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An Expat in Favor of Rattling the Cages of Countries with Large USA Trade Surpluses
Here are some observations from a retired Texan living in Switzerland, a land of free enterprise, and many small … and some large … manufacturers that export over half of what they make. This is a country with really solid primary and secondary schools that graduate literate young citizens; trade schools for the 80% and universities for the 20%; and a land where if you’re here illegally and you are not a true and registered refugee, you will be caught and unceremoniously deported. (Switzerland’s unfortunate decision to be coerced into the Schengen Agreement has led to complications with migrants first passing through EU countries.)
When a country like the United States signs trade deals such that most of its manufacturing is lost on the altar of “Free Trade” (i.e., that which was employing millions of skilled citizens making average incomes, and such that the R&D that heretofore went into improving the products from those now non-existent plants also was replaced), then you have what you have throughout the Midwest and Southeastern United States: many shutdown factories and towns with crumbling infrastructures; and, stagnant numbers of young American technical graduates.
The illegal immigration, especially in those areas, only made life worse for these middle-income people. (In Aiken County, SC, we had 5,000 illegals among a population of about 60,000!) Note also that today’s opioids crisis is deeply embedded in areas that have lost their manufacturing employment bases (see The Numbers Behind the Opioid Crisis of November 2017 prepared by the Senate Joint Economic Committee). What you see in this report is far beyond sad. We saw all of this and more when we lived in Aiken, SC, during the cooler months from 2001 to 2012, traveling extensively throughout the Carolinas, Tennessee, Kentucky, and West Virginia. Income inequality? You bet. And in my judgment, obviously the principal result of poor public policy.
Take a look at line 8 of the Bureau of Labor Statistics Table A-1 Employment Status of the Civilian Population by Sex and Age. There are 95 million people between 18 and 65 years old “not in labor force.” Although up to half of these people are permanently disabled and students, the US nevertheless has a grotesque number of now permanently unemployable people because their federal elected representatives of both parties did not care a damn about them over about five decades. These representatives drank the Kool-aid of “Free Trade” rather than that of “Fair Trade.” So, along comes a New York City real estate guy who says, “You’ve been screwed and I want to make America great again.” And he wins. He wins for very solid reasons.
An opinion: an American needs to live outside of the USA for a while to fully appreciate how badly the American people have been misled by their ever-expanding and ever more corrupt federal government whose executive bureaucracies (i.e., those supposedly under Art. II of the Constitution) began producing wholesale undemocratic “expert” decisions thereby subjecting The People to regulations far beyond the statutes actually passed by their elected representatives.
Let me say this to any observant person in the US: Go to Texas, as I did this past January and February, and witness what is going on in what we call “The Oil Patch.” Drive past the fabrication yards making drilling rigs, offshore platforms, large valves, pressure vessels, and all that goes into getting you transportation fuel so that you can drive. Texas is booming and reaching out to get more people to come. Income inequality? Yes, there is some. But at 2.4% unemployment in West Texas and less than 4% now in Houston, not much.
I say this: There are not many problems in the US that cannot be solved by enough jobs. Local, state, and federal governments can and should coordinate, but they also have to get the hell out of the way. And we all have to demand fair and reciprocal trade deals.
Published in Foreign Policy
Switzerland should be subject to a tariff equal to their VAT tax until such time as they stop refunding VAT taxes to exports. I can’t fathom why that arrangement is not treated as an export subsidy.
The average person (and I dare say a huge proportion of leftists) don’t realize income inequality is a fact of life. They also don’t realize once they’re hooked into government dependency, their inequality is pretty much locked in for life, in spite of all the “goodies” promised by politicians . . .
But we aren’t talking about removing that inequality via taxation. We are talking about lifting people out of poverty by adjusting our economic policies on jobs.
If government policy has had a direct effect on job loss and income inequality, shouldn’t altering those policies also have an effect?
It should be viewed as different the leftist view of not working for your wealth vs the “fair trade” view of getting jobs back in the US.
The people of the United States have suffered financial harm in order to help lift the world out of poverty. This is fact.
The question should be thus: How much more should we do so?
I read recently that while Smoot-Hawley passage correlated with stock market flux, it may not have been a direct reason for it.
At the time, there was a lot of bank lending to foreign companies who were importing their product to the US and gutting some of the production here.
The tariff basically put to death the foreign business which led to default in American banks.
