Sunday, August 3, 2003

More on trade and manufacturing
Catching up on Saturday’s newspapers led me to a couple of more stories about what I predicted would eventually become the issue of the 2004 democratic primaries, trade and manufacturing.
In the Concord Monitor ["Lieberman touts economic revival," no Web link], Sen. Joe Lieberman sat down with the editorial board of the newspaper. Here are some excerpts from staffer Anne Ruderman:

"If you ask Connecticut Sen. Joseph Lieberman, the faltering U.S. economy has a lot to do with China. Manufacturing jobs are going there. Whole industries, like semi-conductors, are going there. A ballooning trade deficit is coming here."
OK, so far, so good.

"And the Chinese government is supporting its manufacturing in a way the American government is not, Lieberman told a Monitor editorial board yesterday, meaning America is not doing enough in the way of tax incentives to prevent companies from moving manufacturing sites to Asia, rather than keep them at home."

No, no, no! Wrong. This is a complete lie that is being perpetuated over and over by these free trade cultists.
Chinese manufacturing is beating Americans because the average wage in China is 19 cents per hour [1994, it may be slightly higher now]. Goods are also produced by prisoners. Essentially, the majority of Chinese workers are free trade slaves. There are also protective tariffs on exports to China meaning that American goods coming into China are more expensive than the domestic goods produced there, hence the trade deficit emerges.
These problems are everlasting because Lieberman - as well as other presidential candidates like Sen. John Kerry and Sen. John Edwards - voted for Permanent Most Favored Nation Trade status with China. But don’t worry, folks, Lieberman has the answer: Give businesses research and development incentives, eliminate trade barriers but hold countries – like China – accountable for their trading practices.
More business tax breaks? Give me a break!
Of course, Lieberman is not alone in this mentality, even if it is flawed, according to Jonathan Weisman of The Washington Post - also in the Manchester Union Leader on Saturday - ["In Rust Belt, Industrial Plight Drives Campaigns"].
"Manufacturing has lost 2.5 million jobs since President Bush took office, and 2.7 million since the slide began in August 2000. The Labor Department said Friday that the sector shed another 71,000 jobs just last month … The administration is creating a new 'manufacturing czar' in the Commerce Department, under whom all trade promotion, compliance and enforcement activities and sector analysis would be consolidated. Treasury Secretary John W. Snow will press trade issues while in China next month, and he will be followed by Commerce Secretary Donald L. Evans in October … Reps. Philip M. Crane (R-Ill.), Charles B. Rangel (D-N.Y.), and 133 other Republicans and Democrats, are backing new legislation that would slash the corporate income tax rate for U.S. production activities.' The more a company produces in the United States, the lower its tax rate would be. House Ways and Means Chairman Bill Thomas (R-Calif.) has drafted competing legislation that would cut the corporate income tax rate to 32 percent, from 35 percent, for companies with less than $10 million of taxable income and increase the tax break for manufacturing equipment."
[Sidebar: Crane, Rangel, and Thomas all voted for PMFN for China, NAFTA and GATT, so they are directly to blame for our crumbling manufacturing sector.]
Now, a slight reduction in the corporate income tax rate isn’t such a bad idea, especially if it is based on American production and enforced as such. But without protective tariffs, it is meaningless. The difference in labor costs between China – and to a lesser extent, Mexico and eastern Europe – and the United States is so massive that a few percentage cuts in the corporate income tax isn’t going to save jobs. In fact, I would contend, that corporations will figure out a way to enjoy the cut through some loophole and still continue their overseas production.
But back to Lieberman:
"You can’t grow an economy by being protectionist. We’ve got to have a national policy to break down barriers … so we can sell the stuff we make here to the other 96 percent of the globe. [Fair trade] ought to be putting labor and environmental standards in trade agreement so that this does not become a race to the bottom."
Complete hypocritical nonsense.
Not only is Lieberman trying to have it both ways, his logic goes against 170 years of American history in which the government used import tariffs to secure American jobs, raise revenue, and protect manufacturing - and national security - at limited cost to the consumer. Go back and look at the figures. Up until the early 1900s, we never had a federal income tax. Import tariffs and corporate taxes paid for the entire federal government, including protecting the borders and paying for the national defense. Everything else was taken care of on the local level. When the income tax was implemented, it was mostly tendered to the higher wage earners and wealth holders, not the working classes. This, along with the tariffs, allowed the middle class to grow. The middle class was built on a low-skilled, decent wage manufacturing job and the introduction of the interstate highway system. In addition, the massive domestic federal outlays in the few years after World War II via the G.I. Bill created stability and sometimes prosperity for at least 20 years after that. During this time, for the most part, families were stronger; there was less crime, very few latchkey kids, and not as much hopelessness as there is now. Were there other social problems? Sure, the nation wasn’t perfect back in the good ole' days. But some time after the early 1970s, a whole bunch of powerbrokers got together and decided that Americans had it too good and the slide started. Now, all the white collar jobs are starting to leave. In some ways, the white collar people are reaping what they sowed. Generalizing, few white collar workers stood up to the free trade cultists when the factories were fleeing to the countries with cheap labor. We didn’t stand together, so now we are sinking together; or - the white collar workers are now sinking with the rest of us blue collar folks who were already at the bottom.
The most shocking thing about all of this is that the free trade theory is still being indoctrinated into the minds of our young people, with no balance being taught and an ignorance of the true history of how our nation was founded and built. Over the years, when I have talked to younger people about this, I am shocked about the brainwashing they have received from their schooling, mostly at the college economics level. It is never about our country or the economic preservation of the family, it is all about cheap consumer goods and glories of shopping.
I would contend that the importance of balance in the teaching of trade and economics is on par with the over-debated issue of Creationism versus Darwinism being taught in schools.
However, the silence is deafening.
In reality, the chances of rescinding NAFTA and GATT are minimal. A bill to repeal NAFTA sponsored by Rep. Marcy Kaptur, D-Ohio, languishes in Congress every year despite the hemorrhaging of the American manufacturing sector. However, understanding the history and how we got to where we are is more important. Slowly, and hopefully surely, I and others will continue to make the case to readers and voters that there is another way of looking at things, especially when it comes to history and economics.
College professors, economists, and politicians don’t always know what is best for us.