Trade Deficits and the Quest for Culprits

The Trump Administration has announced its formal inquisition into America’s trade deficit, with a particularly loaded day of testimony scheduled for May 18, in which the administration hopes to learn the various causes for America’s huge import volume.

The administration conjures up an image of evil old foreign prime ministers and their assistants – grasping witches with candy-covered cottages in the forest, looking for sweet little American manufacturers – Hansel Inc. and Gretel LLC – tempting them with tasty morsels and sweet confections, luring them off the American path, moving them permanently into their distant foreign domains.

While the single-minded focus is new, this general conceptualization is not. Protectionism goes back hundreds of years, and certainly, for at least a century now, a certain branch of American demagogues has chosen to blame evil foreign practices for America’s loss of manufacturing.

They identify unfair trade practices such as a foreign government’s subsidy of a specific industry, and enact anti-dumping penalties that do little to help the protected industry, but impoverish its American consumers with crippling 200% and 300% duties. They see a few hot new foreign manufacturing sites in the trade publications or the shipping statistics – Manaus or Hong Kong, Bangalore or Singapore – and immediate blame that foreign country’s sneaky Special Economic Zone, as if a country that tries to encourage its own domestic job growth is somehow committing an international crime.

The United States has long been suffering from a Leftist tendency to “Blame America First” for the problems of the world.

> We see a foreign civil war, and we’re tempted to wonder if our market for its oil contributed to their turmoil (the answer is No, it didn’t.)

> Or we see foreign poverty, and we’re tempted to blame ourselves for not insisting on paying more for their rice or sugar cane than their dictators charge us (again, No, if we paid more, their dictators would just keep it for themselves).

> We have even been told that when foreign children are sick, it’s somehow our fault, because we don’t share our medicine with the entire third world (again, blatantly False, as American pharmaceutical firms and pro-bono doctors are famous for traveling the world and donating their services to the poorest of the poor).

So it is usually No, the problems of the world are not our fault. As conservatives (especially Rush Limbaugh, on his radio program) have always said, the problems of the world are not due to an insufficient distribution of resources, but to an insufficient adoption of capitalism.

That being said, however, the problems of our own country are our own responsibility. Just as we should not take responsibility for foreign countries’ problems, we have no business blaming foreign countries for our own.

If the United States were fully welcoming and supportive of our manufacturing base, and companies still left for foreign shores anyway, then we would have reason to look outward for foreign places to affix the blame.

For generations now, the United States has punished the manufacturing sector more than any other industry. Education gets to be tax-free, manufacturers get taxed to pay for it. Soup kitchens are tax-free non-profits occupying a city storefront, the real retail shop in the storefront next door to it pays twice the property taxes to make up the difference. City halls and park district offices with huge buildings, parking lots and gardens are all tax-free; the factory right across the street, with building, garden and parking lot – taking up an equal square block of land – pays twice the taxes to cover the costs of roads, parks, police, and fire…

Every single day, American companies analyze whether they can continue to manufacture their products where they are, or whether it’s become impossible, and they need to flee.

A wise nation would do everything it can to keep them from having to perform that analysis, because once the analysis begins, in the modern world, anything becomes possible.

The inner city factory that flees because of crime, taxes, and regulations may just flee to the other side of the city… but it may also flee to the suburbs, or to the next county.

But if a company is fleeing Chicago’s crime and taxes, it is also fleeing Cook County’s taxes, and that means it is also fleeing Illinois’s taxes, and overregulation, and workmen’s comp system, and a state budget and public pension terror that promise naught but ever higher taxes in the years to come… so it will move farther away, perhaps to Wisconsin, or Indiana, or Texas, or Louisiana.

And at some point, as the company’s eyes move farther away along the map of potential destinations, the company is sure to notice Ireland, and then Mexico, then China and India, and so many other countries with other reasons to recommend them for consideration.

Because what Americans forget is that our own manufacturers don’t just sell to US customers. We export all over the world.

If a Chicago manufacturer sells half his goods to US customers and the other half to Asian customers, at some point, he’s bound to ask himself if it would make more sense to open his own South Korean or Japanese or Chinese or Indian factory and supply that region from a more local base. It only makes sense.

