Outsourcing: How America Is Losing the Trade War

Today, Americans agree that the economy is their principal concern. But no one wants to mention the most damaging effect to the economy -- the outsourcing of jobs; the outsourcing of production; the outsourcing of technology; the outsourcing of research; the outsourcing of investments; the outsourcing of the economy. We can't get the presidential candidates to pronounce the word "outsourcing." And the free press is worse. David Leonhardt, in a New York Times Magazine article, faults Obama for not telling "... an effective story about the economy during the campaign." Nor does Leonhardt. His article, entitled "Obamanomics," discusses every effect to the economy but the outsourcing of the economy.

Congress has become accustomed to Corporate America taking care of the economy. Henry Ford developed the most important part of the economy, the middle class, by doubling the minimum wage and instituting health care and retirement benefits. And Ford and other business foundations developed the communities. Enforcement of our trade laws was left to hearings before administrative bodies and Congress allowed treble damages to be awarded to a business that succeeded in enforcing our trade laws. Congress doesn't regulate outsourcing because the economists and business leadership keep telling us the economy may need a little stimulation but it is fundamentally strong. And now, Congress is fearful of stopping outsourcing because Corporate America that contributes to campaigns constantly admonishes "free trade," "protectionism."

After World War II, the strategy in the Cold War was to defeat communism with capitalism. We instituted the Marshall Plan and entered into free trade agreements to open markets, yielding entry into our market. But Japan refused to open its market and set about taking over in international trade with an assault for market share. Japan sold its export at cost or below cost, making up the profit in its closed domestic market. It directed this global assault by financing production with the Ministry of Finance and selecting aim in trade with the Ministry of International Trade and Industry.

Today, as General Motors and Ford struggle, Toyota is No. 1. Other countries followed Japan's strategy of market share, more or less resulting in a trade war. Corporate America and Congress tried to engage, but were thwarted at every turn. Forty years ago, we passed a trade bill to protect our textile industry with a bipartisan majority in the United States Senate, only to have it defeated by President Lyndon Johnson in the House of Representatives. President Johnson joined the big banks, the Trilateral Commission, and the Council on Foreign Relations in a call for free trade, against protectionism. Banks were interested in increasing their profits by developing economies abroad, and President Johnson was determined to defeat communism with capitalism. But back home we were losing jobs and production because we couldn't get into Japan's market. The sale of textiles in Korea was blocked because we had to secure permission from the Korean textile manufacturers. All along we couldn't get the administration to enforce the laws against dumping.

Later, we passed a protectionist trade bill with the help of Corporate America through both Houses of Congress, only to be vetoed by President Jimmy Carter counseling productivity and free trade. At the time, the textile industry was upgrading $2 billion a year and was far and away the most productive of manufacturers. Corporate America sought protection for its investment and production by passing two more trade bills, both to be vetoed by President Ronald Reagan. The National Association of Manufacturers, the American Textile Manufacturers Institute, the United States Chamber of Commerce, all joined with the textile industry in passing another bill to protect America's investment and production through both Houses of Congress, to be vetoed by President George Herbert Walker Bush again warning against protectionism. Our trading partners kept their markets protected and continued to violate free trade agreements. Not receiving protection from either Democratic or Republican presidents, industry began outsourcing. President Clinton's North American Free Trade Agreement with Mexico and Permanent Normal Trade Relations with China turned outsourcing into a hemorrhage. Now under President George W. Bush, little South Carolina has experienced a net loss of 94,500 manufacturing jobs with an unemployment rate of 7%. The nation has lost millions of jobs and important production. And what isn't being outsourced is being bought up with the cheap dollar -- IBM with 500 patents to China; Lucent and 800 Bell Lab patents to France; Westinghouse Nuclear with all of its government nuclear research to Japan; Vodaphone to Germany; Gateway to Taiwan; Bethlehem Steel, that furnished the steel for World War II, to Russia, and now Genentech to Switzerland. Our country is going out of business.

China now engages in this trade war with the supermodel of government-controlled capitalism. It has opened its market, but only on condition. China demands research and technology for Corporate America to produce in China. Twenty years ago, General Motors located the most modern automotive research lab in Shanghai for permission to produce its Buick automobile in China. The best of U. S. technology, Microsoft and Intel, have followed suit. Today, China already has a space program and nuclear program and by this time next year will out-produce the United States of America. China alters the technology, patents it, and Chinese production becomes the best and cheapest in international trade. In a few short years, when China tells Corporate America it doesn't need it anymore, Corporate America will return home unable to produce anything for a profit.

