| There are numerous ideas and recommendations on how we could create jobs but most job creation programs proposed involve either increased government spending or reductions in income or employment taxes at a time of soaring budget deficits and decreased government revenue. Other recommendations would require legislation to change policies on taxation, regulation, or trade that may be difficult to accomplish. The recommendations in this article focus on what could be done the fastest and most economically to create the most jobs while reducing our trade deficit and national debt.Manufacturing is the foundation of the U. S. economy and the engine of economic growth. It has a higher multiplier effect than service jobs. Each manufacturing job creates an average of three to four other supporting jobs. So, if we focus on creating manufacturing jobs, we would be able to reduce the trade deficit and national debt at the same time.The combined effects of an increasing trade deficit with China and other countries, as well as American manufacturers choosing to “offshore” manufacturing, has resulted in the loss of 5.7 million manufacturing jobs since the year 2000. If we calculate the multiplier effect, we have actually lost upwards of 17 to 22 million jobs, meaning that we have fewer taxpayers and more consumers of tax revenue in the form of unemployment benefits, food stamps, and Medicaid.In 2012, the U.S. trade deficit with China reached a new record of $315 billion. According to a recent study by the Economic Policy Institute (EPI), the trade deficit with China cost 2.7 million U.S. jobs from 2001-2011. The Department of Commerce estimates that each $1 billion in trade deficit translates to about 13,000 lost jobs, so the $738 billion trade deficit in goods for 2012 cost upwards of 9,599,200 jobs. |
What Congress Could Do
First, Congress should enact legislation that addresses China’s currency manipulation. Most economists believe that China’s currency is undervalued by 30-40% so their products may be cheaper than American products on that basis alone. To address China’s currency manipulation and provide a means for American companies to petition for countervailing duties, the Senate passed S. 1619 in 2011, but GOP leadership prevented the corresponding bill in the House, H. R. 639, from being brought up for a vote, even though it had bi-partisan support with 231 co-sponsors. On March 20, 2013, Sander Levin (D-MI), Tim Murphy (R-PA), Tim Ryan (D-OH), and Mo Brooks (R-AL) introduced the Currency Reform for Fair Trade Act in the House and a corresponding bill will be introduced in the Senate.
Second, Congress should strengthen and tighten procurement regulations to enforce “buying American” for all government agencies and not just the Department of Defense. All federal spending should have “buy America” provisions giving American workers and businesses the first opportunity at procurement contracts. New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction. No federal, state, or local government dollars should be spent buying materials, equipment, supplies, and workers from China.
My other recommendations for creating jobs are based on improving the competitiveness of American companies by improving the business climate of the United States so that there is less incentive for American manufacturing companies to outsource manufacturing offshore or build plants in foreign countries. The following proposed legislation would also prevent corporations from avoiding paying corporate income taxes:
- Reduce corporate taxes to 25 percent
- Make capital gains tax of 15 percent permanent
- Increase and make permanent the R&D tax credit
- Eliminate the estate tax (also called the Death Tax)
- Improve intellectual property rights protection and increase criminal prosecution
- Prevent sale of strategic U.S.-owned companies to foreign-owned companies
- Enact legislation to prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country
It is also critical that we not approve any new Free Trade Agreements, such as the Trans-Pacific Partnership and Trans-Atlantic Partnership that are currently proposed. The U.S. has a trade deficit with every one of its trading partners from NAFTA forward, so Free Trade Agreements have hurt more than helped the U.S. economy.
What States and Regions Could Do
State and local government can work in partnership with economic development agencies, universities, trade associations, and non-profit organizations to facilitate the growth and success of startup manufacturing companies in a variety of means:
Improve the Business Climate – Each state should take an honest look at the business climate they provide businesses, but especially manufacturers since they provide more jobs than any other economic sector. The goal should be to facilitate the startup and success of manufacturers to create more jobs. I recommend the following actions:
- Reduce corporate and individual taxes to as low a rate as possible
- Increase R&D tax credit generosity and make the R&D tax credit permanent
- Institute an investment tax credit on purchases of new capital equipment and software
- Eliminate burdensome or onerous statutory and environmental regulations
Establish or Support Existing Business Incubation Programs, such as those provided by the members of the National Business Incubation Alliance. Business incubators provide a positive sharing-type environment for creative entrepreneurship, often offering counseling and peer review services, as well as shared office or laboratory facilities, and a generally strong bias toward growth and innovation.
Facilitate Returning Manufacturing to America – The Reshoring Initiative, founded by Harry Moser in 2010, has a mission to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from “offshoring is cheaper” to “local reduces the total cost of ownership.” The top reasons for U. S. to reshore are:
- Brings jobs back to the U.S.
- Helps balance U.S., state and local budgets
- Motivates recruits to enter the skilled manufacturing workforce
- Strengthens the defense industrial base
According to Mr. Moser, the Initiative has documented case studies of companies reshoring showing that “about 220 to 250 organizations have brought manufacturing back to the U.S….with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010.”
State and/or local government could facilitate “reshoring” for manufacturers in their region by conducting Reshoring Initiative conferences to teach participants the concept of Total Cost of Ownership, how to use Mr. Moser’s free Total Cost of Ownership Estimator™, and help them connect with local suppliers.
Establish Enterprise Zones and/or Free Trade Zones: Enterprise Zones provide special advantages or benefits to companies in these zones, such as:
- Hiring Credits – Firms can earn state tax credits for each qualified employee hired (California’s is $37,440)
- Up to 100% Net Operating Loss (NOL) carry-forward for up to 15 years under most circumstances.