It will start by the company operating both locations to support their respective regions – Asia for Asian customers, America for American customers. Perhaps Europe for European customers.

But then, eventually, there will be a recession, such as the ten-year long Obama recession from which we now hope to emerge. When that comes, or when local taxes, crime or regulations get too onerous at one site or the other, the company will then face that choice that it never had to make before: To save on costs, perhaps we should only make this part, or this product line, at once site instead of both. Which makes more sense?

Well, with decades of almost continuous American tax increases and regulatory growth, the American site – through no fault of its own – has all-too-often been the loser in such comparisons. Our efficient workforce, effective transportation network, and historical talent can’t compete when our own government is doing everything it can to shut down our entire private sector.

> We have activists here who protest outside our factories, encouraging our workforce to demand salary increases, such as a ridiculously high minimum wage, or go on strike.

> We have politicians in Washington – and in too many state capitals too – who either raise our taxes every year or promise to do so, if given the chance.

> We have newspapers, television stations, even senior citizen groups like AARP, who campaign for crippling programs like Obamacare, mandatory family leave, mandatory daycare, and similar costly programs that stop companies from growing, even deter entrepreneurs from ever starting companies to begin with.

> And we have candidates for high public office – candidates like Bernie Sanders and Hillary Clinton, who came so close to winning the presidency itself – who promise to identify all the most expensive things in life, from healthcare to college, and give them all away for free, because after all, we can just make “the fat cats of corporate America” pay for it.

Faced with such an environment – and that’s on top of the simpler local problems like traffic congestion and crime waves in our cities – and the only logical question to ask is, Why do we still have any manufacturing left at all?

The fact is, American businesses make things here because they want to. They keep on manufacturing here because it IS still the right place to make many, many things.

But thanks to the problems cited above, it’s the right place for fewer things every year. And even so, America could still be the right place to make many more.

We just need to stop blaming the siren call of foreign shores for our problems, and admit the reality of America’s own entirely home-grown anti-business climate.

Nobody’s really luring away our businesses, we’re just driving them off. We have been for generations.

For American manufacturing to survive and even thrive again, we only need to stop attacking our own employers with the ferocity of an enemy army in wartime, and instead – through tax reform and the cutting of red tape – just let them know they’re welcome, and appreciated, again!

Cut the corporate tax rates, slash the destructive, burdensome regulations, and watch America’s economy flourish again – especially in the manufacturing sector.

John F. Di Leo is a Chicago-based international transportation manager, actor, writer, and Customs broker. His columns are regularly found in Illinois Review.

Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included.

The author is correct that we need to be more intrinsically competitive. We need to reduce regulations and taxes on businesses.

He largely sidesteps the recent tariff talk. As we all know, tariffs are simply taxes, and taxes are penalties. We penalize earning income, maintaining property, and buying products and services. We even penalize dying.

Tariffs do help businesses that have to compete with foreign manufacturing equivalents for items sold within the US.

Foreign goods should be charged the same effective burden as our domestic manufacturers bear. This mirrors the author’s perspective, in part, as he wants our burdens to be reduced to be at parity with the world.

I support that perspective.

Charming.

Well, since you went there first, I’ll go right back at you and call you the idiot.

But only since you went there first.

I’ve spent 20 years in manufacturing... you protectionists live in a dream world that it’s all about exploiting cheap foreigners ... but it simply isn’t.

Factory placement involves tons of decisions and trade-offs. Yes, China and India labor are cheaper. True. But if you put your plant in China or India, you’re spending much of the labor savings, maybe all of it, sometimes even more than your labor savings, on flying your engineers and management back and forth, and transporting samples by airfreight, and airfreighting whole containerloads of product when an order has a quality problem.

Such things don’t happen when your plant is in the same building or the same metro area as your management offices.

It’s complex.

Yes, sure, cheap labor plays a role. But taking advantage of that cheap labor is very expensive to your process and your supply chain.

I don’t know a single manufacturer who sources overseas who doesn’t wish he could afford to source locally.