Globalization is nothing more than a trade war -- with the United States AWOL. We refuse to fight; we refuse to compete in globalization; we refuse to protect our economy and standard of living like the plague. Ironically, the United States was founded on protectionism. We obtained a consensus for a Constitution in 1787, but it took four more years to reach a consensus on First Amendment rights of the freedom of speech, religion, assembly and the press. Foremost in the minds of the forefathers in 1787 was manufacture. The Crown had forbidden manufacture in the colonies -- one couldn't even print a Bible. So President George Washington, in his first message to the Congress in 1789, counseled: "A free people should promote such manufactories as tend to render them independent on others for essential, particularly military supplies." And the first bill to pass Congress in history, on July 4, 1789, called for a 50% tariff on numerous articles. We financed and developed the economy of this great nation with protectionism. We didn't pass the income tax until 1913. Today, all in Congress swear by free trade. None other than Teddy Roosevelt exclaimed: "Thank God I'm not a free trader." Edmund Morris, in Theodore Rex, reported that the United States when Teddy Roosevelt was President "found her worth twenty-five billion dollars more than her nearest rival, Great Britain, with a gross national product more than twice that of Germany and Russia."

Few realize the business leadership of America has been outsourced. Corporate America has changed sides and along with the Business Round Table, National Association of Manufacturers and the United States Chamber of Commerce opposes our country competing in globalization. As a "fifth column" in the Trade War, they shout "free trade," "protectionism," to protect Corporate America's record profits from outsourcing. This leads the people and us in politics to think free trade is a sound policy to build the economy. Nonsense! As Cordell Hull said: "It is reciprocal free trade."

Article I, Section 8, of the Constitution, assigns the responsibility for trade to Congress. We've got to get out of the Iraq War and the Afghanistan War and get into the Trade War. First, Congress must organize to do battle by correlating the Special Trade Representative and other entities of trade into a new Department of Trade and Commerce. We don't need any new trade laws; all we need is to enforce the laws on the books. We enforce the trade laws against domestic production with an Assistant Attorney General for anti-trust. Have the same attorney general enforce trade laws governing foreign production. We can abolish the International Trade Commission and take the tax benefits to outsourcing and give them to domestic production. We need a value added tax to remove the disparity (17%) or penalty for the United States in international trade. Every industrialized country has a VAT that's rebated at the time of export. But Corporate America's taxes are not rebated. It will take a year for the IRS and business to organize for a VAT. In the meantime, we can enact a 5% to 10% import surcharge as President Richard Nixon did in 1971. This will stop the hemorrhaging of outsourcing, remove the disparity in trade, and provide the money for the health, infrastructure, energy and deficit problems. The Secretary of commerce is burdened with the duty to prepare a list of materials critical to our national security. We have now some 500 items on the list, some of which we will have to enact quotas or tariffs to produce for our defense. For example, we are getting in a position that we have to depend on China, Japan and India for vital plane and automobile parts. Rolling stock is necessary for our defense. In World War II, Ford produced the tanks and GM produced the B-24s. Activate the Secretary of Commerce's list and put America back to work.

As Lincoln said: "As our case is new, so we must think anew and act anew. We must disenthrall ourselves [from free trade and protectionism and begin trading], and then we can save our country."

Comments

[therealredstateblues]

Lets recap shall we the "benefits" of "free" trade

Unsustainable trade deficits shifting wealth from the US to sometimes not so freindly nations
Record budget deficits contributing to inflation and dollar devaluation
Plant closings and downsizings
Job losses and underemployment
higher demand for fossil fuels and increase costs thereof
accelerated environmental degradation
poor product quality/unsafe products - toys and food are primary examples
increased illegal immigration
erosion of technological and innovative edges
decreased national sovereignity
increased foreign entanglements
decreased national security
increased disparity of wealth
decimated industries and communities
reductions in tax base

[therealredstateblues]

Oops - forgot to add intellectual property theft to the above list

[DuganS1]

