California Free Press

Off the Top of My Head

Bidenomics: The US Finally Gets an Industrial Policy

by John Lawrence

The Republican policy that the government should be hands off regarding the economy is out the window. Trickle down is a failed policy. Bidenomics gets the government involved in crucial areas of the economy. The export of jobs to parts of the world where labor is cheapest is replaced with a policy of creating jobs within the US. Deregulation is replaced with regulations to protect the environment and combat climate change. The traditional Democratic alliance with unions is back in vogue. Bidenomics is all about building the economy from the middle out and the bottom up instead of from the top down. Bidenomics is about shaping the economy in a way that is propitious for the middle class and the environment. Infrastructure building is more important than accelerating the consumer economy. Putting our house in order is more important than giving away fattening goodies to consumers. People are being put to work doing jobs which actually make US society a better place instead of encouraging jobs in frivolous pursuits. This is not necessarily what the American consumer wants.The American consumer wants more money in their pockets so they can buy more gadgets and aspire to making millions as a pro athlete or an entertainer. They don't actually want to work at the good jobs Biden is creating building infrastructure or making semiconductors. CNN reported:

Trickle-down economics, which was at the heart of President Ronald Reagan’s policies and continues to be the guiding light of Republican lawmakers, typically revolves around tax cuts for the wealthy and large companies. Supporters say the benefits flow down to middle-class and working Americans, boosting economic growth more broadly. But many experts dispute the effectiveness of this practice at lifting all boats.

Biden argues that supply-side, trickle-down economics has cost jobs and hollowed out the middle class. He has long focused on that group of Americans, serving as chair of the Middle Class Task Force when he was vice president in the Obama administration.

“Folks, let me say it as clearly as I can: (The) trickle-down approach failed the middle class and failed America,” said Biden.

To fund Bidenomics, the president once again calls for ensuring the wealthy and large corporations pay their fair share of taxes.

The problem is that now that the American people have had  a good taste of Democratic programs, they want more: Republican tax cuts. They want their cake and eat it too. They know that Republicans will have no problem with the national deficits and debts as long as they come in the form of tax cuts. So from the American consumer's point of view they have got about all they can expect to get out of Bidenomics. Now they want a tax break to boot.

The Biden administration has focused on infrastructure, clean energy and semiconductors, Lael Brainard, director of the National Economic Council, said. The Infrastructure Investment and Jobs Act, Inflation Reduction Act, and CHIPS Act each include direct funding and tax incentives for public and private manufacturing construction. Biden outlined how states will receive more than $42 billion in federal funding for high-speed internet service, which was part of the 2021 infrastructure law. It is aimed at bringing connectivity to more Americans and closing the digital divide. The administration is comparing it to President Franklin Delano Roosevelt’s Rural Electrification Act, which brought electricity to homes throughout the country. And 35,000 new projects – including roads, bridges and ports – have received funding through the bipartisan infrastructure law, the White House said.

E.J. Dionne Jr. said in the Washington Post:

Bidenomics has also gone global. One indicator is the exceptional and ongoing debate Sullivan’s speech provoked in proposing a “new consensus” to replace “a set of ideas that championed tax cutting and deregulation, privatization over public action and trade liberalization as an end in itself.” The old formulas, Sullivan argued, not only failed to address new problems; they didn’t work on their own terms.

“In the name of oversimplified market efficiency,” he said, “entire supply chains of strategic goods, along with the industries and jobs that made them, moved overseas.” The idea that freer trade “would help America export goods, not jobs and capacity, was a promise made but not kept.” He stressed the need for “a modern American industrial strategy” and the benefits of “moving beyond traditional trade deals to innovative new international economic partnerships.”

Can the dumbed down and self seeking American people even understand much less appreciate the great things that Bidenomics has brought forth? Biden has changed the narrative on taxes by repeating ad nauseum that he wouldn't raise taxes on anyone making less than $400,000 a year. Big idea: raising taxes doesn't mean raising taxes on everyone and a tax break does nor mean lowering taxes on everyone. The meme about raising taxes which Republicans have endeavored to attribute to Democrats ("tax and spend") and tax breaks which Republicans have endeavored to attribute to themselves has been change by Biden. "Tax the rich" has become the Democrats' motto thanks to Bernie Sanders and AOC.The immense inequality that Reaganomics has resulted in is being addressed by Bidenomics. The American people say "Ho Hum". They are more interested in spectator sports which is exemplified by the fact that news programs on TV are routinely bounced in favor of sports events. In short the American people don't appreciate Biden because they don't take the time to understand Bidenomics.

Biden has done much good for America and Americans. He is the least appreciated great President in American history. It's a reflection on the American people themselves that all they're interested in is their own personal situation. If they are well off, they could care less about social programs that help the poor. If they have a good job, they could care less about the unemployed. American have been taught to be totally selfish and not to care about the wider world or about the improvement of society in general. Corporations by law are only supposed to consider the financial well being of their share holders and nothing else. These attitudes in and of themselves preclude the concerns of minorities, whether racial or economic, because the US is a majoritarian society. In politics the majority rules. Concern about the welfare of minorities and of the world in general and in particular the environment is not a consideration. Meanwhile, global warming is taking out individual families who are victims of tornadoes or other particular manifestations of global warming on a daily basis. It has yet to sink in that perhaps concerns for larger interests than just ourselves might be a paradigm change we might have to make.

For the American people, it's not abut how much Biden has done, it's about how much have you done for me lately, Mr Biden, and, more importantly, how much more are you going to do? If there are many more carrots, then maybe I'll vote for you. Otherwise, I'll take the tax break Republicans are offering. The American national character is selfishness personified. Ayn Rand would be proud.

Off the Top of My Head

Has China Won?

by John Lawrence, October 16, 2020

Ian Bremmer wrote in Time magazine: "You might think 2020 had been a pretty good year for China, at least when compared with the West. Though COVID-19 began its global march there, China’s recovery has been remarkable. The government’s unprecedented capacity for surveillance, large-scale testing, contact tracing and quarantine helped contain the outbreak inside China within two months. That success allowed for the restart of supply chains and enabled a state investment-led rebound. China could be the world’s only large economy to grow this year. And as second waves of COVID-19 appear in Europe and the U.S., China hasn’t had any serious outbreaks over the past month. Life there is nearly back to normal."

The Chinese and the US economies were neck and neck prior to COVID. The fact that China has handled its response much better than has the US means that China will emerge as the world's largest economy by 2021. In his book, "Has China Won?", author Kishore Mahbubani sums up the strengths and weaknesses of both societies. He contends that the "Chinese Communist Party" is a misnomer. It should be called the Chinese Civilization Party as it owes more to China's 3000 year civilization than it does to communism. China values stability over chaos. It has pulled 800,000 Chinese citizens out of poverty in the last 40 years, largely because it has privatized large swaths of its society. Chinese citizens are well satisfied with their lot in life because among other things they have access to as wide a variety consumer goods as do the developed western societies.

So what has been the US response to China's rapid economic growth and expansion particularly with regard to its Belt and Road Initiative (BRI) which is building infrastructure all over the world with the intention of recreating the ancient Silk Road trade route? Obama initiated the Trans-Pacific Partnership (TPP) which would have been a trade alliance rivaling the BRI. Trump immediately withdrew from the TPP as well as withdrawing from other global initiatives and alliances under his America First go-it-alone philosophy with the result that even US allies are giving Xi Jinping and China more credibility than the US. Under the Trump administration the response to China's rise has been to try and put roadblocks in the way of Chinese corporations. They had Meng Wanzhou, the CFO of Huawei, China's largest privately held company, arrested on December 1, 2018 in Canada under the pretext that Huawei had sold equipment to Iran violating US sanctions. Subsequently, she was extradited to the US. On February 13, 2020 Meng was personally indicted by the DOJ on charges of trade secrets theft which carries a maximum penalty of 10 years' imprisonment.

Similarly, the Trump administration sought to prohibit the popular Chinese app Tik Tok from being downloaded by American consumers. Tik Tok, however, received a reprieve in September 2020 from an American federal court when a judge put a temporary stop to the Trump administration's ban. The government had argued that Tik Tok may have a "back door" through which it could share American data with the Chinese government. A ban would “be no different from the government locking the doors to a public forum,” said John Hall, a lawyer for TikTok. “We’re pleased that the court agreed with our legal arguments and issued an injunction preventing the implementation of the TikTok app ban,” a spokesman for TikTok said after the judge’s decision.

The American response to the success of Chinese private corporations might have been to cheer the at least partial privatization of the Chinese economy, a laudable development in accordance with US free enterprise, capitalistic principles. Instead, the US under Trump has sought to hinder Chinese corporations every step of the way even when they have won competitions fair and square. It is what I would call the Tonya Harding response. In January 1994, skater Tonya Harding became embroiled in controversy when her ex-husband, Jeff Gillooly, orchestrated an attack on her fellow U.S. skating rival Nancy Kerrigan. Both women then competed in the February 1994 Winter Olympics, where Kerrigan won the silver medal and Harding finished eighth. Harding was later banned from the sport. The US response to China over China's pulling ahead of it is reminiscent of Tonya's response to Kerrigan. If you can't beat your opponent with your natural talent, try to injure them (in this case sanction or ban them) instead.

This leaves aside the legitimacy of the US use of sanctions to demand that another country (in this case China) must not do business with some other country if the US says it can't. A Biden administration would reenter the Iran nuclear agreement which reduced sanctions against Iran, and, supposedly, Meng would be released. Tik Tok also would be allowed to continue its ability to sell its app all over the world. The US should engage constructively and diplomatically with China to allay any fears about "back doors." Diplomatic treaties and agreements are the way to go, not retaliation over imagined and ill defined fears. It's important that the US and China cooperate especially when it comes to global warming. They are the 2 largest greenhouse gas (GHG) emitters, and their cooperation is necessary in working with the rest of the world (in particular India) in bringing GHG emissions to net zero in the shortest time. The destructive effects of global warming are manifesting themselves now all over the world in addition to the wildfires on the US west coast and hurricanes in the Gulf states.

A Long War of Attrition With China

Published on

Monday, February 18, 2019

 by

TomDispatch

by Michael Klare

 6 Comments

Behind the scenes, however, most senior military and foreign policy officials in Washington view China, not Russia, as the country’s principal adversary. (Photo: Thomas Peter-Pool/Getty Images)

In his highly acclaimed 2017 book, Destined for War, Harvard professor Graham Allison assessed the likelihood that the United States and China would one day find themselves at war. Comparing the U.S.-Chinese relationship to great-power rivalries all the way back to the Peloponnesian War of the fifth century BC, he concluded that the future risk of a conflagration was substantial. Like much current analysis of U.S.-Chinese relations, however, he missed a crucial point: for all intents and purposes, the United States and China are already at war with one another. Even if their present slow-burn conflict may not produce the immediate devastation of a conventional hot war, its long-term consequences could prove no less dire.

To suggest this means reassessing our understanding of what constitutes war. From Allison’s perspective (and that of so many others in Washington and elsewhere), “peace” and “war” stand as polar opposites. One day, our soldiers are in their garrisons being trained and cleaning their weapons; the next, they are called into action and sent onto a battlefield. War, in this model, begins when the first shots are fired.

Well, think again in this new era of growing great-power struggle and competition. Today, war means so much more than military combat and can take place even as the leaders of the warring powers meet to negotiate and share dry-aged steak and whipped potatoes (as Donald Trump and Xi Jinping did at Mar-a-Lago in 2017). That is exactly where we are when it comes to Sino-American relations. Consider it war by another name, or perhaps, to bring back a long-retired term, a burning new version of a cold war.

Even before Donald Trump entered the Oval Office, the U.S. military and other branches of government were already gearing up for a long-term quasi-war, involving both growing economic and diplomatic pressure on China and a buildup of military forces along that country’s periphery. Since his arrival, such initiatives have escalated into Cold War-style combat by another name, with his administration committed to defeating China in a struggle for global economic, technological, and military supremacy.

This includes the president’s much-publicized “trade war” with China, aimed at hobbling that country’s future growth; a techno-war designed to prevent it from overtaking the U.S. in key breakthrough areas of technology; a diplomatic war intended to isolate Beijing and frustrate its grandiose plans for global outreach; a cyber war (largely hidden from public scrutiny); and a range of military measures as well. This may not be war in the traditional sense of the term, but for leaders on both sides, it has the feel of one.

Why China?

The media and many politicians continue to focus on U.S.-Russian relations, in large part because of revelations of Moscow’s meddling in the 2016 American presidential election and the ongoing Mueller investigation. Behind the scenes, however, most senior military and foreign policy officials in Washington view China, not Russia, as the country’s principal adversary. In eastern Ukraine, the Balkans, Syria, cyberspace, and in the area of nuclear weaponry, Russia does indeed pose a variety of threats to Washington’s goals and desires. Still, as an economically hobbled petro-state, it lacks the kind of might that would allow it to truly challenge this country’s status as the world’s dominant power. China is another story altogether. With its vast economy, growing technological prowess, intercontinental “Belt and Road” infrastructure project, and rapidly modernizing military, an emboldened China could someday match or even exceed U.S. power on a global scale, an outcome American elites are determined to prevent at any cost.

Washington’s fears of a rising China were on full display in January with the release of the 2019 Worldwide Threat Assessment of the U.S. Intelligence Community, a synthesis of the views of the Central Intelligence Agency and other members of that “community.” Its conclusion: “We assess that China’s leaders will try to extend the country’s global economic, political, and military reach while using China’s military capabilities and overseas infrastructure and energy investments under the Belt and Road Initiative to diminish U.S. influence.”

To counter such efforts, every branch of government is now expected to mobilize its capabilities to bolster American -- and diminish Chinese -- power. In Pentagon documents, this stance is summed up by the term “overmatch,” which translates asthe eternal preservation of American global superiority vis-à-vis China (and all other potential rivals). “The United States must retain overmatch,” the administration’s National Security Strategy insists, and preserve a “combination of capabilities in sufficient scale to prevent enemy success,” while continuing to “shape the international environment to protect our interests.”