- Sales tax credits on purchases of up to $20 million per year of qualified machinery and machinery parts;
- Up-front expensing of certain depreciable property
- Apply unused tax credits to future tax years
- Companies can earn preference points on state contracts.
States located on international borders could also establish Foreign Trade Zones (FTZs), which are sites in or near a U.S. Customs port of entry where foreign and domestic goods are considered to be in international trade. Goods can be brought into the zones without formal Customs entry or without incurring Customs duties/excise taxes until they are imported into the U. S. FTZs are intended to promote U.S. participation in trade and commerce by eliminating or reducing the unintended costs associated with U.S. trade laws
What Individuals Could Do
There are many things we could do as individuals to create jobs and reduce our trade deficits and national debt. You may feel that there is nothing you can do as an individual, but it’s not true! American activist and author, Sonia Johnson said, “We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.”
If you are an inventor ready to get a patent or license agreement for your product, select American companies to make parts and assemblies for your product as much as possible. There are some electronic components that are no longer made in the U. S., so it may not be possible to source all of the component parts with American companies. There are many hidden costs to doing business offshore, so in the long run, you may not save as much money as you expect by sourcing your product offshore. The cost savings is not worth the danger of having your Intellectual Property stolen by a foreign company that will use it to make a copycat or counterfeit product sold at a lower price.
If you are an entrepreneur starting a company, find a niche product for which customers will be willing to pay more for a “Made in USA” product. Plan to sell your product on the basis of its “distinct competitive advantage” rather than on the basis of lowest price. Select your suppliers from American companies as this will create jobs for other Americans.
If you are the owner of an existing manufacturing company, then conduct a Total Cost of Ownership analysis for your bill of materials to see if you could “reshore” some or all of the items to be made in the United States. You can use the free TCO worksheet estimator to conduct your analysis available from the Reshoring Initiative at www.reshorenow.org. Also, you could choose to keep R&D in the United States or bring it back to the United States if you have sourced it offshore.
If enough manufacturing is “reshored” from China, we would drastically reduce our over $700 billion trade deficit in goods. We could create as many as three million manufacturing jobs, which would, in turn, create 9 – 12 million total jobs, bringing our unemployment down to 4 percent.
You may not realize it, but you have tremendous power as a consumer. Even large corporations pay attention to trends in consumer buying, and there is beginning to be a trend to buy ‘Made in USA” products. As a result, on January 15, 2013, Walmart and Sam’s Club announced they will buy an additional $50 billion in U.S. products over the next 10 years.
U.S. voters supported Buy America policies by a 12-to-1 margin according to a survey of 1,200 likely general election voters conducted between June 28 and July 2, 2012 by the Mellman Group and North Star Opinion Research. The overwhelming support has grown since prior iterations of the same poll – Buy America received an 11-to-1 margin of support in 2011 and a 5-to-1 margin in 2010. A survey by Perception Services International of 1400 consumers in July 2012, found that 76% were more likely to buy a U.S. product and 57% were less likely to buy a Chinese product.
As a consumer, you should pay attention to the country of origin labels when they shop and buy “Made in USA” products whenever possible. Be willing to step out of your comfort zone and ask the store owner or manager to carry more “Made in USA” products. If you buy products online, there are now a plethora of online sources dedicated to selling only “Made in USA” products. Each time you choose to buy an American-made product, you help save or create an American job.
In his book, Buying America Back: A Real-Deal Blueprint for Restoring American Prosperity, Alan Uke, recommends Country of Origin labeling for all manufactured products that “puts control in the hands of American consumers to make powerful buying choices to boost our economy and create jobs,” as well as reduce our trade deficit. The labels would be similar to the labels on autos, listing the percent of content by country of all of the major components of the product. This Country of Origin labeling would enable American consumers to make the decision to buy products that have most of their content “made in USA.”
If every American would make the decision to buy American products and avoid imports as much as possible, we could make a real difference in our nation’s economy. For example, if 200 million Americans bought $20 worth of American products instead of Chinese, it would reduce our trade imbalance with China by four billion dollars. During the ABC World News series called “Made in America,” Diane Sawyer has repeatedly said, “If every American spent an extra $3.33 on U. S.-made goods, it would create almost 10,000 new jobs in this country.”
In conclusion, if we want to create more jobs, reduce our trade deficit and national debt, we must support our manufacturing industry so that it could once again be the economic engine for economic growth. Following the suggestions in this article could make the “Great American Job Engine” roar once again.
Lots of us agree that the 36 years of a trade deficit has harmed the U.S. by reducing the output of our manufacturing sector. What to do about it needs more discussion, in my opinion.
I don’t like the above recommendation because it is too comprehensive. It makes no concession to the need for a simple program that can be easily understood by ordinary citizens. We have two audiences - the general public and economists. The above appeals to neither, in my opinion.
My counter proposal is a gradually increasing tariff level to be applied to all imports that are manufactured in Japan, China and Germany. Why limit the tariffs to 3 nations? Half of our goods trade deficit is created by these 3 countries. Why tariffs? They are understandable and will produce results.
The big problem is to persuade the public that we MUST reduce our trade deficit and second, that their is a feasible way to begin that which will be difficult for our trading partners to counter. Leaving most nations our of the tariff system provides plenty of trading partners if the 3 refuse to sell or buy from us.
Correction - “Leaving most nations out” instead of “our”
I don’t know how much more U.S. citizens would have to pay for imported goods if tariffs were imposed but a maximum amount can be calculated based on assumptions.
