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Alabama, Bloomberg, economists, FDI, Foreign Affairs, foreign direct investment, imports, incentives, Jobs, manufacturing, production, recovery, tariffs, Trade, {What's Left of) Our Economy
If there’s anything you can count on other than death and taxes, it’s nearly all of America’s economists and members of the political and policy elites abhorring unilateral tariffs on imports as dangerous folly. (Multilateral tariffs, applied with the approval of the World Trade Organization, are generally more popular, as they’re seen as an internationally acceptable means of enforcing global trade rules.) Which is why it’s so important for RealityChek to keep pointing out examples of these duties working like a charm to help bring valuable production and jobs to the United States.
A recent Bloomberg item showed just how effective tariffs can be. This report on a recent $120 million Chinese investment in a copper tubing factory in Alabama contained the usual boilerplate about the Chinese company wanting to avoid higher wages back home and seeking to manufacture closer to its customers. To their credit, the reporters also noted that Alabamanians needed to shell out $20 million in incentives to make sure the Chinese chose their state – a widespread practice that should remove much of the shine from this piece of the American manufacturing renaissance meme.
But they and their editors also buried a crucial inducement for China deciding to produce these goods in the United States – to avoid tariffs on copper products. Nor has this been an isolated case. Years ago, in Foreign Affairs quarterly, I described how Reagan-era tariffs and quotas resulted in major new foreign investments in American auto assembly plants and steel mills. And similar measures clearly continue driving the construction of lots of new foreign-owned facilities in the United States today. Of course, America’s trade competitors have mastered this strategy, too. Scholarly research makes clear that erecting trade barriers in order to induce “tariff jumping” investment is common in developing countries. But Europe also attracted considerable U.S. and other multinational capital in the electronics and information technology sectors with this practice.
Tariffs are especially promising for America, however, not only because of that matchless consumer market mentioned above, and the leverage it creates with foreign governments and corporations alike. They’re especially promising because this huge consumer market is so far away from most of the foreign production sites that still supply it so successfully. Making products in America is both a great way to cut transportation costs and a great way to cut delivery times.
American labor and regulatory costs of course remain on the high side. And foreign governments are rarely shy about using a wide range of subsidies – including artificially cheap currencies – to keep their own goods and services competitive. All the more reason, then, for Washington to set about meaningfully boosting the weakfish U.S. recovery by using tariffs more systematically to lure productive, job-creating foreign investment and technology. Why keep arguing with success?
The land of fools is the number one nation in the world in political correctness, on both sides of politics, with those electorates keeping electing the Repub Part the most foolish, albeit also most patriotic. How evil and deceptive is that party.
Zombies will not think, argue, or speak in human terms. They are more than brain washed, they are brain dead. After so many years and so much change, a plant growing in the shade of a LA seaport loading dock must have revamped itself to the new environment.
Have you read this book? http://press.princeton.edu/titles/9312.html.
It is amazing how the debates about the industrial decline of the country, especially relative economic decline (relative to Germany and the USA, both of which erected protective tariffs against British exports, while Britain adhered dogmatically to free trade), is hauntingly familiar to the USA today, faced with unfair competition from Japan, South Korea and China primarily. Joseph Chamberlain was the tariff reform champion. Even brilliant and mainstay figures as Lord Salisbury and Arthur Balfour questioned free trade: “In spite of any formula, in spite of any cry of Free Trade, if I saw by raising the duties on luxuries, or threatening to raise it, I could exercise pressure on a foreign power, inducing it to lower rates and give relief, I should pitch orthodoxy and formulae to the winds and exercise pressure.” –Salisbury. The book sets forth the positions of Chamberlain, the free traders who wanted orthodoxy – status-quo, and Arthur Balfour, the Prime Minister in 1903, who wrote a masterful analysis of the situation in a memorandum entitled “Economic Notes on Insular Free Trade,” which I downloaded and have begun reading. Keynes wrote of the memo: “The Economic Notes on Insular Free Trade is one of the most remarkable scientific deliverances ever made by a Prime Minister in office. It wears well and bears re-reading. I think that economists today would treat Balfour’s doubts, hesitations, vague sensing of trouble to come, polite wonder whether unqualified laissez-faire is quite certainly always for the best, with more respect, even if not with more sympathy, than they did then.”