Free trade has been in effect in this country since after the second world war and has been supported by every single American President from Truman, Eisenhower, and Kennedy to Carter, Reagan, Clinton, and George W Bush. It has resulted in a massive net increase in jobs in this country as well as a dramatic increase in economic growth. Free trade has also resulted in a massive increase in the number of consumer goods and services and has reduced the cost for such consumer goods substantially, allowing even lower income folks, including those in poverty to afford things like large screen TVs, computers, furniture, and apparel that likely they wouldn't be able to afford otherwise. It has truly been our country's greatest anti-poverty program. And "therealredstateblues", budget deficits have nothing to do with trade. Imports increased dramatically in the late 90s while exports stagnated, and there were large budget surpluses. The poor product quality is also a myth. If anything, foreign competitors in most industries have had superior quality, especially in autos.

[therealredstateblues]

Seriously Dugan - don't you have anything better than your same old tired and easily disputed Heritage/American Enterpise/ Club for Growth (sound like some hair tonic thing)/Cato/ Hamilton talking points?

People on both sides of the politcal spectrum sense there is something terribly wrong with our economy and trade - it simply does not pass the smell test. That is precisely why there is a growing populist backlash against neo-liberalr/neo- conservative supply side free trade free marketeering economics.

The reality is that working people do not largely benefit from it in any meaningful way - and they know it - it is getting harder and harder to obfuscate this reality or distract people from it with social issue diversions. People are much smarter than folks like dugan give them credit - and this is also why you see people like dugan who sound ever more desperate to defend their positions

[therealredstateblues]

Nope poor quality is not a myth - I have laready named off severla products available today that are inferiro quality to their domestically produced predecessors

Budget deficits do have everything to do with trade - dollar devaluation and inflation all tie together

Again like so many times before - increased access to more goods is not a valid measure of "prosperity" Because some past presidents have supoported it (and I would dispute many of them) does not make it right.

Mercedes for example ranks poorly in automtovie quality reporting agencies - the myth of foreign car superitority is just that.

Again in order to reap the maximum benefits of these goods and service we must also produce them ourselves

[therealredstateblues]

I noticed you don't dispute anything else on my list 8-)

[Desmo]

Please tell me, where did you get your degree in economics? Any why do you believe you are so much smarter and more informed that the thousands of PhD economists from the Austrian school. Keep in mind these are scholastic economists, they are not employed by a political party or labor union.

[therealredstateblues]

No relevance to the discussion

And Autrian economists tend to downplay the role of trade and tend to support govt investment in R&D and infrastrucutre a

Or have you forgotten about Schrumpeter?

[Torus34]

And just how, Good Sir, do you intend to go about getting any of your proposals done, considering the current polarization of Congress and the general unwillingness of its members to do anything which might jeopardize 'donations'?

[ouroborous]

Jesus, this is brilliant.

Why aren't there more intelligent, well read politicians like Senator Hollings?

Free trade is a myth, since it's only one way. And America is bleeding to death financially as a result. We can staunch the bloodflow, but we simply cannot wait to act.

[Herrington]

I have been an opponent of globalization since before it was called such. While I agreed with the Marshal plan, it was not long before it was appropriated by business to exploit cheaper labor. And it has been curious and remains strange to me that business has never seemed to realize that cheap labor does not increase profits in the long run. In fact, cheap labor is the recipe for lower profits, and indeed, lower valuations for currency as a currency is supported not by wealth but by an economy in which the currency is traded in high frequency.

But then I am an independent sort of cus and do not like being dependent. I like to provide for my own needs. If I can't do it all, and I can't, I must depend others. When I think that I will not be able to buy a light bulb or even the energy to power it if some political upheaval in Pakistan over how women are allowed to dress will cut me off from the source, I consider that source UNRELIABLE.

And when I consider that our highest technology, the stuff that the U.S.S.R. could not keep up with when competing with America, is now outsoruced to India and China, I shudder to think of what a state we would be in if China decided they were in charge of the world. And that prospect seems to me to be about a decade, or less, away.

[DuganS1]

At one point Japan was considered to be a country of "cheap labor" . However, in time they were producing things like cars, TVs, stereos, walkmans, and video consoles and games that far exceeded American competitors in quality, and those products were welcomed with a tremendous amount of consumer demand and enthusiasm in the United States. So in that respect, a country that was once considered merely a cheap source of labor, became a very reliable trading partner long term. I wonder how many hundreds of thousands of Japanese tourists come to the US each year, and how many buy consumer goods from our retailers here or American products abroad? I find it unconceivable that any economist could say the United States hasn't benefitted from five decades of trade with Japan.

