New Deal for U.S. Manufacturers

HumanEventsOnline ^ | 09/29/2006 | Patrick J. Buchanan

[NapkinUser]

In July, our trade deficit hit yet another all-time record, $68 billion, an annual rate of $816 billion. Imports surged to $188 billion for the month, as our dependency on foreigners for the vital necessities of our national life ever deepens.

China's trade surplus with us was $19.6 billion for July alone, moving toward an all-time record of $235 billion for 2006 -- the largest trade deficit one country has ever run with another. Our deficit with Mexico is running at an annual rate of $60 billion. With Canada, it is $70 billion. So much for NAFTA. With the European Union, it is running at $160 billion.

America as the most self-sufficient republic in history is history. For decades, U.S. factories have been closing. Three million manufacturing jobs have disappeared since Bush arrived. Ford and GM are fighting for their lives.

Bushites boast of all the new jobs created, but Business Week tells the inconvenient truth: "Since 2001, 1.7 million new jobs have been created in the health care sector. ... Meanwhile, the number of private sector jobs outside of health care is no higher than it was five years ago."

"Perhaps most surprising," writes BW, "information technology, the great electronic promise of the 1990s, has turned into one of the biggest job-growth disappointments of all time. ... (B)usinesses at the core of the information economy -- software, semiconductors, telecom and the whole gamut of Web companies -- have lost more than 1.1 million jobs in the past five years. Those business employ fewer Americans than they did in 1998, when the Internet economy kicked into high gear."

Where did the high-tech go? China. Beijing's No. 1 export to the United States in 2005, $50 billion worth, was computers and electronics.

If Americans are the most efficient workers on earth and work longer hours than almost any other advanced nation, why are we getting our clocks cleaned? Answer: While American workers are world-class, our elites are mentally challenged. So rhapsodic are they about the Global Economy they have forgotten their own country. Europeans, Japanese, Canadians and Chinese sell us so much more than they buy from us, because they have rigged the rules of world trade.

While the United States has a corporate income tax, our trade rivals use a value-added tax. At each level of production, a tax is imposed on the value added to the product. Under the rules of global trade, nations may rebate VAT levies on exports, and impose the equivalent of a VAT on imports.

Assume a VAT that adds up to 15 percent of the cost of a new car in Japan. If Toyota ships 1 million cars to the United States valued at $20,000 each, $20 billion worth of Toyotas, they can claim a rebate of the VAT of $3,000 on each car, or $3 billion -- a powerful incentive to export. But each U.S. car arriving at the Yokohama docks will have 15 percent added to its sticker price to make up for Japan's VAT.

This amounts to a foreign subsidy on exports to the United States and a foreign tax on imports from America. Uncle Sam gets hit coming and going. It is as though, after firing a round of 66 in the Masters, Tiger Woods has five strokes added to his score for a 71, and five strokes are subtracted from the scores of his rivals. Even Tiger would bring home few trophies with those kind of ground rules.

The total tax disadvantage to U.S. producers -- of VAT rebates and VAT equivalents imposed on U.S. products -- is estimated at $294 billion.

Exported U.S services face the same double whammy. A VAT equivalent is imposed on them, while the exported services of foreign providers get the VAT rebate. Disadvantage to U.S. services: $85 billion annually.

Why do our politicians not level the playing field for U.S. companies?

First, ignorance of how world trade works. Second, ideology. These robotic free-traders recoil from any suggestion that they aid U.S. producers against unfair foreign tactics as interfering with Adam Smith's "invisible hand," which they equate with the hand of the Almighty.

Third, they are hauling water for transnational companies that want to move production overseas and shed their U.S. workers.

How could we level the playing field? Simple. Impose an "equalizing fee" on imports equal to the rebates. Take the billions raised, and cut taxes on U.S. companies, especially in production. Create a level playing field for U.S. goods and services in foreign markets, and increase the competitiveness of U.S. companies in our own home market by reducing their tax load.

U.S. trade deficits would shrivel overnight. And jobs and factories lately sent abroad would start coming home.

Isn't it time we put America first -- even ahead of China?

[RightInEastLansing]

"Germany is an exporting powerhouse. Pat should move there."

And if I were to guess, I would venture to suggest you probably got an F in Economics 101 as well as a D- in English comprehension?

READ THE FREAKIN ARTICLE again and try and absorb what the author is trying to convey as opposed to being "closed-minded" simply because of who he is.

If this was written by Clintoon, it would still resonate as long as the figures and facts are acurate--which IMHO, THEY ARE!!!!

I believe he is making the point that Germany enjoys a large trade surplus, yet suffers with slow GDP growth, and high unemployment.

[snowsislander]

Assume a VAT that adds up to 15 percent of the cost of a new car in Japan. If Toyota ships 1 million cars to the United States valued at $20,000 each, $20 billion worth of Toyotas, they can claim a rebate of the VAT of $3,000 on each car, or $3 billion -- a powerful incentive to export. But each U.S. car arriving at the Yokohama docks will have 15 percent added to its sticker price to make up for Japan's VAT.

Well, Pat, if you want to create strawmen, it sure makes it easier to punch them.

Japan doesn't impose a 15% VAT. It does have a 5% consumption tax that has some characteristics of a VAT, though I believe most Japanese regard it as a national sales tax.

[A. Pole]

Germany is an exporting powerhouse. Pat should move there.

