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Poor free-trade America. We just can’t seem to achieve a trade balance, let alone a trade surplus. The last time we ran a trade surplus was in 1975 when President Gerald Ford was in the White House.
Now President Barack Obama is trying to double American exports over the next five years. Nice goal. Trouble is, most presidents have tried to increase exports over the last 35 years to get us back to at least a trade balance, but it just never seems to work. It might have something to do with getting other countries to go along with our plan. They never do and they never will. Why would they?
We cannot expect other countries to surrender their markets to us simply because we stupidly have surrendered our market to them. We seem to be engaged in a game of “Do you like us yet?” with other countries, hoping we eventually can cash in on perceived popularity points. It hasn’t worked, and it won’t work. We’ve been giving foreign producers production-cost advantages over our own producers for at least 35 years now, and we can’t expect them to start “playing nice” with us and let us invade their markets to the tune of doubling our exports.
So what do we do? Well, according to an April 9, 2010, article in the Wall Street Journal’s “Review and Outlook” column “World Tariff Wars,” we certainly can’t raise tariffs. Why? Because other countries might retaliate and there might be “damage to U.S. leadership on free trade.” Let’s be honest; a policy that consistently results in persistent deficits is definitely not something we want to be leading in.
And let’s be clear. The terms “free trade” and “free market” cannot be found in any founding national document – such as the U.S. Constitution or Declaration of Independence – because they were never intended. The first bill to pass Congress on July 4, 1789, was for the seal of the United States. The second bill ever to pass Congress was a 50 percent tariff on numerous products.
This country was not founded upon “free markets.” It was founded on protection and fair play for American producers who abided by and absorbed the cost of various American laws intended to raise our standard of living. Everyone wants a safe place to work, pollution controls and clean water, etc. Protectionism (or protective tariffs) got us the long string of trade surpluses up to 1975. The “free market” and “free trade” mentality got us the long string of trade deficits from 1976 to present. These trade deficits play a significant role in the persistent budget deficits.
Ford was one of the first to fabricate the phony link between free trade and what he called a “fair world economic system.” Case in point was his February 20, 1976, memorandum concerning the petition for import relief as filed by the United Shoe Workers of America, the Boot and Shoe Workers Union, and the American Footwear Industries Association.
In rejecting a remedy of import restraint, he pointed out how the U.S. footwear industry was “benefiting from a substantial increase in production, shipments, and employment” and that “a number of plants have reopened” while “profitability has improved.” If these conditions were true then, they certainly didn’t last long. Americans have to search long and hard for these days to find footwear made by their own countrymen.
Ford’s intent in refusing to restrain what would become the flood of products from foreign producers we experience today was to pursue a goal, “to expand domestic employment and living standards through increased economic efficiency,” according to the memorandum. I think we missed that goal. And we’ll miss the current goal of doubling U.S. exports unless we have the backbone to raise tariffs on foreign producers like they’ve raised tariffs on us.
It is clear Ford’s goal did not come to pass. Did domestic employment expand in the long run? Did we eventually experience increased economic efficiency in the domestic footwear industry? And how can you chart the expansion of living standards resulting from an American industry that is nearly non-existent?
So what do we do? We put tariffs on producers that are harming, undercutting, and driving out of existence domestic industries. But what if they retaliate with tariffs of their own? Then we retaliate back. What if we start a trade war? Then I say “So what?”
Perhaps George Meany, the first president of the AFL-CIO, put it best:
“Practically every country in the world … has some type of restriction, some type of barrier, some type of subsidization for their own people, that gives their own manufacturers and workers an unfair advantage over the American worker. … When have we ever retaliated against the unfair barriers put up by these countries which go back many, many years? And if we are to have a trade war, if that’s the only answer, I imagine if we had an all-out trade war we would do quite well for one simple fact: We have the market. We have the greatest market in the world right in this country.”
Listening to free traders, you would think there is no successful formula for U.S. trade surpluses. It is obvious through our experience over the last 35 years that free trade results in trade deficits for the United States. But the same free traders warn that restraining imports like Ford failed to do, which has basically relegated the U.S. footwear industry to perpetual life support, also will result in trade deficits. Talk about a defeatist position! To free traders, no matter what America does, America loses.
The truth is every country wants access to our market. Every country wants to sell to us. The United States is the biggest consuming country the world has ever seen. If we cannot use our leverage to structure the rules of competition to our advantage, then we have proven we cannot compete since competition begins at the negotiating table.
The simple fact that we have such huge national leverage and are seemingly unable to figure out how to create trade surpluses shows how ineffective we really are as trade negotiations, and this is truly a national embarrassment. So those who would label protectionists as “defeatists” since they propose raising tariffs, are truly the ones who deserve the defeatist label since their free trade policies are those that have brought us defeat year in and year out.
Having to concentrate on and resort to industries that cannot be exported as a way to build employment is evidence we have accepted defeat. Free traders love competition, but in the same breath, they tell us we have to surrender certain industries to foreigners, thus withdrawing from competition. How can you celebrate and take pride in the very activity (competition) you outwardly avoid?
Remember, 1975 was the last year the United States had a trade surplus. Ford’s memorandum was in 1976, and set us on a path to systematic trade deficits from which there seems no escape. Foreign countries that now experience trade surpluses are not going to accept more of our exports since that would only reduce their own domestic production levels and reduce their domestic employment. We have no more trade policy bargaining chips with which to pry open foreign markets since our markets are already open. Whether you like our current president or not, few have stood up to China and slapped tariffs on the communist country like Obama did when he put import duties as high as 35 percent on Chinese tires.
And then there are the claims that free trade will spread democracy. Maybe we need to pay closer attention to what China’s self-professed intentions are. In February 2007, Chinese Premier Wen Jiabao declared that the Communist Party would (not might) “unswervingly adhere” to its current course for the next century. He made promises of economic development but no promises of democracy. It is time to stop pandering to China, letting them have their way, enduring their threats to America, stand up to them and end this game of “Do you like us yet?”
We need to stop granting “Most Favored Nation” status to other countries and grant it to ourselves. Now more than ever, we need to bring production home to the United States, or home will never be the same.