The foundations of the USA’s industrial infrastructure were created in the second half of the 19th Century. The federal government was funded almost 100% by high tariffs which kept European manufactured goods out while US factories were being built to serve the home market and employ the immigrants streaming into the country. Plus capital was being invested by banks in long term productive assets such as trains, factories, roads, telephone lines, the electrical grid and ships. The country prospered by focusing on its internal development and ignoring the rest of the world.
Until the 1990’s the US sustained a tariff and quota structure that protected US industry and jobs. The economy grew and added middle class jobs to support population growth. Wages were lower in other countries in 1900, 1950 and 1990 but the tariff and quotas made it more attractive to sustain production in the US. Capital stayed at home and was reinvested in the US economy because the tariff structure worked to benefit US producers and workers.
The Bush/Clinton Wall Street led free trade movement changed the US economy dramatically. Ending tariffs and quotas caused industry to migrate out of the US taking capital and millions of middle class jobs. Wall street shifted from investing in long term productive assets in the US to stripping and destroying American companies through leveraged buyouts. In 20 years the productive capacity of domestic industry was decimated. The first decade of the 21st century saw no real GDP growth after inflation, burgeoning government spending fueled by debt, stagnant job growth and declining standards of living after inflation. We are now mired in an economic depression and looking at another decade of economic decline and a lower standard of living for most Americans.
Unlike the 1930’s there are few idle factories for US workers to return to when economic activity improves. The factories closed during our 20 year free trade experiment have been bulldozed, not idled.
One of the reasons the 2009 stimulus programs failed was to the extent any stimulus money was spent by consumers for tangible manufacured products, that money went to employ people in offshore factories, not US factories. In past decades government stimulus spending would have created demand for domestically produced products.
The free trade policies of the past 20 years have been a disaster for the US worker and the economy. For those who argue the loss of jobs was due to union greed and not the dismantling of of the tariff structure, take a look at the nonunion South and you will see communities devastated by the loss of the manufacturing base. For those who to this day claim The Smoot Hawley tariff caused the Great Deprsssion of the 1930’s, I suggest taking a look at the economic statistics instead of taking the self serving assertions of free traders as fact. Smoot Hawley was passed in 1930, after the 1929 financial crash, not before. In 1929 trade outside the US comprised only 5% of GDP. Manufacturing exports comprised only 2% of GDP. From 1929 to the bottom of the Depression in 1933, US GDP and manufacturing production dropped by 40%. A loss of 100% of manufacturing exports due to Smoot Hawley (2% of GDP) would not account for a 40% drop in GDP. The Great Depression was caused by the drop in domestic demand resulting from the unraveling of the debt bubble built in the 1920’s boom. Not unlike the situation we face today as the debt overhang must be worked through.
The US has a large enough market and abundant natural resources to be virtually self sustaining from an economic perspective. We can recognize the 20 year experiment with open market free trade has been a disaster for the economy and the middle class. Reinstating the tariffs and quotas of the period before 1990, combined with regulatory and tort reform, will result in new investment in domestic manufacturing and millions middle class jobs. Sustaining current policies means continued decline to third world status, millions of unemployed and social unrest.
The founding fathers were advocates of free trade but did not define free trade as making the US market completely open while the rest of the world persued self serving mercantilist trade policies. To the founders free trade meant US merchants were free to trade with merchants in any country. If France and Germany were at war, the US would trade with both. It did not mean the US would have a completely open market while other nations protected their economic interests. While encouraging merchants to trade freely around the world, the new nation levied stiff tariffs on imported goods to encourage the development of domestic industry and fund the government. Despite high tariffs the US economy flourished with free trade and high tariffs on imports.
Levy a 30% tariff on all imports, without exception, while reinstating quotas and you will see revenue stream to the Treasury while private capital races to build new factories in the US. Wall Street, multinational corporations, and academics will scream at the change, but jobs will come back and the nation will be stronger. Short term there might be retaliation as other nations take retaliatory action against US imports. However reclaiming the world’s largest market for US industry will quickly replace any lost export business. Plus, will other nations indefinitely cut off imports of US agricultural products and starve their citizens just because we are once again acting in our national interest?
It is time to change course and return to policies congruent with a thriving economy and strong industrial base. Invest the IRA savings of middle class Americans in US factories employing US workers instead of in Greek bonds, Chinese factories, or pure speculation in financial instruments whose value cannot be determined. History shows we can thrive economically with high tariffs while the last 20 years shows that non reciprocal open market free trade is harmful to the domestic economy and detrimental to our industrial base.
You should write book becauase nobody is talking about this, no one. Our guys, like Rush et al, are free traders. The left doesn’t seem to care. You forgot to mention open borders and the 46 million on food stamps, but overall you get a grade of A+.
Very, very well written. You’ve given me lots of food for thought..and some excellent points in history for me to do a LOT of further reading. Wow.
History does not show that tariffs will restore economic activity. You are looking for scapegoats and easy solutions. Tariffs will exacerbate problems of non competitiveness, increase prices, and make US industry non competitive. In addition, the hair-brained scheme that you suggest will cause a global trade war leading to reduced economic activity across nations. The world is very interconnected in commercial dealings. You are proposing to return to a bygone, idyllic world dominated by high tariffs. This bygone world does not exist anymore.
History does not show that tariffs will restore economic activity. You are looking for scapegoats and easy solutions. Tariffs will exacerbate problems of non competitiveness, increase prices, and make US industry non competitive. In addition, the hair-brained scheme that you suggest will cause a global trade war leading to reduced economic activity across nations. The world is very interconnected in commercial dealings. You are proposing to return to a bygone, idyllic world dominated by high tariffs. This bygone world does not exist anymore.
The Great Depression was originally caused by the Federal Reserve tightening up the monetary policy. This caused the economy to contract. The Great Depression was sustained for 10 years by the policies of the Roosevelt Administration which created an economic climate that was hostile to investment and productivity.
The Great Depression was ended by the demand for U.S. goods that occurred because of WWII.
Manufacturing jobs are decreasing in the U.S. for several reasons. The first is productivity. Only high value added jobs can survive in the U.S. The second is that there are simply too many costs, risks and headaches involved in making anything in the U.S.
When someone invests in plant and equipment in the U.S. they have a target on their back. They are subject to lawsuits, regulations taxes, etc. The U.S. worker has been so poisoned with the victim mentality (”I feel sorry for myself”) that the work ethic is dead.
By the way the average company in the South was facing approximately 1,000 lawsuits at any given point in time. There are a swarm of trial lawyers who prey on U.S. businesses especially manufacturers.
If you want to sell something in the U.S. subcontract and or outsource the manufacturing. That is the only way to survive.
truth! You said it 100x better than I could. Tariffs are a no brainer not that they solve everything. Nuke the EPA too for starters and close our borders to illegal aliens