If volume and value of imports from these three nations would duplicate the experience of 2012 and the tariff rate were 20%, the U.S. Customs Service would collect 136 billion dollars in additional revenue for that year. If all this were passed through to consumers, the additional amount paid for goods would be 3.6% of what was spent in 2012; it would be 1.2% of what was spent for all Personal Consumption expenditures and it would be 0.9% of GDP in 2012.
This outcome is unlikely but if it did happen it would mean that the tariff did not reduce any sales of imports from these 3 countries. The tariffs would increase governmental revenue but would not reduce imports.
A more likely outcome is that some foreign producers will absorb the extra costs so as to maintain market share. This also is a less than desirable outcome.
The most desirable outcome is that foreign producers will no longer be able to meet the competition for selling in the U.S. and will turn to other countries to sell their product.
This desired outcome will increase as the tariff rate increases over time. Beginning at 10%, the rate is supposed to increase by 5 percentage points each 4 months. That will put the rate at 30% after a year and a half. Of course, the interval could be set at 6 months if a longer adjustment period is desired.
The point is that the rate can be increased gradually driving more producers from the three nations out of the U.S. market. I should note that the existence of other competitors will be the only reason current producers will leave. There will be no shortage of goods for sale in the U.S. as a consequence of additional tariffs.
For most of the time between the Civil War and WW I, the U.S. had a tariff rate of over 30% on imports.
One more comment. The major difference between my proposal and that of Michele Nash-Hoff is that I focus on reducing the ability of Japan, China and Germany to sell in the U.S. If that is not done, all the proposed actions to strengthen U.S. competitiveness could by undone by those 3 nations. They have market share; they have financial resources in the form of Governmental Reserves. And they have aggressive governments. They will fight ANY effort to reduce market share in the U.S. I expect them to try to figure out a way to counter my proposal. But leaving other nations out of the tariff system gives the U.S. the best chance to survive whatever they throw at us. The Nash-Hoff proposal makes no effort to reduce their ability to sell in the U.S. That is a mistake. It ignores a large part of the reason we have such a large trade deficit. The battle to gain market share will be a struggle in my scheme. Gaining market
share will be much more difficult if those 3 nations are ignored.
I appreciate Ms. Nash-Hoff’s dedication to saving American jobs, but her approach amounts to bailing out the ocean with a million teaspoons.
The only solution worth talking about is Warren Buffett’s “Balanced Trade.” (Google it.) Unfortunately, our government has NO interest in bringing back American jobs, so nothing of any significance is going to happen.
The more you guys argue over trifles (like currency manipulation) the more damage will be done to our economy and to our granchildren’s future. Until the debate focuses on something of substance, like balanced trade, this is nothing more than an exercise in futility.
Ms. Nash-Hoff once again stands out as one of the very few public voices who gets to the heart of our country’s economic disintegration and proposes real solutions that can reverse our decline. She sets the example for the whole country: we should be focused on what can be done at the federal, state and local, and at the enterprise and individual levels.
She is right to put manufacturing in the center of the strategic national economic plan we need. Manufacturing is the core of wealth creation in any country, and also supports many other high value-added service jobs like design, research and engineering. The trade deficit began from offshoring low-skill labor jobs but has now moved up the value chain as associated service jobs followed the mfg offshore. And yes, the loss of several multiplier-effect job for each lost manufacturing job has indeed cost our country literally 17 to 22 million jobs.
Regarding solutions, she is right on target to call for “Buy American” provisions in ALL procurement at ALL levels of government. Complementing that with Country of Origin labeling on all manufactured products should also be required, so consumers too can “Buy American.” Patriotic purchasing decisions at the public and private levels are the single best way to improve the business climate and the employment levels in America. Both public sector and private sector spending do not just obtain goods or services but also amount to indirect investment in the sustainability of those enterprises as part of our national industrial ecosystem, the network of manufacturers and services in the supply chain producing finished goods. This ecosystem as a whole supports the capabilities of individual enterprises to create wealth in this country. Purchasing from offshore doesn’t just offshore jobs but diverts resources from that industrial ecosystem that is our nation’s ability to sustain and grow industries and innovations and future jobs.
While I agree in principle that our country needs a favorable business environment to encourage investment and creation of jobs, it is not primarily the tax policy or regulations that have discouraged corporations from investing and employing in the USA. Nor is currency manipulation the primary incentive for these companies to produce offshore. And we must be clear, a huge amount of our trade deficits are due to formerly “US” companies offshoring their production. For example, Paul Craig Roberts, in his new book “The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West,” fully one half of China’s exports to the USA are the off shored production of US companies. Dr. Roberts compares the average cost of US labor to that in China, and finds a wage differential that dwarfs the effects of currency manipulation or tax policy:
“…it is US corporations that move their factories abroad, thus replacing domestic production with imports. Half of US imports from China consist of the offshored production of US corporations. The wage differential is substantial. According to the Bureau of Labor Statistics, as of 2009, average hourly take-home pay for US workers was $ 23.03. Social insurance expenditures add $ 7.90 to hourly compensation and benefits paid by employers add $ 2.60 per hour for a total labor compensation cost of $ 33.53. In China as of 2008, total hourly labor cost was $ 1.36, and India’s is within a few cents of this amount. Thus, a corporation that moves 1,000 jobs to China saves saves $ 32,000 every hour in labor cost. These savings translate into higher stock prices and executive compensation, not in lower prices for consumers who are left unemployed by the labor arbitrage.”