In other words, there can never be parity between the two countries. The only acceptable status for China is as a distinctly lesser power. To ensure such an outcome, administration officials insist, the U.S. must take action on a daily basis to contain or impede its rise.

In previous epochs, as Allison makes clear in his book, this equation -- a prevailing power seeking to retain its dominant status and a rising power seeking to overcome its subordinate one -- has almost always resulted in conventional conflict. In today’s world, however, where great-power armed combat could possibly end in a nuclear exchange and mutual annihilation, direct military conflict is a distinctly unappealing option for all parties. Instead, governing elites have developed other means of warfare -- economic, technological, and covert -- to achieve such strategic objectives. Viewed this way, the United States is already in close to full combat mode with respect to China.

Off the Top of My Head

The US is Attempting to Thwart China's Progress

by John Lawrence, February 19, 2019

To put it bluntly, if China gets ahead, the US will fall behind relative to their progress. The US  is adopting a Beggar Thy Neighbor policy. In other words the US is like a person who, if they can't be successful themself, at least can see to it that no one else can succeed either. While the US has been dropping bombs, destroying real estate, families and businesses in the Middle East and elsewhere, China has been investing all over the world using Chinese workers and capital with its Belt and Road initiative. Putting workers and capital to work building infrastructure is something the US has failed to do either at home or abroad.

This arrangement is keeping China's work force fully employed while at the same time creating friends instead of enemies and making China rich by means of the return on investment from countries to whom China is loaning money. Just like banks get rich by loaning money and gathering in the interest and returns on investment, and thereby growing the economy, China is growing the world economy and making sure that all roads lead to China as they did in the old days of the Silk Road.

The US, however, is having nothing of China's Belt and Road initiative. The US, especially neocons like John Bolton, see all this economic activity fostered by China as a dire threat to the US. Who are the world's countries going to be friends with - a country that drops bombs on them and orders them around or a country that builds infrastructure and strikes up trade deals, a country which is perpetually at war or a country which is trying to build the peace, a country whose offer of friendship is strictly top down or a country which approaches other countries as equals and with respect, a country which orders other countries not to have business relationships with certain other countries or a country which is open to trade relationships all over the world?

In an accompanying article Michael Klare declares:

In his highly acclaimed 2017 book, Destined for War, Harvard professor Graham Allison assessed the likelihood that the United States and China would one day find themselves at war. Comparing the U.S.-Chinese relationship to great-power rivalries all the way back to the Peloponnesian War of the fifth century BC, he concluded that the future risk of a conflagration was substantial. Like much current analysis of U.S.-Chinese relations, however, he missed a crucial point: for all intents and purposes, the United States and China are already at war with one another. Even if their present slow-burn conflict may not produce the immediate devastation of a conventional hot war, its long-term consequences could prove no less dire.

The US is in a struggle for global economic, technological, and military supremacy because it cannot fathom living in a world where the US is not top dog and China is an underdog. The US military mindset cannot think any other way. The 2019 Worldwide Threat Assessment of the U.S. Intelligence Community concluded: “We assess that China’s leaders will try to extend the country’s global economic, political, and military reach while using China’s military capabilities and overseas infrastructure and energy investments under the Belt and Road Initiative to diminish U.S. influence.” Yes, US influence will diminish not only because of China's peace initiatives but also because of the US's ordering its allies not to do business with other countries like Iran and Russia. Through the use of sanctions the US has effectively made colonies out of countries once considered as allies, and those countries don't like it one bit.

The article continues:

To counter such efforts, every branch of government is now expected to mobilize its capabilities to bolster American -- and diminish Chinese -- power. In Pentagon documents, this stance is summed up by the term “overmatch,” which translates as the eternal preservation of American global superiority vis-à-vis China (and all other potential rivals). “The United States must retain overmatch,” the administration’s National Security Strategy insists, and preserve a “combination of capabilities in sufficient scale to prevent enemy success,” while continuing to “shape the international environment to protect our interests.”

In other words, there can never be parity between the two countries. The only acceptable status for China is as a distinctly lesser power. To ensure such an outcome, administration officials insist, the U.S. must take action on a daily basis to contain or impede its rise. ...

Second only to Apple as the world’s supplier of smartphones and a major producer of telecommunications equipment, Huawei has sought to take the lead in the race for 5G adaptation around the world. Fearing that this might give China an enormous advantage in the coming decades, the Trump administration has tried to prevent that. In what is widely described as a “tech Cold War,” it has put enormous pressure on both its Asian and European allies to bar the company from conducting business in their countries, even as it sought the arrest in Canada of Huawei’s chief financial officer, Meng Wanzhou, and her extradition to the U.S. on charges of tricking American banks into aiding Iranian firms (in violation of Washington’s sanctions on that country). Other attacks on Huawei are in the works, including a potential ban on the sales of its products in this country. Such moves are regularly described as focused on boosting the security of both the United States and its allies by preventing the Chinese government from using Huawei’s telecom networks to steal military secrets. The real reason -- barely disguised -- is simply to block China from gaining technological parity with the United States.

The US cannot conceive of any other world than a world in which one country, namely the US, is on top and all other countries are subservient to it. Just as a male chauvinist cannot conceive of any other kind of human relationship than the one in which he is unequivocally the decider and his partner must assume an inferior position with respect to him, the US cannot conceive of any other world order than the one in which it is unequivocally superior. As Nietzsche said: "The family is the smallest unit of domination." Well then, the world must be the largest unit of domination. As marriage vows used to state: the wife shall, love, honor and obey the husband." This is why wars are fought - to see who is best, who is superior, who is the world's leader, who the other countries must bow down to. Until the world's leaders redefine peace in another way, there is little hope for human civilization. As Klare states in his article, "The only way to save civilization is for the U.S. and China to declare peace and focus together on human salvation."

Off the Top of My Head

GM To Cut 14,000 Jobs in Ohio and Michigan

by John Lawrence, December 5, 2018

Oh, what tangled webs we weave. One of them is US trade policy. Trump is loading up China with tariffs so GM decided to shut down production in the US and move those jobs to China. Why? Because GM sells more cars in China than it does in the US. It is a global enterprise with production facilities all over the world. So rather than make the cars in the US and export them to China, they will make them in China and sell them in China in order to escape the tariffs that China has imposed on aluminum and steel in retaliation to Trump's tariffs. Make sense?

GM is discontinuing some sedan models as the market is shifting towards trucks and SUVs and away from sedans. It is discontinuing the Cruze, Volt and Impala. Ford may follow suit so the layoffs may continue. Vox reported:

The exportation of work on small cars, like sedans, was a concern for some economists when the new US-Mexico-Canada trade bill was signed earlier this year. According to the Washington Post, there were also concerns “that automakers might not make as many cars in North America to export to China and elsewhere overseas because costs would be higher in the USMCA region than making the vehicles in Asia.”

The types of changes GM is making are not unique in the auto industry. In April, Ford announced it would end all production of sedans in North America. Newer companies such as Alphabet, Apple, Tesla, and Uber are also in the race, trying to build the cars of the future.

Sen. Sherrod Brown (D-OH) expressed his disappointment in GM’s decision, tweeting that “Ohio taxpayers rescued GM, and it’s shameful that the company is now abandoning the Mahoning Valley and laying off workers right before the holidays.”

Yes, remember when US taxpayers bailed out GM during the Obama administration? Some wanted GM to go bankrupt, but Obama decided to save GM. Now that it's profitable again, it has demonstrated that it has no regard for American workers, only for corporate profits. It has no allegiance to the US or its taxpayers, only to its shareholders. Trump has let the genie out of the bottle. Now let's see if he can get those 14,000 worker/voters back into the Republican camp ... the ones that GM recently "let go."

Off the Top of My Head

Weaponized Currency

by John Lawrence August 7, 2018

To say that the dollar is the world's "reserve" currency is to put it politely. The dollar is also the world's currency that is used by the US to bludgeon other nations and individuals into submission. The US dominates other nations not only by means of its outsized military-industrial complex and bases in practically every country of the world. It also uses the dollar through sanctions to make other nations do its bidding. This is especially true as the sanctions towards Iran go back into effect based on the fact that Trump pulled out of the Iran deal which all other parties to the deal, namely our European allies, still support. So again the dollar will be weaponized in the form of sanctions against Iran until Iran cries uncle.

Other nations are taking note of how sanctions are being used especially those nations who the US has conveniently defined as the "enemy." Those nations are starting to form an alternative economic system not based on the US dollar. At present most goods that are traded in the world, especially oil, are priced and traded in US dollars. China is working to make the yuan also a world reserve currency. That means that goods and services can also be traded in Chinese yuan. They are making progress in that regard. The BRICS nations have banded together (Brazil, Russia, India, China, South Africa) to form their own financial institutions not dominated by the US.

Wikipedia put it this way:

The BRICS Forum, an independent international organisation encouraging commercial, political and cultural cooperation between the BRICS nations, was formed in 2011. In June 2012, the BRICS nations pledged $75 billion to boost the lending power of the International Monetary Fund (IMF). However, this loan was conditional on IMF voting reforms. In late March 2013, during the fifth BRICS summit in Durban, South Africa, the member countries agreed to create a global financial institution which they intended to rival the western-dominated IMF and World Bank. After the summit, the BRICS stated that they planned to finalise the arrangements for this New Development Bank by 2014. However, disputes relating to burden sharing and location slowed down the agreements.

Of course Russia and China are the US' designated enemies. Their purpose, as far as the US is concerned, is to justify the US' trillion dollar defense-intelligence-homeland security budget. The US does not want to be friends with these nations because it would take the profit out of war, hot or cold. However, US corporations have made use of cheap Chinese labor and cheap Chinese imports for years. So we've become friends of a sort based on exploiting Chinese labor.

As China becomes more of a financial powerhouse, they want more of a say in terms of how goods are priced and sold. They are already the world's second leading economy and the world's largest holder of US debt in the form of Treasury bonds. They run the show in terms of trade by keeping the yuan's value with respect to the dollar low. If it rises too much they sell off US Treasuries. This means that the Chinese run a trade deficit with the US which is something Trump dislikes, but will likely not be able to do anything about. The alternative would be for the Chinese to sell off huge amounts of US Treasuries causing panic in the bond markets.

China is forming friendships and economic arrangements with other countries, particularly on the Eurasian land mass, with its Belt and Road initiative. As it does so, it keeps its labor force busy, builds infrastructure in these countries and expedites trade among these countries and China. The US keeps going into more debt with China by running up not only a trade deficit but the national deficit, in other words living beyond its means. Most of this money goes to fund its military-industrial-intelligence complex, but also social security and medicare, two programs Republicans have vowed to get rid of since they mainly benefit middle class and poor people. The defense sector, on the other hand, lines the pockets of rich people and the politicians themselves.

 

China Retaliates with Tariffs after US Begins Trade War

From the Guardian, July 6, 2018

by Lily Kuo in Beijing

State media accuses Trump administration of acting like a ‘bunch of hoodlums’ as tariffs on $34bn in Chinese goods go into effect

 

 A worker cutting steel at a factory in Huaibei in China’s eastern Anhui province. China says it is ready for a trade war with the US Photograph: -/AFP/Getty Images

A long-threatened trade war between the US and China has got under way after the world’s two largest economies imposed tariffs on each other. The US implemented tariffs on $34bn in Chinese goods, to which Beijing responded with levies on a similar quantity of US imports.

Minutes after the US tariffs went into effect at 12.01am on Friday US time, a spokesperson for China’s ministry of commerce said, “China promised not to fire the first shot, but in order to safeguard the country’s core interests as well as that of the people, it is forced to fight back,” according to Xinhua. The ministry stopped short of saying China had implemented its retaliatory duties.

Later on Friday, a spokesman for the ministry of foreign affairs said after the US tariffs kicked in, Chinese tariffs on US goods had immediately gone into effect.

Ahead of the tariffs, Chinese state media published a series of editorials criticising the US and emphasising the country’s readiness for a trade war. Chinese companies and investors girded for the worst, while economists cautioned any impact on the economy would be minimal.

“If what the US wants is to escalate a trade war with China, then so be it. A little fighting may be the only way the Trump administration clears its mind and allows everyone to sober up,” the state-run Global Times said on Friday.

“The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China,” said an English-language article in the China Daily. On Thursday, a spokesperson for China’s ministry of commerce said the US will be “opening fire on the whole world and also opening fire on itself.”

China’s central banker said Trump’s promised tariffs of 25% on $50bn of Chinese goods – Friday’s $34bn to be followed by $16bn in a few weeks – would shave 0.2 percentage points off of China’s GDP and the “overall impact would be limited,” according to Xinhua.

Still, Chinese investors and companies were worried. The Shanghai Composite index was down 1.1%, after reaching more than a two-year low this week before rallying after the tariff deadline passed. Chinese manufacturers have already been hit by a strengthening yuan that has made exports more expensive.

Off the Top of My Head

Trump's Tariffs Could Backfire Big Time

by John Lawrence, June 28, 2018

Just as Harley-Davidson is moving some production to Europe, other corp[orations and countries could shuffle things around on the chess board to defeat the purposes of the tariffs. So if there is a tariff on some Chinese product entering the country, for example, China could just move production to the US, thus escaping the tariff. European tariffs on American booze could lead American countries to move production abroad just as Harley did. So while Trump plays two dimensional chess, the rest of the world will be playing three dimensional chess which will totally defeat the imposition of Trump's tariffs.

Some corporations will no doubt bring production to the US from abroad in order to escape tariffs on imported cars, for example. When all is said and done, the production necessary to satisfy local markets will take place locally, and production to satisfy foreign markets will take place there. So the jobs will be shifted around depending on local consumption. Not a bad result actually.

Nike, Obama, and the Fiasco of the Trans Pacific Partnership

by Robert Reich

Friday, May 8, 2015                

On Friday, President Obama chose Nike headquarters in Oregon to deliver a defense of his proposed Trans-Pacific Partnership.

It was an odd choice of venue.

Nike isn’t the solution to the problem of stagnant wages in America. Nike is the problem.

It’s true that over the past two years Nike has added 2,000 good-paying professional jobs at its Oregon headquarters, fulfilling the requirements of a controversial tax break it wrangled from the state legislature. That’s good for Nike’s new design, research and marketing employees.