I have always been very pessimistic over relying on banking and financial services as a “producer”. It doesn’t create anything. It just manipulates to such a degree that it looks like you are wealthier than you really are. The wealth is in owning debt. If the world owes you $5M, are you really a millionaire? What happens if they don’t pay you back? You crash.
True. The left takes care of the displaced jobless by getting them hooked on government, and they want to raise taxes to do it, which ironically reduces revenue. As Stephens says in his post above, how much more should we do? It’s about time we get our people working again, and Trump isn’t the first President who used tariffs to do just that.
Great post. So many in the GOP are so simplistic about this stuff and it’s killing us.
That is called human capital development.
This is why I can’t stand unmeasured moralism from the GOP right now.
What is wrong with that analysis? Nothing. Is the GOP capitalizing? I say no.
Watch this five minute video from the “True The Vote” group. We are a banana republic controlled by egoistic mandarins. Too many like or profit off of this. Act accordingly.
Here is some more:
We’re Living in the Age of Capital Consumption
George Bragues On How The Financial Markets Are Influenced By Politics
Ep. 60 Krugman Copes With Trump: Special Guest David Stockman
Ep. 741 David Stockman: What the Fed and the Feds Have Done to Us, and How to Reverse It
“My karma tells me
You’ve been screwed again.
If you let them do it to you
You’ve got yourself to blame.
It’s you who feels the pain
It’s you that feels ashamed.”
‘Dirty Jobs’. Quadrophenia
Pete Townsend
Pirate capitalists at work . Exporting America’s capital.
Sundance has a great explanation how it works -> Linky
Be sure to read it all. Revealing. Explains why the world is apposed to Trump.
Why is it an export subsidy? Any good sold in Switzerland is subject to VAT, but if a good is made in Switzerland and sold in the US why would it be fair to charge a VAT on that good? Refunding the VAT actually seems fair. Otherwise they are imposing a reverse tariff aren’t they? So both the US and Swiss wristwatch in Zurich have the same VAT on them. And in the US both the same watches lack that VAT.
This is why it isn’t an export subsidy.
If you own 500 tons of gold and no one wants it are you really rich? Same difference. All value is subjective. If you have thousands of acres of land but no one to cultivate it are you rich? Plus in the long run you’re dead…
BS. We are wealthier than ever. We just happen to be less grateful than ever also hence the petty feelings of dispossession.
They aren’t the same. Debt requires debt service, and our debt to GDP is going the wrong way making debt service harder in more and more cases. The value of debt is manipulated by government via inflation, Fed purchases, and bank / pension / etc. capital requirements. Finally, the threat of bail-ins can affect government debt.
One day the masses will figure out what legal tender laws are really for.
I wish this wasn’t even a topic.
Seems to me there’s a bit of a check valve in there: If policies cause 100 people to become part of the long-term unemployed, what percentage of those will become gainfully employed if those policies are undone? Do we then have a duty to those that aren’t restored? And another question – while some would say we have to go slowly and carefully in correcting those policies, others would say let’s just do it! Both, it seems to me, have their negatives: What do you think?
This story should be communicated through bullhorns – all true!!! For years, all I heard was that we don’t make things anymore, we just consume – then we heard “You didn’t make that – build that-create that” – then we heard America is not unique, i.e. we’re too privileged – we’re going to change some things, bring Hope! Yadda Yadda Yadda…..
I am appalled at the serious drug epidemic that has swept into every small town and crevice in this country – I hear the stories first hand from people in social services – beautiful little towns in W.VA, Maryland, PA where manufacturing was it – and now nothing – no jobs, high drug rates, poor health, broken families.
It’s not rock science to have seen that would be the result! Yes – Trump is trying to fix all of that – these blue collar Democrats and their lifelong reps in DC have not championed the little guy – a rich, no-nonsense real estate developer who actually worked and signed pay checks actually has a clue!
The economy is structured regressively. That is the way I’d put it.
Isn’t it interesting that the more successful we are as a country, the more we can help others and give? If you can’t afford to go to the doctor or pay for healthcare or are penalized for not having insurance, or can’t find a job or support a family, or have no motivation to work, you hardly have the means to donate to charity.
I think if the handouts stopped, and people had to follow up and be responsible, things would change fast. My sister pulls up jobs available, prints them out and hands them over, they don’t go to one single place or interview, they just come in to get their free phone and benefits – mostly young men. Social services is now about meeting numbers to get federal funds – some are needy, but many many can work, but won’t.
