Competing in globalization

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


MARCH 25, 2015 -- America is a competitive society. In sports, we now have "March Madness" in basketball, and in politics, every governor is competing to attract industry; build the state's economy. New York promises zero taxes for 10 years for industry to locate.

But in Washington, the President and Congress refuse to compete in globalization; have no policy of building or protecting the U.S. economy. One hundred sixty countries compete in globalization with a Value Added Tax that's rebated on exports. Our Corporate Tax is not rebated on exports.

Not having a VAT stultifies competition; stultifies manufacturing in the United States. An entrepreneur producing in the U.S. has to pay the 35 percent Corporate Tax and a 17 percent VAT when his exports reach China. A competitor in the U.S. can produce the same product in China, import it tax free into the U.S. and put the entrepreneur out of business.
The cause of the President and Congress refusing to compete is that Wall Street, the big banks and Corporate America contribute to both to not enforce provisions against the closed market and predatory practices of China; China's theft of intellectual property; China's requiring that to sell in China, you must produce in China and China's devaluation of its currency.

Wall Street, et al contributes to do nothing to compete with China. The President and Congress do nothing. Their cover is "Free Trade". As Henry Clay stated in 1836 about Free Trade: "It never existed…It never will exist". The Founding Fathers pointed the way when Congress enacted the Tariff Act of 1787 - two years before The Constitution. Protectionism worked so well that Edmund Morris in Theodore Rex that after 100 years: "The United States was already so rich in goods and services that she was more self-sustaining than any industrial power in history."

In 1971, when our deficit in the balance of trade was $1.3 billion, President Nixon imposed a 10 percent surcharge on all imports. In 2014, our deficit in the balance of trade was $505 billion. The economists attribute the loss of 9,000 jobs for every $1 billion deficit in the balance of trade which means we lost 4,545,000 jobs last year. In December 2006, the Princeton economist Alan Blinder estimated that in the next ten years, the U.S. would offshore 30-40 million jobs. We're losing 3-4 million jobs each year from Corporate America offshoring the country's research, technology, production, jobs and payrolls. This means that the country charging a VAT is really charging a tariff and for imports, the U.S. is subsidizing.

The average VAT in Europe is 21 percent meaning Europe is charging a 21 percent tariff on imports and the U.S. is subsidizing exports to Europe 21 percent. In the Korean War in 1950, the United States came up short on defense supplies and President Truman had Congress enact the Defense Production Act so that we wouldn't have to wait on imports to defend our country. Now, we are begging Russia for helicopters for Afghanistan (Frontpage magazine, 4/8/13) and importing uniforms for our G.I.'s (The New York Times,12/20/13).

The Wall Street Journal reports on 3/24/15 that: "The U.S. imported a record $138 billion in car parts last year, equivalent to $12,135 of content in every American light vehicle built." Further it reports: "However the growth of parts imports has left the U.S. with a growing deficit in overall cars and parts - $168.3 billion last year compared with $156.2 billion in 2013." Not only are the President and Congress failing to compete, but the U.S. is going out of business. This nonsense has got to stop.

To compete in globalization, the President and Congress must do the following:

1.) Enforce the Defense Production Act of 1950.

2.) Impose a 10 percent surcharge on all imports as President Nixon did in 1971.

3.) Replace the 35 percent Corporate Tax with a 5 percent VAT. The 2014 Corporate Tax produced revenues of $327 billion. A 2014 5 percent VAT produces $898 billion. This leaves $577.3 billion to pay down the debt.

4.) Do as China - In order to sell it here, you've got to make it here. Set quotas and protect the production of products vital to a strong economy as President Reagan did in 1984 for steel, motor vehicles, computers and machine tools.

5.) For patents obtained for technology, require for the first half life of the patent that the technology be produced in the United States.

Hillary Clinton and all in Washington nag about income inequality in the United States. Income inequality is solved by competing in globalization

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).

© 2014, 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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