Home Capitalism A Tariff Policy to Create Jobs

A Tariff Policy to Create Jobs


We need exports and imports. We need jobs. And we need more jobs than can be provided by exports. In other words,at a very minimum we need net exports. But we don’t have them. We have net imports.

Here’s the problem. In 1993, we signed into law the North Amreican Free Trade Agreement. It broke down tariff barriers between the U.S., Canada and Mexico.What has been the result? Pretty simple. Low wage countries sell their stuff here and American companies make low cost stuff there…and also sell it here!

Net exports to Mexico during the period since NAFTA began have dropped by more than $2 trillion. This means a loss to Mexico of more than 1.1 million American jobs since 1993. China is even worse. Since China entered the World Trade Organization in 2001, our import-export ratio with China has cost the United States about 3 million jobs.

So China and Mexico alone are responsible for the loss of over 4.1 million jobs. If those jobs were being done here in the United States, our current unemployment rate would be less than 7% even with all the job losses and the layoffs and the deliberate non-hiring by corporations to try to politicize unemployment for the 2012 election.

So, what about tariffs? We hear that the Smoot-Hawley Tariff was a disaster for the American economy in 1930. Crap. Here are the facts. The Smoot-Hawley Tariff was introduced in 1930, and the tariffs were quite high. But so many other factors were involved with the expansion of the unemployment in the Great Depression, that Smoot-Hawley, while harmful, was not definitive.

First of all, exports as a percentage of GDP were a much smaller percentage in those days. Second, the imposition of tariffs did have a favorable effect on employment before the entire monetary system of the world collapsed. But if you take imports minus exports, it was a net loss. And while domestic jobs did pick up, as the world economies began to really fall off, so did that brief period of domestic job increase.

While Smoot-Hawley was considered by some to have had as much as an 8% effect on the growth of unemployment in the years 1930-1933, the fact is that the world-wide tariffs plus the other monetary factors were much greater. In other words, the world was going down and Smoot-Hawley was merely one of the things dragging it down. Worldwide exports declined by 67% in the early years of the Depression. Everyone was hiking tariffs, so it was not merely the U.S. Not good, but not merely Smoot-Hawley.

Today we are in a hugely different situation. We are not in danger of losing manufacturing. We have already lost it. Actually, very wealthy men, owners of gigantic corporations, gave much of it away to other cheaper countries in order to add to their profits…not make profits but add to their already abundant profits. We were told otherwise, but now we know the truth. They sacrificed American workers for their higher profits.

Tariffs today should not be placed exclusively or even predominantly on foreign companies. Here’s what should be done. We need to place tariffs on American companies manufacturing abroad but bringing products back into the U.S. for sale to American customers.

Let’s say that you are a manufacturer. You get raw materials and some plans. You send those plans abroad, let’s say to China. You make a product using Chinese labor and those raw materials. It is a product that can be made for $6.00 here with $2.00 profit. But in China, you can make it for $5.00 sale price of which $2.00 is labor and $3.00 is profit. You are an American company so you bring the product back here with no duties.

You were selling a million of these for sales of $6,000,000. Now at $5.00 you sell 1.5 million for gross sales of $7,500,000. But instead of the $2 million you made before, you now have more profits on more sales. So you make $4.5 million on sales of $7.5 million. For the Conservative it is a “no-brainer.” Except for one thing. If you had 20 people working for you here in the U.S., you now have only 4 jobs here and 16 jobs, let’s say, in China. In the U.S. only need to package and ship and bill. That’s all everything else is done in China. So you just cost this country $400,000 to put an extra $2.5 million in your pocket.

So here’s what the United States needs to do. If you sell products that you make in China, and you are a U.S. corporation, you should pay an extra 5% on your revenues. So, if it is worth it to make an extra $2.5 million, then you should not mind a “sales privilege” tax for using the U.S. market, the largest in the world. You still make more sales and keep more profits. You keep a little over $2 million (for a total of $4 million rather than $4.5 million profits) but your country gets $450,000 to create new industries to employ the people you replaced with Chinese workers.

But let us suppose that there are a thousand of such companies (there are, at minimum, tens of thousands.) That would mean at least 16,000 more people employed, which means another 16,000 in our service economy. That would also mean $450,000,000 more in the government coffers to loan to small business. This would be an enormous help in creating training programs in community colleges for specific skills, and help in paying for government-shared health insurance costs for the working poor.

Ten thousand such companies would mean $4.5 billion. And all the money that had previously been lent and all the tax revenues from the jobs that were created would begin to compound. Yes, it would take years but every year would see another huge decrease in the unemployed, and a better economy, reductions in home foreclosures and a stronger fabric in society.

All of this could happen…would happen…if we could persuade the very rich to take a slightly smaller share of the economic pie, rather than skewing the marketplace against the working man and against our beleaguered Middle Class. We are not asking for personal tax increases. We are only asking that they help pay to retrain and rehire American workers by taking slightly less of the added profit they get from manufacturing abroad but selling to the lucrative U.S. market.

There was a commercial for automotive maintenance products that used to say: “You can pay me now, or you can pay me later.” In other words, the very rich do have some obligations to the society that allows them to become rich or the society that allows them to securely pass along a large percentage of wealth from one generation to another. Those obligations can be done agreeably, or, if resisted, can be voted in with severity. That is not necessary. We only need a small share of created wealth to jump-start our economy.

History tells us that when the greedy go beyond caring what is necessary to sustain life for the rest of society, then society make a change. In all of history there is no sympathy written into the records for those greedy few who oppressed the masses, or who deliberately withheld their concern and help in times of need. In those cases, drastic economic changes came about with drastic social changes.

Let’s hope that we have come far enough to let the very wealthiest among us see that it is so much more rational to share the kind of affluence that one can never hope to spend or invest or even give away within a normal lifetime. History tells us that those who become so removed from the people that they cannot bring themselves to help the masses who need help will, in the end, receive no help from the masses when despair turns to violence and good will turns to bloodshed.

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