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SEPT. 17, 2010 -- Both the military and the free press suffer from an arrogance or mindset that the U. S. is a superpower militarily and economically. It is neither.

In the Korean War, when the Chinese spilled over the Yalu River, we could have used nuclear, but we withdrew to minimize casualties leaving one-half of Korea to the communists. After ten years in Vietnam we withdrew to minimize casualties. We could have prevailed in Iraq and Afghanistan in four years like we did in World War II, but after seven and nine years respectively we are withdrawing to save casualties.

After Korea, Vietnam, Iraq, and Afghanistan, we should know by now that more are willing to die to defend their culture and a government different from democracy. For five years, we tried to take a valley in Afghanistan and withdrew because more Afghans were willing to die to defend it. We can't get it through our heads that you can't change a country's culture militarily. And, more importantly, democracy comes from within. The military can't force feed it - and shouldn't. In the Muslim world, I helped liberate Morocco, Algeria and Tunisia sixty-eight years ago, and they have yet to opt for democracy.

In the Muslim world, more important than democracy and freedom is tribe and religion. Nuclear and the Sixth Fleet are good to defend, but in today's globalization, they are passé. After Tiananmen Square in 1989, the U. S. got the U. N. General Assembly to adopt a resolution to investigate China on human rights. China, using its economic influence, went to its friends in Africa and the Pacific, and there has never been a hearing on the resolution. In globalization, "It's the economy, stupid." Does anybody really think we can defend Taiwan from China?

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. As Governor of South Carolina fifty years ago, I was drafted in this trade war to testify on behalf of the Northern and Southern textile industries before the old Tariff Commission. I noted how Japan closed its market, subsidized its manufacture, sold its export at cost, making up the profit in the closed market.

We lost the case, but in 1961 President John F. Kennedy held hearings under the War Powers Act of 1950, determining that, next to steel, textiles were the second most important to our national security. Then, President Kennedy saved the textile industry with his seven-point program. Competing in the trade war in 1971, President Richard Nixon imposed a 10% surcharge on imports when our trade deficit was a fraction of what it is today. President Ronald Reagan protected steel, automobiles, semi-conductors and machine tool production with restraint agreements and Harley-Davidson motorcycles with safeguard measures under Section 201 of the Trade Act calling for tariffs and quotas.

I worked for thirty-eight years in the United States Senate with Corporate America to protect its domestic production and jobs. When China entered the trade war, it not only closed its market for all items domestically produced, but attracted investments, research, technology, development, and production. Off-shoring hemorrhaged and a substantial portion of the United States economy off-shored to China. During the Bush eight years we lost almost one-third of our manufacture and manufacturing jobs. Corporate America switched sides in the trade war and rather than seek protection for its domestic production, now seek protection for its China production and call for "free trade," "don't start a trade war." Wall Street and Corporate America contribute to the President and Congress to do nothing that would disturb the flow of off-shore profits, and the President and Congress do nothing.

After World War II, the United States was the economic superpower. We had the only industry or production. In spreading capitalism to defend communism in the Cold War, we called for free trade. But today, even though Japan has put General Motors in bankruptcy with Toyota #1, the press and media still think that Japan practices free trade.

Now China, with its controlled capitalism, sets the pace. China has attracted our best of research, Bill Gates' Microsoft, and Andy Grove has closed Intel's Silicone Valley facility and develops the best of U. S. innovation in China. Germany, with its 19% VAT, makes a beachhead in Charleston, South Carolina, for green jobs with windmill production. Producing the parts in Germany, the 19% VAT is rebated on export to Charleston. Highballing the cost of production in Germany so as not to pay any income tax in Charleston and with shipping costs only 3%, Germany can produce green jobs 15% cheaper than any United States domestic production.

Competition is fierce in the trade war, but people think we still have free trade. You can't blame them because those in the free press, like Tom Friedman of The New York Times, ignore the trade war and blame the loss of jobs on education or innovation. Innovation is good, but the best of innovation is developed off-shore. South Carolina needs to improve its education, but we have enough skills to produce the "ultimate driving machine" for BMW and the "Dreamliner" for Boeing. Now Washington blames the loss of jobs on the recession instead of fifty years of off-shoring. You can't blame Corporate America for off-shoring. It has to compete to make a profit in globalization, and production and services can be produced more economically off-shore. The task is to make it economically attractive to produce once again in the United States. As Paul Craig Roberts, former Assistant Secretary of the Treasury for Ronald Reagan, states: "The only way the United States will again have an economy is by bringing back the off-shored jobs."

We can bring back those off-shored jobs, and the economy can be given an immediate jolt by replacing the corporate tax with a 5% VAT. This would immediately stop subsidizing off-shoring and eliminate the tax disadvantage that the nation suffers in the trade war. It will boost exports, and best of all you get more money cutting taxes. The VAT brings in $600 billion compared to the corporate income tax estimate for 2010 of only $156.7 billion. This leaves $443.3 billion to pay down the debt.

The international community can be put on notice that the U. S. will now fight in the trade war by instituting a 10% surcharge on imports like President Nixon did in 1971. The real task is to enforce the War Production Act, protecting production necessary for the nation's security, and Section 201 of the Trade Act, protecting vital production when endangered and not waiting for it to go bankrupt. In globalization we want domestic production to remain competitive. In protecting endangered production, the entire industry need not be protected. In textiles, for example, only vital production like camouflage, parachute cloth and composites for body armor need be protected. Subsidizing research is futile unless associated with a competitive trade policy. And China need not be challenged ideologically. China is mature and enforces its trade policy, and all the United States has to do is enforce its trade policy.

On Morning Joe" this morning, Joe Scarborough exclaimed: "I can't understand why Wall Street is doing so well." It is because of the Washington game he covers. There are two Americas or two teams attracting jobs - Wall Street/Washington team vs. the Governors/ Main Street team. The Governors' team struggles to pay for government year-to-year in order to maintain the state's credit rating; and works around the clock attracting industry. The Washington team has no idea of paying for government (now studying it) and does everything possible to favor off-shoring the nation's industry and jobs.

Washington subsidizes off-shoring with tax benefits and, fully aware of the trade war, acts like the U. S. must be careful not to start one. David Gregory of "Meet the Press" was talking about the severity of the recession and someone exclaimed, "Americans just don't get it." That's because the press and media don't give it to them. If the press and media gave it to them, reported that every nation is building its economy in globalization while the President and Congress campaign for contributions and refuse to compete in the trade war, the fraud of Washington would be exposed, and we could go back to work in America again.

Senator Hollings 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, Making Government Work (University of South Carolina Press, 2008).

© 2010, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

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