Dangers of Our Import Economy, Part Three

14 Dec

From www.mcgeepost.com .Copyright © 2012 Michael H. McGee. All rights reserved. Please feel free to share or re-post all or part non-commercially, hopefully with attribution.

In our efforts to reduce the impact of imports on our economy, we need to do two things at the same time. First, we need to make imported goods more expensive to buy in the United States. Second, we need to provide realistic policies and incentives for employers to build and operate new facilities, or re-open shuttered facilities, inside the United States. Both these efforts must be accomplished with great care and with the intention to create excellent outcomes.

At the same time we must consider realistic options for our former trading partners, which will make it less likely that they will have to close down their own facilities which were built to manufacture exports to the United States.

Any efforts made must be perceived to be permanent or at least long-term in duration. American employers will build, reopen and hire only if they can see a stable event horizon of ten years or more. Temporary resolutions and half-hearted solutions will not produce one single new American job. Our own companies will react chaotically if imports are reduced in one year and then increased again the next year.

Not to mention the confusion that will be caused in such places as China if we ask them to close their factories, then open them again, then close them again. China has done a lot to benefit us economically. They don’t deserve to be jerked around by inconsistent or wishy-washy American policies.

Having said all this, I feel more than a little intimidated by the task of offering solutions. Well, I’ve never let that stop me before. I’m sure many others will come up with better ideas. Right now, though, most people aren’t really coming to terms with the long-term impact on the United States of our continued reliance on cheap imported goods. They will, though. I hope it won’t be too late when they do.

Raising tariff rates on imported goods is the time-honored means of reducing imports. We’d have to break a lot of treaties and trade agreements to take this action, and we’d undoubtedly stir up a lot of retaliatory trade wars. So how do we do it without raising tariffs?

I’ve discussed this in an earlier entry, so I’ll not again go into detail. Phase in a value-added tax on imported goods after they are in the country, and/or a federal sales tax on imported goods at the retail cash register. These taxes would have to be significant, and phased in over no more than two or three years in order to make a difference. People will complain about higher prices on both foreign and domestic goods and services, and economists will wail about inflation.

Companies producing goods and services inside the United States will likely have to raise wages in order to compensate for the higher prices their employees will have to pay for goods and services. Most people have tolerated stagnant wages only because they can get along by buying cheap imported goods from Wal-Mart. Once again, economists will wail about inflation.

It is beyond dispute, though, that over the last twenty years the rise of cheap imports has kept the Consumer Price Index (CPI), which is the government’s measure of inflation, artificially low. We will have to tolerate some inflation if we are to bring products and services back to the United States and break our dangerous dependence on cheap imports. As long as the rise in US wages and prices is tied firmly to a policy of encouraging the domestic provision of goods and services, the inflation will not be destructive. I will be writing more about inflation in later blogs.

The other thing we must do is to further reduce the number of federal, state and local regulations governing labor and employment, and roll back some of the more crackpot schemes to save the environment, such as carbon credits. Stop creating new labor and employment regulations and let the Environmental Protection Agency deal only with frankly toxic materials. Politicians have been trying to reduce the regulatory burden on industry and commerce for years, with very mixed results. Now we need to take seriously the task of streamlining laws and regulations, treating it as a basic economic issue and not as an ideological football.

We also need to open new land and water in our country, including Alaska, for the extraction of oil, gas, coal and other energy resources, and to cooperate with Canada to get their resources flowing into our country. It’s not healthy for us to be more concerned with Caribou than we are with the billions of dollars daily flowing out of the US to OPEC.

We have been much too hard on BP, which employs 23,000 U.S. residents and indirectly supports nearly 250,000 US jobs, when they had their Gulf oil spill. Energy extraction is messy. Mistakes will happen. The huge penalties for the oil spill are more related to environmental ideology than to business necessity. We need to be pumping out every available drop of offshore oil as fast as we can!

All the statistics show that there are a LOT of people in the United States who have not reaped, or are not currently reaping, much benefit from formal education, perhaps even with the best efforts of their teachers. These people need jobs just as much as the rest of us do. I suspect that they can do repetitive tasks and small assembly work just as well as any person from a developing country. As long as we’re shipping their jobs overseas, there will be no work available for those who don’t excel at book-learnin’.

There may need to be other incentive programs directed at companies which want to build or open facilities in the United States, to replace foreign plants and equipment, or to repatriate money held outside the US.

For example, right now Cisco has billions of dollars earned outside the United States, which they would have to pay taxes on if they bring the money inside the country. I’m sure other companies have the same problem. Let them bring the money in tax-free if they agree to use a certain portion of the money to build or expand facilities inside the US, thus moving chunks of their foreign production and service operations back home.

Give many more US work visas to people from other countries based on education and expertise, rather than on job category, and reduce visas based on other reasons. Microsoft is currently complaining they can’t get visas for foreign geniuses to come to work at their facilities in the US, and no one is available here in the country who’s as fully competent as they need. Here’s a company that keeps a lot of their work inside the US, and our very own government is giving them problems they don’t need.

What can we do to ameliorate the impact of our changes in policy towards imports on our most honorable trading partners such as China, Indonesia and Mexico? Very little. Their problems are their own and we are not the world’s social safety net. We need to make sure first that we are strong and that our economy is healthy. We will of course do what we can for the rest of the world, both for humanitarian reasons and to preserve our global sphere of influence.

Let the developing world’s manufacturing facilities be used to make products to sell internally or to other developing countries. Encourage employers throughout the developing world to use Henry Ford’s example: raise wages and benefits so their own citizens will be able to buy the products they are manufacturing.

China is for the most part a state-run enterprise. This state-run enterprise is engaging in its own version of the Swedish Disease (See my blog entries of October 8 and October 18, 2012.) They have parked well over a trillion dollars of enterprise funds in low-yield yet safe US treasury bonds and other securities, thus slowing down overall economic activity and opening themselves to the diversion of some of these assets into the pockets of their fund managers.

If they would use some of their new-found wealth to pay higher wages to their own countrymen, then they could sell more of their manufactured products to their own people. It would not be a bad thing for the average Chinese worker to have a new stove and refrigerator, better clothing, and even better food, all purchased internally. These items are not materialistic in nature, they simply make life better. I expect Mao would approve as long as the better wages are spread to the masses and not limited to a few elites.

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