ERNEST F. HOLLINGS, former U. S. senator
2010 -- I thought my begging President Obama for an industrial policy
to make the United States competitive in globalization was futile - until
this morning. In this morning's The Wall Street Journal (2/8/10) on the
lower right-hand corner of the Op-Ed page appears the headline: "The
U. S. Needs An Industrial Policy." Thank the Lord for the author,
John Hofmeister, former President of Shell Oil Company.
friend, John McCain, told the Michigan automobile workers in the Presidential
campaign that their jobs were not coming back, I knew then John didn't
understand globalization. Globalization is nothing more than a trade war
with production looking for a cheaper country to produce. And BMW automobile
jobs had already "come back" in South Carolina; Mercedes Benz
in Alabama; Nissan in Mississippi; Honda in Tennessee, and Toyota in Kentucky.
in the trade war was so fierce that the enemy had already invaded the
United States with its production and jobs. Germany, with a 19% value
added tax that's rebated at export allows Mercedes Benz to ship the engine
and parts from Germany at a cost of 4%, making its U. S. production 15%
cheaper than any Detroit production. These automobile jobs were brought
back by each state's industrial policy. For example, South Carolina has
just packaged an industrial policy of over $900 million to have Boeing
produce the Dreamliner in South Carolina. This is the frustration in Massachusetts
and over the country. States are bending over backwards to attract investment
and jobs while Washington does everything possible to get rid of the jobs.
Washington loves to require business to comply with labor rules, safety
rules, environmental rules, a high standard of living, but it refuses
to protect its environment, economy and high standard of living, forcing
U. S. manufacture to off-shore its production and jobs. As Hofmeister
relates: "The rest of the world actively promotes its core industries."
Washington stimulates tax credits for small business and welfare to keep
teachers and firemen employed, but opposes promoting "its core industries"
by engaging in the trade war for investment, research, technology, development,
production, and jobs.
loss from the recession will rebound when the recession ends. But
the job loss from off-shoring won't rebound until we adopt an industrial
policy to compete in the trade war. It won't be easy. Corporate
America and Wall Street love the bigger profits from off-shoring.
They'll oppose any trade bill or measure to develop an industrial
policy with cries of "free trade," "protectionism,"
Ernest F. Hollings
indolence amounts to an industrial policy for China. Its failure to enforce
our trade laws; its outright subsidizing the off-shoring of jobs; its
failure to compete with a value added tax, forces Corporate America to
off-shore. Any United States manufacture that can readily be off-shored
will go and produce in China and export its production to the United States
cheaper than the U. S. production. It's gotten so that one can't manufacture
for a profit in the United States.
A country founded on manufacture in a trade war has become a country AWOL
in a trade war. In our early days, the Crown prohibited manufacture in
the Colony. The Mother Country required the Colony's exports to be carried
in English bottoms, and the Townsend Act that triggered the Boston Tea
Party triggered the Revolution. After we adopted the Seal of the United
States, the first bill to pass our national Congress on July 4, 1789,
was a 50% tariff on imports -- protectionism. We were fortunate not to
have banks and corporations in those early days. Alexander Hamilton, who
gave us the bank, first delivered his famous "Report on Manufactures,"
resulting in an industrial policy that financed and developed the Colony
into a nation state and an industrial power. We did it all with protectionist
tariffs. We didn't pass the income tax until 1913. As Edmund Morris, in
his book Theodore Rex, describes the nation under Theodore Roosevelt:
year of the new century found her worth twenty-five billion dollars more
than her nearest rival, Great Britain, with a gross national product more
than twice that of Germany and Russia. The United States was already so
rich in foods and services that she was more self-sustaining than any
industrial power in history.