[therealredstateblues]

Japan is generally a good trading partner now that we are on a more level playing field in terms of living stds and wages.

However, with that said Japan still has many barriers to entry of US goods and services that we do not in term enforce against them - this again is not free or fair trade.

And again quality is subjective - difficult to make such a braod brush statment in terms of japanses quality

Nissan changed its name from Datsun for example to distance itself fromn the poor quality image that they got from selling rust buckets

[therealredstateblues]

Comprative advantage could actually work with Japan if A they removed barriors to the entry of US goods, or B, US raised their level of protection from japanses goods

[genseric13]

I agree with the good senator here, 100%. Unfortunately, we are also being killed by insourcing. American engineers have been crucified by these H1B people they are bringing in. The law doesn't protect the engineers because many jobs are working for contractors who place you in the engineering firms. You have no protection because you're not a direct hire. A lot of guys on unemployment while foreigners take their jobs; it's an absurd situation.

[DuganS1]

We need more foreign engineers and programmers let into the country by H1B visas. It is vital to do this as not to continue to lose our intellectual and technological advantages that continues to whittle away because of a lack of qualified American professionals in this area. Unemployment continues to be almost non-existent in these fields and there are significant shortages of talent in some as well. It is absurd that many of these folks go to American Universities but are not allowed to work here. They end up working for foreign companies in foreign countries instead. It is a shame.

[therealredstateblues]

This is just a complete load of BS and you know it

There is NO shortage of US technical workers, and our schools continue to crank out more grads than there are STEM postions for

[therealredstateblues]

There are sure an awful lot of un and underemployed engineers and IT people herein the industrial midwest

[Herrington]

Dugan, I was a founder at Cromemco, Visicorp and a OS and networking software engineer at Apple, inventing there, as it were, the first virtual networks in the design and release of AppleTalk Phase 2. I wrote one of the first Word Processors and worked on GUI and real time multitasking operating systems before Bill Gates knew how to pronounce bit slice architecture. I am telling you this, you are full of it.

The only shortage of engineers in this country is a shortage of engineers that are willing to work for the same wage as a Burger King shift manager.

American Universities are closing tech schools due to lack of demand because the students have correctly assessed the job market for technology skills.

Claiming a shortage of engineering and technical talent is a bald faced lie to the purpose of lower the wage scale for same.

[josephjsalas]

"We've largely swept away the blocks and barriers that once divided whole continents. But as borders become more open, and the flow of information, technology, money, trade and people across the borders are larger and more rapid, the line between domestic and foreign policy continues to blur."
This is from a Bill Clinton interview in '97. It can be found by browsing up "Bill Clinton on
Interdependence". And let's add a couple of more MIA terms. Law (vs. foreign policy) and
Independence (vs. Interdependence). Slick Willie emphasized the need for Interdependence last night at the DNC. And in the end, NAFTA,APEC and so on are designed to counter our
Independence, yet we keep acting as though all of this is either some sort of accident or
a natural act of Mother Wall Street.

[mulegino]

Globalization and free trade are practical economics and a religious cult , all rolled into one big warm fuzzy and deadly mass by the MSM cult of happy talk economics. "All economic ills", goes this MSM refrain, "are the result of evil, head in the sand protectionism, and economic dirigism. If we would only let (the god or gods of-judiciously ommited) the free market work, then the achievers and the entrepreuners would, eventually, be able to prosper to the point that their wealth would literally create a chain reaction, and then we could reach the utopia of a flat world and an Amway universe."
Unrestrained outsourcing, free trade and globalization have been a nightmare for the American middle class, and a death knell for America's lower working classes. Anybody who doubts this should take a look at the thousands of ghost towns in the Rust Belt-in Buffalo, Toledo, Youngstown, Flint, Pontica, Cleveland...mile after mile of abandoned factories and warehouses, charming ethnic neighborhoods totally wiped out, replaced by third world slums, with rows and rows of previously lovely houses replaced by abandoned fire traps and crack houses.
To paraphrase Tacitus' words of 2000 years ago- "They have created a desert, and they call it-prosperity."