CITATION: Roberts, Paul Craig (2013-02-02). The Failure of Laissez Faire Capitalism and Economic Dissolution of the West (Kindle Locations 1656-1664). Atwell Publishing. Kindle Edition.
James Rickards, in his book “Currency Wars,” says there is “scant evidence to support a linkage between jobs and exchange rates” and would appear to agree with Paul Craig Roberts when he argues “it seems unlikely the typical North Carolina furniture maker would be willing to work for the $118 per month made by his Chinese counterpart. Even if the yuan doubled in value, the Chinese furniture maker would earn only the equivalent of $236 per month…” (Currency Wars, p. 112).
And so I must agree with Bruce Bishop that focusing on tax or tariff or currency issues are all too small to effectively address the trade deficit that has created a 20 million job deficit in the past 12 years. I agree with Mr. Bishop that an Import Certificate system limiting our imports to same dollar value as our exports would be the most direct and effective way to BALANCE OUR TRADE. It would guarantee the results by controlling the amount of imports, whereas none of the proposals in this above article would guarantee results, especially in the face of the huge wage differential that is not mentioned.
People who contribute to this blog are in agreement that balanced trade should replace Free Trade as U.S. policy and objective. Then we go in different directions. Nash-Hoff wants a large role for consumers, a small role for the federal government, mostly transfer financial assets from government to corporations or pass laws that aid bringing issues to the WTO. Brue, Will and Ray want the federal government to aggressively confront the nations among our trading partners that are creating our trade deficit, to use U.S. laws to reduce or limit imports. Followers of Warren Buffett want a complete solution that will guarantee balance between imports and exports. I want a beginning on the problem rather than a final solution. Restrict access to the U.S. market for only 3 nations. And do it by means of tariffs which will gradually choke off imports. That will be enough action to establish the principle that the U.S. Congress will no longer tolerate large trade deficits.
Why argue about means? Many people have given up on the issue because they think nothing can be done. I want to destroy that view by persuading the Congress to take one confrontational step. The first law should have bite, but should not antagonize all our trading partners.
Hi Ray, I think we need to do more than just “establish a principle.” If our unemployed were still counted by the same method the feds used until 1994, we’d be around 23% official unemployment right now. Considering the qualitative deterioration of our industrial ecosystem and society, there is no more time to waste. The middle class is being destroyed and the working class has been proletarianized.
We are literally in a national emergency, a depression that will only deepen as the present course continues (ie, more FTAs like TPP and EuroFTA). This is a historic dismantling of our economy and the quality of life of tens of millions of ordinary Americans, destroying all the progress and prosperity we built in the 20th century. This has gone unnoticed in Washington DC and on Wall Street because our political system and our economic elites enjoy the flood of global-corporation money that has bought our political system with a tiny portion of the money they make offshoring our economy.
There would be nothing antagonistic about an Import Certificate system to balance our trade. The plan was proposed in the Balanced Trade Restoration Act of 2006, which states explicitly that “Article XII of the General Agreement on Tariff and Trade (GATT 1994), annexed to the Agreement Establishing the World Trade Organization entered into on April 15, 1994, permits any member country to restrict the quantity or value of imports in order to safeguard the external financial position and the balance of payments of the member country.”
In other words, balancing our trade through a system of Import Certificates would be perfectly legal under the existing terms our WTO membership. It would be non-discriminatory, not singling out any particular nation, and thus could not be called “unfair” in any way. Tariffs targeted at selected countries would be called discriminatory and unfair and would truly be antagonistic, not to mention leave open all the back doors of the rest of the world to still be used as a platform to launch cheap imports into our country.
Import Certificates would be the most effective way to replace imports with domestic production, and the only way to guarantee our trade would be balanced. And even with balanced trade, we’d still be the world’s biggest importer, so it could hardly be called protectionist.
Perhaps the simplest system would be to issue Import Certificates directly to exporters in the same dollar valuation as their exports. Exporters could then sell the ICs thru exchanges, which would amount to an indirect subsidy for our exports. Selling ICs on exchanges would also send price signals that, in an open market, would serve to prioritize which imports could bear the most added cost of IC’s priced by bid. The possible problem of cornering the IC market could be checked by regulations such as restricting sale of IC’s to American-owned companies and restricting their concentration to only a small percent of the total. The IC’s could be traded as just another commodity on a commodity exchange market. The more they get bid up, the more we have an indirect tariff protecting our domestic industries.
Will - this is a valuable addition to our continuing discussion because it gets down to the details.
1. WORLD TRADE ORGANIZATION. - has no power to enforce rulings on sovereign nations. Has not helped U.S. reduce our trade deficit in the past. Ignore them. I do not want to be in compliance with their rulings.
2. DISCRIMINATION. We must discriminate. Three nations accounted for 60% of our goods trade deficit in 2012. (451 billion divided by 750 billion). Another 22% of our 2012 goods trade deficit was due to petroleum (2005 chained real dollars). Leaves only 18% unaccounted for. Our manufacturing sector has been reduced primarily by the actions of 3 nations. No reason to encompass all nations in our first laws.
3. MECHANICS. Mucho difficulties in administrating Import Certificates. U.S. exported 2.4 TRILLION of goods and services in 2012. If limit actions to goods only have 1.8 trillion to deal with. Must issue a certificate to each exporter, regardless of how much exported. Who would run the exchange where potential importers bid for Certificates? Suppose a potential exporter to the U.S. wants to export X billion of dollars of goods to the U.S. near the end of the Year. He would need to buy the certificate ahead of time to insure that he could get one. How much will he need to bid to get the certificate? Suppose the certificates available are all in larger size than his expected export? Businesses hate uncertainty. This system introduces an element of uncertainty that would be felt by all potential exporters to the U.S., regardless of whether their nation had a trade deficit or a trade surplus with the U.S.