end of World War II, the United States was the only country with
manufacture or industry. We knew that countries in Europe and the Pacific
Rim must have manufacture for capitalism to develop a middle class to
support democracy. So we fashioned the Marshall Plan, and capitalism defeated
communism in the Cold War. But Japan had already started today's trade
war. Japan closed its domestic market, subsidized its manufacture, sold
its export at cost, making up the profit in the closed market with Toyota
putting General Motors into bankruptcy. South Korea followed suit; and
when China joined, it taught all except the economists that the "comparative
advantage" in international trade or globalization was no longer
productivity like Ricardo's English woolens and Portuguese wine - but
Twenty years ago I called my friend Walter, whom I helped develop Italian
production in South Carolina. Walter had gone out on his own, headquartered
in California. His stock was up, and I asked Walter for his next expansion
to be in South Carolina. Walter shocked me when he said he didn't produce
anything in California or the United States. I can hear him now: "You
can go to China, they furnish the plant, and if it doesn't work you walk
away without any capital or legacy cost. If it works, you don't have to
pay any income tax. Just get another operation in China for more profit."
Today, Corporate America off-shored to China doesn't have to worry about
a labor stoppage, retirement costs, health care, OSHA's safety minions,
clear air, clear water, etc. All it needs is a young "eager beaver"
watching quality control in China; and the CEO back in the United States
can keep up on the internet - have time for a round of golf or drinks
at the Links Club.
Job loss from the recession will rebound when the recession ends. But
the job loss from off-shoring won't rebound until we adopt an industrial
policy to compete in the trade war. It won't be easy. Corporate America
and Wall Street love the bigger profits from off-shoring. They'll oppose
any trade bill or measure to develop an industrial policy with cries of
"free trade," "protectionism," "educate,"
"innovate." As Henry Clay long ago cried on the floor of the
United States Senate about free trade: "It never existed
never will exist." We have enough education to attract Boeing. Tell
Tom Friedman innovation doesn't produce jobs in the U. S. Innovation is
immediately developed with jobs in China. Microsoft and Intel have already
gone to China. We've got to wake up and start manufacturing again. But
it won't happen with Wall Street and Corporate America furnishing Congress
the contributions to do nothing.
Congress must adopt an industrial policy that the people will support
and pressure Congress to adopt. For example, cancel the corporate income
tax and replace it with a 3% value added tax. The average business tax
is 27% with China adding a 17% VAT on U. S. imports to China, amounts
to a 44% incentive to produce in China rather than the United States.
Replacing the corporate tax with a 3% VAT raises more revenue, removes
the incentive to off-shore, saves jobs, and promotes exports creating
jobs. The people will favor this. But the people will have to pressure
Congress to enact it because the CEOs of Corporate America don't want
to have to go back to work producing in the United States.
the exemption for off-shore profits as President Obama called for in his
State of the Union, and make it a 5% VAT with the added 2% paying down
the debt. Those wanting to reduce the deficit will join in support. Don't
wait for production to go bankrupt like GM, but once production is endangered
impose import quotas and tariffs under Section 201 of the Trade Act. Today,
the United States can't go to war except with supplies from foreign countries.
Activating the Defense Production Act of 1950 as reauthorized last year
will create millions of jobs. Get President Obama to impose a 10% surcharge
on imports like President Nixon did in 1971. An industrial policy like
this will get Washington rebuilding our economy.
wonder why Washington does nothing. It's because business doesn't want
its taxes cut making Washington find a war that's not "necessary."
of South Carolina served 38 years in the United States Senate, and for
many years was Chairman of the Commerce, Space, Science & Transportation
Committee. He is the author of the recently published book,
Government Work (University of South Carolina Press, 2008).
Ernest F. Hollings. All rights reserved. Contact
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Ernest F. Hollings served
the public for 56 years -- 38 years in the United States Senate and as South
Carolina's governor, lieutenant governor and a member of the S.C. House of
Today, Hollings continues
to be influential in public affairs and offers this Web site as a compendium
of current and past positions on public issues. Learn
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Hollings receives French honor
France honored retired
U.S. Sen. Fritz Hollings on in 2013 by awarding him the Legion of Honor for
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