Just before the President spoke, Nike announced that if the Trans Pacific Partnership is enacted, Nike would “accelerate development of new advanced manufacturing methods and a domestic supply chain to support U.S. based manufacturing,” thereby creating as many as 10,000 more American jobs.

But that would still be only a tiny fraction of Nike’s global workforce. While Nike makes some shoe components in the United States, it hasn’t assembled shoes here since 1984.

Americans made only 1 percent of the value of Nike products that generated Nike’s $27.8 billion revenue last year. And Nike is moving ever more of its production abroad. Last year, a third of Nike’s remaining 13,922 American production workers were laid off.

Most of Nike’s products are made by 990,000 workers in low-wage countries whose abysmal working conditions have made Nike a symbol of global sweatshop labor.

As wages have risen in China, Nike has switched most of its production to Vietnam where wages are less than 60 cents are hour. Almost 340,000 workers cut and assemble Nike products there.

In other words, Nike is a global corporation with no particular loyalty or connection to the United States. Its loyalty is to its global shareholders.

I’m not faulting Nike. Nike is only playing by the rules.

I’m faulting the rules.

In case you hadn’t noticed, America has a huge and growing problem of inequality. Most Americans are earning no more than the typical American earned thirty years ago, adjusted for inflation – even though the U.S. economy is almost twice as large as it was then.

Since then, almost all the economic gains have gone to the top.

The President is angry at Democrats who won’t support this trade deal.

He should be angry at Republicans who haven’t supported American workers. Their obduracy has worsened the potential impact of the deal.  

Congressional Republicans have refused to raise the minimum wage (whose inflation-adjusted value is now almost 25 percent lower than it was in 1968), expand unemployment benefits, invest in job training, enlarge the Earned Income Tax Credit, improve the nation’s infrastructure, or expand access to public higher education.

They’ve embraced budget austerity that has slowed job and wage growth. And they’ve continued to push “trickle-down” economics – keeping tax rates low for America’s richest, protecting their tax loopholes, and fighting off any attempt to raise taxes on wealthy inheritances to their level before 2000.

Now they – and the President – want a huge trade agreement that protects corporate investors but will lead to even more off-shoring of low-skilled American jobs.

The Trans Pacific Trade Partnership’s investor protections will make it safer for firms to relocate abroad – the Cato Institute describes such protections as “lowering the risk premium” on offshoring – thereby reducing corporate incentives to keep jobs in America and upgrade the skills of Americans.

Those same investor protections will allow global corporations to sue the United States or any other country that raises its health, safety, environmental, or labor standards, for any lost profits due to those standards.

But there’s nothing in the deal to protect the incomes of Americans.

We know that when Americans displaced from manufacturing jobs join the glut of Americans competing for jobs that can’t be replaced by lower-wage workers abroad – personal service jobs in retail, restaurant, hotel, hospital, child care, and elder care – all lower-skilled workers face downward pressure on wages.

Jobs being lost to imports pay Americans higher wages than the jobs left behind. Government data show wages in import-competing industries (e.g. manufacturing jobs) beat those in exporting industries overall.

Without a higher minimum wage, an expanded Earned Income Tax Credit, affordable higher education, and a world-class system of job retraining – financed by higher taxes on the wealthy winners in the American economy – most Americans will continue to experience stagnant or declining wages.

Instead, the Trans Pacific Partnership – which includes twelve nations, including Vietnam, but would be open for every nation to join – would lock us into an expanded version of the very policies that have failed most American for the past twenty years.

No doubt Nike is supporting the TPP. It would allow Nike to import its Vietnamese and Malaysian-made goods more cheaply. But don’t expect those savings to translate into lower prices for American consumers. As it is, Nike spends less than $10 for every pair of $100-plus shoes it sells in the U.S.

Needless to say, the TPP wouldn’t require Nike to pay its Vietnamese workers more. Nikes’ workers are not paid enough to buy the shoes they make much less buy U.S. exported goods.

Nike may be the perfect example of life under TPP, but that is not a future many Americans would choose. 

---

 

                                                  
            

•                 
• Friday, May 8, 2015                                

  STEP #2: MAKE WORK FAMILY FRIENDLY

  No one should have to choose between providing for your family and being a good parent. Yet “family-friendly” work is still a pipedream.

  Today most parents are also wage earners, whether in a two-parent or single-parent household. Politicians talk a lot about the importance of family, but must do a better job delivering.

  Specifically:

  – Require that women receive equal pay for equal work.

  – Require employers provide predictable hours so workers can plan to be home when their family needs them.

  – Provide universal childcare – pre-school and after-school – financed by employers and taxpayers.

  – Require that employers offer paid family and medical leave.   

  The richest nation in the world should enable its workers to be good parents. Family-friendly work isn’t a luxury. People who work hard deserve to make more than a decent living. They and their families deserve a decent life.

                                                    
              
•                 
• Thursday, May 7, 2015                                

  MAKING THE ECONONY WORK FOR THE MANY, NOT THE FEW. STEP #1: RAISE THE MINIMUM WAGE

  A basic moral principle that most Americans agree on is no one who works full time should be in poverty, nor should their family.

  Yet over time we’ve seen significant growth in the “working poor” – people working full time, sometimes even 60 or more hours each week, but at such low wages that they remain impoverished.

  What to do?

  One step is to raise the minimum wage to $15 an hour. This is winnable. A powerful movement is fighting for $15 an hour and they’re winning new laws in cities and states, and forcing companies to raise wages.

  If the minimum wage in 1968 had simply kept up with inflation it would be more than $10 today.  If it also kept up with the added productivity of American workers since then, it would be more than $21 an hour.  

  Some opponents say minimum wage workers are teenagers seeking some extra pocket money.

  Wrong. Half are 35 or older, and many are key breadwinners for their families.

  And don’t believe scaremongers who say a $15 minimum will cause employers to cut employment.

  More money in people’s pockets means more demand for goods and services, which means more jobs not fewer jobs.

  Studies also show that when the minimum is raised more people are brought into the pool of potential employees, giving employers more choice of whom to hire. This reduces turnover and helps employers save money.

  Finally, employers who don’t pay enough to lift their employees out of poverty are indirectly subsidized by the rest of us – who are paying billions each year in food stamps, Medicaid, housing assistance, and welfare, to make up the difference.

  The minimum wage should be raised to $15 an hour. It’s the least that a decent society should require.

                  

More on "MORE TRADE AND MORE AID”

John,

I agree that each nation should ideally be production self-sufficient in basic commodities to extent possible … like oil and gas. The intractable political reality problem undermining such sensible strategic aims is that the governing elites of both parties are hopelessly mired, divided, and corrupted  by parochial special interests to the extreme. We can’t come together on anything.

It’s high time the U.S. did – what Germany and Japan historically have been cleverly doing with superb technical training and education programs – namely,  adopt an aggressive policy of retaining and expanding “home production” of key component parts of intensive-knowhow-industrial products  … as opposed to current practice of U.S. corporations’ outsourcing production of products or components for knowhow fees, maximum global profits and then reimporting  same products, skyrocketing U.S. trade deficits. The revenue inflows from this trade practice benefit but a SMALL number of middle-class workers. The job growth dynamics are peanuts compared to a national strategy of having product development, design and at least component manufacturing in America for American needs. Spirits will be energized as a more equitable, inclusive, confident sharing in our nation’s social-economic progress returns. 

We should also formulate a policy – under  easy-to-measure guidelines and criteria – that requires foreign firm importers of industrial, high knowhow products to establish manufacturing facilities in the U.S. After all, this has been rather successfully done with Japanese cars. Control and oversight could be in the hands of a respected team of independent experts from the business, R&D, education, worker training and development fields.

Lastly, as you have noted John in a prior writing, American products coming into the EU, e.g., to Germany or The Netherlands, are hit with a VAT of +- 19% plus  an import duty. In sharp contrast, EU products entering the U.S. incur only an import duty plus a much lower state sales tax at point of final sale. Thus, the EU vs. U.S. total tax-import duty system, when combined with low-cost foreign labor,  grossly unfairly favors imports from the EU (and Asia). This tax-duty disparity also generates more EU tax revenues, greatly tempers excessive EU imports while helping exports, leading to relatively modest EU trade deficits (even annual trade surpluses for Germany and The Netherlands). It further intensifies the will of U.S. corporations to outsource all or a part of their production to China or to some other low-cost developing country, thereby permanently destroying hundreds of thousands of American jobs each year.     

Frank Thomas
The Netherlands

More Trade and More Aid

Op-Ed Contributors

By MATTHEW J. SLAUGHTER and ROBERT Z. LAWRENCE

Published: June 8, 2011 from the New York Times

A FEUD over trade has erupted in Washington, and American workers are caught in the middle. Congressional Republicans (and some Democrats) are threatening to hold up approval of free-trade agreements with South Korea, Colombia and Panama if President Obama keeps insisting on renewing expanded benefits under Trade Adjustment Assistance, the main aid program for American workers harmed by foreign trade.

Supporters say the program — which offers retraining, relocation and other benefits to workers who lose their jobs due to competition from imports — offers vital protection. Opponents label it an unaffordable boondoggle. If our country fails to resolve this dispute, our economic future will be bleak.

As former advisers to presidents from different parties, we are coming together to urge a way out: rethinking how we help displaced workers in order to revive political support for the free trade our economy needs.

Three principles guide our proposal. First, trade is indeed worth it for America. Annual national income today is at least $1 trillion higher than it would have been absent decades of trade and investment liberalization. With unemployment at 9.1 percent and 24.6 million Americans unemployed or underemployed, we need to rebalance our economy away from the excessive consumption that helped bring about the global financial crisis, and create jobs linked to exports and international investment.

Second, trade is not worth it for every individual American. Trade creates unemployment for some and wage losses for others; its gains do not directly accrue to every worker and community. Indeed, there has been a steep drop in public support for trade; a recent Wall Street Journal/NBC poll found that only 17 percent of respondents said free-trade deals have helped America.

Third, Trade Adjustment Assistance, created in 1962 to supplement unemployment insurance, cannot adequately help displaced workers. Workers today face continual adjustment as new technologies and competitors, both domestic and foreign, render their talents and skills obsolete. Indeed, the premise that job losses can be attributed to precise causes is archaic, given the linkages among international trade and investment and technological change.

In recent years, less than half of workers certified as eligible for T.A.A. benefits have actually used them. Petitions filed with the Labor Department for T.A.A. benefits in 2007 covered just 93,903 workers — fewer than the number of jobs created or lost on an average day.

Our proposal to resolve the trade impasse: more trade and more aid. More trade means that President Obama should immediately submit, and Congress should immediately ratify, the pending free-trade agreements. Colombia and Panama already enjoy unfettered access to our market, and South Korea has negotiated free-trade deals with the European Union and India; we cannot afford to fall behind.

More aid means Congress and the president should replace T.A.A. with a broader safety net that helps workers regardless of why they lost their jobs. Unemployment insurance, introduced in the early 1930s, has not really changed since then; it should be merged with T.A.A. Today, unemployed workers face challenges far greater than T.A.A. or unemployment insurance alone can address: getting matched with a new employer, often in a new industry; upgrading or learning new skills, often at reduced wages; and coping with lost benefits, especially health coverage.

A new American Adjustment Program should combine the best elements of unemployment insurance, T.A.A., and training programs authorized by the Workforce Investment Act. This approach would include a wage-loss insurance program for workers 45 and older, to speed their rehiring by supplementing their income if they take work at lower pay; helping workers receiving unemployment insurance to pay for coverage under Cobra (which allows workers who lose their jobs to keep group health benefits for limited periods); and enabling unemployed workers to make penalty-free withdrawals from savings accounts like 401(k)’s and I.R.A.’s to finance costs like occupational retraining and relocation.

Our plan would cost about $20 billion per year. We would pay for this by scrapping the current unemployment insurance tax structure, which is extremely regressive, for a low flat tax on all worker earnings — a change that would cut taxes for tens of millions of lower-wage workers. The costs of our plan would decline in the long run as the economy recovers. Moreover, the cost of not better supporting workers will be far greater if a skeptical public pushes America into economic isolation and the result is slower growth, fewer jobs and lower tax receipts.

Voter support for engagement with the world economy is strongly linked to labor-market performance. If American workers continue to fear change, their support for free trade will not return.

Matthew J. Slaughter, a professor of management at the Tuck School of Business at Dartmouth, and Robert Z. Lawrence, a professor of international trade and investment at the Harvard Kennedy School, were economic advisers to Presidents George W. Bush and Bill Clinton, respectively.

Hu Jintao's Visit: The Story the Media Missed

Published on Monday, January 24, 2011 by The Guardian/UK

The one issue that mattered for ordinary Americans was whether Obama pushed China hard enough on undervaluing the yuan

by Dean Baker

When China's President Hu Jintao came for his state visit last week, the White House press corps completely ignored almost all the substantive issues raised by Hu's visit. The domestic policy issues raised by this trip were altogether invisible in the reporting in major news outlets.

The news accounts were filled with the long list of items that President Obama was likely to raise with President Hu. There are issues about China respecting the patents and copyrights of US firms. The US has concerns about market access in China for our retailers, our financial firms and some of our manufactured products.

And then there are issues about the relative value of the dollar and yuan. Yep, the White House press corps got together the whole list, presented it to the public, and then went home and had a drink.

If these reporters actually had to cover the news to get a paycheck, then this checklist of concerns would have been just the beginning of their job. It's great for the Obama administration to come up with a wishlist that it would like from China's leadership. But this is not Disney World. China doesn't hand the United States everything on its wishlist.

China is a superpower that doesn't have to do whatever the United States wants. It makes concessions to the United States in exchange for items on its own wishlist.

This means that the United States is not going to get everything on its list. In fact, President Obama must decide which items he will prioritise with China and put these items first, as opposed to other items which he will tell Hu are of less consequence. The real job of reporting in Washington last week should have been trying to find out the actual priority that President Obama was assigning to the various items on his list.

