Posted on 05/25/2018 4:39:02 PM PDT by jfd1776
After three months of saber-rattling on the trade front – including the implementation of high duties on imported steel and aluminum, and threats of similarly high tariffs on a host of business and consumer products both from and to China – the dust appears to have settled for a while, with an announcement that China will work to import more from the USA, and a tentative agreement that a trade war would be bad for everybody.
Within days, there were fresh discussions of new tariffs on other products that hadn’t been discussed previously - like cars and trucks – also based on the recognition that a weakened and minimized manufacturing sector isn’t just bad for the economy, it’s bad for national defense.
Not enough is said about this aspect of the Trump administration’s trade focus. While jobs and general economics are of course of critical importance, too many in both the business community and the political class have lost touch of the dangers inherent in being utterly dependent on foreign countries for so much, when there is a risk – however small – that we might one day be on opposite sides in a war.
Before we say to ourselves – but we don’t have to worry; we’ll never go to war with China; we own too many plants there! – let’s think about that for a moment. Virtually all Americans had relatives in England and Scotland in the 1770s, but that didn’t stop us from going to war with them. Our connections with Mainland China are much more limited: some of our companies own plants there, that’s all. That shouldn’t stop a foreign policy decision, if one needs to be made, to defend allies like Japan or South Korea if the need arose.
But that’s an extreme example. We could go to war at any time, with any country. We probably wouldn’t start it… but even though today we can’t imagine a war with Japan, Germany, or Mexico, we have faced all of them against the battlefield in the past, and there’s no reason to believe we couldn’t do so again in the future. We fought on the same side as Italy in WWI, then on the opposite side in WWII. All it takes is a change of administration; one election or coup d’etat, and a friend can become an enemy overnight.
And if that happens, where do we stand? How independent are we? We depend on foreign sources for half our cars, most of our clothes, tons of manufacturing equipment. We are reasonably independent on food and beverages. Frankly, we are more independent than we may think, but is that enough?
In case of war, we have to consider the things that matter, not just to daily life but to the war effort. We could go without imported shirts and trousers for a year. We could go without German beer or Argentinian wine for a year. But if our defense contractors depend on China for the computers that populate our fighter planes’ dashboards, or if they depend on Japan for the steering systems on our tanks, or if they depend on India for the aluminum extrusions or steel frames that support the decks on our aircraft carriers, then we’re not going to be able to ramp up for war as fast if those supplies are cut off, or even worse, if those supplies are behind enemy lines.
The United States have long had export controls in place, serving to dissuade defense contractors and other suppliers of sensitive industries from outsourcing their components and technology, for this very reason. But a long period of peace with other industrialized nations led our government to start softening these export controls under the George W Bush administration, a softening that was accelerated under the Barack H Obama administration. Today, we are dependent on foreign countries, both friendly ones and frankly unfriendly ones, on too many materials that would pose problems in wartime.
So when the Trump administration cites national security as a reason for trade efforts – whether one supports additional duties as the remedy or not – it simply cannot be denied that security is indeed a legitimate concern. Too many in the political and journalistic classes are snidely viewing this as an abuse, claiming that the security claim is a loophole to allow presidential action that ought to be banned. Nothing could be further from the truth. Even those of us who believe that the sudden imposition of high tariffs is the wrong approach must still acknowledge that the security issues at hand are real, and that America must find a way to solve them. It is still a dangerous world, and thus it will always be.
And this is why it’s interesting that in this week of apparent cooling on the trade front – with the USA and China stepping back from the brink on new tariffs, at least temporarily – this happened to be the very week that the Republican majorities in Congress passed – and the president signed – a crucial partial draw-down of Dodd-Frank.
The new law is limited in its effects; it’s nowhere near what was hoped for, and still leaves many major businesses suffering under the outrageous overreach of Dodd-Frank. But it does accomplish a great deal, in freeing small and medium banks from the omnipresent, strangling hands of the federal leviathan.
Regaining our standing as a net exporter and as the world’s manufacturing leader – regaining our dominance in production of goods as well as services - and returning America to the defense-related independence necessary for national security – doesn’t require punitive tariffs and anti-dumping duties.
It requires the gradual lessening of the grip of the government (at every level) on our manufacturing sector. It requires exactly what this administration has been doing – outside of trade – ever since January 20, 2017: directing every federal bureaucracy – from OSHA to FDA, from the FTC to F&W, every one of them – to reduce the destructive regulations that stymie American business and drive manufacturing abroad.
