OCT. 1, 2015 -- In his speech at Independence Hall, Pope Francis responded to globalization, which President Obama and Congress have yet to respond. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Today, Corporate America avoids the U.S. safety, health and environmental requirements and offshores its research, technology, production, jobs and payrolls to China, Mexico and Vietnam. The Princeton economist Alan Blinder in December 2006 estimated that in ten years Corporate America would offshore 30-40 million jobs. Already this year, Ford has announced a $2.5 billion plant in Mexico; General Motors a $5 billion plant in Mexico and Nabisco announced it was moving from Chicago to Mexico. The economy is being enfeebled.
To respond to globalization, we have to abandon the politics of: "I'm against the government" for the U.S. government takes on importance. The Washington government has to compete with the closed markets of China, Japan and South Korea. After World War II, Japan closed its market, subsidized its manufacture and sold its export at cost, making up the profit in the closed market. This put General Motors into bankruptcy and made Toyota number one. Now comes China with its controlled capitalism. If you want to sell in China, you must produce in China. China controls its labor, health and environment and, when necessary, devalues its currency. President Obama has legal authority to counter China's devaluation, but Wall Street, the big banks and Corporate America want to keep the China profits flowing, so they contribute to the President and Congress to not act against devaluation, to do nothing about predatory practices; to do nothing about the deficit in the balance of trade - to do nothing. The President and Congress do nothing.
One hundred sixty four countries compete in globalization with a Value Added Tax that's rebated on exports. Our Corporate Income Tax is not rebated. Not having a VAT stultifies manufacture in the U.S. A successful entrepreneur in the U.S. has to pay the 35 percent Corporate Tax and a 17 percent VAT when his exports reach China. A U.S. competitor can produce the same product in China, import it into the U.S. tax free and put the entrepreneur out of business. Moreover, foreign countries, using their VAT, produce profitably in the U.S. For example, Sweden's Volvo, owned by China, has started a plant in SC. Volvo will manufacture the engine and parts in Sweden, assemble them carefully not to make a profit in the U.S. and with shipping costs of 6 percent, produce cars for the European and U.S. market with a 19 percent advantage.
Congress could easily compete in globalization by replacing the 35 percent Corporate Tax with a 5 percent VAT. This tax cut immediately releases over $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs. Corporate America will not produce in the U.S. unless its production is protected from predatory practices and devaluation. Three years ago, the U.S. was begging Russia for helicopters for Afghanistan. The President must enforce the Defense Production Act of 1950 like President Kennedy did for the textile industry in 1961. In 1971, President Richard Nixon imposed a 10 percent surcharge on all imports when our deficit in the balance of trade was a miniscule of today's deficit. In 1984, President Reagan protected steel, motor vehicles, computers and machine tools.
35 percent Corporate Tax produced revenues of $327 billion. A 5 percent
VAT for 2014 would have produced $898 billion enabling Congress to balance
the budget and fund our infrastructure. The government in Washington must
make it profitable to produce in the U.S. to maintain a strong economy.
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).
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