Economy vital

By ERNEST F. HOLLINGS, former U. S. senator


APRIL 19, 2016 | We assume that any altercation with an adversary like Russia or China will not go nuclear. Any altercation will be conventional military or settled economically. The United States has proved to China that it is sensitive to casualties in a conventional confrontation. When China spilled over the Yalu River in the Korean War, rather than suffer the casualties, the United States retreated to the 38th parallel. In the Vietnam War we could have prevailed by going above Hanoi. We didn't for fear that China would come in.

Our conventional military needs improving. We spent billions training Iraqi forces and when confronted dropped their weapons and ran. We have been training Afghan forces for fifteen years to no avail. First, there must be the will to fight. The United States has more than 200,000 G.I.s dispersed around the world with the conventional military taking over foreign policy. In foreign policy, pivoting to the East by deploying 2,500 Marines into Australia is ridiculous. Drone killing creates enemies rather than eliminating enemies. Many U.S. commitments have become unrealistic. Congress is not about to have G.I.s killed defending Taiwan and the Senkaku Islands.

The U.S. continues to play the game of "free trade." As JFK's Profiles in Courage, Henry Clay observed in 1836 on the floor of the U.S. Senate on free trade"…It doesn't exist. It never will exist." The Founding Fathers took over our economy the first hundred years with Congress enacting the Tariff Act of 1787 - two years before the Constitution. Protectionism worked so well that Edmund Morris writes in Theodore Rex (pg. 20-21) that "The first year of the New Century found the United States worth $25 billion more than her nearest rival Great Britain with a gross national product more than twice that of Germany and Russia." With globalization, protectionism is necessary. The Congress and Corporate America developed the economy in the 1900's. But now, with globalization, Corporate America is out fending for itself and the Congress only fundraises. In 1950, the United States determined that it must have the materiel necessary for a conventional military engagement. We couldn't wait on imports to defend ourselves. Congress enacted the 1950 Defense Productions Act. We must follow the Act in globalization.

First, Congress has to make a list of necessary materiel like steel, motor vehicles, computers, and machine tools. Ronald Reagan, protected these items in 1984 and it is absolutely necessary to protect them in globalization. Next, we have to make it profitable for Corporate America to produce those items vital to a strong economy in the U.S. A successful entrepreneur has to pay the 35 percent corporate tax and a 17 percent value-added tax (VAT) when his product reaches China. A competitor can produce the same product in China, import it tax free into the U.S. and put the entrepreneur out of business. 164 countries compete in globalization with a value added tax. The value added is merely the cost of doing business, such as the electric bill or delivery boy's salary. The VAT has no loopholes and is self-enforcing. You either pass it on or absorb it. Replacing the Corporate Tax with a VAT immediately releases $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs. Last year's 35% Corporate Tax raised $343 billion. A 2015 VAT would have raised $2.3 trillion. Now we can stop the borrowing and phase out the payroll tax.

Ford Motor Company has just announce a $1.6 billion plant in Mexico. The United States acts as policemen of the world as its research, technology, production, jobs, payrolls - its economy is offshored. Today, the challenge is not just for Congress to perform its Constitutional duty by taking charge of the economy. Congress must make it profitable for Corporate America to produce in the United States.

In 1989, after Tiananmen Square, the U.S. obtained a resolution in the United Nations to investigate China's human rights. China in turn used our Good Neighbor Policy by going to its economic friends in Africa and the Pacific and there's never been a hearing on the Resolution. A strong economy is vital to foreign policy.

Senator Fritz Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).

© 2016, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives. Today, Hollings continues to be influential in public affairs and offers this website as a compendium of current and past positions on public issues. Learn more about Fritz Hollings.

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