THE BLOG
06/04/2010 03:43 pm ET | Updated May 25, 2011

Our Only Hope

As a long-time admirer of Warren Buffett, I held up leaving for work earlier this week to hear him on Morning Joe. He concluded his optimism on the economy by exclaiming: "America works!" I'm sure he meant the people of America work, which makes the country work. But Buffett pinpoints our trouble -- America's money works in China which causes America's people unable to find work in America. Corporate America off-shores work or its production and jobs like gangbusters to China. And today's report of an anemic production of 41,000 jobs in the private sector last month proves the point.

The recession began in December 2007. Now, after trillions of dollars of stimulation in the past two and a half years, the private sector is only creating 41,000 jobs a month. Something else is wrong. And what's wrong with the economy is that Corporate America off-shores its jobs as fast as it can. Three years ago, Princeton economist Alan Blinder, estimated that over ten years we would be losing on an average of three to four million jobs a year to off-shoring. But Blinder is the only economist who mentions the problem of losing our economy. Paul Krugman and the rest of the economists keep calling for stimulation. And stimulation is spent. President George W. Bush and the Federal Reserve stimulated the economy $7.5 trillion in eight years. Household debt increased $7 trillion during the same eight years so that by the time President Obama stimulated the economy had been stimulated $14.5 trillion and we were losing 779,000 jobs a month. President Obama stimulated the economy last year $1 trillion, $885 billion, and, with four months left in this fiscal year, we have already borrowed and stimulated the economy $1 trillion, $148 billion (6/4/10).

We keep bailing the economy boat with stimulation and fail to plug the off-shore hole in the bottom. Plugging the off-shore hole is kept "top secret." Wall Street, Goldman Sachs and the financial houses, the big banks, and now Corporate America, oppose plugging this off-shore hole because that would stop the guaranteed and lucrative profits in China. If the President and Congress changed our tax laws and enforced our trade laws to make it profitable to produce in the United States, the incentive to off-shore would be destroyed.

For example, the President and Congress could eliminate the corporate tax and replace it with a 2% VAT by Labor Day and receive more revenues. Corporate America producing in China has a 17% VAT rebated at export and pays no tax on its imports to the United States, whereas, Corporate America producing in the United States pays an average of 27% corporate tax plus a 17% VAT when its export reaches Hong Kong, for a total of 44%. The 2% VAT would eliminate the 44% incentive to off-shore to China. Producing in China, Corporate America receives only 49% of the profit, but that 49% is guaranteed with no labor problems, health or legacy costs, no safety or environmental costs. The CEO back on Sixth Avenue in New York can have a quality control manager in China, and checking on production daily with the internet, the CEO has time for a round of golf. The President and Congress are kept quiet about the off-shoring with campaign contributions.

President Obama has no experience whatever in trade or globalization. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Since everything can be produced everywhere, the economist would have us believe that all the United States can do is hunker down and equalize our labor, pay, safety and environmental regulations, to meet the global competition. This is the race to the bottom, and, unfortunately, the labor leadership goes along by continually calling for more free trade agreements to protect labor and the environment. We ought to learn by now that the free trade agreements only protect Corporate America's investment. Labor hunkers down with pay cuts and downsizing as if nothing can be done. All we need to do is change our tax laws and enforce our trade laws to protect domestic production and the environment.

I have worked with corporate America to enforce our trade laws that protect domestic production, jobs, safety, and the environment. Our efforts in the Congress passed by both Houses were vetoed by both Republican and Democratic presidents at the behest of the Trilateral Commission and the Council on Foreign Relations, both run by the big banks making a majority of their money outside of the United States. But after NAFTA with Mexico and China being admitted to the World Trade Organization, corporate America gave up its efforts in the Courts and Congress to enforce our trade laws and joined China in the trade war. Ironically, corporate America is making communism work.

After World War II, Japan started a trade war for market share by closing its market, subsidizing its manufacture, selling its export at cost, and making up the profit in the closed market. This put General Motors in bankruptcy and Toyota #1. China enlarged Japan's assault by opening its market for foreign technology and expertise, cutting the cost of its export with minimum labor, safety and environmental concerns. China developed the trade war into a war not just for trade but the entire economy -- investment, research, technology, development, production, jobs -- the economy. Today all nations fight fiercely in globalization. Japan, Korea, Taiwan, Germany, France, etc., all have invaded the United States economy using their VAT tax advantage. For example, Germany, with its 19% VAT, recently announced the production of windmills in Charleston, S. C. With parts produced in Germany and exported at a 3% cost to Charleston, German production in the United States enjoys a 16% advantage over domestic production. Highballing the cost of producing parts in Germany, little income tax is paid for production of its windmills in the United States. Germany has established a beachhead to take over the energy jobs that the President and Congress keep saying we ought to develop.

We have lost and are losing more jobs to off-shoring than the recession. By the time President Bush stimulated, South Carolina had lost its textile industry, North Carolina its furniture industry, Michigan its automobile industry, Intel had left Silicone Valley for China, and Bill Gates had moved Microsoft research to China. But the President only moves to save jobs from the recession. And President Obama is our only hope. Under the Constitution, tax and trade measures must originate in the House of Representatives. No House member will introduce a tax or trade measure unless it's sanctioned by the White House. Moreover, Republican and Democratic House members are more concerned with campaign contributions rather than the economy. The President can plug the off-shoring hole and save the economy by the following:

  1. Like President Nixon in 1971, President Obama should institute a 10% surcharge on imports to stop the deficits in the balance of trade. This would put the world on notice that the United States had come in from the cold in the trade war and would now compete in globalization.
  2. Call for the Congress to eliminate the corporate tax and replace it with a 2% VAT.
  3. Section 201 of our trade laws calls on the President to move with tariffs or import quotas when America production is endangered. Instead of enforcing Section 201, we waited for General Motors to go bankrupt, needing a bailout. Move with tariffs or import quotas on any endangered production.
  4. We've got the troops, but our defense is endangered because of our reliance on foreign production for materiel and equipment to fight. The War Production Act of 1950 should be enforced to provide for the materiel and equipment necessary to our national defense. This would create millions of jobs.

If the President moves to create jobs by changing our tax laws or enforcing our trade laws, coming down on his head in opposition will be Wall Street, Corporate America and its entities, the Business Roundtable and the United States Chamber of Commerce, crying: "Free trade," "protectionism," "don't start a trade war." Wall Street and Corporate America want to keep profits in China flowing; keep the stock market up.

But President Obama is our only hope.