It’s a hard thing to understand, but everything is too centralized, and the Fed policy for the last 20 years has just made it worse. It causes social problems, and then people want Trump or Bernie to fix it or get them their cut.
You can do more with land than lost debt.
I can parcel the land out to builders. I could build housing.
I could farm wheat. I could farm hemp, soy, or poppies!
If no one wants that, I could sell off some land and buy sheep to graze and make yarn and grow a textile industry.
I could repurpose widgets to something people do want. I could use their materials to make something new.
The options are endless, limited only by imagination. But to have lost all your assets on defaulted loans is nothingness.
Actually, no. Corporate tax is Switzerland is two part – a tax on profits (akin to the US) and a VAT tax. The VAT is 8%. VAT produces about 12% of tax receipts. Corporate income tax about 11% of tax receipts. Without the VAT, the other corporate taxes would have to more than double. So refunding the VAT really means that in the US the Swiss watch is for sale without more than half the taxes. But the US watch manufacturer is still subject to US tax so the US watch has the manufacturer’s full tax built into its price.
The Fed and the government can’t manipulate this stuff forever. When interest rates normalize, all debt is going to be worth less and riskier than what we are used to. The federal budget will be mega pressured. Hard choices will be made.
The “risk free rate” is a very, very big deal for a functioning economy.
The people of the United States are far better off today than they were when the post War free trade paradigm took hold.
How much more? As much as we can.
Well … The ones with a good job are anyway.
What did they say about the Depression? If you had a good job it wasn’t bad at all.
VDH’s latest is as always quite persuasive. He uses the metaphor of Alexander and the Gordian knot to explain certain aspects of Trump’s foreign policy. With regard to trade, I’ve gone back and forth on Trump’s policies, and I’ve settled on a policy of strategic patience. I hope China surrenders and we get a better deal on trade and intellectual property. If so, I will be ecstatic to admit that I was wrong.
Devil’s Advocate: But if the federal government is going to manage our trade with the rest of the world to direct prosperity (and yes I’m smirking now, I admit it) to certain regions and sectors, how about managing movement?
What about laws which restrict the ability of successful, retired Texans to take their accumulated net worth and ample discretionary spending out of the American economy where it would produce U.S. jobs and give the Swiss economy a microeconomic bump?
I too think Americans should step outside their country once in a while – if only to see how great they have it.
I have been an ex-pat for most of my life. I’ve lived all over the world in first world locations like Singapore or Australia and in hellholes like India and New Jersey. I can say without hesitation that America is the greatest place to live on the planet.
One step into an average US grocery store tells anyone who has lived overseas all they need to know. The abundance and sheer choice is stunning. I can have avocados from Mexico for a dollar each (avocados in australia as $4 each). I can buy raspberries for a $1.99 when the same pack would cost me $9 in Singapore. I can buy NZ lamb for cheaper than I can get it in New Zealand. Why? Free trade.
The US manufacturing sector today produces more than it ever has – it just takes fewer people to do it. The culprit here is technological innovation – and the logic used by protectionists to protect sclerotic and inefficient industries applies equally to technology as it does to trade. Should the government use its power to halt technological advancement? I doubt many here would agree.
In addition, 2/3s of US imports are not consumer goods, but inputs for American business and manufacturing – protectionists would have us harm many American businesses to protect a few politically connected ones. All at the expense of the American worker – recent analysis suggests that the current trade war will cost the US 190,000 jobs.
There are many things that can be done to increase job creation in America. This administration has done an admirable job on many of them: regulatory rollback and lowering taxes are a good start. Unfortunately this has been marred by destructive protectionism and bizarre personal attacks by the chief executive on one of America’s most innovative job creators. A rather unfortunate turn of events for an administration that started it so strong.
Conservatives need to return to their roots and remember that the nine scariest words in the English language are: I’m from the government, and I’m here to help.
Interestingly, with the literature and culture from that era, I associate emotional depression with it more than I do financial. The Great Gatsby, the night clubs, the drugs and drinking, the music – it all drowns out the emotional depression they were burying.
Grapes of Wrath really gets into both, though. Better than Gatsby and Chicago.
Listen to those David Stockman interviews that I posted. If we didn’t have so much Fed and government interventionism, everyone would be capitalizing on trade.
But Switzerland and the US never have nor ever would have equal levels of corporate taxes. So by that standard any country that taxes their corporations less is subsidizing exports. Are we demanding a global tax policy then? Where all nations tax equally?