4. SUBSIDY TO EXISTING EXPORTERS. Unnecessary and undesirable. If the nations that are doing us in are handicapped, both currently existing and potential exporters would have an opportunity to export. Creating new exporters (and new sellers in the U.S.) is just as important as helping existing exporters.
4. TOMORROW. This complaint by Will is correct. My scheme would “leave open all the back doors of the rest of the world to still be used as a platform to launch cheap imports into our country”. This result is likely, to some degree. I see what needs to be done today as the first skirmish in an ongoing war. Sunk costs are real. Moving to a new location is costly. Whatever happens in the future must be dealt with in the future. I insist that U.S. producers must continue to be forced to compete with other producers all over the world. To engage in global trade, U.S. producers must be competitive. But they also should expect their government to fight for them against other governments that are using massive governmental resources to undercut domestic producers.
5. SMUGGLING. Whenever imports are legally restricted, increased attempts to smuggle goods into the country can be expected. Tariffs would provide dollars that can be used to pay for anti-smuggling activities. Import Certificates ignores this issue. Another unfunded liability dumped on a governmental agency.
6. RESPONSIBILITY. The federal government should be held responsible for reducing the trade deficit. Exporters and importers acted within the framework of existing law. Our laws should be changed. Expecting the private sector to take the lead in this matter is a inappropriate.
Thank You Mr. Bruce Bishop I have seen and agreed with you views and comments many times. I also agree with you on this last comment. We as a nation have outsourced manufacturing because it was ecomically easy and short sighted profitable to do at the time…Today we are seeing the true long term cost of these decisions by government and corporations in economic stagnation and massive job losses in one particular sector(manufacturing)…I call this the “China Tax” that was levied upon this sector of our economy but now is continuing to have far greater impact than pay off and is now compromising our entire government solvency…The collapse of our economy was made real when people realized that the overvaluation of our homes was unsustainable because the job market in higher paying manufacturing jobs went away at the same time period. The “China Tax” brought upon us by our own government and corporations is what is killing our jobs and economy.Until our government officials care and realize this and bring about “Balanced Trade Policies” nothing is going to get better,only worse.It is also to me totally unfair and punitive in nature that our government can levy this tax on one sector of our economy
Glad we’re talking, Ray. I raise this glass to you….
My answers:
1. WTO: I invoked the principle of “legal according to terms of our membership in the WTO” only as an expediency, to show an Import Certificate system would be relatively simple at the international level, not necessitating withdrawal from or renegotiation of our WTO membership.
That said, I agree with you Ray there are numerous problems with our membership in the WTO, starting perhaps with the decay of American Constitutional law in the sense that although it functions as a treaty, it was not subject to a ⅔ Senate ratification but rather only became effective as an ordinary (“fast-track”) law requiring 51% approval by both houses of Congress.
That erosion of Constitutional law on treaty-making did not, however, begin with US joining the WTO; our entry into the Bretton Woods Agreements Act of 1945, establishing our membership in the World Bank and the IMF, was accomplished in the same “ordinary law” way.
And so just as the Magna Carta was never officially repealed in England, so too do we see the US Constitution fade away quietly into the night as it came into its third century. Paul Craig Roberts and other critics of the so-called “war on terrorism” show the dissolution of Constitutional restraints on power has been happening on much more than just treaty-making and regulation of commerce. But for the purposes of this discussion, we should at least note that from the Bretton Woods Agreements through the 1995 WTO-forming GATT Uruguay Round ratification to today’s TPP and EuroFTA negotiations, we see how the Constitutional requirement that ⅔ of the Senate approve all treaties has been discarded by Congress and the Executive. For more on this issue, see Michelle Nash-Hoff’s recent article:
http://www.tradereform.org/2013/02/the-trans-pacific-partnership-would-destroy-our-national-sovereignty/
Finally, and aside from the unConstitutionality of how our so-called “free trade” treaties have been made, I share your revulsion Ray with the actual effects these FTAs and our WTO membership has had on our economy: the dismantling of our industrial ecosystem through offshoring production (and jobs, GDP, tax base…) But even revolutionaries who smash the old state soon find they must create a new one, and so as bad as the WTO has been for us, the USA and the rest of the world will always require some framework for peaceful settlement of trade disputes. Thus even if we quit or dismantled the WTO, a new one would have to be created.
So our goal regarding FTAs and the WTO should be to:
1) Restore Constitutional law by requiring all treaties (including FTAs) be ratified by ⅔ of the Senate.
2) renegotiate or withdraw from any and all WTO and other FTA provisions that deny US and state sovereignty over the labor, environmental and commercial regulations within our national borders.
Out of time, taking my son to a concert, answers on your other points to come later….
Moving down your list, Ray:
2. Discrimination: Back to point 1 above, whatever the problems with the WTO, as of now the US is a member and thus has agreed to treat all WTO-member nations equally in our trade relations, with “exceptions under strict conditions.” More on WTO-GATT “non-discriminatory” trade rules here:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
Again, though I agree with you Ray there are many objectionable aspects to our WTO membership, that should be renegotiated or repudiated by our President and Senate, defiance of the international agreements we’ve entered should only be done with good reason, because such defiance undermines our international credibility and goodwill.