Well said! Is your last name Nunez by any chance?

"Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody."
(Prominent Spanish official - Alfonso Nunez de Castro in 1675)

[RightInEastLansing]

I import containers of brake rotors from China and pay on average 4 dollars per rotor including shipping. US manufacturers could supply me with these same rotors (if they were still in business) for $25 dollars per unit.

I am fairly confident that Pat's 15 percent penalty even if doubled wouldn't effect the dynamics of this trade imbalance.

If you want to feel better about the outsourcing of our manufacturing base, then just view the Chinese manufacturers as very inexpensive robotic manufacturing facilities.

Also remember that a $15 dollar haircut contributes more to GDP than a $4 dollar brake rotor.

Feel better now?

[A. Pole]

They have their own manufacturing base now....supplied to them by our bought out stock holders. What do they need from us now?

Soy beans, wood, animal hides, movies.

[A. Pole]

I hope that was sarcasm.

Your hope is not in vain.

[1rudeboy]

Someone help me out here, it's early. Is Pat arguing for a VAT?

[raybbr]

Free trade may...

Modern humans may have driven....

Another possibility....

But he adds that most theories are reliant on guesswork.

...part of the answer may lie in humans’ superior trading habits.

That's in the first section alone.

Trying to use an unproven theory (free trade) to prove another unproven theory is what most call junk science.

[RightInEastLansing]

"Manufacturing is not the only way to "add value". In fact, manufacturing, as a way to add value, has, is, and will continue to diminish."

Well said. Many don't seem to understand that a dollar really is a dollar. The advertising revenue generated by a Google adword click spends just as easily as the dollar generated by manufacturing a widget.

[RightInEastLansing]

"Someone help me out here, it's early. Is Pat arguing for a VAT?"

No it is just another anti-Neocon (dirty Jooooooooos) rant.

[RightInEastLansing]

It's just Pat!

[bill1952]

Free trade is great, but I don't see very much of it at all on the world stage. - and I've looked pretty hard.

All of my invesments are (mostly) American.

[snowsislander]

Soy beans, wood, animal hides, movies.

I checked the Census trade numbers, and here are the categories that we exported over $1 billion to China in 2005, sorted in descending order (values are in thousands of dollars):

End-use code	Value 2001	Value 2002	Value 2003	Value 2004	Value 2005
(22000) Civilian aircraft	2177094	3146162	2148172	1617532	3837223
(21320) Semiconductors	1091624	1589522	2447029	2938303	3360980
(00100) Soybeans	1012574	995837	2888802	2328833	2253082
(12500) Plastic materials	621936	731540	933584	1381725	1830827
(21180) Industrial machines, other	823854	1106265	1167534	1911342	1531743
(12000) Steelmaking materials	447239	463341	710924	984441	1465645
(21301) Computer accessories	1250931	884009	1006233	1070259	1426474
(10000) Cotton, raw	46486	147652	763697	1431259	1399986
(12540) Chemicals-organic	358193	539157	1010649	1442375	1364663
(21160) Measuring, testing, control instruments	471497	539571	703480	996202	1071641
(12420) Pulpwood and woodpulp	331904	424069	612564	769913	1023423
(21400) Telecommunications equipment	1287319	1074342	916487	1020814	1000624

I was surprised at just how much cotton we are now shipping. We are literally shipping raw cotton all the way to China to be made into cloth to be shipped back to us--- the same cotton that was farmed just outside the southern factories where we used to make it into cloth.

[mr_hammer]

"I import containers of brake rotors from China and pay on average 4 dollars per rotor including shipping. US manufacturers could supply me with these same rotors (if they were still in business) for $25 dollars per unit.
If you want to feel better about the outsourcing of our manufacturing base, then just view the Chinese manufacturers as very inexpensive robotic manufacturing facilities. Also remember that a $15 dollar haircut contributes more to GDPT than a $4 dollar brake rotor."

Economically your argument is valid, but what happens when we go to war with China ... and I believe we will? The capacities in engineering and manufacturing will not be there to counter China's huge resources.

One other question begs to be asked. Why is China pouring so many resources into building a modern military when no one is threatening them? They know they will lock horns with the US and securing the pacific will be first and foremost on their mind.

Feel better now?

[o_zarkman44]

The one thing that has caused us to import more oil is the environmental left and their cronies in DC. We have all the oil we need to support America. Environmentalists have blocked expansion of drilling and refining for 35 years.
Environmental law has also killed US manufacturing and caused steel mills etc to move overseas where environmental law is lax. And what party champions environmental extremism???

Demorats.

Why do we import more than we export? Because Demorats have run off American industry with wacko environmantal laws, and taxation.

[1rudeboy]

The "we are assuming the export profile of a developing country" canard pops-up every few weeks. Thanks for playing whack-a-mole this time around.

[o_zarkman44]

You are absolutely right. Free trade is not the same as fair trade.

[The Mayor]

*

[Malsua]

but quite a few electronic and sensor components already are

I believe that our rare-earth materials for missile guidance are imported. Magnaquench was bought my the chicoms and then divested the rare earth division and that division merged with a canadian firm. I suspect the chicoms have that company riddled with spies.

[A. Pole]

Many don't seem to understand that a dollar really is a dollar.

Dollar in itself is a piece of paper or a few bits in the computer. It is a symbol.