How did America end up in its present trade pickle? NAFTA? No way. The WTO? I wish. To understand our present predicament, you need to go back much further than that.
In retrospect, America's decisive wrong turn on trade was probably John F. Kennedy's Trade Expansion Act of 1962.
Quantitatively, the so-called Kennedy Round of tariff cuts was large enough to be noticed, but not earth-shaking: as this legislation was phased in, our average duty on dutiable imports fell from 14.3 percent in 1967 to 9.9 percent in 1972.
But this was one of history's small yet decisive turning points, occurring as it did at the same moment that America's trading partners were getting into high gear economically and the 1944-71 Bretton Woods system of fixed exchange rates was beginning to falter.
And tariff cuts were exceptionally steep on high technology goods, increasing their impact. It mattered that we were letting Japan, for example, even further into our market for serious manufactured goods like cars and electronics.
Furthermore, the Trade Expansion Act should be evaluated not simply in terms of its before and after tariff levels, but contrasted with the alternative of turning back from free trade, which is what we should have done.
There were certainly warnings at the time. The famous liberal economist John Kenneth Galbraith bluntly told President Johnson in 1964,
If we are screwed on tariffs, this will have an enduringly adverse effect on the balance of payments. It will be a serious problem for years to come.
Prescient.
And, lo and behold, the first serious trade-related cracks in the American economy began to appear in the late 1960s. Black-and-white television production left for Japan. So did cameras, transistor radios, and toys.
Our trade went into deficit in 1971. We have not run a surplus since 1975.
There has, of course, been a simmering revolt against free trade ever since. Organized labor, which had actually supported the Kennedy tariff cuts when proposed in 1962, turned against free trade by the end of the decade.
In 1968, Senators Ernest Hollings (D-SC) and Norris Cotton (R-NH) managed to pass a protectionist trade bill in the Senate with 68 votes. President Johnson had it killed by House Ways and Means Committee chairman Wilbur Mills. 1969 saw the first consideration, by Commerce Secretary Maurice Stans, of creating an American agency to coordinate industrial policy. Nixon abandoned the effort for lack of Congressional support.
In 1971, a trade deficit of one-half of one percent of GDP (about a tenth of today's level) was enough to frighten Nixon into imposing a temporary 10 percent surcharge tariff on all dutiable goods. In 1972, the AFL-CIO endorsed the Burke-Hartke bill, which would have imposed quotas on imports in threatened industries and restricted the export of capital by multinational corporations.
But free trade survived all these challenges. Fundamentally, protectionist forces in Congress fumbled the ball. In the words of one scholar describing the failure of the big protectionist push in the last days of the Nixon administration:
Even in Congress, protectionist industries failed to utilize their potential resources. During negotiations over general trade bills in Congress, protectionists exerted weak influence because they lacked an umbrella association to represent them. Instead, protectionists were divided along industrial lines, each promoting its own distinct objectives....The logic of selective protectionism did not encourage industries to cooperate with each other, since the chances for congressional support increased if protectionist bills were narrowly constructed. In addition, protectionist industries did not cooperate with organized labor. (Nitsan Chorev, Remaking U.S. Trade Policy)
The failure of this protectionist effort carries important lessons for tactical thinking about free trade today. Sen. Hollings tried again under President Carter, but Carter preferred the Cold War priority of free trade. Ronald Reagan vetoed two protectionist trade bills, in 1985 and 1988. George H.W. Bush vetoed one, in 1990.
It is not yet too late to turn back from our disastrous free trade experiment, but the longer we wait, the higher the cost will be.
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It would have two immediate benefits: The funds raised by the security tariff would be used to improve security at our ports; thereby enhancing our national security, and it would slow the flood of cheap imports into our country.
It would be nondiscriminatory—all goods would be taxed, regardless of the country of origin. We have a right to be secure in our borders, and this tariff would fund our efforts to do so.
-Company A has 1 American worker earning $40 an hour to produce a widget for $50.
-Company B has 1 foreign slave earning 50 cents an hour to produce a widget for $49.95. Company B makes a big profit.
Company A goes out of business.
This is why the rich get richer, the Americans are getting poorer, and China is become a theater wide military threat.
Now I don't have to make widgets and can write code for my software.
A massive trade deficit occurs, forcing the FED to print more dollars less we are forced to barter in Euros and Pesos in 2 years with a 700 billion DOLLAR trade deficit per year. Now the world is afloat in dollars devaluing the currency, making imports more expensive. So now the widget costs $100.
The raw materials that went into making the widget has gone up too, because America imports the raw materials. So even if an American company tries to manufacture the widget it will now be higher then the original price of $50.
Any American company trying to manufacture that widget against the new $100 import price will find the priced temporarily reduced by dumping. The foreign company won't even have to dump, all they have to do is exist, or threaten to dump, nobody is going to invest in American labor when there is foreign slaves to be taken advantage of.
So here's what you Free Traders accomplished:
-Price inflation
-Lower standard of living for Americans
-Bigger National debt from reduced wages that can be taxed
-Reduced capacity for the US to wage war, without WW2 manufacturing capabilities.
-A modern Military Industrial Complex for China and other unfriendly nations.