Would tariffs on imports from these 3 countries be based on offenses particular to only those 3 countries, and serious enough to justify our repudiation of the international agreements we entered? Your justification, Ray, seems purely quantitative, the large proportion of our own trade deficits that are attributable (currently) to trade with those 3 countries. You offer nothing qualitative about their practices to justify a discriminatory treatment of them by us.
What objective and qualitative criteria could justify discriminatory tariffs? Surely the wage differential favoring Chinese imports is not present in the same magnitude in Germany or Japan, if at all. Nor could Germany or Japan be accused of lax environmental regulations compared to the US. About the only thing those 3 countries have in common that we do not is they all have industrial policy, meaning active government encouragement of success in selected industries according to a deliberate national economic strategy.
Rather than condemn them for what obviously works for them -which would be meddling and arrogant on our part, a denial of their national sovereignty to choose the economic and political system through their own internal processes, we should put our own house in order by creating our own national economic strategy that promotes development of those industries we see as key to our long-term prosperity.
As an aside that is relevant to this point, Pat Choate in his book “Saving Capitalism” claims the USA actually does have an industrial policy, though it has been disastrous for our people. Choate says on page7 of “Saving Capitalism” that “Although never naming it as such, the federal government in the latter part of the twentieth century put into place, step-by-step, a long-term national industrial policy that privileged the financial industry above all others, particularly manufacturing. The benefits to finance were enormous, and the consequences to manufacturing were devastating.”
Choate goes on to describe the revolving door between Wall Street and Washington DC, how Wall Street money bought the political system, how deregulation (especial repeal of Glass-Steagall) and colossal bail-outs turned the financial system into a casino that paid astounding wealth to banking elites while shifting the huge risks and losses to the public. And so it turns out even the accusations of Industrial Policy would not stand up against the 3 countries you suggest we target. The most that could be said is they have had smart and successful Industrial Policy whereas we have had ruinous and toxic Industrial Policy.
And so I don’t agree with you that we should discriminate against China, Germany and Japan simply because of their trade surpluses with us. If we are to discriminate against certain nations in trade, it should be according to qualitative and objective criteria, such as dumping at below cost, use of child or slave labor, or other repugnant practices in the production of those goods -or as a boycott of the country for humanitarian or diplomatic reasons, such as engaging in hostilities against us or under illegitimate government, etc.
China could be accused of repugnant labor and environmental practices, it is true, but then so could many other countries, especially poor countries. And when we were in the early stages of our industrial development, we too had child labor, blatant pollution and no regulation of workplace safety. I do not endorse those practices but do not see it as America’s moral or political right or capability to eradicate them either.
And so the best we can do is place tariffs on imports of goods or services produced under such conditions, to eliminate the price differential thus created. That list of countries would be very long, would not include Germany or Japan, and would be only a partial solution to the real issue from an American point of view: the deindustrialization of our country and massive unemployment and poverty resulting.
My final point on discrimination in trade is it creates ill-will when done in an arbitrary or unfair way, that is, when not according to objective criteria applied equally to all countries. Aside from the legalisms of WTO-GATT, our diplomacy would be undermined by applying tariffs in a discriminatory way. Our national interests on a whole range of non-trade issues, including global problems requiring international solutions, is best served by maintaining co-operative relations of goodwill whenever possible. Creating ill-will and alienation unnecessarily weakens our ability to solve other problems, and creates the fault lines that eventually can lead to war as problems deepen.
Will makes some good points. I will limit my reply to one issue. Will wants to know why I insist on discrimination against Germany, Japan and China. He wants to know what they have done wrong. Here is what he said:
“About the only thing those 3 countries have in common that we do not is they all have industrial policy, meaning active government encouragement of success in selected industries according to a deliberate national economic strategy”.
It is not what they have done wrong. It is what we must do to extricate ourselves from our predicament. They have a perfect right to establish any industrial strategy they want. But we also have a perfect right to protect ourselves from the effect of their policy on us. We can embrace balanced trade as the best trade policy for every nation. We can apply whatever tariffs are necessary and desirable and efficient in moving toward balanced trade. Given the sources of our trade deficit being primarily Japan, China and Germany, it is quite reasonable to apply tariffs only to their manufactured goods sent to us.
Continuing with your list, Ray:
3. MECHANICS How to administer Import Certificates: To me, it doesn’t seem complicated. Our exports and imports are already counted, by the Census Bureau of the US Department of Commerce, with assistance from other Departments. So I initially propose the Department of Commerce issue those Import Certificates in the same event as counting exports, and collect those Import Certificates in the same event as counting imports. Whatever small adjustment to that process would be logistically better could easily be determined by the Commerce Department.
Regarding denominations, the ICs needn’t be real paper in exact denominations, they could simply be numbers in an account. As for the market in ICs, again, why not simply treat them as another commodity traded on a commodity exchange? As for the costs of the IC system, a tiny fee in proportion to the IC denomination involved could be leveed by the exchange, just as in other trading.
4. SUBSIDY TO EXISTING EXPORTERS: The sale of IC’s by exporters does not favor “existing” over new exporters, as any exporter would be issued ICs on an equal basis.
5. TOMORROW: WW: “Tariffs against only the 3 biggest trade deficit trade partners would leave open all the back doors of the rest of the world to still be used as a platform to launch cheap imports into our country,” RAY: “Moving to a new location is costly. Whatever happens in the future must be dealt with in the future.”