The ship has sailed on that for some industries, but we CAN win back most of them, if we do the right things here, by cutting taxes, cutting crippling regulations, beating back the unions who’ve driven so many good companies out of business or out of the country.

If you just deal with it by saying “let’s raise taxes on imports”, then you won’t fix ANY of the structural problems, and you’ll just plunge us further into recession.

JFD

I will gladly pay 20% more for imported goods and lower my income taxes 20%. Even with out an income tax reduction it is still worth it because the low wages and unemployment that free trade causes is paid for by chumps like me thru taxes. To further this point, I can forgo buying durable goods at any time but I cannot forgo paying income taxes. Ever. In my case I have not bought one imported durable good this year so far. So to date I would have paid no tariffs.

Also how long do think it would take to build flat screen electronic/TV factories in the USA if there was a 20% tariff on them? They'd break ground here tomorrow.

Thanks, ConservativeMind, well said. Quite right.
(...and thanks for your kind support!)

And by the way... to my other detractors... yes of course I know that there are labor cost disparities, and quality and safety disparities, and tons of other issues. I didn’t bring them all up because you CAN’T address every issue in an article, so I addressed the ones I thought most needed to be covered.

What frustrates me about trade issues is that so many people who are normal, traditional economic conservatives (low-tax, small government capitalists) on most issues somehow have a wall in their minds and turn straight to tax increases when international trade is concerned.

We currently charge some very high tariffs - 15%, 20%, even 30% or more, on some things.... and very low tariffs - 3 or 4%, even less - on many other things.

Should we reevaluate that? Sure. Might we do better to have a standard, single, flat tariff on non-FTA country products, like a flat 10% or 20% across the board? Sure, a case can be made for such a change.

But it’s this idea of going STRAIGHT to tax increases that HORRIFIES me.

If there’s one thing we should have learned from the past century, it’s that the left always says we need tax increases, instead of addressing the domestic problems in our society (for example, it costs money to feed poor people, so the left says to raise taxes to pay for the food, and the right rightly says No, let’s find ways to help them escape poverty!).

Anyone viewing economic issues should recognize that the starting point must be to study why we’re losing business.

No factory will EVER tell you they shut down their US site because the import duty rate is only 4% or because they can hire people in China for a quarter the price. Labor and tariffs matter, but not all THAT much.

Let’s fix our problems here. Stop destroying our own factories. Stop crushing them with taxes and regulations and crime and insurance costs and lawsuit risk.

And THEN, once we’ve addressed those issues, sure, let’s have the debate on tweaking our approach to duties.

But anyone who goes straight to tax hikes as his answer to any problem has no business on a site like FreeRepublic, because he clearly believes neither in Freedom nor in the American Republic we cherish.

JFD

We all agree that by buying US made goods we are directly helping our fellow citizens with gainful employment and help all connected businesses and individuals pay taxes into our system.

I would add that providing an incentive, even if only half the difference, to “buy US,” helps ensure needed taxes are internally paid and people do not become welfare burdens.

If parity exists with taxes, quality, and price between foreign versus domestic-produced products being sold in the US, we as a country, and ourselves, unfortunately too minimally to be perceived, profit more from the locally-made item being purchased.

Have you EVER read a history book? Have you ever heard of George Washington? He signed the first tariff act in 1789. Thank God he did because that act turned the agrarian colonies into an industrial power house.

"Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise:"[1]

Ever heard of Karl Marx? He would be smiling and patting you on the head you good little Free Traitor™ you. He loved what Free Trade does to an industrial country.

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

- Karl Marx

Central_va, have you ever read an econ textbook that WASN’T written by Maynard Keynes, Paul Samuelson, or Noam Chomsky?

You really are confused. Like you Paul Samuelson and Maynard Keynes are both devout Free Traitors™. As far as Adams Smith goes, that man's teachings did more damage to the USA than anything I know. He wrote about economic theory during the pre industrial age and then people try to apply to industrial age economics. It is preposterous but it isn't his fault, he didn't know what was coming. I guess if you strip all politics and international borders out of the equation then his theories may work but the supposition that you can do that is preposterous.

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