The trouble today with the economy
By ERNEST F. HOLLINGS, former U. S. senator
2008 -- The trouble today with the United States economy is that the U.S.
refuses to compete in the globalized economy, even though, as The Economist
magazine reported recently, "Business these days is all about competing
with everyone from everywhere for everything."
the so-called "comparative advantage" is no longer God-given
or determined by the weather, as was the case, two centuries ago, with
David Ricardo's English woolens and Portuguese wine. Now commercial success
is largely created, or not, by government policies, and the United States
government refuses to compete for such success. In fact, our high standard
of living has become a "comparative disadvantage."
United States we rightly require manufacturers, beyond competing, to comply
with: clean air, clean water, labor rights, a minimum wage, Social Security,
Medicare, a safe working place, safe machinery, plant closing notices,
parental leave, etc. China requires none of this, and China, Japan, and
Korea compete in international trade for market share, by closing or controlling
their markets, trading at cost, and making up the profit in closed markets.
Is it any wonder that Toyota is now the #1 automobile manufacturer as
GM, Ford and Chrysler struggle just to survive?
to compete, to trade.
was in the Senate, I worked with Corporate America to keep our textile
industry strong by passing a protectionist trade bill in 1968. President
Lyndon Johnson, however, had Wilbur Mills, the powerful Chairman of the
House Ways & Means Committee, block the measure.
the assistance of Corporate America, I helped pass four protectionist
trade bills through both Houses of Congress only to see each of them vetoed
- one by President Jimmy Carter, two by President Ronald Reagan, and one
by President George H. W. Bush.
James Goldsmith testified before the Committee of Commerce in the United
States Senate in 1994:
that's our policy today.
protection by Democratic and Republican administrations, Corporate America
began outsourcing and offshoring. Now Corporate America opposes our government
competing in globalization with chants of "free trade," "protectionism,"
"don't start a trade war." Our nation's business leaders and
their economists, use every trick in the book to mislead on "protectionism."
They form organizations like The Trilateral Commission and The Business
Roundtable, and promote books like "The World is Flat" to warn
against protectionism. Even Time magazine joins the conspiracy by rating
the United States #1 in the global-competitiveness race. The truth is
globalization has become nothing more than a trade war, with the U.S.
is that we started the United States with protectionism. In his very first
message to the first Congress in 1789, President George Washington counseled:
"A free people should promote such manufactories as tend to render
them independent on others for essential, particularly military, supplies."
And the first bill to pass Congress, on July 4, 1789, was a 50% tariff
on numerous articles. We financed and built the United States of America
almost entirely with tariffs for more than a century. We didn't adopt
a federal income tax until 1913.
Morris, in his remarkable book "Theodore Rex" about President
Teddy Roosevelt, describes the United States winning the trade war with
England. Roosevelt exclaimed at the time, "Thank God I am not a free
Krugman suggests, we must "engage in some serious infrastructure
spending." But a value added tax is in order, long overdue. Every
industrialized country except the United States has a value added tax,
which is levied on all imports and rebated to manufacturers whenever they
export. Today, however, imports into the United States come without any
taxes being imposed on them, and U.S. manufacturers not only must pay
all corporate taxes but the VAT on their exports.
VAT would immediately remove a tremendous disadvantage to production in
the United States and begin to deter outsourcing, and the revenues from
it would help eliminate both our massive fiscal and trade deficits. Since
it would take a year for business and the Internal Revenue Service to
gear up for a VAT, in the meantime, we should institute a 10% surcharge
on imports as President Nixon did so successfully in 1971.
also activate the Commerce Secretary's list of materials critical to our
national security. By placing tariffs or quotas on items necessary to
our national security and producing them in-country, we will not only
be better prepared to defend ourselves but we can put American workers
back to work. In 1991, Admiral William Crowe, who was then Chairman of
the Joint Chiefs of Staff, warned against the outsourcing of military
supplies. In Desert Storm we had to await Japanese flat-panel displays
before invading Kuwait. We had to await Swiss crystals before invading
Iraq. Now we can't produce planes unless we get certain parts from India,
and helicopters unless we get parts from Turkey. This nonsense has got
Ernest F. Hollings served as governor of South Carolina from 1959 to 1963 and as a United States senator for the state of South Carolina from 1966 to 2005. He is the author of Making Government Work (2008).
© 2008, Ernest F. Hollings. All rights reserved. Contact us for republication permission.
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