Now that’s a scare word for most of us baby-boomers,
and evidently for economists as well.
But are they a solution, perhaps the only one,
for (some of) America’s problems?

What are the seemingly intractable economic problems in America?
How are these for starters:
  1. Manufacturing jobs have moved/are moving overseas.

  2. The trade deficit,
    which in the long run will inevitably lead to
    an economic catastrophe for America,
    even if politicians and the media don’t want to discuss/admit it.

  3. The budget deficit,
    whereby today’s Americans live (relatively) high on the hog,
    at the expense of future Americans.

I’m no economist, nor a deep thinker in economic issues,
but at least on the surface it seems that tariffs
would contribute to solving all those problems,
especially job loss and the trade deficit.

Right now, the American consumer enjoys cheap goods imported from Asia.
If such goods became more expensive,
but the added cost went to his fellow countrymen,
would that be such a bad idea?

And, other than higher consumer costs, what is the downside?
A trade war?
With China?

To Tom Friedman and his kind, a flat world is wonderful,
but maybe it is really only a fool’s paradise,
helping some groups and today’s consumption
at the expense of the larger good and the future.

It seems to me that the current system is set up
to favor consumers and importers and exporters
at the expense of producers.
But how long can America survive as a nation which produces (next to) nothing,
but only consumes?

Here is Section 11.6, the third from the end, of Patrick J. Buchanan’s 2011 book Suicide of a Superpower.
The emphasis is added.

Chapter 11
The Last Chance

Section 11.6
Economic Patriotism

“Who won the war?” asked the posting on FreeRepublic.com.
Below the question were pictures—
of Hiroshima in 1945, ashes and ruins, and
of Detroit in 1945, mightiest industrial hub on earth.
Then came photos of Hiroshima, sixty-five years later, a gleaming city,
and Detroit in 2010, a burned-out shell.
Who won the war?
We won the world war and the Cold War,
but we lost the post-Cold War and are losing the future.

From 2000 to 2010,
America saw 50K factories close and 6M manufacturing jobs disappear.
China, Japan, the EU, Canada, and even Mexico
run up hundreds of billions or trillions of dollars in trade surpluses
with the United States.
Is this because their workers are more capable and efficient?

Worker for worker, Americans are the best.
Why, then, are we losing?
Because China, Japan, and Germany are trade predators not trade partners.
They look on trade the way Vince Lombardi looked on football:
“Winning isn’t everything; it’s the only thing.”

Germany, Japan, and China recite the catechism of free trade—
and practice economic nationalism.
Their tax and trade policies,
from currency manipulation to value-added taxes (VAT) on imports
and rebates for exports,
to subsidies for national champions, to nontariff barriers on U.S. goods,
discriminate in favor of their products in their market and in our market.
We talk about a “level playing field.”
But they landscape the field.

The success of economic nationalism
may be seen in the shifting balance of power.
China is the world’s rising power
and America is everywhere seen as the declining power.
Yet, while the Chinese and German economies are but one-third the size of ours,
both export more than we do.

The game is rigged and we need to walk away from the table.
For if we do not cure ourselves of this addiction with free trade,
the industrial evisceration of the United States will continue until
we make nothing the world wants but Hollywood movies.

Ralph Gomory, a former IBM senior vice president for science and technology,
relates what the naïveté of the free-traders and the greed of our corporate elite
[and the short-term focus of Wall Street]
are doing to our country.
We have too many people today who see in
the destruction of our key industries
by well-organized and highly subsidized actions from abroad

nothing more than
the effect of free trade and the operations of a perfectly free market.
This is a delusion and a dangerous one.
We also have an elite industrial leadership that too often sees itself
with no other duty than maximizing the price of their company’s stock,
even if that means
offshoring the capabilities and know-how for advanced production
to other nations that have no free market themselves.
“[T}he heart of the problem,”
writes Gomory, is “lack of leadership from our own government,”
which must realize that
the “fundamental goals of the country and of our companies have diverged.”
What’s good for General Motors is not good for America
if General Motors is shifting plants and production to Asia
to build and export cars to America.

America has been running the largest trade deficits in history for decades.
But a U-turn could be effected by adopting tax and trade policies
that set as our national goals—
the reindustrialization of America;
the recapture of that huge slice of the U.S. market lost to foreign producers; and
the substitution of U.S.-made goods for foreign goods
until America is a self-sufficient nation again
as she was from Lincoln’s time to JFK's.

To reduce our dependence on goods made abroad and grow our dependence on goods made in the United States,
we should impose tariffs on all imports
and use every dollar of tariff revenue to reduce taxes on U.S. producers.
If the United States imports $2.5 trillion in manufactures, food, and fibers,
and imposes a 25 percent tariff,
that would yield close to $600 billion
to virtually eliminate corporate taxation in this country.