[therealredstateblues]

Great post mulegino - right on the money

[darthdarcy]

A great and important post Senator, when a nation loses it's ability to manufacture it is no longer great...!

What ever happened to the concept of national self reliance..!

I fear our days as a great and prosperous nation and numbered since they is no political imperative in either party to address this issue and reverse this bleeding out of so much of what was our comparative advantage in so many fields...

This included so many dual use and direct military technologies it is only a matter of time for these technologies to come back and bite us..!

Besides the Tri-Lateral Commission and Council on Foreign Relations now also Goldman Sachs appears to be calling the shots in so many arenas of our trade, energy and over all economic policies..and this for their own benefit..exclusively..!

I hope this article gets great exposure and you also get air time on even more of our media..for this important message..!

There's another article titled Obamanomics at Counterpunch.org by Jonathon Feldman it addresses much of this in great detail..

http://www.counterpunch.org/feldman08232008.html

[Lane Hudson - Huffpost Blogger]

Senator:

It's great to see you on HuffPost. You have had an enormous influence on my political involvement. After all, I worked for you from the age of 18 until I was nearly 25!

Please continue to be a part of the political dialog. There are precious few politicians left who have the long political and policy memory that you do. Your experience is valuable to us as we look to the future.

Best-
Lane

[BigTex4Obama]

Watch Fritz on PBS.org being interviewed by Bill Moyers. Pretty much the same things he said in the interview. Mr. Hollings is on point. Both parties need to quit the 24/7 money grab and get to the business of turning America back into producers from just simply consumers....

[Jon Raymond - Huffpost Blogger]

I worked at IndyMac Bank for two years well before they crumbled. But I know that outsourcing was part of the problem there, that, and the cronyism that went with it. One of the things that didn't make sense was that they needed a liaison, an Indian manager, stationed here to communicate with the people over there in India, which meant an additional salaried employee.

There was also a transition period during which they have to pay India along with us. The outsouce project cost around three million. the ROI wouldn't have happened for quite a while, a few years I think. Then Indian workers began demanding higher salaries.

The process at IndyMac, in my department was also very convoluted in terms of how we had to push projects through numerous micro manager people, a case of too many Indians and not enough chiefs.

There was a big communication problem. If you can understand the reluctance of managers in companies to frown on virtual offices, letting people work from home, imagine the situation where the workers are 12,000 miles away.

See more on my post: http://www.huffingtonpost.com/jon-raymond/the-indymac-bank-seizure_b_112749.html

[steamboat]

Are you sending the senior US Senator from NY a Christmas card this year? You do know what I'm talking about.

[jaynevada]

I looked at the earlier article you had posted about IndyMac, no mention at all about India.

Now suddenly you decide that outsourcing to India was the problem. I guess the bandwagon was too tempting not to jump on to.

Since you don't have any expertise in operations, management etc., I think you are hardly qualified to comment on the ROI of outsourcing. The ROI is hugely positive, that is the reason why there is a stampede to outsource services to India. If something is not working and I yell at customer service located in India, they respond. In the US they simply hang up.

[Jon Raymond - Huffpost Blogger]

It doesn't take an expert to know what IndyMac's ROI is at this point.Think hard about that for a minute.

Yeah I didn't mention they had outsourced. it's a detail that wasn't relevant to the fed takeover. But in forensic analysis of what happened, it's something to consider.

You might try to post more intelligent positive criticism, instead of demeaning personal attacks. The issue has nothing to do with me. i just thought my experience provided some insight and evidence against outsourcing.

Obviously outsourcing didn't save IndyMac and just may have aided it's fall. Like i said, it was a big investment with a long range payoff that didn't make sense to me. Yeah, I'm not an expert on ROI unlike the experts than used to run IndyMac Bank, the poster boy of modern banking success.

[Javani]

"His article, entitled "Obamanomics," discusses every effect to the economy but the outsourcing of the economy."

McCain's campaign talks nothing about it either. Obama and some other Democrat leaders do, but obliquely. They will do nothing to stop outsourcing, Obama directly rebuffs questions, or invokes the "green economy" jobs, "jobs that cannot be outsourced." What are these jobs that cannot be outsourced? Maintenance of solar panels and windmills.

I am not exaggerating.

Pelosi, others, have gushingly invoked the same.