This is what the public needs to know: different items will obviously matter more to some people than others. Most people in the United States probably don't give a damn if the Chinese pay Bill Gates for making copies of MS Windows. The public may even applaud if Chinese companies make unauthorised copies of Pfizer's drugs, so that more people in China can afford the medicine they need to save their life. They probably also don't care much if China's bureaucracy makes it difficult for Wal-Mart to expand or for Goldman Sachs to be a big player in China's financial markets.

But most of the public really does have a very big interest in the value of the yuan against the dollar. If the dollar is overvalued against the yuan by 30%, then this has the same effect as the United States imposing a tariff of 30% on the items that we may try to export to China. It is pretty hard to export goods if you impose a 30% tax on them.

On the other side, a currency that is overvalued by 30% is equivalent to providing a subsidy to China's manufacturers of 30% for the goods that the United States imports from China. A 30% subsidy for imports gives them a very large advantage competing with US-made goods.

Not surprisingly, this overvaluation is making it very difficult for US manufacturers to compete with China. The overvaluation of the dollar against the Chinese yuan (and other currencies) is the main reason for the huge US trade deficit. It is also one of the main reasons that the country has lost 6 million manufacturing jobs in the last dozen years.

The loss of relatively well-paying manufacturing jobs has put downward pressure on the wages of large segments of the US workforce. It is one of the main factors behind the growth of inequality in the United States in the last three decades.

So, we know that the value of the yuan was one of the items on President Obama's wishlist, but we do not know how high up it was on the list. Did President Obama tell President Hu that he doesn't care about Microsoft and Pfizer and Wal-Mart and Goldman; he just wants to see the dollar fall against the yuan?

Or did Obama tell Hu that he would like to see the yuan rise against the dollar, but he understands the problems that this would create in China. Instead, Obama may have suggested that Hu do more to protect Pfizer's patents and swing a few more deals to Goldman.

The fact is that the public has no clue as to what the Obama administration's priorities were in negotiating with China – because the media made no effort to find out. It somehow escaped the White House press corps, but the deals with China are, first and foremost, about battles over domestic policy. President Obama either pushed for Goldman Sachs or he pushed for the nation's workers, but it doesn't make sense that he pushed for both.

The media, apparently, are not going to tell the American people which side the President chose. Fortunately, the currency markets will.

© 2011 Guardian News and Media

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( www.conservativenannystate.org) and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. 

The Fly in Obama's Ointment on Jobs

by John Lawrence

President Obama is waxing ebullient on the jobs front. He's partnered up with GE CEO Jeffrey Immelt, and they are both proclaiming that the US will again be a robust manufacturing and exporting nation. They have rejected the model for the US as a mainly consuming and service oriented nation. That's all to the good. But Obama seems to have placed too much faith in the corporate CEOs. He seems to think they're going to stop outsourcing, and, out of the goodness of their hearts, they're going to start creating jobs here at home. But the official US government still has in place laws and policies - and in particular tax policies - that actually encourage outsourcing. Nancy Pelosi, when the Democrats controlled the House, said after passing a bill which would have reined in outsourcing: "In this legislation, which is job creating, it closes the loophole which has allowed businesses to ship jobs overseas.  Can you believe that we have a tax policy that enables outsourcing?  So if you have one thing to say about this bill to your constituents, you can say that today, you voted to close the loophole to ship U.S. jobs overseas and giving businesses a tax break to do so. It is not right. It will be corrected today.” This was in May, 2010. Of course, this bill never made it into law because it was filibustered by Republicans in the Senate. Sorry, Nancy.

Closing the loophole that has allowed businesses to ship jobs overseas? Well, sorry to say that loophole was never closed! President Obama though wants us to believe that, regardless of that loophole being closed, CEOs like Jeffrey Immelt are going to be nice guys and create local manufacturing jobs here in the US even though it is going to lower their profit margins, even though the loopholes for shipping jobs overseas are still open! Is he being naive? And then there is this from Robert Reich:

General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE’s joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai.

Will the real GE please stand up? Corporations are required by law to maximize their profits. This means that they will lower their expenses by getting the cheapest labor wherever they can get it. And American labor is relatively expensive compared to Chinese labor. So Obama is skating on thin ice. His bravado overlooks the underpinnings of law that give American corporations huge incentives for creating jobs overseas and outsourcing American jobs. Sure, GE wants to sell to the Chinese. But this doesn't mean that those products will be exported from the US. In the last ten years 42,000 American factories have closed. Millions of jobs have been lost. And now Mr. Nice Guy, Jeffrey Immelt of GE, is going to forego maximizing profits and his salary and his duty to shareholders in order to do a favor for President Obama and create some jobs in the US? What game is he playing? Mr. President, where are the legal underpinnings that would make sure that this will happen? You have a Congress that won't even close loopholes that would encourage job creation in the US. Do you have the feeling you're teetering on the brink? You said you've moved us back from the abyss. But have you? The abyss still looms because now for sure with a Republican controlled House, no loopholes that encourage and enable outsourcing will ever be closed unless and until Democrats control both Houses and the filibuster rules have been changed. Mr. President, you are whistling Dixie, in the dark, and past the graveyard too!

As President Obama touts the jobs being created at GE's Schenectady plant we have this dated January 14, 2011: "Solar Panel Maker Moves Jobs to China":

BEIJING — Aided by at least $43 million in assistance from the government of Massachusetts and an innovative solar energy technology, Evergreen Solar emerged in the last three years as the third-largest maker of solar panels in the United States. But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China.

It looks like the right hand doesn't know what the left hand's doing. It seems like not only does China have cheaper labor, but they have more government support for American companies that want to build plants and create jobs there! The US on the other hand has no industrial policy, no set of incentives in order to have companies, domestic or foreign, build more plants in the US. And there are no unions to speak of that would fight for the rights of American workers. America, for all intents and purposes, has been deunionized starting with Reagan's firing of the air traffic controllers which effectively put their PATCO union out of business.

In "19 Facts About The Deindustrialization Of America That Will Make You Weep", Michael Snyder says:

The United States is rapidly becoming the very first "post-industrial" nation on the globe.  All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing.  It was America that was at the forefront of the industrial revolution. It was America that showed the world how to mass produce everything from automobiles to televisions to airplanes. It was the great American manufacturing base that crushed Germany and Japan in World War II.  But now we are witnessing the deindustrialization of America.  Tens of thousands of factories have left the United States in the past decade alone. Millions upon millions of manufacturing jobs have been lost in the same time period.The United States has become a nation that consumes everything in sight and yet produces increasingly little. Do you know what our biggest export is today? Waste paper. Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us. The United States has become bloated and spoiled, and our economy is now just a shadow of what it once was. Once upon a time America could literally outproduce the rest of the world combined. Today that is no longer true, but Americans sure do consume more than anyone else in the world. If the deindustrialization of America continues at this current pace, what possible kind of a future are we going to be leaving to our children?

The US is embarked on its own destruction thanks to the "small government" mantra of the Republican controlled Congress. Small government means no industrial policy except by lobbyists seeking special favors for their particular corporate sponsors. It means that US government policy will favor US business but not necessarily US workers. Unless and until the US can adopt policies which favor job creation in the US, US workers will be left out in the cold. And President Obama's soaring rhetoric about cooperation with CEOs like Jeffrey Immelt will be just that: rhetoric.

How Corporations Are Ripping Off US Taxpayers and Workers

by John Lawrence

US corporations are being subsidized by the US government to build factories abroad and to ship jobs formerly held by American workers overseas. In addition they are getting all sorts of tax breaks on profits they make selling products into the US market. These policies were designed during Republican administrations generally although Bill Clinton played a big role in this "globalization" process. There are three main goals of globalization from the corporation's point of view: 1) produce where labor and other inputs to the production process are cheapest; 2) sell into whatever markets are most lucrative (right now the US market represents the largest consumer market in the world); 3) pay as little in taxes to any government anywhere in the world. The Obama administration has tried to change some of these tax policies, but to no avail. The latest example of this is that at first the bill giving aid to first responders of 9/11 was going to be funded by not letting corporations continue to deduct expenses for constructing foreign plants from their tax bill. However, Republican objections and obstructionism forced a "compromise" in which that corporate tax "loophole" was left intact. Obviously, if there are tax advantages to constructing plants abroad in addition to the lure of cheap labor, corporations are being encouraged by US government policy to outsource American jobs. Just the opposite should be true. They should be given tax breaks for constructing plants here and employing American workers. The Obama administration has pledged to fix this situation, but with Republican control of the House there is little chance they will be able to accomplish this goal.

Here's how it works. Although the US corporate income tax rate is 35%, most corporations end up paying only 6-7%. This year, Google, which made $5.5 billion in revenues, only paid an effective tax rate of 2.4%. Corporations set up foreign subsidiaries in low tax countries and then shift profits to those subsidiaries. Therefore, they claim that they didn't make those profits in the US where they sold their merchandise but in those foreign countries where they didn't. It's a corporate shell game. You make your profits where the consumer market is good but taxes are high and then shift those profits to a country where the consumer market is bad but tax rates are low. An additional neat trick is that corporations are able to shift their expenses on their foreign operations to the US. Even though the expenses were incurred in the foreign country where their plant is located, for example, for tax purposes they are shifted to the US where they are deducted from their US tax bill. So they have the best of both worlds. They can shift factories to foreign countries where labor is cheapest, and then turn around and deduct the expenses for outsourcing plants and jobs from their US tax bill.

It's called "transfer pricing:"

For many companies, however, national combined reporting requirements aren’t an issue—they just create subsidiaries in international tax shelters like Ireland and the Cayman Islands. A tool called transfer pricing lets companies make profits in tax havens while allocating expenses to higher-tax countries, writes the OECD Observer. ... Google’s “Double Irish” strategy is one popular transfer pricing scheme. Google created two companies in Ireland to execute this maneuver. One pays royalties to use intellectual property (expenses that reduce income tax in Ireland). A second, located in Bermuda, collects those royalties. The meat in Google’s sandwich is the Netherlands, where profits go on their way from Ireland to Bermuda. “Irish tax law exempts certain royalties to companies in other EU- member nations,” according to the excellent Bloomberg article that describes Google’s acrobatics. “A brief detour to the Netherlands avoids…Irish withholding tax.” If you think the federal government would want to sink its teeth into those profits by implementing an international combined reporting requirement, think again. The feds would rather get what they can without changing the law: Google and the IRS negotiated for three years before coming to “an arrangement” that let the company execute its transfer pricing strategy, according to Bloomberg.

Transfer pricing is another reason the states are going broke. By locating plants in states where there are few sales, corporations avoid paying taxes in other states where most of their profits are made. By using this strategy with respect to foreign countries, they put their tax avoidance schemes on steroids. Corporations that transfer income abroad even though a lot of it might have been generated in the US are still on the hook if they repatriate those profits. That is if they bring those profits back into the US. But there is no need to. Most corporations never repatriate that income. They leave it parked outside the country because their interest is in constructing plants and facilties outside the US where labor is cheapest.

Halliburton is a good example of a corporation which makes most of its profits inside the US but exports most of its profits abroad. Recently, it moved its corporate headquarters to Dubai.

For decades, the U.S. tax code has encouraged companies like Halliburton to transfer the location of its subsidiaries from the United States to foreign countries. This is one reason why only thirty-six of Halliburton's 143 subsidiaries are incorporated in the United States and 107 subsidiaries (or 75 percent) are incorporated in 30 different countries. There are two methods by which Halliburton lowers its tax liability on foreign income: (1) By establishing a "controlled foreign corporation" and (2) By establishing a subsidiary inside a low tax, or no tax, country known as a "tax haven."

Controlled foreign corporations are becoming increasingly valuable to corporations because they allow those corporations to not pay any US income tax on profits generated outside the US. By filing a few papers and incorporating a subsidiary in the country where the profits are made, the subsidiary is no longer considered a "US resident" under the tax code. Instead it is considered a "foreign resident." These profits are only taxed if the profits are repatriated which in most cases they never are.

Here is more on how corporate profits are shifted to countries with low or no tax rates:

Congress reported that Halliburton owns 17 subsidiaries in tax haven countries, including 13 in the Cayman Islands, which has no corporate income tax, two in Liechtenstein and two in Panama. An analysis by CitizenWorks.org found a far greater number Halliburton tax havens. The nonprofit public interest group found that, while Dick Cheney was CEO of Halliburton (between 1995 and 2000), the number of Halliburton subsidiaries incorporated in offshore tax havens rose from 9 to 44. CitizenWorks.org also found that the Fortune 500 companies with the most offshore tax havens are dominated by energy firms, including El Paso (#1), AES (#2), Aon (#5), Mirant (#7), Halliburton (#8), and Williams (#14). Controlled foreign corporations and tax havens are the result of decades of corporate lobbying in Washington, DC. It has benefited corporate America tremendously. The tax savings to Halliburton, and the corresponding tax loss to individual American taxpayers, are enormous. Halliburton paid only $15 million of their $80 million in total taxes (or 19 percent) to the U.S. government in 2002. The remaining 81 percent of the company's taxes went to foreign governments. Although Halliburton is an "American" corporation on paper, it is actually a foreign corporation that has no allegiance to the United States.

The Obama administration has taken steps to discourage job creation overseas by American corporations and to encourage job creation at home. The likilhood of any of these steps being passed into law is nebulous. If American corporations find that American incorporation becomes too onerous, they can simply incorporate elsewhere like Hallburton did. Nevertheless, here are some of the things Obama is trying to do:

Currently, businesses that invest overseas can take immediate deductions on their U.S. tax returns for expenses supporting their overseas investments but nevertheless "defer" paying U.S. taxes on the profits they make from those investments. As a result, U.S. taxpayer dollars are used to provide a significant tax advantage to companies who invest overseas relative to those who invest and create jobs at home. The Obama Administration would reform the rules surrounding deferral so that--with the exception of research and experimentation expenses--companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits. This provision would take effect in 2011, raising $60.1 billion from 2011 to 2019.

