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A more reasonable standard, of course, would recognize that iPhones and iPads do not have a single country of origin.

More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touchscreen; and Broadcom, in the United States, makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards.

Analysts differ over how much of the final price of an iPhone or an iPad should be assigned to what country, but no one disputes that the largest slice should go not to China but to the United States. That intellectual property, along with the marketing, is the largest source of the iPhone's value.

Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy, in the form of income paid directly to Foxconn or other contractors.

This is no longer the world of David Ricardo. In a world dominated by mobile capital, mobile capital is the comparative advantage.

Mobile capital can borrow billions of dollars (or equivalent) in one nation at low rates of interest and then use that money to outbid domestic capital for assets in another nation with few sources of credit.

Mobile capital can overwhelm the local political system, buying favors and cutting deals, all with cash borrowed at near-zero interest rates. Mobile capital can buy up and exploit resources and cheap labor until the resource is depleted or competition cuts profit margins.

At that point, mobile capital closes the factories, fires the employees and moves on.

Where is the "free trade" in a world in which the comparative advantage is held by mobile capital? And what gives mobile capital its essentially unlimited leverage?

Central banks issuing trillions of dollars in nearly-free money to banks and other financial institutions that funnel the free cash to corporations and financiers, who can then roam the world snapping up assets and exploiting global imbalances with nearly-free money.

There's nothing remotely "free" about trade based not on Ricardo's simple concept of comparative advantage but on capital flows unleashed by central bank liquidity.

The gains reaped by mobile capital flow to those who control mobile capital: global corporations, financiers and banks.

No wonder labor's share of the economy is stagnating across the globe while corporate profits reach unprecedented heights.

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows.

Stripped of lofty-sounding abstractions such as comparative advantage, trade boils down to four Darwinian goals:

1. Find foreign markets to absorb excess production, i.e. where excess production can be dumped.

2. Extract foreign resources at low prices.

3. Deny geopolitical rivals access to these resources.

4. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive assets and resources, a dynamic I explained above.

All the blather about "free trade" is window dressing and propaganda. Nobody believes in risking completely free trade; to do so would be to open the doors to foreign domination of key resources, assets and markets.

Trade is all about securing advantages in a Darwinian struggle to achieve or maintain dominance.

As I pointed out back in 2005, the savings accrued by consumers due to opening trade with China were estimated at $100 billion over 27 years (1978 to 2005), while corporate profits expanded by trillions of dollars.

In other words, consumers got a nickel of savings while corporations banked a dollar of pure profit as sticker prices barely budged while input costs plummeted. Corporations pocketed the difference, not consumers.

As a longtime correspondent of mine noted, restricting trade may be one of the few ways smaller nations have to avoid their resources and assets being swallowed up by mobile capital flowing out of nations with virtually unlimited credit (the US, the EU, China and Japan).

Protecting fragile domestic industries with tariffs has a long history, including in the U.S., as Jim Rickards has pointed out here in The Daily Reckoning.

But the real action isn't in tariffs: it's in the bureaucratic tools to limit trade and the soft and hard power plays that secure cheap resources while denying access to those resources to geopolitical rivals.

The bureaucratic means of restricting imports have been raised to an art in Japan and other export-dependent nations: there may not be any visible tariffs, just bureaucratic sinkholes that tie up imports in red tape.

Then there's currency manipulation, for example, China's peg to the U.S. dollar. What's the "free market" price of Chinese goods in the U.S.?

Nobody knows because the peg protects China from its own currency being too strong or too weak to benefit its export-dependent economy.

Those bleating about "free trade" are simply pushing a Darwinian strategy that benefits them above everyone else.

U.S. corporate profits have quadrupled since China entered the World Trade Organization (WTO); is this mere coincidence?

No: global corporations took advantage of labor, credit, taxes, environmental/regulatory and currency inputs to dramatically lower their costs (and the quality of the goods they sold credit-dependent consumers) and thus boost profits four-fold in a mere 15 years.

They did this while tossing the hapless consumers a few nickels of "lower prices always" (and lower quality always, too).

The Neoliberal Agenda trumpets "free trade" because "free trade" is a cover for "free capital flows."

Once capital is free to flow from central-bank fueled global corporations, no domestic bidder can outbid foreign mobile capital, as those closest to the central bank credit spigots can borrow essentially unlimited sums at near-zero rates ? an unmatched advantage when it comes to snapping up resources and assets.

If we ask cui bono, to whose benefit?, we find the consumer has received shoddy goods and paltry discounts from "free trade," while corporations, banks and financiers have benefited enormously.

Rising income and wealth inequality is causally linked to globalization and the expansion of Darwinian trade and capital flows: the winners are few and the losers are many.

Tariffs will not solve the larger problems of reduced employment, stagnant wages and rising income inequality.

To make a dent in those issues, we'll need to tackle central bank and central-state policies that have pushed financial speculation to supremacy over the productive economy.

Regards,

Charles Hugh Smith
for The Daily Reckoning

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