What would such a tariff accomplish?

  1. A reduction of imports (as their prices would rise),
    and a concomitant increase in orders to U.S. factories and farms.

  2. As the profits of U.S. factories and farms surged,
    Americans would be hired to meet the new demand.
    The income and payroll taxes of those new workers
    would replace sinking tariff revenue from falling imports.

  3. With corporate taxes cut to nothing,
    U.S. companies could cut prices on goods produced here,
    making U.S. goods more competitive both here and abroad.
    As foreign companies realized that
    the U.S. corporate tax rate was the lowest in the free world,
    they would relocate here.

  4. As the price of imports rose 10, 20, or 30 percent,
    foreign companies would realize that
    to hold their share of the world’s largest market,
    the $15 trillion U.S. market,
    they would have to shift production here to compete with U.S. companies.
    Companies like Mercedes, BMW, Toyota, and Honda
    would not only assemble cars here
    but would build plants here to make their batteries, tires, motors, and frames.
    The tide of capital investment rolling into China would shift
    and begin surging back to the United States.

That would be our message to the world:
every company and all products are welcome here.
But if you want to sell here, you produce here,
or you pay a stiff cover charge to get in.
Would China, Europe, and Japan threaten retaliation?
But we should tell Beijing, Brussels, and Tokyo
we will accept a combined VAT-tariff on U.S. products entering their markets
equal to our tariff on their goods.
Equality and reciprocity, not globalization and free trade,
should dictate the terms of trade.
And would China, Japan, or Europe risk a trade war with the United States
when all three run huge annual trade surpluses with the United States?

Every year,
Beijing exports to us six or seven times the dollar volume of goods
we export to China.

If the United States lost 100 percent of the world’s markets we now have,
but recaptured 100 percent of our own,
we would be half a trillion in the black,
for that is the size of our trade deficit with the world.
We have nothing to lose but our trade deficits.
We have a self-reliant republic to regain.

Economists would cry,
“Protectionism! We can’t turn our backs on the world.”
But no one is turning his back on the world.
The goal is not to freeze out foreign goods
but force foreign goods to carry the same share of the U.S. tax load
as goods made in the USA.
A tariff so high as to lock out foreign goods produces no revenue.
What is proposed here is not a protective tariff to keep out foreign goods
but a revenue tariff,
with the rate set at a level to maximize revenue for the Treasury
and maximize tax cuts for U.S. producers.

What is urged here is that we do to the VAT nations what they do to us.
Pleas, protests, and threats to take Beijing to the WTO
have not persuaded the Chinese to let their currency rise.
Let us accept that reality, cease whining, stop hectoring, and act.

We need to bring manufacturing back
and relearn truths taught centuries ago by Hamilton.
Manufacturing is the muscle of a nation,
vital to its defense and the securing of sovereignty.
It is the magnet for research and development.
It is organic.
It grows.
Around the factory form other businesses.
Towns develop.
Manufacturing workers average twice the wage of other workers.

We need to change the way we think.
Production must come before consumption.
We cannot consume if we do not produce.
We must start making things again.
We must reduce our dependence on foreign nations
for our national necessities and the loans to pay for them.
If it can be made here, it should be made here.
We need to start relying on one another and stop listening to
the “sophisters, economists, and calculators
who gutted the greatest manufacturing nation the world had ever seen.
Our problem lies not in ourselves
but in policies imposed by politicians in the hire of corporatists
whose loyalties rise no higher than the bottom line on a balance sheet.

[I would certainly agree that that is a big part of the problem,
but assert that another big part is the fact that
media/academic/cultural forces have been so assiduously mocking
assertions of American nationalism
(except, of course, when such is in the interest of Israel).]

Miscellaneous Articles


Things Fall Apart
By Ian Fletcher
The American Conservative, 2004-10-11

The coming fracture of the free-trade coalition


In Senate vote, a win for the middle class and a rebuke to China
By Harold Meyerson
Washington Post, 2011-09-30

[An outstanding column.
Here it is in its entirety, with some comments added:]

The news that our trade with China has been bad for the American middle class
has finally reached the U.S. Senate.
On Monday, the Senate will take up legislation that would
impose tariffs on Chinese goods
so long as China depresses the value of its currency.
Despite the partisan polarization that grinds lawmaking to a halt these days,
the bill’s support is thoroughly bipartisan,
with sponsors ranging from
such conservative Republicans as South Carolina’s Lindsey Graham
to liberal Ohio Democrat Sherrod Brown.
The legislation is expected to clear the Senate’s 60-vote hurdle for a floor vote and move on to the House.

