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?

[A. Pole]

(dirty Jooooooooos) rant.

What "Jooooooooos" have to do with that?

[BikerJoe]

"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."

I was going to discuss something similar, but decided not too. All of it falls into the category of "strategic minerals that just aren't available on our continent", which is something we can't do much about, unless you advocate looking for a way to do without them (which is always an alternative).

[Principled]

What could be done to ameliorate the manufacturing decline?

[CWOJackson]

Don't worry pat...no foreign fertilizer company is going to compete with you.

[A. Pole]

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.

"Land of Cotton", it reminds me of something. Hmm.

[RightInEastLansing]

"dirty Jooooooooos) rant."

What "Jooooooooos" have to do with that?

pssst...neocon is code for dirty Jew...(pass it on to the paleoconophiles)

[KevinDavis]

Cause there is a Republican in the White House, even though we had a trade deficit in the 90's...

[BikerJoe]

Not much unless you want to talk tariffs. We're pretty good at shooting ourselves in the foot with our inefficient, expensive Government, but some of the problem also has to do with our toleration of the Chicoms deliberately keeping the Yuan undervalued, which would mostly be solved by tariffs.

Of course, that statement COULD be simply shortened to:
"some of the problem also has to do with our toleration of the Chicoms".

Another LARGE problem is the short-sighted lemming-like quality of todays MBA. They want to manufacture in country (insert name here) not only because it's cheaper, but also because they think they can rule the local market.
They don't seem to realize or care that they are simply training their competition, and in 10 years they'll be gone.

[RightInEastLansing]

"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?"

And bancrupting our economy through protectionist tariffs would better able us to afford a war with China? How about using our immense economy to procure bullets from India, or Israel, or Mexico, South Korea, or from dozens of other quasi-friendlies?

[1rudeboy]

What could be done to ameliorate the manufacturing decline?

You mean the decline in manufacturing employment? Absolutely nothing, unless you want our government to assume the role of, say, the United Autoworkers or Steelworkers.

[AndyJackson]

The problem is that this is not going to recover until we see genunine structural reform in the US. Legal reform, IRS elimination, and regulatory reform --- and I don't mean a few cosmetic changes. I mean shock and awe. When you see lawyers, judges, revenuers and regulatory bureaucracts streaming out of town like Okies in the depression (my apologies to poor folks who worked hard to eek out a living), then you will know we are getting somewhere. When you see a bonfire of the vanities approach to the CFR, then you will know that some sanity is approaching.

Until then it is all grandstanding.

[groanup]

I think geezer can post the famous quote from Dick Armey.

If we want competitive manufacturing we need a competitive method of taxation.

[snowsislander]

The "we are assuming the export profile of a developing country" canard pops-up every few weeks.

Our China export numbers don't exactly correspond to our overall exports (for instance, both China and Japan import a lot of our soybeans for internal consumption, but overall soybeans aren't one of our largest exports), so here are our top exports to the world as a whole (again, in thousands of dollars):

End-Use Code	Value 2001	Value 2002	Value 2003	Value 2004	Value 2005
(21320) Semiconductors	45065029	42234579	46137440	48050388	47206678
(30230) Other parts and accessories of vehicles	38252762	37866139	36220655	39727480	40468502
(21301) Computer accessories	36874844	29362295	31260248	33607204	35305562
(30000) Passenger cars, new and used	17826548	20552414	22102841	24609325	30409641
(22000) Civilian aircraft	25816543	26676656	23305357	22917114	29086490
(21180) Industrial machines, other	22216289	21727003	21718029	26971265	28257246
(40100) Pharmaceutical preparations	16538758	17347840	20529484	25431506	27647887
(20005) Electric apparatus	23325814	21373353	21158082	24231365	25630823
(21400) Telecommunications equipment	27873760	22207691	20743162	24543091	25609704
(12500) Plastic materials	13368594	14104243	15407108	21656550	24699167
(12540) Chemicals-organic	14358586	14631857	17633336	22187353	23056491
(21610) Medicinal equipment	14821897	14481033	15742536	17852664	20353083
(60000) Minimum value shipments	15775498	14635601	15043576	16781625	17304256
(21160) Measuring, testing, control instruments	14168882	13218013	13936101	16927323	16649047
(12550) Chemicals-other	13272425	13238295	14443025	15609108	16644850
(22020) Engines-civilian aircraft	12790908	11584658	11338959	13840691	16156852
(22010) Parts-civilian aircraft	14011210	12222736	12134464	13217079	15290315
(21100) Industrial engines	13043601	11601418	11690670	13511204	14899703

I am pleased by the recent resurgence in our export numbers over the last two years --- in 2001, we were at $729,100,318,000; dropping in 2002 to $693,103,192; in 2003 we regained back to $724,770,983,000; in 2004 we grew to $818,774,859,000; and in 2005 we were up to $904,379,818,000 in exports. Looking at the 2006 numbers to date, I think we will break $1 trillion in exports this year (we are already up to $589 billion in the first seven months.) Unfortunately, we are already over $1 trillion in imports for the year.

[1rudeboy]

I've never understood that argument. In order to prepare for the upcoming conflict with China, we must make our entire economy less efficient now. Bear in mind (before I get trampled by protectionist strawmen arguments) that national security is a valid justification for protectionism. That being said, plastic lawn furniture is not a critical component of our national defense strategy.

[KevinDavis]

Protectionist also fails to realize most of the factory work is done by robots.. Again the glory days of people working in factory for life is gone.. Can't live in the past...

[1rudeboy]

I used to work for two steel "fabricators." (I can't be more specific, as it was a very specialized field, and I could be identified if anyone put their mind to it). The second company (that hired me away) literally produced 2-3 times as much product per per day with roughly 25% of the employees.

There was a reason it was the #1 manufacturer in the country (in that segment), and that was it.

[RightInEastLansing]

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

Interesting non sequitur, or a seque to the "Creature from Jekyll Island"?

[KevinDavis]

Can't have progress.. Maybe we should get rid of the robots..

[Kay Ludlow]

The most major part of the solution has to be the idea of the neighborhood work site.

You know that government regulation is the reason most people don't live close to where they work, don't you? The imposition of zoning (separate areas for residential, industrial, agricultural, commercial, etc) made it impossible for new homes to be near work or new businesses to be near homes. Even the American Planning Association has recognized that as a big problem. Sadly, their solution is not to reduce regulation and let people live and work where they want. Their solution is for government to plan little Utopian communities, where there are housed, stores and businesses close together, but local officials review each proposed business or store to see if it fits their vision of a store: want a convenience store at the corner up the street but government envisions it as a quaint antiques shop? Antiques are all that would ever be approved at that location.

This kind of top down government imposition of their view of what kind of communities they want is what destroyed the old style towns, where people walked to work, and they will never reappear as long as the Utopian idealists continue to think that they can provide what people need better than the market can.

[RightInEastLansing]

"a nation that manufactures nothing IS nothing" Well said. It would make a fine tagline, too

Has anyone informed the Swiss yet? (Yes, I know that they do manufacture, but banking dominates their economy).