Apparently President Obama and Congress believe that they are not responsible for the economy; that all they have to do is let market forces work; that government is not responsible for the economy. They waxed eloquently about jobs in the campaign but never mentioned anything to make a CEO want to produce in the United States. Federal aid for policemen, firemen and teachers do not build an economy. It takes private investment. Government must make it profitable for Corporate America to invest and produce in the United States. We can maintain our standard of living by protecting items critical to our economy as President Reagan protected steel, motor vehicles, computers and machine tools in 1984.
Every CEO studies the costs in the United States and offshore of capital, labor, safety, health, environment and legacy costs. In China, the government takes care of them. All a CEO has to do is put in a quality control guy; check him daily on the Internet or a cell phone. The CEO has no worries. He has certainty. With the U.S. Government running $1 trillion deficits each year, the CEOs know taxes are going up. They've been waiting to repatriate offshore profits for two years for the president and Congress to determine the increase. There is no certainty.
Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Today, a CEO worries about where his competition is investing. The CEO can be making a profit in the U.S., but if his competition goes to China it could put him out of business. China and 149 countries compete in globalization with a Value Added Tax that's rebated on exports. Our corporate income tax is not rebated. A U.S. Manufacturer pays a 35 percent Corporate Tax and a 17 percent VAT when exports reach China. The China competitor is bringing into the U.S. the same goods tax free. This 52 percent difference is killing manufacture in the United States. Congress could correct this by replacing the 35 percent Corporate Tax with a 7 percent VAT. Last year's Corporate Tax produced $181.1 billion in revenues. A 7 percent VAT for 2011 would have produced $872 billion. This tax cut produces billions to pay down the debt and releases $1 trillion in offshore profits for Corporate America to create millions of jobs in the United States.
President Obama and Congress must stop their nonsense of calling for "free trade." The United States was born in a trade war -- the Boston Tea Party. The Founding Fathers rejected David Ricardo's Free Trade Doctrine of Comparative Advantage in agriculture and opted for manufacture by adopting the Tariff Act of 1787 -- two years before the Constitution. This industrial policy of protectionism worked so well that Edmund Morris in Theodore Rex writes (p. 21) that after a hundred years the Colony was "$25 billion richer" than the Mother Country. In globalization, markets and trade are controlled by government.
After World War II, Japan closed its market, subsidized its manufacture and sold its exports near cost, making up the profit in its closed market. This bankrupted General Motors and made Toyota number one. South Korea, Taiwan and other countries followed suit, putting South Carolina's textile industry out of business. Tom Friedman always cites jobs that can't be filled for a lack of skills. We have the skills in South Carolina to make the "ultimate driving machine" for BMW and the Globemaster for Boeing. But South Carolina has 8.6 percent unemployment.
China's government completely controls its market. If you want to sell in China, you must produce in China. To produce in China, you must surrender your technology. China takes this technology, alters it slightly, patents it and soon the China article becomes the article in trade. China realizes that with nuclear weapons there is no military superpower. China uses its large market to not only control trade but foreign policy. After Tiananmen Square in 1989, the U.S. obtained a resolution in the U.N. to investigate human rights in China. China went to its economic friends in Africa and the Pacific and there has never been a hearing on the Resolution. Two years ago, Japan seized a China ship Captain. China withheld rare earth supplies vital to Japan's computer industry and Japan quietly returned the ship Captain. China aims to become the world's economic superpower as the United States goes broke.
If President Obama would politic the Congress for a VAT tax cut to stop the deficit spending and create jobs; if he would protect our vital production to give Corporate America certainty; if he would organize the economy as well as he had Jim Messina organize the vote, the U.S. will come out on top.