Making Government Work

The U. S. has a high standard of living, but the authoritarian government of China requires none of this. It subsidizes and protects its production and trade. Instead of an open market and anti-trust, it has pro-trust.

The United States was founded on protectionism. After the adoption of a seal, the first bill in history to pass the Congress on July 4, 1789, was a 50% tariff on numerous articles. We financed the building of our country the first hundred years with protectionism – not enacting an income tax until 1913. Abraham Lincoln was a protectionist. Teddy Roosevelt said: “Thank God I’m not a free trader.” Ronald Reagan protected cars, steel, computers, machine tools, and saved Harley-Davidson with protectionism. Our production and high standard of living must be protected from cheap foreign manufacture. More importantly, as Adam Smith stated in 1776: “A nation should depend as little as possible upon its neighbors for the manufactures necessary for its defense.”

Accordingly, the Secretary of Commerce is required by law to list those items vital to our national defense so that we can ensure their production in the United States. But cheap outsourcing of U. S. production and pressure from our NATO partners for defense production caused Admiral William J. Crowe, Jr., the Chairman of the Joint Chiefs of Staff, to observe in 1991: The U. S. defense industrial base is already in danger of becoming too dependent on foreign sources for strategic supplies.” We had to await Japanese flat-panel displays to launch Desert Storm and Swiss crystals to invade Iraq.

Sikorsky helicopters are necessary for the defense of the United States. They are produced not only in-country but also in Turkey. But Turkey has become the sole source supplier for the tail rotor motor of the Sikorsky helicopter. Though a close friend, Turkey opposed our invasion of Iraq and refused permission for the U. S. to over-fly Turkey into Iraq. The defense of the United States shouldn’t depend on the favor of foreign nations.

The security of the United States rests as if upon a three-legged stool. The first leg – our values as a nation - is respected the world over for our sacrifice for freedom and democracy. The second leg – defense – stands firm with the United States being the world’s superpower. But the third leg – the economy – has been fractured in the cold war. After World War II we adopted the Marshall Plan, sending money, equipment and expertise to rebuild Western Europe and the Pacific Rim. We called for “free trade,” but Japan and Korea set the competition in globalization for market share by selling at less than cost and making up the profit in their closed domestic market. In our zeal for capitalism to prevail over communism, the United States didn’t enforce its anti-dumping laws.

Corporate America tried time and again to enforce trade laws to protect production, but was constantly rebuffed by Presidents lecturing “free trade” and vetoing the measures. Frustrated, Corporate America began outsourcing in the seventies and eighties. The adoption of NAFTA with Mexico and Permanent Normal Trade Relations with China forced outsourcing to hemorrhage. Today, what hasn’t been outsourced is being bought with the cheap dollar: IBM to China, Vodafone to Germany, Bell Labs with all of its research to France, Westinghouse Nuclear with all of its research to Japan, Gateway to Taiwan, and Bethlehem Steel’s Sparrow Point that provided the steel for World War II belongs to Russia. We’re going out of business. Our economy is enfeebled and endangered.

Corporate America built the economy and middle class of the United States. Years ago, Henry Ford said he wanted the fellow making the car to be able to buy the car. He doubled the minimum wage, instituted health care, and gave retirement benefits to labor. And the Ford Foundation set about developing communities. The government entrusted enforcement of its trade laws to Corporate America. But today Corporate America has joined the other side. Any measure to protect trade or build the economy is met with cries of “free trade,” “protectionism,” by the big banks, Wall Street, the Business Roundtable, the National Association of Manufacturers, the National Retail Federation of America, the National Association of Independent Business, and the United States Chamber of Commerce. Corporate America not only opposes any restriction on outsourcing, but willingly provides China and India its research and technology. Rather than developing “hometown” America, Corporate America’s contributions are now to communities in China and India.

China works around the clock to strengthen its economy. China will build the plant, train the workforce, control the workforce, and guarantee a profit. Meanwhile, China obtains our research and technology and maintains 51% control. Now China is altering and patenting our technology. With the altered product in China trade, it will become the cheapest in international trade. Then, a few years from now, we’ll have the China bubble. China will say it doesn’t need us any more – “go home,” and Corporate America will have nothing to produce back home that won’t require protection for it to make a profit.

Trade treaties and agreements protecting just the investment of Corporate America abroad are presently negotiated by the U. S. Special Trade Representative. To compete in globalization we need to organize trade and strengthen our economy for the benefit of the entire country by merging the Department of Commerce into a Department of Trade and Commerce, including the Special Trade Representative and the several entities dealing with trade issues. We need to repeal the tax benefits to outsourcing, transferring them to domestic production. Appoint an Assistant Attorney General to enforce trade laws, and institute a Value Added Tax or import equalization tax that equals the VAT plus the tariff charged by any trading partner. The government needs the money.

President Bush projects on page 166 of his budget a deficit of $703 billion this year. Next year’s President is promising new expenditures for health care, energy, the environment, research, and infrastructure. Freezing this year’s budget without new programs will require spending cuts and tax increases of $703 billion to balance to budget. No chance of this. But to start new initiatives and reduce the deficit, spending cuts and an import equalization tax will start the new administration in the right direction.

Sen. Ernest F. “Fritz” Hollings served an illustrious carrer as U.S. Senator from South Carolina from 1966 to 2005. His new book “Making Government Work” captures the wisdom of his experiences and offers politically feasible solutions to make government work.

Front Page Photo by Mr. Wright- Flickr © Some rights reserved

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