In the final analysis perhaps the only way to retrieve taxes from corporations using every trick for tax avoidance is a VAT tax. The advantage of a VAT tax is that it is collected at point of sale. So no matter where a corporation chooses to move its corporate headquarters, it will never be able to escape taxation as long as it wants to sell into the American market. This also means that corporate profits aren't subject to manipulation by tax lawyers advising corporations how to get around paying taxes, and corporate lobbyists can't drill loopholes into the tax code. A VAT tax would truly tax profits made from sales in the country where the product was sold instead of allowing profits to be transferred to low tax countries. Also a VAT tax would avoid the transfer of deductible expenses from foreign countries to the US. It would put a stop to the transfer of profits to tax havens and expenses to high corporate tax rate countries like the US.

A VAT tax could also get around the free trade tariff restrictions. Germany imposes a VAT tax on imports to make them equivalent to domestically produced products on which VAT taxes have already been paid. This is only fair, but it also tends to give an advantage to domestically produced products and job creation and maintenance in country. The  VAT tax could be charged directly to the corporation whose product is being sold and not to the customer by estimating profits from each sale. Of course, the corporation could raise prices on the product thus effectively transferring the VAT tax to the consumer, but this is not necessarily bad in that it would tend to equalize the advantages of products produced by higher priced American labor. Revenue sharing of the VAT tax between the Federal and state governments would do a lot to alleviate the states' fiscal problems.

In the long run corporations cannot expect to outsource jobs and insource consumer sales indefinitely. The American market cannot sustain 70% of GDP being produced by consumption without American jobs being created to support that consumption. Prudent tax policies will not only encourage domestic job creation but also will recoup much needed tax revenues from corporations who have been escaping from paying their fair share.

With the World Economy on the Brink, America Must Start Producing for Itself Again

The Nation / by William Greider

The country's predicament is a historic emergency that cannot wait for market solutions. America must start producing for itself.

November 5, 2010  |    from Alternet

 The world economy is on the brink again, facing a crisis of epic dimensions for reasons largely obscured by the inflamed politics of 2010. Against their wishes, the United States and China have been drawn into an increasingly nasty and dangerous fight over currencies and trade. American politicians, especially desperate Democrats, have framed the conflict in familiar moral terms -- a melodrama of America wronged -- and demand retaliation. Other nations, sensing the risk of a larger breakdown, have begun to take protective measures. Every man for himself. The center is not holding.

The political fray obscures the fact that the basic economic problem is larger than any single nation and stalks the global trading system itself. There is a huge hole in the world -- a massive loss of demand. Think of the trade wars as the largest producers fighting over an abrupt shortage of buyers. Financial collapse and recession, with falling income, defaulting debt and rising unemployment, made the hole. In other times, Washington would have stepped in to impose policy solutions and create market demand as the global system's buyer of last resort. This time, Goliath is gravely weakened, both in economic strength and political authority.

The political push-pull zeroes in on China. Beijing is accused of playing dirty, stealing jobs, production and wealth. Washington imposes a penalty tariff on Chinese tires and tubular steel. Beijing pushes back with a tariff on US poultry. President Obama once again urges China to stop manipulating its currency to underprice Chinese exports and stymie US goods going the other way. China once again blows off his request. United Steelworkers ups the ante by filing a 5,800-page complaint detailing how China is scheming to corner the global market in green technologies. Obama promptly orders an investigation. "What do the Americans want?" asks the vice chair of Beijing's National Development and Reform Commission. "Do they want fair trade? Or an earnest dialogue?... I don't think they want any of this. I think more likely, the Americans just want votes." He has a point. But so do American politicians, who think China's hardball industrial strategy has had something to do with America's anemic recovery. The House, divided on everything else, voted 348-79 in September to authorize tariffs on nearly all Chinese imports if Beijing does not relent in its currency game.

* * *

The US public seems to agree with the harsh stance. A Wall Street Journal poll found that 53 percent (including 61 percent of Tea Party adherents) think free-trade globalization has hurt the US economy. Only 17 percent think it has helped. But the trouble with Americans claiming injured innocence is that it blinds them to the complexities of the predicament. The fact is, the United States and China, motivated by different but mutually reinforcing reasons, collaborated to create the unbalanced trading system. American multinationals eagerly sought access to China's market. The Chinese wanted factories and the modern technologies needed to develop a first-class industrial base. American companies agreed to the basic trade-off: China would let them in to make and sell stuff, and they would share technology and teach Chinese partners how it's done. Not coincidentally, US corporations also gained enormous bargaining power over workers back home by threatening to go abroad for cheaper labor if unions didn't give wage concessions.

Washington blessed the deal. Both parties were convinced decades ago that improving the fortunes of globalizing banks and businesses was in the broad national interest. The Clinton administration capitulated to Chinese negotiators in 2000, admitting China to the World Trade Organization while giving up legal tools that could have controlled China's appetites.

Chinese officials understand, even if many Americans do not, that they are essentially doing what the trading system has allowed or at least tolerated from many others. Washington grumbled when Japan and then South Korea, Taiwan and Singapore pursued similar development strategies. Arrogant US policy-makers assumed that these rivals would eventually adopt the American model and become more like us. They never really have.

The problem is that when a nation of 1.3 billion successfully advances along this road, it blows out the lights. Decades ago, when Washington scolded Japanese officials for violating free-trade orthodoxy, they bowed humbly and made agreeable noises. The Chinese don't bother. They are unabashed because they have always been much more up front about their intentions. In the early 1990s Beijing published a series of directives for major industrial sectors, describing precisely how the state intended to direct the rise of its industrial base. China manipulates its currency -- though so do other governments when it serves their interests (indignant senators bash China for depressing its currency, but Washington is doing the very same thing to the dollar through the money spigots of the Federal Reserve). The Chinese also know that Japan suffered years of depressed growth after Washington pushed it into raising the value of its currency. China pirates US intellectual property, and it suppresses wages to attract factories from the United States and elsewhere. It lures major US multinationals by offering tax breaks and subsidies -- but it also compels the companies to share their precious technologies with Chinese partners, who are always majority owners.

Which brings us to the present crisis. China's exports exploded toward the end of the Clinton years and expanded even more ferociously under George W. Bush. So did the offloading of US jobs and manufacturing. China's wave of new competition crashed over every industrial economy, but disruptions were most devastating for the United States. American trade deficits soared, peaking at close to 6 percent of GDP in 2006. Imports from China dwarfed exports in sector after sector, including many advanced technological goods developed in America. The goods are often made by US companies, but not here. The US economy has been buying more than it produces -- a lot more -- and borrowing from foreign creditors, most heavily from China, to do so.

"I admire the Chinese for recognizing the world economy is still a jungle, despite all of its legal trappings," says Alan Tonelson, a conservative trade critic at the US Business and Industrial Council. "But here's the problem. They don't seem to understand that unless the US economy recovers its financial and economic health, the entire world will come crashing down. The reason is, we won't be able to serve any longer as the import sponge that buys from everyone else."

We have reached the endpoint of globalization as we have known it. It cannot continue as before, because the United States is essentially tapped out. Goliath has fallen and cannot get up. Who will lend a hand? Not China, obviously, but also not Japan and the Asian Tigers, or the European nations. All are dealing with their own problems. All but the smallest economies run perennial trade surpluses with the United States. Giving up some of those surpluses means surrendering some portion of domestic growth in order to stabilize the system. No one wants to go first. This is a dangerous impasse, the kind that can easily slip into a general unwinding -- that is, depression -- if not resolved smartly. "The world is no longer in a common foxhole...but in many different foxholes," observes economist Paul McCulley of PIMCO, the world's largest bond house. Japan and South Korea devalue their currencies to protect their exports (so has the United States). Brazil puts limits on capital inflows to stop foreign money from destabilizing its economy. Currency war is a surrogate for trade war, one of the few levers governments can still manipulate unilaterally.

For Americans the most ominous development is that trade deficits, after shrinking during the recession, are expanding rapidly again. That stands in the way of recovery and helps explain why the federal stimulus of 2009 had less punch than expected. The trap is illustrated by a few recent statistics: the US economy expanded in the second quarter of 2010 by an anemic annualized rate of 1.7 percent. During those same months, however, the nation's trade deficit expanded by 3.5 percent. Do the arithmetic: the US economy would have grown at a much healthier rate if it weren't for its dependence on products made elsewhere. Yet getting different results will take much more than currency adjustments. It means reforming the dynamics of global trade and the US industrial structure, not just the bad habits of American consumers.

* * *

American Multinational Corporations Have No Interest in Creating American Jobs So Let's Take Another Approach

by John Lawrence

President Obama's trip to Asia was billed as one to increase American exports. But American multinational corporations aren't interested in increasing exports because they have built manufacturing facilities in China, South Korea, Thailand and other places where labor is cheaper than American labor. Their preferred modus operandi is to export to the American market and sell directly to the local market abroad, hence, exports from the US are a non-starter.  For consumers in foreign countries who want an American product, there is no need to import it from the US. They can buy it from a US corporate manufacturing facility located in their own country. That's why President Obama is barking up the wrong tree. He should be more interested in getting multinational corporations, American and otherwise, to locate manufacturing facilities in the US in order to create American jobs even if their only goal is to sell to the American market and not to export. The only way to do this is to change the import tax laws to encourage companies to locate production facilities here. President Clinton threatened a 100% import tax on luxury vehicles and Toyota promptly started locating manufacturing facilities in the US to protect the market for their Lexus.

It doesn't really matter whether foreign multinationals or American corporations build manufacturing facilities in the US. It's all about providing jobs. With current policies successful start-up companies will provide American jobs temporarily until they grow to a certain size, and then they will offshore those jobs in order to increase profits. So small business start-ups will not be the salvation for American job-seekers except in the very short run. Some worry that profits from Toyota's US manufacturing operations, for example, are repatriated to Japan. But so what? Profits from American corporations operating abroad are held offshore where they aren't taxed. So for all intents and purposes they are not repatriated to the US and, even if they were, they would only end up in rich investors' pockets. By encouraging foreign corporations to locate here, they can at least be taxed before their profits are repatriated. That makes them more desirable than American multinationals who neither provide jobs in the US nor pay taxes in the US. Their sole relation to the US is the fact that they originated here and are registered here, but that can be quickly changed as we saw with Halliburton which moved its registration to Dubai. And even "American" companies have subsidiaries in places like the Cayman Islands, the better to take advantage of lax tax laws. From the average middle class American's point of view, if a corporation doesn't provide American jobs or pay American taxes, what good is it? And if a foreign multinational corporation does provide American jobs and pays American taxes, it is preferable to an American multinational.

The only way to get muiltinational corporations to build production facilities in the US is to make it relatively unprofitable for them to import into the US market. This can only be done by an import tax or tariff of some sort. I'm sure there are sophisticated ways to accomplish the same thing without mentionaing the dreaded word "tariff." Tariffs, by the way, were the largest source of federal revenue from the 1790s to the eve of World War I, a period of some 124 years or more than half the country's history. Ideologically at the present time, tariffs are anathema to the US because of its rhetoric and espousal of free trade. But the US is being played by other countries who effectively take advantage of American open markets while effectively closing their own markets. South Korea is a good example. It exports its cars here while closing its markets to cars from the US. However, it is open to the idea of American car corporations building production facilities in their country. Why? Because that provides jobs for their own citizens and local taxes. Thus there is no need to import those cars and other products from the US.

Globalization is not going away. Each country needs to respond to it in such a way as to protect its own interests. So far the US has failed to do so. President Obama's attempts to invoke rules to even out the trade imbalances so far have gotten him nowhere. Trying to jawbone China to revalue its currency is an excercise falling on deaf ears. Even quantitative easing, the Fed's latest attempt to make American exports more competitive only breeds resentment among our foreign competitors and represents taking a club to kill a gnat. The only effective response is one which unilaterally changes American laws and policies to create a benefical trade policy, not going around trying to get a bunch of other nations to cooperate in doing something beneficial to American interests. The only solution is to take a page out of the other countries' books. It's not exports that matter. It's the location of production facilities in the US that matters. That's what will provide jobs and increase tax revenues. So importing into the US market from abroad has to be made more onerous for the importers. Only then will they decide that locating production facilities and hence providing American jobs within the US is the way to go. Over half the imports into the American market are from American corporations which have located production facilities abroad in order to take advantage of cheap foreign labor.

The US taxpayers bailed out General Motors. We actually own a good percentage of GM, but what is GM doing? It's building production facilities abroad. It is not providing American jobs in gratitude for being bailed out. This is from the Detroit News:

Washington -- General Motors Corp. will shift more production of vehicles bound for the U.S. market to China, Mexico, South Korea and Japan, but will keep total imports at roughly one-third of all sales here. In a confidential 12-page presentation to members of Congress, obtained by The Detroit News on Friday, GM said it will boost U.S. sales of vehicles built in those four countries by 98 percent -- or about 365,000 vehicles -- while shrinking production in Canada, Australia and European countries by about 130,000 vehicles. GM also disclosed it will start importing vehicles made in China in 2011, reaching 51,546 vehicles in 2014. Imports from South Korea to the United States will jump from 36,967 vehicles in 2010 to 157,126 in 2014. The automaker said it is canceling expansion projects in Russia, India and Mexico. GM's plan to import more vehicles from low-wage countries raises questions about whether it should beef up its foreign operations as it is relying on federal money to stay afloat. It also puts the automaker at odds with the United Auto Workers, which is trying to protect U.S. jobs amid a dramatic restructuring of the domestic auto industry.

So GM has no effective allegiance to the US despite being bailed out with taxpayer money. The same goes for Ford. Ford is planning to build a $450 million car plant in Thailand.

Ford Motor Co. is investing $450 million in a new passenger car plant in Thailand, cementing the country's status as an Asian manufacturing base for the automaker despite prolonged political unrest. The plant with an annual production capacity of 150,000 vehicles will begin assembling the next-generation Ford Focus from 2012, the company said Thursday. Some 85 percent of cars produced at the facility will be sold overseas and the rest in Thailand. Ford said up to 2,200 people will be employed at the factory slated for construction in the eastern seaboard province of Rayong that serves as a base for automakers and other industries.