When a National Democrat is asked about creating jobs, it is the "green economy" that is the prescription.

Just to repeat.

Thank you very much Senator Hollins for your smart and informed essay.

[Aloisius]

Of course they did. Their plan is quite simple. They want to implement protectionism through the backdoor. The green economy revolves around things with the lowest carbon footprint. Shipping goods from China is environmentally irresponsible. Of course we're going to have to tax the heck out of the imports so that people truly know how much of an environmental impact the products have, but obviously it isn't for protectionism! It is because we care about the planet!

Expect Local to be pushed not because of Nationalism, but because of Environmentalism. The effect will be the same though. We'll protect local industries and invest in local products.

[therealredstateblues]

Obama having free marketeers and rubinites like Goolsbee and Furman on his economic team should be cause for concern for any labor leaning democrat

[max]

i watch people from china and india come to my country, sell their products, and take the money out of the country. I have to compete with this as an American living in America.

[dkm]

I'm not clear as to what Mr. Hollings is talking about. We have been more than predatory in our insistence that other countries take our exports, but that their agricultural exports would have to compete with our subsidized agriculture. Witness Bush's attempt to open the Brazilian market to our manufactured items but to keep our own orange juice industry protected by import duties. Or the same thing that happened with the free trade agreement with Australia, but their sugar exports have to pay import duties to protect our own sugar industry.

Also, we can export our own agricultural products, cotton, milk, corn, soy, wheat, etc. because of agriculture subsidies, but other nations' farmers can't compete because their countries don't subsidize and the treaties prevent them from implementing import duties. It isn't an accident or a coincidence that the big surge in undocumented immigration from Mexico began at the time that NAFTA removed the barriers to American agriculture products entering Mexico and driving the small farmers out of business.

[aofh]

Here, here.

The problem with "free trade" is not so much that we are losing jobs but that it hurts the little guy wherever he lives. Free trade is about making profits, and profits come before everything else. You do whatever it takes to pad the bottom line.

It really isn't ironic that the USA was formed on protectionism. Countries and peoples don't prosper unless they can generate self-sustaining markets. Every first world country has achieved that status because of protectionist policies. Every third-world country is such because they haven't been able to, and capitalist interest ensures that they won't by undercutting the cost of local production. So long as "self-interest" remains the mantra in capitalist circles, we will continue to sink toward third-world status. Passing laws is not enough; buy America is not enough. We must reject the capitalist notion that cost/money is the only legitimate way to value things.

[cam]

The key to normalizing trade between nations is to take a clear and dispassionate look at the free market myth, to acknowledget the disasterous consequences that have ensued everywhere social structures have been dismantled and sold to proivate interests for much less than their true value (Naomi Klein does it well in her book, "The Shock Doctrine").

As long as profit is the only measure, private capital will exploit social investment. There is a great risk that protectionism will simply secure and enternch that private capital. If we dismantle the free market myth we can start rebuilding vital social institutions like universal health care, education, and a citizen militia.

[Danny]

cam -- I agree with your post but don't get this part "There is a great risk that protectionism will simply secure and entrench that private capital". What other defense do we have besides protectionism and tariffs to protect our no-longer existing manufacturing jobs? Ah yes, we manufacture weapons, lots of them. Hence "war presidents".

[cam]

Protectionism is one of those lawyerly word that changes meaning with context. It can protect an economy from unfair competition based on exploitation of cheap labor, or it can be used to shield decrepit systems from fair competition. Essentially a case can be made to impose tariffs on almost anything, for venal reasons can easily be cloaked with plausibly public-spirited rationales.

Granted, many industries in the US have been demolished by low income workers in other countries, and perhaps the playing field could have been leveled somewhat by tariffs, but shielding the US from other countries is not going to help it compete with them in the long run.

In my opinion, any productive economy must be fundamentally directed at manufacturing " this talk of a services and technology-oriented economy is as nonsensical as the concept of a consumer-based economy (what is being consumed? what does the services and technology support?). Ultimately we must discover a way to pay a decent wage and offer decent health and education or consign ourselves to a world very few of us could afford to live in. Protectionism can help, but it is a double-edged sword that must be wielded very carefully or it becomes a way a few wealthy people contain and exploit an entire populous by avoiding the innovation and investment that is required to stay competitive.