Monday, May 9, 2011

Look at detailed facts, not worn-out over-used phrases

In my previous blog post, I advocated immediate application of a 25% tariff on manufactured goods from China and from other countries with which we have a substantial negative balance of trade.

I received from Mr. X. a negative response to my post.  The gentleman says "a tariff would destroy USA manufacturing.  Import taxes will cause global depression."

The idea that tariffs have caused or will cause global depression has been invoked on innumerable occasions for nearly a hundred years.  It is one of  many phrases that through constant repetition have come to be believed and applied without analysis of the individual case.

My primary interest is not "global".  The United States of America has a huge budget deficit problem and a huge unemployment problem.  My interest is to solve these closely inter-related problems.  I believe that the only way to solve these problems is to return to America the millions of manufacturing jobs that were transferred to foreign countries over the last 50 years.

Mr. X. says that if we apply tariffs we will destroy USA manufacturing and cause a global depression.

But right now there are no tariffs, and America is already in a very bad situation, with a large part of its manufacturing sector gone.  Proof of how much of our manufacturing sector has been lost is the fact that we are sending out to foreign countries on a net basis more than 500 billion dollars per year.  This money pays those countries to do our manufacturing for us.  Our country is bleeding, hemorrhaging, 500 billion dollars per year.  This amount is real physical money going out of our country every year, never to be seen again.  This is wealth we cannot afford to lose.

 In addition, China has announced an aggressive policy consisting of two objectives:

+  By 2020, China will take over manufacture of items that are included in our current moderate exports to China.  China will then manufacture the items for its domestic needs and also for the world market.  American manufacturers will see their business activity evaporate and probably in many cases will shut down.

+  By 2050, China will be completely self-sufficient in all manufactured goods including complex items such as airliners, railroad systems, and communication systems.

I am being very careful not to exaggerate here.  I think it is fair to say that China has set up the objective of complete destruction of the American manufacturing sector, and thereby complete destruction of the American economy.  So if we continue as advocated by Mr. X. with a policy of no tariffs, America will certainly be in a depression.  Maybe there won't be a global depression, but America will be in a depression and America is my concern.

China has refused repeated requests to allow its currency to float freely to realistic market levels.  The U.S. negative balance of trade with China is about half of the above total, i.e., 250 billion dollars per year.  China is openly planning the destruction of the American economy, using our money to help it meet this goal.  The negative balance of trade of 250 billion dollars per year is large enough that a neutral observer would describe the situation as "exploitation" rather than "trade" or "free trade".  How many pathological aspects do there have to be in the relationship between America and China before America is free to withdraw from trade agreements and begin to act in its own interest?

My proposal of an immediate 25% tariff on imported goods from China and other countries that don't buy from us is a reasonable and mild action in view of the issues summarized above.  The tariff would rise to 50% in 2012 and 100% in 2013.  American manufacturers in their own interest should stop shipping to China, as the goods shipped are being used to support reverse-engineering efforts.

The best thing that could happen to America is that purchases from China, and sales to China, would cease.  Never has any country entered into such a dangerous and self-destructive economic relationship as we have with China. 

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