For students of America’s deranged romance with free trade
[One led, or at least the subject of cheers from,
the editorials of the Washington Post]
the fact that the Senate is willing to take on China is little short of amazing. Since the 1980s,
the House has been the legislative body where epic battles have been waged
over the free-trade agreements
that have decimated American manufacturing.
[Rather, are one of several causes of that decline.
Consider also the general lack of competitiveness of the American labor force these days,
due not only to unions but also to
the disadvantages relative to China imposed by
the very “progressive” measures that Meyerson and his colleagues have imposed.
How much does a Chinese corporation have to pay, directly or indirectly,
for the health care of its workers
and unnecessary foreign wars demanded by its elite?
See his brief mention of this in paragraph 4.]

The impact of factory closures on congressional districts
is generally too big for representatives to ignore.
Local manufacturers and bankers, no less than local union members,
complain to their House members;
when the town’s biggest employer leaves, grief knows no party.
Senators, on the other hand, move in a larger world,
one where Wall Street contributors and Washington pundits
assure them that free trade is invariably good.
So while the House has been home to furious fights over
NAFTA, CAFTA and extending permanent normalized trade relations to China,
the Senate has long passed such measures with much less fuss and sublime indifference to the consequences.

But the consequences can no longer be denied.
Between 2001 and 2010,
the U.S. trade deficit with China cost Americans 2.8 million jobs,
according to a report by economist Robert Scott,
issued last week by the liberal Economic Policy Institute.
Most of those jobs — 1.9 million — were in manufacturing,
and of those, almost half were in computers and electronics.

This wasn’t simply the consequence of China’s cheaper labor
or more generous corporate subsidies.
As China’s productivity soared during the past decade,
the value of its currency should have risen correspondingly.
Instead, China purchased dollars,
which had the effect of depressing the yuan
and making Chinese exports about 28 percent cheaper than they would be
if the yuan had been allowed to appreciate,
William Cline and John Williamson found in a study for the centrist
Peterson Institute for International Economics.

Data like these have been floating around for years, of course.
Until now, however, the Senate has remained largely impervious
to the evidence of Chinese cheating and American decay.
[A big question: why?]
But elite opinion, which the Senate does heed,
is finally catching up with mass opinion
on whether losing our manufacturing base is a bad thing.
An influential July 2009 article in the Harvard Business Review
by economists Gary Pisano and Willy Shih argued that
losing manufacturing meant
losing our edge in innovation,
that the relationship between research and production was reciprocal.
This would not have come as news to Thomas Edison,
but few on Wall Street or in corporate boardrooms the past two decades
believed that America’s prosperity and dynamism
required the retention and renewal of manufacturing.

[And why was that?
I would suggest
(not to the approval of the "elite" nor to women, nor probably to Mr. Meyerson)
that the rise of the power of Jews and women had a lot to do with that.]

Even now, it’s hard to find many there who believe that.
Finance has fattened on manufacturing’s decline,
as consumer debt replaced producer wages
as the fuel that makes America run (and crash).
And finance still has friends in Washington.
The U.S. Chamber of Commerce,
which represents many American corporations that make their products in China,
opposes the Senate legislation.
Ironically, now that the Senate is on the verge of passing the bill,
Politico reports that House Republican leaders have no intention of bringing the bill to a vote.
House Speaker John Boehner and Majority Leader Eric Cantor
don’t want to jeopardize their assiduously cultivated Wall Street funding —
even though polls show rank-and-file Republicans
want a more assertive economic posture toward China.
That’s doubtless one reason why Mitt Romney has vowed to impose tariffs on China
the day he becomes president.

Our current president, meanwhile,
has maintained a discreet silence on the Senate bill.
Barack Obama has said that he wants the United States
to double its exports over the next five years,
but expanding American manufacturing on that scale can’t be done
if China continues to eat our lunch.
No issue divides Wall Street from Main Street more than trade,
[immigration is another one]
and winning Main Street’s support in next year’s election
will require Obama to stand up more than he has
for America’s industrial interests.
Hell, even the Senate has figured that one out.

Our one-sided trade war with China
by Robert J. Samuelson
Washington Post Opinion, 2011-10-07

Senate Jabs China Over Its Currency
New York Times, 2011-10-12

[An excerpt:]

Senator Joe Lieberman, independent of Connecticut, said on the Senate floor,
“During times of economic recession such as the one we are in now,
over history nations have repeatedly become protectionists.
But history also shows that
protectionist policy makes the economic problems worse,
not better.”

[Lieberman is a mother-fucking liar.
The fact of the matter is that the United States was protectionist
throughout the nineteenth century and the first half of the twentieth century.
This protectionism aided the U.S. in becoming
the number one manufacturing nation in the world.
For a thorough documented history of this,
see Patrick J. Buchanan, The Great Betrayal.]

Labels: ,