It's all about the jobs. How does Germany, a high exporting nation, manage to keep high paying jobs in its own country? That's maybe something Obama and the Democrats should study and try to emulate. One way they do it is that most German companies build their products in Germany and then export them while US corporations build plants near their markets and produce for the local foreign market so their sales do not count as exports. Coca Cola has production and marketing facilities in over 200 countries. Germany has powerful trade unions and an extensive vocational education program. Every manufacturing facility is unionized unlike in the US where unions have a vastly smaller role than they did just 30 years ago. Work councils in Germany put workers and management together in a decision making capacity. All industrial imports into Germany are subject to an "Import Turnover Tax" of 19%, which is charged on the duty-paid value of the import article plus the customs duty, which varies by item. The Import Turnover Tax is designed to place the same tax burden on imported goods as goods produced domestically, on which is levied a 19% "Value-added Tax" (VAT). The German customs authorities collect both customs duty and Import Turnover Tax. Germany's regulations and bureaucratic procedures can be a difficult hurdle for companies wishing to enter the market and require close attention by U.S. exporters. Complex safety standards, not normally discriminatory but sometimes zealously applied, complicate access to the market for many U.S. products. U.S. suppliers are well advised to do their homework thoroughly and make sure they know precisely which standards apply to their product and that they obtain timely testing and certification. Selling into the American market should be considered a valuable privilege. Therefore, according to free market principles, it shouldn't be given away for free. The US government needs revenue. A VAT tax and a corresponding import turnover tax would not only replenish US government coffers but would tend to equalize the profitability of companies manufacturing abroad and those manufacturing in the US. Reunionization of US workers would also contribute a voice in favor of keeping production and, therefore, jobs local and in country.

It's true that Honda and Toyota only located plants in the US because they were worried about import duties that might come into being. But their US plants were just used for assembly operations. They still imported most of the parts from foreign cheap labor countries. What the US needs is an industrial policy that is concerned with providing jobs for American citizens. This means that the US has to be seen as an attractive place for multinational corporations to locate or it has to be seen as an unattractive place to import into a desirable consumer market. In the past tax breaks and other perks have been given to auto companies by states in competition among themselves to get plants located in their state. A national industrial policy needs to be put in place that would prevent the states from competing against each other in order to get plants located within their state.  That way the states can't be played off against each other by foreign or domestic corporations.

The US will not be successful in cajoling its trading partners to "equalize" trade balances or to revalue their currencies. Only unilateral policies that seek to get multinational corporations to locate production plants inside the US can hope to change the status quo. Trade policy and industrial policy can effectively provide incentives to create jobs here and to discourage imports. The US needs to renounce its policy of free trade in favor of fair trade, and fair trade can only be established if the US changes its policies from within.

The Failure of the G-20 Summit

by Robert Reich

Friday, November 12, 2010

The President emerged today from a meeting with the heads of state and finance ministers of the 20 biggest economies, in Soeul, South Korea, saying they had agree to “get the global economy back on the path of recovery.”

But where are the specifics? The three-page communique that also emerged from the session brims with bromides about the importance of “rebalancing” the global economy, “coordinating” policies, and refraining from “competitive devaluations.”

All nice, but not a single word of agreement from China about revaluating the yuan, or from the United States about refraining from further moves by the Fed to flood the U.S. economy with money (thereby reducing interest rates, causing global investors to look elsewhere for higher returns, and lowering the value of the dollar).

China and the U.S. are the only big players in the currency game. And with neither of them stepping up to bat, the game is in dangerous territory. Other nations will now do whatever they can to reduce the value of their currencies in order to stimulate more exports — and therefore create more jobs.

The underlying problem isn’t just or even mainly an international imbalance. It’s an imbalance within many nations — especially inside the United States and China. In the U.S., more and more income is concentrating at the top, thereby reducing the relative purchasing power of the vast American middle class. That means more pressure on exports to fill the gap.

In China, more and more income is going to the productive sector of its huge economy rather than to Chinese consumers, thereby reducing the relative purchasing power of the Chinese relative to what the nation is producing. That means more pressure on exports to fill the gap.

It’s always nice to talk about international cooperation, and to create global photo ops. But the truth is much more needs to be done to ease tensions that are moving the global economy closer to the brink of outright protectionism. The key responsibility falls to China and America — both in terms of what they do internationally and also what they do domestically.

Both have failed.

Why Germany Has It So Good -- and Why America Is Going Down the Drain

Germans have six weeks of federally mandated vacation, free university tuition, and nursing care. Why the US pales in comparison.

by Terrence McNally

Published by AlterNet, October 14, 2010 

While the bad news of the Euro crisis makes headlines in the US, we hear next to nothing about a quiet revolution in Europe. The European Union, 27 member nations with a half billion people, has become the largest, wealthiest trading bloc in the world, producing nearly a third of the world's economy -- nearly as large as the US and China combined. Europe has more Fortune 500 companies than either the US, China or Japan.

European nations spend far less than the United States for universal healthcare rated by the World Health Organization as the best in the world, even as U.S. health care is ranked 37th. Europe leads in confronting global climate change with renewable energy technologies, creating hundreds of thousands of new jobs in the process. Europe is twice as energy efficient as the US and their ecological "footprint" (the amount of the earth's capacity that a population consumes) is about half that of the United States for the same standard of living.

Unemployment in the US is widespread and becoming chronic, but when Americans have jobs, we work much longer hours than our peers in Europe. Before the recession, Americans were working 1,804 hours per year versus 1,436 hours for Germans -- the equivalent of nine extra 40-hour weeks per year.

In his new book, Were You Born on the Wrong Continent?, Thomas Geoghegan makes a strong case that European social democracies -- particularly Germany -- have some lessons and models that might make life a lot more livable. Germans have six weeks of federally mandated vacation, free university tuition, and nursing care. But you've heard the arguments for years about how those wussy Europeans can't compete in a global economy. You've heard that so many times, you might believe it. But like so many things, the media repeats endlessly, it's just not true.

According to Geoghegan, "Since 2003, it's not China but Germany, that colossus of European socialism, that has either led the world in export sales or at least been tied for first. Even as we in the United States fall more deeply into the clutches of our foreign creditors -- China foremost among them -- Germany has somehow managed to create a high-wage, unionized economy without shipping all its jobs abroad or creating a massive trade deficit, or any trade deficit at all. And even as the Germans outsell the United States, they manage to take six weeks of vacation every year. They're beating us with one hand tied behind their back."

Thomas Geoghegan, a graduate of Harvard and Harvard Law School, is a labor lawyer with Despres, Schwartz and Geoghegan in Chicago. He has been a staff writer and contributing writer to The New Republic, and his work has appeared in many other journals. Geoghagen ran unsuccessfully in the Democratic Congressional primary to succeed Rahm Emanuel, and is the author of six books including Whose Side Are You on, The Secret Lives of Citizens, and, most recently, Were You Born on the Wrong Continent?

There are Two Problems Emanating From Low Tax Rates: Income Inequality Leading to Insufficient Demand and Insufficient Government Revenues Leading to Increasing National Debt

by John Lawrence

Robert Reich and others have pointed out that income inequality was at a maximum both in 1928 just before the Great Depression and again in 2007 just before the Great Recession. In both cases the share of the nayional income going to the top 1% was greater than 23% as the following graph shows.

 
If you superimpose a graph of the top income tax rate, you can see that it is almost the inverse of the graph of the share of income going to the upper 1%. In the 1920s the top tax rate was 25%. In the period which Reich calls the Great Prosperity, roughly from 1945 to 1980 the top tax rate was high, 91% under Eisenhauer, 70% under Nixon and 39.6% under Clinton as the following graph shows. Roughly the peaks in the first graph correspond to valleys in the second and vice versa.

 

We can conclude from these two graphs that income inequality increases as top marginal tax rates decrease. There is almost a direct correlation. But in addition to that government revenues diminish when top tax rates are lowered and increase when they are raised. So lowering taxes produces more income inequality and diminished government revenues. Reagan and the first Bush lowered taxes and quadrupled the national debt from $1 trillion to $4 trillion. The second Bush lowered taxes and doubled the national debt from $5 trillion to $10 trillion. Fiscal responsibility as defined by government revenues exceeding government spending has been achieved by every Democratic President since Johnson and by no Repuiblican President since then as shown by the following graph.

 

Clinton ran budget surpluses four years in a row, a feat not achieved since the 1920s. Even though top tax rates were low in the 1920s, the government still ran surpluses for all those years. This was because the economy was booming so a lower tax rate was sufficient to produce ample revenues. Supply side economics promised the same result but didn't deliver. Instead lowering taxes produced huge government deficits which added huge sums to the national debt. In the 1930s, when the Great Depression hit, the government started running deficits, but it had built up a relative surplus in the 1920s so it could better afford to run deficits than it can today since such huge deficits were run up during the Bush administration.

Keynsian economics says that the government should spend more and run deficits during recessions and save more and run surpluses during expansions. That theory made some sense during the 1920s and 1930s when the surpluses of the 20s were somewhat balanced by the deficits of the 30s although the deficits were about triple the surpluses. Today, however, we have a dual problem: the need for the government to spend money to stimulate the economy and the need not to add more to the national debt. One way the government can do this is to raise income taxes on the wealthy which would solve two problems. It would reduce income inequality and it would decrease government deficits. Since the wealthy don't add greatly to aggregate demand especially after a certain amount of wealth has been accumulated, this will not affect the economy negatively. Also, as has been proved by the Bush administration, increasing the wealth of the already wealthy does not create jobs.

Another way the government can solve the deficit problem is to find other sources of revenue. Up until approximately the First World War most government revenues were derived from excise taxes (mainly on cigarettes and alcohol) and tariffs. By the 1920s these sources had been largely replaced by the income tax. Excise taxes are taxes on particular products produced and sold within the US. They are similar to the VAT tax which is used in Europe. But the VAT tax applies to all products not just certain selected ones. The VAT tax is  basically a national sales tax. Excise taxes could be reinstated and applied to speculative financial products in the form of a Financial Transactions Tax (FTT). This would net hundreds of billions of dollars a year. Hundreds of billions more could be gotten from collecting taxes on profits illegally parked offshore. Tariffs could be applied selectively to certain countries and/or certain products in order to equalize the trade balance which has been running huge deficits. This would mean abandoning free trade in favor of fair trade.

Keynsianism is outmoded today because the government can't afford to go into debt to stimulate the economy. However, the government can raise revenues by instututing increased taxes on the upper 1% and other forms of taxation such as a FTT that won't affect the purchasing power of the middle class. Royalties on oil and minerals extracted from the US by corporations could also be taxed at rates similar to what other countries are taxing their oil. Today the US is practically giving away its natural resources. The problem in today's economy is lack of demand so purchasing power must be increased among those who are in a position to increase demand, namely, the middle class. Government spending that is offset by government revenues is deficit neutral. One of the greatest problems in the currrent economy is lack of job creation. Government spending that directly and indirectly creates jobs will do much to ameliorate the current lack of demand, and if that spending is balanced by increased revenues, the national debt can be paid down at the same time.

How Exactly, Mr. Reich, Do You Create Jobs?

by John Lawrence

Robert Reich writes in his October 1 post that lowering the value of the dollar is not the way to create jobs in the US. Lowering the value of the dollar seems to be the US government's job creation policy at this time. The theory is that that will produce more exports because our products will be cheaper abroad and fewer imports because imported products will be more expensive. Mr. Reich contends that other countries will simply follow suit and lower the value of their currencies. Result: a currency war.

The other way the Obama administration seems to favor for creating jobs is just to wait for the natural dynamics of the US economy to create them. The theory is that the US economy is so resilient that, if we wait long enough, it will just naturally recover and things will go back to normal - normal being 5% unemployment. This might be called the cross-your-fingers-and-wait-and-see approach. This approach is doomed to failure for reasons that have been mentioned on this blog before - outsourcing of jobs and automation, to be succinct. OK, then, what are some other methods by which jobs might be created. Innovation, for one thing. The creation of whole new industries. Technological innovation has fueled capitalism for centuries. Recently, computers and the internet are good examples. Problem is there are no new innovations on the horizon. Especially ones of an exclusively American nature. While the computerization of the world was conceived, developed and capitalized on in the US, current innovative technologies like alternative energy are being pursued more vigorously elsewhere. Automoble technology was developed concurrently in other countries but at a time when outsourcing was impractical so the development of the automobile proceeded independently in a number of countries as if they were on separate planets. In today's world that would not be possible.

Labor arbitrage means that major production facilities will be located wherever the cost of plants, equipment and labor is cheapest. Automation means that most products can be manufactured with a minimum of human labor. So where does this leave Americans who need to work in order to have an income that will let them consume the products and services that they need in order to have at least a decent middle class life? In other words where are the good jobs at good pay going to come from? Of course, one alternative is for Americans to work for starvation wages. There will always be a certain number of low paying service jobs available. But in order to have widespread prosperity among the majority of the population, there are only a few remaining alternatives none of which is being given serious consideration at this time.

Alternative #1: The government sets an industrial policy and subsidizes the development of certain industries which can compete at a world class level. Such is the case with Finland where Nokia has competed successfully at a world level and as a result brought prosperity to Finland. This is also true in Germany which has successfully retained a manufacturing base and has profited from its exports.

Alternative #2: The government sets up public/private partnerships to internally develop the US infrastructure. This in turn will lead to the creation of more private sector jobs following in the wake of infrastructure development just as the development of the railroads or the interstate highway system opened up opportunities for private sector development.

Alternative #3: The US government can create jobs directly in areas that the private sector is not interested in. This was done during the Great Depression when FDR created the Works Project Administration (WPA) and the Civilian Conservation Corps (CCC). There is just as great a need for conservation type projects today and just as much of a lack of interest on the part of the private sector. In fact the private sector ususally is in the business of degrading the environment rather than protecting or enhancing it. This creates an opportunity for government to be in the business of enhancing the environment in such a way that it is not in competition with private enterprise. There may be other areas where government can directly create jobs in ways that do not compete with private enterprise or in ways that are symbiotic with private enterprise. It is possible for government and private enterprise to be involved in a positive sum game, one which is beneficial for both sectors.