The tax cuts of last December – with more to come – and the regulatory reforms of this first half of the administration – with more to come in the second half – are exactly the right prescription for getting the nation out of a dozen years of economic doldrums. It’s corrections like this week’s partial overturn of Dodd-Frank that will free up local banks to invest in start-ups and small business expansions. That’s what we need in order for the American economy to not just have a recovery, but to return to the enduring, globally-shining economic boom that our Founding Fathers expected from us.
When our Framers developed our new nation – with a Constitution designed to keep government small – their plan was for a free market to prosper in a framework of economic freedom, a framework that has been hamstrung for a hundred years by the self-serving regulatory state.
The Trump administration and the Republican congressional majorities are serving the cause of undoing these travesties, and returning America to a free market again. It’s been a long time coming, and is therefore all the sweeter to see at last.
Copyright 2018 John F. Di Leo
John F. Di Leo is a Chicagoland-based trade compliance manager and trainer, actor and writer. A former spokesman for the Illinois Small Business Men’s Administration and the Illinois Right to Work Committee back in the 1980s, his columns have run weekly in Illinois Review since 2009. Permission is hereby granted to forward freely, provided it is uncut, and the IR URL and byline are included.
Since the rest of the world practices protectionism it would be wise for Americans, who have endured decades of globalist gas lighting on the subject, to learn the positives of tariffs. Those positives are many.
Wrong wrong wrong. The past 30 years proves this is BS.
Consumption taxes, especially the tariff is the fairest most conservative tax of all. Liberalizations and Republican should be in favor of them. They can be used a propaganda foil to assuage the stupid deficit hawks and their zero sum income tax game.
You can do that AND have protective tariffs. The two things are not mutually exclusive.
2. Products may not cost more - The assumption that our products will go up significantly in price is a realistic concern. But it is not an absolute given. In the immediate period of implementation according to some of the best estimates the tariffs may raise the purchase price of a new car something close to $45, and a twenty-four pack of beer by .05 cents. But what happens if steel & aluminum production begins to match volume wise the amount we import from other world sources? Economics 101 teaches us that prices drop as inventory surges. If our steel production grows enough we could wipe out the gains mix-minused in our dependence on China.
3. The world doesn’t like it - Of all the pushback this reasoning is among some of the most inane. When the United States does what we have to do to shore up our markets, jobs, workers, and life we have less and less need to care what the world thinks about it. This isn’t hubris, this is independence. To be tied to China’s cheap steel, Saudi Arabia’s oil reserves, and the good graces of the global community fundamentally puts us at a more vulnerable position from an economic & national security standpoint. Like much of the rest of the Trump focus, America needs to shore up America’s capacity for whatever faces us, and being utterly dependent upon others doesn’t move us in that direction.
4. We shouldn’t pick winners & losers - This is an argument normally made when discussing competition between domestic companies here in the USA. Jonathan Hoenig, appearing on Neil Cavuto on Friday, repeatedly invoked this as some sort of determining factor as to why the tariffs should be prevented. But it’s an illegitimate argument. This isn’t picking one steel factory over another and using tax-payer incentives to cause one or the other to succeed. This is a fight for survival between a metal industry that has suffered enormous loss for the better part of multiple decades, and the slave labor of China. The winners in the near term are steel and aluminum workers.
5. The national security consideration - Those that have argued that a trade war is inevitable, seem to also forget the increasingly perilous hair trigger of real war that the globe is constantly on the edge of. If America were to find itself drawn into a conflict with North Korea or Iran, it is likely whatever degree of imports we get from China and Russia would immediately be frozen. Fifteen years ago more than a dozen aluminum smelters were in operation. Today there are only three and the entire capacity of one of those three is necessary just for the military and related technologies. We are more vulnerable than necessary, and increasing domestic production solves this vulnerability.
6. Had to be (as it was) done in the correct sequence - Because of the rapid growth of the economy by rolling back some 2000+ regulations coupled with the very real impact that Trump tax reform is having now is the absolute right time to push for this “leveling of the playing field.” Most Americans will be more likely to accept an increase in the price of their next car by $45 if they know that Americans are benefiting. They are even more so if they have on average $90 more per week appearing in their pay check.
To balance the difference in labor costs between the USA and the 3rd world would not take much. Frankly, most manufacturing is not labor intensive. That's the point of mass production. Maybe 7% of retail prices goes to labor, and that's for domestic union labor.
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