11.2% of the U.S. job losses due to growing trade deficits with China. (Fishman, Charles, 2006)

In conclusion, it is clear that the United States is gradually losing its export capacity and accumulating foreign debt while China is becoming more and more dependent on the United States consumer market for its employment creation. Wal-Mart’s benefits from this unfair trading system is clearly an impediment to the future economic growth of the nation, which is why it is apparent that the United States may adopt a protectionist policy in order to protect its economy.

INTRODUCTION

Wal-Mart, a profound American public multinational corporation, was founded in 1962, by Sam Walton; the company was later incorporated in 1969, October 3rd. Wal-Mart was publicly traded in 1972, on the NYSE. Located in 15 countries, with 8,986 stores, under 55 different names, Wal-Mart currently stands as the biggest private employer and the biggest grocery retailer in North America. The impact of which, on the American economy, cannot be over emphasized. Presently, Wal-Mart is serving more than 176 million customers a year and currently employs 2.1 million associates, 1.2 million in the U.S alone. The effect of Wal-Mart spans from the positive to the negative, but the impact of the negative outweighs that of the positive. (Fishman, Charles, 2006)

BACKGROUND

The effect of Wal-Mart spans from positive, in terms of the availability of consumer products and consumer savings and to the negative, in terms of the local market and job reduction in the manufacturing industry. The United States is a big consumer nation, with the nation’s consumer spending at about 70 per cent of the economic output, it is clear that Wal-Mart has a big role to play in this.

DISCUSSION

Presently, Wal-Mart is serving more than 176 million customers a year and currently employs 2.1 million associates. More than half of all Americans live within 5 miles of a Wal-Mart store. For most people, that’s about a 10 to 15 minute drive. 90 percent of Americans live within 15 miles of a Wal-Mart. Wal-Mart has become the most powerful and the most influential company in the world. By providing more jobs than any other employers in the United States economy, Wal-Mart retains a high level of power that can easily determine the direction of the nation. The effect of Wal-Mart’s low prices is a boon to majority of consumers, most especially the less privileged ones, giving them the ability to exercise their buying power since they find the consumer products affordable, thereby, enjoying an opportunity to be a part of the forward trending environment. Not only does the effect of Wal-Mart keep the standard of living high, it also helps to keep the U.S currency in check against inflation. The action of Wal-Mart has made other strong competitors, who remain in the business despite Wal-Mart’s thriving and continuous success, to become low cost providers.

As a low cost provider, the most damaging visible effects, as seen by Wal-Mart’s competitors would be the fact that, smaller retail establishments can never stand in a competition with Wal-Mart, majority of them have been forced out of business from downsizing due out of customer-base decline, unjustified price reduction as a result of Wal-Mart’s prices, which in turn led to outright loss and shutdown. Through the times of Wal-Mart’s operation, 31 other supermarket chains have filed for bankruptcy, claiming a loss of their customers to Wal-Mart. In actual fact, the magnitude of the economic effects of Wal-Mart goes beyond the mere competition; there is a direct negative impact on the United States economy which results from Wal-Mart’s high level of importation from China into the United States. Exportation supports job creation in the United States, whereas importation displaces the jobs. However, increase in exportation will not be in support of the creation of new jobs, for example, if a domestic company exports assembly parts that used to be shipped to a local domestic automobile assembly plant and the shipped products are used in building cars that are then sent back to the United States. Therefore, the net effect of the trade flows on such factor as employment should certainly be based on a solid analysis of the trade balance.

The United States exports to China in the year 2001, supported 189,000 jobs, but the United States imports, displaced the production that would have supported the 1,190,000 jobs, as described in the lower level of the Table below. Therefore, an $84.1 billion trade deficit in the year 2001 displaced One million jobs that year alone. The displacement of jobs escalated to 2,763,000 in the year 2006. Development in trade deficits with China has dropped down demand for goods produced in all region of the United States, which has led to job displacement in all the states and the District of Columbia.

Table 1

(http://www.epi.org/content.cfm/bp188)

Wal-Mart is accountable for approximately 9.3% of the total United States imports from China, between the years 2001 and 2006. This estimate is derived from widely reported statistics which is including Wal-Mart’s documented estimates of its imports from China.( Bianco, Anthony. 2006)

The United States imports from China did increase by $185 billion between the years 2001 and 2006, as shown in the top half of the table above, an augment of 181%. Wal-Mart’s share of the United States imports from China was steady at this point. Its imports increased from $9.5 billion in the year 2001 to $26.7 billion in the year 2006, an increase of $17.2 billion (181%). Being retailer and not a manufacturer, Wal-Mart is able to exports only a negligible amount to China, accounting for at most 0.2% of the total United States exports to China. Wal-Mart was responsible for a $17.1 billion increase in the U.S. trade deficit between the years 2001 and 2006.

The Wal-Mart trade deficit effect displaced 111,400 jobs in the year 2001 and also 308,100 jobs in the year 2006. This study shows that, Wal-Mart’s effect resulted in displacing at least 196,700 U.S. jobs in this period alone, as shown in the bottom half of the table above and in Figure A below. While Wal-Mart was responsible for 9.3% of U.S. imports in this period, it was responsible for 11.2% of the U.S. job losses due to growing trade deficits with China (Table above). Since the effects of Wal-Mart’s exports to China were insignificant, the speedy growth of its imports had a significant proportionately bigger impact on the U.S. trade deficit and job losses than the overall United States trade flows with China (since the rest of the United States trade with China includes significant U.S. exports to that country). On average, each of the 4,022 stores Wal-Mart operated in the United States was responsible for the loss of about 77 jobs due to Wal-Mart’s trade deficit with China in 2006.

Figure A

(http://www.epi.org/content.cfm/bp188)

These job loss estimates are conservative because goods sold at Wal-Mart are primarily durable and non-durable consumer goods such as furniture, apparel and textiles, toys, and sporting goods. These are particularly labour-intensive manufacturing industries and support more jobs per $1 billion of imports than more capital-intensive goods such as machine tools, automobile, and aircraft parts imported by other U.S. firms.

Job losses in manufacturing account for 68% of total jobs displaced due to growing imports from China in this period. Employment in the manufacturing sector pays higher salaries and provide better benefits than most other industries, especially for workers with less than a college education. Manufacturing also employs a greater share of such workers than other sectors. (Robert E. Scott, 2007)

CONCLUSION

The rising trade deficit of the United States with China has caused a huge displacement of jobs in the American economy and has been a major factor contributing to the crisis in manufacturing employment in the last 5 years. Wal-Mart alone displaced nearly 200,000 jobs in the United States alone due to its own trade deficit with China. The current trending unbalance found in the U.S – China trade relationship is not a good thing for both countries and Wal-Mart has played a significant role in making that imbalance. The United States is gradually losing its export capacity and accumulating foreign debt while China is becoming more and more dependent on the United States consumer market for its employment creation. Wal-Mart’s benefits from this unfair trading system is clearly an impediment to the future economic growth of the nation, which is why it is apparent that the United States may adopt a protectionist policy in order to protect its economy.