On manufacturing side, there are tax loopholes/ subsidies for politically connected, including defense related, sectors. Bail-out is blatant bank subsidy; whose crash was not foreign competition or currency manipulation.
Management priorities are wrong, driven by mantra of paid consultants and spin d'jour. Look at buy-outs, merger-and-acquisitions, hostile takeovers, other shenanigans; including golden parachutes, stock options, stock manipulations, and other waste of financial resources, including human time and talent.
Tech bubble burst after hype and speculation. We thought we saw the last with Enron, Worldcom and Tyco. Now it's AIG, big banks and the housing sector. None of these debacles was due to foreign competition. Where is the next rotten apple / sector?
Workers are concerned about their company and jobs when we're about to loose it. Till then, we expend significant portion of work-time analyzing and quarterbacking the pro- or college-sporting event of the day / weekend; or our next social event. We have money problems; till its time to talk about vacation or spending on our adult toy.
We should look at ourselves and "Crony Capitalism" for our miseries and failures. Manufacturers complain about lack of skilled labor force impeding their growth.
the US has no shortage of skilled, educated,semi skilled workers, there is a shortage of workers willing to work for third world wages however
-- Turkish proverb
Furthermore, if you prohibit imports now, those countries will start redeeming US Treasuries to replace the revenue.
The best approach is to allow our companies to be more competitive, more innovative, without subsidies, less burdened by taxes, regulations and quotas. More free companies that can thrive or fail on the basis of their value to the customer.
So we still get the lowest price! good for US yet again.
You think China has a monopoly on world steel production?
Twenty years ago, this was not so much the case. Before corporations became as commonly global as they are now - it was the liberals and progressives who were champions of free trade as they saw themselves part of the 'global community' and the right wing corporate interests were against as they were concerned about competing foreign businesses.
it is the political class that doesn't get it, and the business class that benefits from it - and unfortunately they hold all the cards
this is a truly bi - or really non partisan issue
As Mr Fletcher points out in his book, very large trade deficits are unsustainable because a country can only pay for them by borrowing or selling off assets. Since 1971 we've done plenty of both. This is in addition to the massive job loss. The federal government needs to wake up and take note of Nixon's concerns at a much lower trade deficit.
For better or Worse Ross Perot made Clinton happen
http://www.cnn.com/ALLPOLITICS/1997/04/28/time/gop.china/
But, nice try on blaming Clinton.
http://www.commondreams.org/newswire/2011/03/15-14
Commerce Group CAFTA Ruling Highlights Threat of Foreign Investor Rules Al so Included in Korea FTA | Common Dreams
"WASHINGTON - March 15 - That El Salvador must pay more than $800,000 in legal fees to defend itself against a frivolous corporate challenge of its environmental laws under the Central America Free Trade Agreement (CAFTA) provides a glaring example of why having the same provisions in the Korea trade pact now before Congress is so dangerous. In fact, there are nearly $9.1 billion in claims in the 14 known investor-state cases outstanding under NAFTA-style deals. None of them relate to traditional trade concerns; all of them relate to environmental, public health and transportation policy.
[snip]
There are currently 85 Korean-owned multinational companies with about 270 corporate affiliates in the United States that would be newly empowered under the Korea FTA to challenge U.S. policies in foreign tribunals if the pact goes into effect. There are also hundreds of U.S. firms operating in Korea that could use the same system to attack Korean public interest laws. View a map of these here."
http://www.citizen.org/Page.aspx?pid=3595
Take Action to STOP the Korea Trade Deal
Another travesty of the balance of trade fiasco is that this failed economic policy is still being taught in schools as a successful theory while the effects is USA students will have less opportunity when they graduate because of it.
Obama promised to renegotiate all trade agreements when he campaigned and to date he has done squat. The unbalance of trade is at the highest ever and the GOP isn't doing anything about the problem of trade imbalances either. The only answer is to return manufacturing jobs with liviable wages so people can afford to pay taxes instead of having the government provide food stamps, rent subsidies, medical insurance,,unemployment and etc etc social programs for more and more people falling out of middle class into povery and in many cases, jails.
"Bush lied, people died."
Obama lied and millions of people become poor.
Stop voting for Democrats and Republicans, lets form a 3rd party to represent Americans, not foreign oligarchies.
He is not the only phoney in Congress, he is in the company of phonies like the GOP that I changed my last vote to because they promised they would fix the job shortage and to date have done squat also.
If the GOP wants to reduce deficit spending, all they have to do is limit imports to the top 10 so called trade partners to be equal to our exports dollars, That amounts to a total of over 500 billion of USA dollars being reinvested in their countries instead of the USA like Milton Friedman promised.
That would be a lot more effective in reducing the federal deficit because that 500 billion dollars would be spent in the USA so people could work in manufacturing and earn a livable wage so they could pay taxes instead of getting 50 billion in unemployment dollars charged to the Fedral Deficit. Then they could pay their own health insurance, buy food instead of recieve food stamps, eliminate the need for rent subsidies and billions of other dollars spent on social programs for poverty, all being charged to the Federal Deficit. In other words, reduce the Federal Deficit by creating jobs instead of continuing to allow the jobs and dollars to be outsourced.