Alternative #4: Spread the wealth. Redistribution of wealth. Since income and wealth are becoming more centralized and concentrated (23.5% of income in 2007 went to the upper 1% similar to 1928 just before the Great Depression), the upper income brackets can be taxed heavily and the money used to create jobs ala the WPA and CCC or it can be redistributed by providing unemployment benefits and food and housing subsidies. In other words the social safety net could be greatly expanded. My preference is for the direct and indirect creation of jobs since I think that work is more ennobling than permanently remaining on the dole. Marx was right about the natural tendency of capitalism, particularly unregulated laissez faire capitalism, to centralize and concentrate capital in fewer and fewer hands. Economic inequality in the US has never been greater except just before the Great Depression.

The US is the most laissez faire capitalist country on the planet. At least it has been so for the last 30 years ever since Reagan became President. The lowering of tax rates on the upper income brackets and the deregulation of corporate industry has produced a society in which most of the economic benefits go to a very small number of people at the top. Other countries have prevented this phenomenon by means of their governments being more directly involved in their economies. Whether its the Euro zone, China, Japan or other prosperous nations, they are all - as governments - more directly involved in their economies than the US which has essentially a hands off policy between the government and the economy. Unfortunately for the US, these other nations are becoming more prosperous as the US loses ground. These capitalist hybrid economies especially in China are gaining while the US is losing. Another reason the US is falling further behind is that, while the other capitalist economies have been devoting large amounts of resources with a hands on policy towards their commercial sectors, the US has devoted huge amounts of resources with a hands on policy to its defense sector while maintaining a hands off policy towards its commercial sector.  Unfettered, unregulated capitalism is proving to be not as successful an economic model as is hybrid capitalism.

Government involvement in the economy, what might be called a socialist-capitalist hybrid, seems to be evolving as the successful economic model of the 21st century. Governments that don't have industrial policies such as the US and leave everything to a hands off policy towards the economy seem destined to stagnation. They are heading in the direction of Third World status which is defined as a country with a very small, very wealthy elite surrounded by a very large poverty class. This seems to be what unregulated capitalism produces.

Washington Gets Tough on China, but Plays Patsy With OPEC

by Raymond J. Learsy

Scholar and author, "Over a Barrel: Breaking Oil's Grip on Our Future"

Posted: September 30, 2010 07:18 AM on Huffington Post

In the upside-down world that passes for our government, the House has just passed legislation pressing China to raise the value of its currency. According to House Ways and Means Committee Chairman Sander Levin (D-MI), "China's exchange-rate policy has a major impact on American businesses, and American jobs, which is what this is all about." That may well be true, and yet there is an important segment of American business, ranging from such American industrial icons as Corning, FedEx, General Motors, Goodyear Tire and Rubber, among many others, who have voiced their concern that such legislation would poison the well of U.S.-China commercial relations, exacerbating feelings of mistrust and suspicion. Last Thursday in New York, in a meeting with Chinese Premier Wen Jiabao, President Obama indicated that he wants to see "more action" relating to the value of the yuan. Other than the value of the yuan, there are significant and important trade issues with China extending to market access, technical data, patent protection and copyright infringement, which certainly need be addressed.

While the legislation has passed in the House, it remains to be seen whether the Senate will follow. Yet what is ironic is that here we have a situation whereby China, by holding down the value of the yuan, is able to flood us with cheap goods that many of our unemployed and the many newly impoverished can at least access. China's trade balance with the United States, over the first seven months of the year, has widened to $145 billion from $123 billion the year before. Significant? Yes. But hardly when you consider the distortions visited on us by OPEC and its allies in the oil industry.

The price of oil has escalated over the last decade by a factor of more than five and since the first months of the Obama administration has more than doubled by more than $40 per barrel (from the low $30/bbl to the mid $70/bbl). Multiplied by current oil consumption in the United States of some 20 million barrels a day, that comes to an increase of $800,000,000 a day, or near $300 billion a year going into the rapacious pockets of the Organization of the Petroleum Exporting Countries (OPEC) and the oil industry and its interests. That, with nothing for us to show for it expect having had our pockets fleeced. And then one needs ask, where is the outrage here, and where is our vigilant Congress, our administration, our somnolent Justice Department and Federal Trade Commission, not to speak of our oversight agencies such as the Commodity Futures Trading Commission (CFTC), while the oil boys are taking us to the cleaners? At least the Chinese are delivering bargains.

Where is the outrage from this White House at OPEC and its policies, and that of its putative leader, Saudi Arabia, restricting oil production to achieve artificially high prices and their supportive allies in the oil industry who benefit in the wake of the OPEC cartel's manipulations?

Where is the intercession by our oversight agency, the CFTC, led by Goldman Sachs alumnus Gary Gensler, in the highly suspect oil-trading activities on the commodity exchanges that keep prices at astronomical levels and have left large swaths of the oil trade itself puzzled (Please see "BP's Smoking Gun and the Manipulation of Oil Prices," 06.30.10)? In January of this year, the CFTC announced it would vote to set position limits on energy trading on the exchanges. Since then, a deafening silence. (Question: Are there laws in place that prohibit these "commissioners" from taking employment with the very firms/industries they are overseeing, or is serving on these commissions simply a pathway to a sinecure in the very industries under surveillance? And if so, how long can we tolerate it continuing?)

Bringing the price of oil down to levels that reflect a true market dynamic, say achieving a price level at the low $30/bbl, as was the case in February 2009, or less (please see "Why Are We Paying $50 a Barrel for $20 Barrel Oil?," 04.27.09) would save the nation hundreds of billions now being transferred to oil interests.

Would lower prices result in higher consumption? Yes. But paying oil interests to keep consumption in check borders on the insane. There need to be government programs that restrict the usage of petroleum-based gasoline (not biofuels nor electric, and so on) to current levels or less through voucher programs (please see "The Energy Solution That Dare Not Speak Its Name," 07.17.07) or whatever program is workable rather than the transfer of our national wealth to the oil nabobs.

Consider what those sums could do were they applied to a national infrastructure program such as high-speed rail or improvement of our inland waterways and port facilities, thereby enhancing our export capabilities and the thousands upon thousands of jobs that would result. We would even begin to give China a run for their money from our level and enhanced playing field.

Senator Bernie Sanders: Stop Shipping American Jobs Overseas!

Bernie is leading a campaign to stop outsourcing American jobs to low-wage countries overseas. “We've got to tell corporate America that if they want us to buy the products they produce, they've got to start manufacturing those products here in the United States," Bernie told a Capitol Hill press conference on Tuesday. On MSNBC, Bernie reminded Ed Schultz that “during the Bush years, alone, we lost 30 percent of our manufacturing jobs.” The number of U.S. factory workers plunged from 17 million to about 12 million, fewer than at any time since before World War II.

Fair Trade

Senate Republicans on Tuesday blocked a modest proposal to stem the flow of jobs overseas. Bernie would go much further. He wants a total turnaround in U.S. trade policies that unfairly tip the scales against American workers in favor of other countries and multinational corporations. "We need fair trade which represents the needs of the American worker, not unfettered free trade which simply benefits CEOs and their corporations," Bernie said.  The American public overwhelmingly thinks outsourcing is bad for the U.S. economy. What do you think?

China Says U.S. Yuan Bill Could Harm Ties

By Chris Buckley

BEIJING | Thu Sep 30, 2010 5:01am EDT, From Reuters

House targets Chinese yuan (01:19) Report

BEIJING (Reuters) - China on Thursday warned that a House of Represenatives bill to penalize it for not letting the yuan rise faster could seriously affect bilateral ties.

In a relatively measured response, Foreign Ministry spokeswoman Jiang Yu said Congress should avoid steps that could harm relations, saying Beijing was "resolutely opposed" to the bill. But she declined to say whether China would retaliate.

The House of Representatives bill, which many analysts say is unlikely to become law, is aimed at pressuring Beijing to let its currency, also called the renminbi, rise faster by branding it in violation of world trade rules.

"Using the renminbi exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-U.S. trade and economic relations, and will have a negative effect on both countries' economies and the world economy," Jiang told a regular news briefing.

"We urge the members of the Congress to understand clearly the importance of China-U.S. trade and economic relations, and put a halt to protectionism so as to avoid hurting the interests of the peoples of the two countries and of the world."

Whether China would take any U.S. law on the yuan to the World Trade Organization was "hypothetical," she said.

The bill would need to be passed by the Senate -- far from certain and not likely until after congressional elections on November 2 when the U.S. political landscape could be greatly changed -- and signed by President Barack Obama to become law.

China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.

PRICE ADVANTAGE

The bill allows the U.S. Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.

Earlier in the day, the official Xinhua news agency quoted China's Commerce Ministry spokesman, Yao Jian, as saying: "Starting a countervailing investigation in the name of exchange rates does not conform with relevant WTO rules."

That lawyer-like statement was relatively moderate compared with China's reaction to other disputes this year, including U.S. weapons sales to Taiwan, when Beijing froze military contacts with the United States.

"I don't think China will have any dramatic reaction to this bill's passing," said Jin Canrong, a professor of international relations at Renmin University in Beijing, who specializes in U.S.-China relations. "China wants to preserve the stability of overall relations."

The American Chamber of Commerce in China voiced its opposition to the Chinese currency legislation in an email, saying: "If enacted into law, the chamber does not believe the bill will be effective in achieving its objectives and would fail to create significant U.S. job growth."

China's central bank fixed the yuan's daily mid-point versus the dollar at a weaker level on Thursday.

US Pushing on a String With Regards to China Trade Policy

by John Lawrence

The US is running a trade deficit with China of $5 billion a week. China loans the US huge sums of money in order that the US can keep taxes low and borrow the money it needs to run its government. Instead of enacting tariffs on Chinese imports, it has been US policy to beg the Chinese to revalue their currency. This is like pushing on a string. If the US doesn't like Chinese policy regarding their exports to the US, the US has direct recourse: it can put tariffs selectively on Chinese imports. But instead, probably because the US doesn't want to offend its banker, the US has allowed itself to be put into the subservient position of begging the Chinese to revalue its currency.

A recent report details the fact that the US is running higher trade deficits with trading partners that it has Free Trade Agreements (FTAs) with. The report entitled "Lies, Damned Lies and Export Statistics" reached this conclusion after an exhaustive examination of the data.

President Obama’s goal to double U.S. exports over the next five years to create two million new American jobs is widely supported. How to accomplish it is a subject of considerable contention. Proponents of President Bush’s “Free Trade Agreements” (FTAs) with Korea, Colombia and Panama claim that passing these pacts is the best way to expand U.S. exports and create jobs. Obama administration officials have similarly argued that passing FTAs is a key component of the effort to double exports, especially in the context of the president’s recent announcement that he wants Congress to pass Bush’s FTA with Korea early next year.  Yet, analysis of the actual outcomes of past U.S. FTAs show that the growth of U.S. exports to countries that are not FTA partners is as much as double the growth of exports to U.S. FTA partners. Moreover, with respect to Obama’s job creation goal, the United States has suffered trade deficits with most of its major FTA partners and with the group of FTA nations as a whole. Even as trade flows declined because of the economic crisis, as of 2009, the United States had a $54 billion trade deficit in goods with its 17 FTA partners, even when oil is excluded. And, contrary to the frequent claims made by proponents of the North American Free Trade Agreement (NAFTA) that U.S. farmers have benefitted from this model, the United States’ agricultural trade deficit with the bloc of 17 FTA partners increased.   This highlights why, especially now, an honest, data-based discussion about the economic impact of FTAs based on the NAFTA model is critical. People are entitled to their own opinions about NAFTA-style FTAs, but they’re not entitled to their own facts. Among public concerns about job loss, the decimation of the U.S. manufacturing base, and the ballooning U.S. trade deficit, corporate lobbyists have unveiled a series of misleading and erroneous studies and talking points, alleging all sorts of benefits from NAFTA-style pacts. It is impossible to know whether these are deliberate attempts to distort the truth, or simply sloppy economics.

The fact is that US corporations and their lobbyists have used the 'free trade' pretext to export millions of jobs to China because labor there is cheaper than American labor. This practice is called 'labor arbitrage.' US corporations then import products from their Chinese subsidiaries back into the US market parking the profits offshore. This both denies the American people jobs and the government revenues. Not only is labor cheaper in Asia, but so is the cost of plants and equipment. The following is a prescient article written in 2005 that already foretells the asset bubble that burst in 2008.

The most obvious example of the effects of globalization in this country is our relationship with Asia. Over the past few years, we have not only outsourced our jobs, but have moved our manufacturing to the Asian countries, especially China and India. Corporate money has influenced our government to allow the transfer of practically any business into these new rising economies at the expense of American jobs. There are two major reasons for this interest. First, Asia is seen as the future of economic progress because of their tremendous population and potential buying power. Second, labor and manufacturing plant is so cheap that exorbitant profits can be made when Asian manufactures are sold here - at American prices of course. It is not difficult to understand that when the cost of plant and equipment is about half of the costs required in the United States, and labor costs are only 10% of the costs in the United States, corporations will naturally choose to manufacture in Asia. Our government officials are no longer concerned about the common good of its citizens; rather they are interested in their personal gain to be acquired through corporate influence. At home, our service industries can only exist as long as there is enough money circulating among the middle and lower classes to support the consumerism. Our Financial industry can only continue to exist as long as the asset bubble continues. Our only real source of income is our military weapons business. We supply most of the world's weapons. Where does the money come from to maintain our economy? It is the consistent growth of our national and personal debts that maintains the momentum of our economy. Our government needs to maintain that momentum for a while longer. As far as our corporations are concerned, the writing is on the wall. Real, or long-term investment will be made in Asia where a huge population with rising incomes will eventually dominate the economic world. The unemployed population in China alone is greater than the entire population of the United States. As the income of the average American citizen continues to erode, we are viewed by the corporate world as a mature market. The United States is no longer a prime market for investment. It is time to reap the profits of past investments and maintain the cash cow as long as possible, or at least until a prosperous Asian economy can be built. Unfortunately, it is obvious that our government supports this corporate view, regardless of what their lips tell us. A few years ago, these investments would not have happened. There were laws against unfair trade, concerning environmental issues, unfair labor practices, and a plethora of other rules and considerations for the public good. In the past few years many of these laws have been expunged or relaxed in the name of deregulation to allow for the international exploitation of labor. This is our government at work in behalf of their corporate constituencies. Lest they lose their corporate sponsors, our media is now blaming Asia and especially China for the loss of our jobs and their excessive use of "our" oil. It is our own government that encourages companies to invest in foreign countries, even to the point of awarding tax breaks for doing so. It is our own government that is encouraging the displacement of American workers with cheaper foreign workers. China is not the villain here. It is our own government encouraging and aiding international corporations to move their business overseas in search of that Holy Grail, profits.

