The founding fathers viewed “free trade” as the ability to trade with any nation without being restricted by the national government, not the absence of tariffs and quotas. In fact the federal government was funded almost 100% by high tariffs throughout the 19th century. Not only did high tariffs and quotas fund the national government, they allowed US industry to develop and flourish without being undercut by European producers.
I have worked in the US apparel industry from the 1970’s to the present. Textiles and apparel have been hit hard by the policies put in place by the free trade movement of the early 1990’s. CAFTA and WTO did much more damage to the US apparel industry than NAFTA. In fact the admission of China to the WTO, eliminating quotas and dramatically reducing tariffs while the Chinese pursued mercantilist trade policies, was probably the largest contributing factor to the gutting of the US manufacturing sector.
In opening up our markets, while not realizing 100% reciprocity and not punishing cheating (i.e. currency manipulation, transshipments, intellectual property violations, direct government subsidies of exports and capital to expand production in export industries, and exploitation of human capital) we essentially put our industry into an untenable position. Add to that increasing regulatory burdens on domestic firms, the increasing exploitation of industry by parasitic tort attorneys, and the equity markets shift from financing long term investment to short term speculation and we had the perfect storm to dramatically dismantle in less than 2 decades an industrial infrastructure that had been built over 150 years.
My experience in the apparel business was free trade served initially to boost margins of the domestic companies that shifted from manufacturing in the USA to importing. Companies such as Hanes, Levi, Warnaco, VF, Philips Van Heusen eliminated hundreds of thousands of lower middle class factory jobs by shifting to an contract import model. They did not lower consumer prices. Instead they increased profits and redeployed those profits to consolidate the industry through acquisitions.
The Chinese government collaborated with these companies by financing the construction of factories to supply the importers. Throughout the 1990’s and early 2000’s the Chinese government would fund construction and equipping of textile factories with interest free loans and a 15% rebate paid to the company for goods exported from China. At the same time, low labor costs were sustained by the government supporting peasant migration from rural areas to the cities. With these incentives, investment flowed into the construction of Chinese factories while the US factories were being dismantled. Rural textile towns in the southeastern US went from thriving middle class communities to high unemployment economic wastelands. This in turn resulted in burgeoning social welfare costs which were passed to the taxpayers. The story was similar in many other assembly industries employing relatively unskilled labor.
A century ago the big Wall Street banks invested in hard assets - railroads, ships, factories and buildings. These were long term investments in productive infrastructure which contributed to economic development and growing the national wealth. Today, Wall Street seems to engage in short term financial manipulation, churning stocks in nanoseconds or creating exotic financial instruments for which it is difficult to ascertain real value. A railroad locomotive, a factory, an airplane, or a ship have real tangible value and a productive life of decades yet Wall Street is loath to invest capital in these types of assets within the US. As a result the government has stepped in to provide capital to developing industries, with poor results (Solyndra for example). The dearth of investment capital to finance hard assets for small and medium size companies is a major economic issue which receives almost no recognition in the media or political world, yet solving the problem is essential to restoring America’s industrial might. It has only been 3 years since we were in an environment where a bank would loan a individual with a tenuous job and poor credit history hundreds of thousands of dollars to purchase a house with no money down. That same bank would not finance the purchase of several hundred thousands of dollars worth of equipment for a rapidly growing small business, even with a note secured by the assets and with a substantial down payment.
I would like to see the US exit all of the current tariff agreements and move to a flat % tax rate on all imports (manufacturing, agriculture and energy) equal to the corporate income tax in place. If the corporate tax rate is 35%, we should have a 35% tariff. If it is 15%, we should have a 15% tariff. Consider that a fee for access to the market as well as an appropriate leveling of the playing field for US companies competing with government subsidized factories. Obviously we also need to have regulatory and tort reform as well to restart investment in US manufacturing and domestic energy production.
To “fix” the investment equation, we need to reinstate Glass Steagall, in order to separate speculative investment banking from what should be more conservative retail banking thereby eliminating “too big to fail” taxpayer funded bailouts from the system. We cannot have a healthy economy, with efficient allocation of capital, when the bankers are protected from risk by the government. Finally, we need to return to sound fiscal policies at all levels of government and refocus the Federal Reserve on fighting inflation and preserving a strong dollar.
How we ever agreed for China to fall under the auspices of GATT never ceased to amaze me. A long ago dead person one time told me when I was a lad, we are going to sell rope to our enemies with which they will hang us. I guess your long diatrob underscores his commentary.
I have a problem applying how things worked in the 18th 19th and the very early part of the 20th century to today’s world though. Yes we did fund our government through tarriffs and excise taxes. Yes, tariffs, and quotas, supported US industry. We were a growing nation at that time and pretty much self sufficient. That is not the case today.
I agree we should never have allowed companies to move their production off shore as a consequence of our trade agreements. We did it unfortunately and now the question becomes can we put the genie back in the bottle.
NAFTA was just a hemispherical agreement in furtherance of the road we cut for ourselves.
You also correctly note in that we did nothing to punish cheating like currency manipulations, intellectual theft or out right fraud.
I like you idea of applying a corporate tax rate import fee. It would do two things...raise revenue and decrease imports. Of course consumer costs would go up but I believe the trade off of higher costs verses a lowered trade deficit, support for domestic manufacturing and a lower fiscal deficit far outweigh the costs.