Ray, that approach would make our trade policy less effective due to being eternally reactive and delayed behind the rise of new problems (trade deficits moving as capital moves internationally). By contrast, an Import Certificate system would not require constant readjustment after new leaks occur, but would instead proactively guarantee us balanced trade while preserving a non-discriminatory (i.e., fair and legal) approach to all of our trading partners.
6. SMUGGLING: The inevitable attempts to evade the law should not be considered good reason for creating a law. Unfortunately, already existing trade regulations and countervailing duties are presently not being enforced by the U.S. Customs and Border Protection bureau of the US Department of Homeland Security. Apparently they are so distracted with the so-called “war on terror” and the so-called “war on drugs” -not to mention infected with the mania for “free trade” and globalization of economics that pervades Washington DC- that CBP already fails to enforce existing trade judgements and regulations. That is the basis for the ENFORCE bill that hopefully Congress will pass. Read more about it here:
http://www.tradereform.org/2012/07/cpa-endorsed-enforce-act-clears-senate-committee/
It is an absurd bill in the sense of a new law compelling enforcement of already-existing law and regulation, but until we get an Executive branch that actually cares to defend American economic interests and the economic fate of the American people, these are the kinds of ridiculous fights that must be engaged.
As for funding the enforcement, in the same way you say tariffs produce the funding for their own enforcement, so too could a small fee collected on the purchase of ICs.
So you are correct Ray, there will be attempts to smuggle goods without ICs, but so too would there be attempts to evade tariffs (as now, through trans-shipment, fraudulent labeling, etc). The solution is to enforce the law, not give up.
7. RESPONSIBILITY. Ray (paraphrased): “The federal government rather than the private sector are responsible for our trade deficits and deindustrialization.”
I merely pointed out that the enormous financial benefits of America’s deindustrialization through so-called “free trade” have flowed to the corporate elite who have also bought the political system and staffed the revolving door between Washington DC and Wall Street.
Ray you are correct the forum for this fight is in the electoral contests that select the lawmakers responsible for our trade and tax laws and our regulation of commerce generally. The problem is how do we defeat the many $billions$ poured into political campaigns and lobbying by the 1% reaping huge fortunes from offshoring America’s economy?
Several solutes have been proposed by Jeffrey D. Clements in his book “Corporations Are Not People.” He proposes a 28th Amendment to the Constitution called the “People’s Rights Amendment” to reverse the “Citizens United” SC ruling and the precedents of “corporate rights” in American law, especially “corporate personhood.” He also calls for ending corporate campaign financing and replacing it with public financing of campaigns. And he proposes to amend corporate law to require corporations to serve the public interest rather than just their shareholders. He says these 3 reforms together would transform our politics from corporate control to popular control.
Mr. Clements seems correct, but only at the wish level. Considering that laws governing incorporation are at the state level, that would be 50 fights. Considering that Constitutional Amendments are difficult and cumbersome processes requiring broad public understanding or at least engagement, and considering that campaign finance reform has been a long-time issue already gone nowhere in Congress…well Mr. Clements’ solutions are great background thinking but hardly on the upcoming horizon. I think his agenda is a worthy North Star for restoring our republic.
But meanwhile I propose a reform that would make American politics reflect American interests rather than global corporations and the 1% who have staked their future on those corporations rather than on the fate of our country.
Considering that the CEOs of many multinational corporations openly declare their companies have no loyalty to the USA because they operate in many countries, I propose that all executives and lobbyists for multinational companies be required to register as foreign agents under the Foreign Agents Registration Act.
Then we could subject them to the Federal Election Campaign Act (FECA), which prohibits any foreign national from contributing, donating or spending funds in connection with any federal, state, or local election in the United States, either directly or indirectly. It is also prohibits helping foreign nationals violate that ban or to solicit, receive or accept contributions or donations from them. Amend the FECA to include all officers of multinational corporations because they act in service of a principal (company) that has no loyalty to our country. And of course lobbying by foreign agents should be tightly regulated and seen by politicians as tangent to the interests of the American people.
Returning to Michelle Nash-Hoff’s proposals, I break this post into pieces to dodge the CPA website aversion to multiple links in a post.
Part One
More consideration should be given to her above list of tax reforms and protections of intellectual property and restrictions on sale of strategic companies to foreigners. Especially the tax principles amount to classic supply-side proposals, expecting lower taxes to increase the supply of goods and services by increasing the incentive to work, save, take risks, and to invest. Ms. Nash-Hoff adds a patriotic element by proposing laws to prevent corporate income tax evasion by incorporating in other countries.
I think supply-side policies must be considered in their larger context. In the 1950s and early 1960s, corporate and personal income taxes in America were much higher than anything since, and we were still in decades of growth and prosperity. Eisenhower’s Administration collected earned income taxes as high as 92% (top bracket) in 1953, and 91% thereafter. Ike also collected capital gains taxes at the same rate: 91% top bracket! Compared to today’s rock-bottom taxes of 35% top bracket earned income and a maximum of 15% for capital gains. And yet American growth and prosperity were much more robust in the Eisenhower years. So obviously there is more to consider than tax policy.
The larger context was American industrial dominance in the post-WW2 years of devastated Europe and Japan. We were thus the world’s workshop, supplying consumer goods and capital equipment to those countries rebuilding from war devastation.