Chamberlain himself argued things that are so eerily similar to the situation we face today in the USA that it gave me goose bumps reading it, e.g., “whereas at one time England was the greatest manufacturing country, now its people are more and more employed in finance, in distribution, in domestic service… I think it is worthwhile to consider – whatever its immediate effects may be-whether that state of things will not be the destruction ultimately of all that is best in England, all that has made us what we are, all that has given us prestige and power in the world.” He went on to tell London’s bankers that in the short run, the net effect of the changes would be to leave Britain more divided between rich and poor and less self-sufficient, “richer and weaker.” Over the long run the country could not survive as merely a “hoarder of invested securities” if it was not also the “creator of new wealth.” He went on: “…are you entirely beyond anxiety as to the permanence of your great position?… Banking is not the creator of our prosperity, but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth; and if the industrial energy and development which has been going on for so many years in this country were to be hindered or relaxed, then finance, and all that finance means, will follow trade to the countries which are more successful than ourselves.”
Ultimately, I think Balfour’s position of raising retaliatory tariffs on protectionist countries in order to negotiate a reduction of theirs for ours to create a fairer playing field was more workable than Chamberlain’s cry for Imperial Preference, since walling off Britain and her colonies from competition, even legitimate competition, could exacerbate a lack of innovation and upgrading of plant and equipment, technique, etc. and lead to possibly even more decay, not to mention the problematic politics involved. Essentially, Chamberlain’s position, while I agree with all of his arguments on the problems with free-trade while others practices mercantilism, would amount today to what might seem a general, across the board raising of tariffs in the USA against all other countries, while Balfour’s position would amount to strategic raising of duties or retaliation in some measure against currency manipulation by China and others and other stealth protectionist practices which give them an unfair advantage at the expense of our manufacturing base, perhaps by taxing their purchase of our treasuries in proportion to the degree of currency manipulation or something like that, i.e., counter-intervention in the currency markets. That Balfour identified the problems, saw the future and prescribed what would seem to the best solution over 100 years ago without any historical precedent (as Britain was THE first industrial power and the first to face these issues), which nowadays we have plenty of, is astounding to me and merely highlights his unmitigated brilliance as a thinker with a genius analytical mind.
Nothing happened though because of the lack of political will to do anything, the opposition of vested multinational business and financial interests and fear of political fallout splitting parliamentarian parties. Indeed, the whole tariff debate split the conservatives and brought in the staunchly free-trade liberals, collapsing Balfour’s government. Again, this is incredibly, eerily familiar today, down to the Democratic Party splitting into pro-TPP and anti-TPP camps. History really repeats itself.
Excellent post, Gregg! Bravo!
Thank you Arthur!
Hopefully, this is Bernie Sanders’ plan! It’s also important to remember that where tariffs are concerned, the check is written directly to the US Treasury – We, the U.S., get the money upfront. Such a deal!
And those who claim these payments are passed directly to the consumer are doing a disservice. These payments are borne directly by the importer. If the importer raises the price to the consumer then the consumer makes that choice to pay these extra costs themselves. It is completely voluntary. If the consumer chooses not to pay the extra, then the importer can choose to pay it themselves or find no market for their goods. Cost and price are not linked. Price will find it’s point regardless the costs – at which point the choices become utterly psychological… Am I willing to accept this margin? Can I get more? Will I accept less? Either way it is one of the few instances wherein I’m decidedly Pro Choice.
Additionally, tariffs offset our own taxes. Taxes required to pay government services. Why should the importer gain access to our markets – with all that entails – for free? Why should we who work here in the United States, have to pay for all the defense, roads, welfare and other expenses that make our country run and the importer gets a free ride? The whole idea of getting rid of tariffs and quotas has in practice become nothing more than additional welfare to the rich. We need to tax them into paying for the costs they bring upon society and to keep secure and vibrant, the very market they seek access to.