The National Association of Manufacturers and other pro-free trade groups have used faulty data to champion NAFTA style free trade agreements. Contrary to recent corporate claims, however, the trade balance in non-oil manufactured goods with U.S. FTA partners over 2008-2009 was a deficit of $97 billion. The NAM reported that “over the past two years FTAs have resulted in a U.S. manufactured goods surplus of nearly $50 billion.” To achieve this outcome, the NAM used “total export,” data, a measure including billions of “re-exports” of foreign products transshipped through U.S. ports but not made by U.S. workers. They counted these as "exports." When the domestic export data employed by the U.S. International Trade Commission is used, the opposite result is produced. The US is running a trade deficit with almost every FTA partner while running trade surpluses with non-FTA partners.

Obama's pro-free trade stance will leave him barking up the wrong tree. Fortunately Congress recently passed some legislation that holds the promise of clamping down on the egregious practices brought about by free trade agreements. But even these tenuous efforts are focused and fixated on currency manipulation instead of taking the bull by the horns and ending FTAs and making it less profitable for US corporations to ship jobs and plants abroad and import cheap products back into the US market.

Thom Hartmann makes the case for protectionist tariffs. And what we should be protecting ourselves against is not imports of products locally made and produced by local companies in China and elsewhere that can't be made or produced here, but products produced abroad by American corporations that could be made here. What's really at stake here and deserving of protection is American jobs. As long as American corporations can relocate plants, equipment and workers abroad and import products back into the American market, their profit margins will be greater. So American workers must be protected from American corporations who import from abroad under the guise of free trade.

 

House Overwhelmingly Passes Trade Sanctions Bill Targeted At China

From Huffington Post

First Posted: 09-29-10 11:20 PM   |   Updated: 09-29-10 11:20 PM

WASHINGTON (AP) -- The House has approved legislation that would allow the U.S. to seek trade sanctions against China and other nations for manipulating their currency to gain trade advantages.

The 348-79 vote Wednesday sends the measure to the Senate, where its prospects are unclear. Senate supporters hope to get a vote on a similar proposal after Congress returns following the November congressional elections.

Supporters said the bill would allow the Obama administration to pressure China on an issue that they say has led to the loss of more than 2 million manufacturing jobs in the U.S. over the past decade.

The vote came as lawmakers scrambled to wrap up unfinished business so they can hit the campaign trail with a little over a month before the Nov. 2 elections. Polls show that the state of the economy and an unemployment rate that remains stuck at 9.6 percent are the top concerns of voters.

The measure was passed by a wide margin with 99 Republicans joining Democrats to vote yes. Those in opposition included 74 Republicans and five Democrats.

Supporters said the size of the vote should send a strong message to Beijing that Washington will not tolerate currency manipulation and other trade practices viewed as unfair to American workers.

House Speaker Nancy Pelosi said that in 20 years America's trade deficit with China has gone from $5 billion annually to $5 billion every week, an imbalance she said demanded action by Congress to protect American jobs.

"We do this because 1 million American jobs could be created if the Chinese government took its thumb off the scale and allowed its currency to respond to market forces," she said in a speech on the House floor.

American manufacturers contend that China's currency is undervalued by as much as 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

The legislation would allow the imposition of stiff sanctions on Chinese imports. It would expand the definition of improper government subsidies to include a government's manipulation of its currency to gain trade advantages. Currently, the Commerce Department does not consider currency manipulation as a government subsidy for which it can impose trade sanctions.

During the House debate, supporters cited studies that they said show the legislation would boost American exports and create more manufacturing jobs in this country.

"Some credible estimates are that we could return a million American jobs to this country," said Rep. Xavier Becerra, D-Calif., in urging support for the legislation. "We can either take bold steps or we can take baby steps."

Opponents said the legislation would boost the cost of clothing, toys and other goods that American consumers buy and also ran the risk of sparking retaliation by China against American exports.

"The available evidence is that the price of many of these Chinese goods will go up 10 percent, a pair of shoes that a mother needs for her child to go to school ... toys at Christmas, all become more expensive," said Rep. Jeb Hensarling, R-Texas.

Supporters rejected that argument, saying it is critical in hard economic times to protect U.S. jobs.

"Without a job, you can't buy goods at any price. This bill is about jobs," said Ways and Means Committee Chairman Sander Levin, D-Mich.

Passage of the proposal was cleared when Levin led an effort to craft a compromise proposal that supporters believe will be better able to withstand a challenge before the World Trade Organization, the Geneva-based group that oversees the rules of world trade.

Before the House vote, Chinese officials in Beijing reiterated that they support exchange rate flexibility but offered no new indications that they plan to accelerate the revaluation of their currency, the yuan.

In June, Beijing promised a more flexible exchange rate but since that time the yuan has risen by only about 2 percent in value against the dollar.

Treasury Secretary Timothy Geithner told Congress earlier this month that the administration stands ready to find a more effective strategy for pressuring China. He said the administration is not only focused on the currency issue but on such topics as rampant copyright piracy of U.S. products and various barriers the Chinese have erected to U.S. goods.

In a statement, the Treasury Department said, "Today's vote clearly shows lawmakers have serious concerns about this issue. The president and Secretary Geithner share those concerns. They have said repeatedly that China needs to allow a significant, sustained appreciation over time."

The administration has not taken a position on whether it will support the House bill. But trade experts said they believed the administration will use its passage as a way to pressure Beijing to accelerate its appreciation efforts.

President Barack Obama raised the currency issue in a meeting with Chinese officials last week in New York. He is expected to pursue the issue in November at the summit of the Group of 20 major economies in South Korea.

Sen. Charles Schumer, D-N.Y., who is pushing a similar China currency bill in the Senate, said after the House vote that he will work to get a Senate vote on his bill during a lame-duck session of Congress after the November elections.

"The Chinese ought to be aware that Congress is serious about confronting their currency manipulation," Schumer said in a statement.

Germany Cooks American Goose in China

Germany seizes on big business in China

By Anthony Faiola

Washington Post Foreign Service, Saturday, September 18, 2010; 3:50 AM

VERL, GERMANY - As Americans fret over high unemployment and the prospect of another recession, an economic renaissance is putting Germans back to work and propelling the economy at a pace not seen since the fall of the Berlin Wall.

Ask a German executive why, and you are likely to get the same one-word answer that slips like silk off Gunter Scheipermeier's tongue: "China."

Vilified in the United States as a great sucking sound on the American economy, China is courted here as a revered client. Fast-growing demand from Asia's giant is helping to fuel the strong German recovery, and Germany now stands as proof that a rich nation can profit off China's rise.

China passed the United States last year as the No. 1 overseas market for big-ticket German machinery, with Teutonic titans from Siemens to Volkswagen - which so far this year has sold 1.3 million cars in China, five times as many as it has in the United States - ramping up production and payrolls to fill Chinese orders.

More important, China is driving growth at smaller German manufacturing firms like Scheipermeier's Nobilia that form the true backbone of Europe's largest economy. A family-run company making modular kitchens in a half-mile-long factory, where free-roaming robots work alongside humans on the most advanced assembly line of its kind in the world, Nobilia is treating nouveau riche Chinese like Americans of the 1950s - when nothing said success such as a sparkling, modern kitchen.

At the same time, the company is aiding Germany's domination in the surging Chinese market for imported household goods. Through alliances with other German companies, Nobilia is selling kitchens to the Chinese that fit standard European-size appliances, 24-inch-wide ovens, for example. These kitchens do not accommodate the larger ovens commonly made by U.S. manufacturers and built for American families cooking Thanksgiving turkeys and Sunday rib roasts.

Overdependence on China for exports growth, many here say, could hurt Germany as the economy there eventually cools. And German companies, like their American and Japanese counterparts, are facing increasingly sophisticated piracy threats from a nation where blackmarketeers can copy an entire BMW roadster or Mercedes sedan.

But with showrooms in 17 cities and sales surging 40 percent this year alone, Nobilia now sells more kitchens in China than all but two domestic Chinese manufacturers, with no American challengers in the top 10.

"China is vital to Germany's future," Scheipermeier said. If he has his way, he said, "Chinese duck will be cooked in kitchens more like those designed for German chickens than American turkeys."

A trade competition

One thing is for sure: When it comes to building a healthy trading relationship with China, Germany is cooking America's goose. U.S. exports to the world's second-largest economy surged 25 percent in the second quarter of this year, but German sales to China grew twice as fast. Overall, German exports have jumped 17 percent this year, driven in large part by a 55 percent rise in China of imports. Although the United States still exports more to China in total dollar terms, adjusted for the size of their economies, Germany is now out-exporting the United States to China by a factor of three to one.

Last year, Germany's trade volume with China was $115 billion, while the U.S. trade volume with China was more than $370 billion. Like most nations, Germany suffers a trade deficit with China - or the difference between what it sells and what it buys. But it is nowhere near as much in the red with Beijing as the United States. In fact, during one month this year - February - Germany even came within a narrow $1 billion of chalking up a trade surplus with China.

That is partly because of frugal German consumers, who unlike Americans eschew credit and save like mad. As such, Germany's imports of cheap Chinese toys and TVs are ebbing, lower now than they were at any point since 2005. But it is also because of domestic manufacturing prowess that allows Germans to buy many products still made in Germany. At the same time, Germany has created the most finely honed export economy outside of China.

As the Obama administration vows to fix America's troubled trading relationships and build an economic recovery in part on the back of exports, business leaders such as Jeffery Immelt, chief executive of GE, are pointing to Germany as a model. The Germans have funded "business centers" to aid small- and medium-sized companies in tapping the Chinese market, using government money to support their Chamber of Commerce networks and boost trade. They have adopted a less confrontational approach to China on issues including China's exchange rate and copyright infringements, focusing instead on sales.

The government, through energy and transportation policy, has fostered a German edge in manufacturing high speed rail, wind turbines and other technologies that Germans have sold to the Chinese.

"There are critics who say our manufacturing in the United States can never be competitive with China because of their wages," said Scott Paul, executive director for the District-based Alliance for American Manufacturing. "But in Germany, you see a country that has wages and benefits at least as high as the United States, and yet they have managed a manufacturing base and trading relationship with China that we in the U.S. would love to have."

In recent decades, as countries including the United States and Britain put greater emphasis on financial services and property values, the Germans have hyper-focused on the art of manufacturing. Even relatively small German companies have grown into global market leaders for the products Chinese want, from drilling equipment to optical mirrors to prefabricated kitchens. Exports now account for more than one-third of Germany's national output, more than double the rate in the United States, with Germany's $1.2 trillion in annual exports roughly equal to the entire gross national product of India.

In the aftermath of the financial crisis, Germany became the first major economy to exit the Great Recession. Unlike in the United States, the export-led recovery here is translating into jobs. In August, Germany's unemployment rate stood near a two-year low of 7.6 percent, with some companies in Germany now complaining of a labor shortage and the need to loosen immigration rules. The U.S. unemployment rate is 9.6 percent.

Few expect the pace of growth to continue, citing signs of a cooling off in China and economic uncertainty in Germany's major markets in Europe and the United States. But after painful adjustments since reunification of East and West - including years of falling wages and high unemployment - there is a growing sense here that Germany is better positioned for prolonged, stable growth than it has been in years.

"Why is Germany doing better than the U.S.? The answer is not so difficult," said Hans-Jochen Beilke, chief executive of Ebm-Papst, the German ventilation company now dominating the Chinese market in refrigeration technology. "Our industrial base is simply much higher now than yours," he said. "Look at the state of machinery manufacturing in your country. There are nearly no important American makers left anymore, and most of the ones you have now are German subsidiaries. And then, look at cars. Go ask the Chinese if they want to buy a BMW or a Ford."

Selling to Shanghai

"This," beamed Matthias Keudel, export chief at Nobilia, gesturing to a pressure chamber in the company's factory here, "is our Shanghai Climate Chamber."

Inside the chamber, the company based in a small city 250 miles west of Berlin tests the impact of tropical Chinese heat on a variety of materials used in Nobilia's kitchens, now being fitted into high rises during a real estate boom from Shanghai to Hangzhou. The Chinese prefer wooden cabinets, rather than the hyper-modern plastic replicas that are the norm in Europe.

"The plastic is actually better than wood," he said, "but the Chinese client does not want anything that seems like an imitation or a copy; they get enough of that at home."

Nobilia is a classic German manufacturing success story. Launched in 1945 from the rubble of World War II as a company making sewing machine tables, it found its niche in kitchens by the 1960s. Today it makes nothing but kitchens, using similar technology and just-in-time delivery methods employed by BMW for high-performance cars.

From selling a few dozen kitchens in 1997, the company's now sells more than 10,000 a year.

Scheipermeier, the company's blue-eyed chief executive, is now the German face of Nobilia in China, with his ruddy, smiling image adorning billboards and ads. A special on his life broadcast on Chinese TV this year captured 175 million viewers. "What we are selling to the Chinese is a German lifestyle," he said.

Once in China, the kitchens are typically sold in a package with German appliances, including those produced by Miele, another family-run Germany company. In large part because of German appliance makers, Chinese washing machines, dishwashers and other appliances are also now built largely to European, rather than American, specifications.

"We are installing a European standard in China for kitchens and appliances," Keudel said. "That's going to make it harder for any manufacturer outside of Europe to challenge us down the line."

Although many German companies - like the Americans and Japanese - have moved production, and jobs, to China, others, like Nobilia, have not. But even Scheipermeier admits it is something the company may need to consider in the future.

"I can't tell you how things will be down the line, we will need every advantage to maintain our market share in China," he said. "But right now, well, we are quite pleased."