As those regions rebuilt, they leap-frogged American plant, building the newest technologically-up-to-date industries that, by 1970, were giving American industry serious competition. The rise of European and Asian economies gave us not only new competition (and their new model of state capitalism to guide it), but also spurred the biggest American corporations to push for “globalization” so they could chase those rising markets and wealth. And thus America began its path into globalization and “free trade” that have taken us down a long road to decline. For more insight into the new globalization push by American corporations, and the beginnings of our country’s “free trade” downfall, check out my interview with Ken Davis (part 2):
http://oxford-ct.patch.com/blog_posts/origins-of-americas-economic-decline-bad-trade-policy-started-long-before-nafta
Part Two
Jumping ahead to today’s global context of American tax policy, the triumph of so-called “free trade” ideology and policy has brought us to a situation where I do not think supply-side tax reforms will revive American industry, employment and economic growth. That is because the wage differential between USA and developing countries is so huge that no amount of tax or tariff or currency exchange rate measures will be big enough to overcome the cheap labor pool of billions of hungry workers in poor countries, nor would “supply-side” tax reforms make the difference. Especially because labor productivity is determined by the capital and technology employing it, and capital and technology today travel the globe almost completely without restriction. So long as we operate in this so-called “free trade” policy environment, the wage differential will trump every other measure we aim at reviving American manufacturing and other high-value-added industries.
Rather than repeat the empirical and theoretical critique of “free trade” thinking (based on false ideas of “comparative advantage”) that is used to justify this “free trade” policy environment, I refer readers to these excerpts of Paul Craig Roberts’ new book “The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West” found here:
http://www.tradereform.org/2013/03/have-you-heard-of-the-tpp-yet-an-important-trade-agreement-you-need-to-know-about/comment-page-1/#comment-189327
Part Three
The irony here is that Paul Craig Roberts has become one of my heroes and literally wrote the book on supply side policy:
http://www.amazon.com/Supply-side-Revolution-Insiders-Policy-making-Washington/dp/0674856201
Almost 30 years later, while still holding to the validity of his supply-side arguments for their time, he seems to acknowledge that the world has changed so much by globalization and the “free trade” policies that supply-side policies will not fix our problems. I excerpt his latest book to support this interpretation:
“Today, Keynesian economics has been reconciled with monetarism and with supply-side economics, making macroeconomics a coherent whole. However, today macroeconomic policy faces new challenges. In the 21st century, the U.S. economy has been kept going by an expansion in consumer debt, not by rises in consumers’ real incomes. Burdened with large credit card and mortgage debt, consumers are no longer in a position to borrow more in order to spend more. Interest rates are very low, and the government’s budget deficit is very large; yet, high unemployment persists. Monetary and fiscal policy cannot help when the problem is that American jobs have been relocated offshore. Because of offshore production, stimulating demand stimulates production in China and other offshore sites. As high-productivity jobs have been offshored, American incomes, except for the super-rich, have ceased to grow. Thus, there is no effective way to boost consumer spending short of printing money and giving it to the population, or handing out tax rebates accommodated by monetary expansion. Prior to the collapse of world socialism and the rise of the high-speed Internet, it was not possible to offshore jobs or production for U.S. markets to any significant extent. In those prior times, American incomes rose with productivity. If a glitch in employment occurred, an expansionary demand-side or supply-side policy would boost employment and GDP. Today, the jobs have been moved abroad. The jobs are not waiting on an expansionary policy to call Americans back to work.”
Citation: Roberts, Paul Craig (2013-02-02). The Failure of Laissez Faire Capitalism and Economic Dissolution of the West (Kindle Locations 691-704). Atwell Publishing. Kindle Edition.
And so in conclusion, whatever merit is to be found in supply side tax reforms, they will not have the chance to even be tested until we deal with the larger issue of off shored industries chasing cheap labor and flimsy environmental regulations. To propose supply-side tax reforms now -in our present context of increasing concentration of wealth and income at the top, and spreading poverty and unemployment for the rest of us, as well as gaping government deficits and debts- seems to only propose to make American society more inequitable, more the playground of the traitorous rich who have no loyalty to America but only to their global corporations.
I propose using a system of Import Certificates to guarantee balanced trade. By limiting imports to the dollar value of our exports, corporations seeking access to America’s consumer market will have no choice but to invest in America, to employ and produce in America. The IC system is, compared to all other proposals aimed at balancing trade and re-industrializing our country, the simplest, most direct, and most guaranteed to work.
Once we have achieved balanced trade, we can then reconsider whether supply-side tax policies would further boost our economic growth and general prosperity. But until then, such policies would only increase federal deficits and further concentrate wealth at the top by taxing less without resolving the wage differential at the heart of America’s de-industrialization.
finis.
Will is right when he says that Import Certificates are a final solution. Since when did the American public ever adopt a final solution first after recognizing a problem? Remember the quote from Winston Churchill - “The Americans can be counted on to do the right thing - after they have tried everything else”. For all problems, we want to do as little as possible, make as small a change as possible, on encountering a new problem.
Tariffs on only three nations are as little change as possible (that will actually reduce our trade deficit). They also worked for our country from 1865 to 1914.
I think the reason Import Certificates have not gained a large following since introduced in 1993 is because they are a final solution rather than a step in the right direction (caveat - few people are aware of Import Certificates, so my comment is perhaps unfair).
Selling tariffs is also tough because the only kinds of tariffs in recent history were not successful because they were not applied at a uniform rate for all manufactured products.
Ignorance about the type of tariff to be applied can be overcome as information is spread. No amount of information can make Import Certificates a small step in the right direction.
CAN THE PUBLIC BE PERSUADED? This is an essential issue in choosing one solution over another.