Both Democrats and Republicans have long heralded foreign investment in the United States as a net positive for the United States.
On July 14, 2004, then President Bush told a Chicago audience, “I have no problem with foreign capital buying U.S. companies.”
A July 1, 2009, Fact Sheet from the Obama administration’s Bureau of Economic, Energy and Business Affairs stated “foreign investment…is vital to U.S. prosperity.” But the dirty little detail of that report is that 92 percent of Foreign Direct Investment (FDI) in 2007 was a result of mergers with and outright acquisitions of existing U.S.-owned firms.
The natural tendency when regarding foreign investment is looking at the jobs that are supposedly created. But does foreign investment really “create” jobs? Not according to a 2004 Department of Commerce Report, which showed 95 percent of Foreign Direct Investment (FDI) was used for the “purpose of merely acquiring and exporting control.”
This means that an overwhelming majority of FDI is not used for new, upstart production as is often perceived. And when you take into account the layoffs that almost always accompany foreign acquisitions of existing U.S. companies, the effect of foreign investment on American jobs can easily become a negative. For example, when the Belgian-Brazilian conglomerate InBev acquired the legendary St. Louis-based Anheuser-Busch in a $52 billion takeover, the new “foreign investment” resulted in 1,400 U.S. job cuts within just a few weeks.
In short, foreign companies aren’t investing in America as much as they are using America to invest in themselves. After they rent out our American labor, they take their profits back home and stuff them in foreign-owned banks, pay taxes on those profits to foreign treasuries, and reward foreign owners and investors.
Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration, once said on Lou Dobbs’ program that when foreigners acquire our assets, they “acquire ownership of our real estate, of our companies, of the corporate and government bonds so we lose all the future income streams that are associated with the assets when we lose the ownership. So it is a bad thing.”
But what if we got even more specific, and instead of talking about foreign investment, we started dealing with the new investment type of the decade: Chinese investment? In other words, if China, awash in hundreds of billions of U.S. dollar cash reserves (money that used to be ours before we sent it to China to buy their cheaply-made goods thinking free trade was the answer to our economic problems) started buying existing American-owned companies.
The floodgates have already opened for Chinese investment in America. Chinese-owned companies invested $1.73 billion in 2009 for U.S. projects or acquisitions, and $2.81 billion as of September 2010. China’s state-owned Tianjin Pipe has plans invest $1 billion in a steel pipe mill next year near Corpus Christi, Texas to avoid a 63 percent U.S. tariff. Pacific Century Motors, hatched from Beijing's municipal government, acquired Michigan-based Nexteer Automotive from General Motors, which makes driveline and steering systems.
Despite the kudos deserved to certain legislators for pushing and including “Buy American” laws for the economic stimulus package, Chinese-owned Suntech Power Holdings qualified for and received $2.1 million in manufacturing tax credits and became eligible to supply solar panels from their 117,000-square-foot Arizona plant for U.S. government contracts with "Buy American" clauses.
This highlights the need to define “Buy American” as more than just buying American-made products. The true definition of “Buy American” should be this: Buying American-made products from American-owned companies.
U.S. Ambassador to China Jon Huntsman - and possible Republican hopeful for President - recently told Business Week that China is expanding because “they have the money to expand” (remember all that money we sent to China for those cheap Chinese-made toys and clothes, etc.) and their core interest is “Preserving the Communist Party.” The double digit economic growth China has experienced year after year goes a long way in preserving communism extremely easy.
Of course Chinese-based Suntech Power Holdings wasn’t required to partner with an American company to set up shop in Arizona. But U.S.-owned First Solar of Tempe, Arizona, had to team up with a State-owned subsidiary of China Guangdong Nuclear Power Co., to get approval to build what might be the world’s biggest solar-energy plant in the Inner Mongolia region of China.
Luckily the Export-Import Bank is trying to level the playing field a bit, by setting terms to get the Pakistan government to buy 150 locomotives from General Electric. Did you know GE is moving the production of its new energy-efficient water heater from China back to America, creating 400 U.S. jobs? Did you know Ford Motor Co. detailed plans last August to move nearly 2,000 jobs from India, Mexico, and Japan and back to America by 2012?
Still, more has to be done to level the playing field for American companies. Just last week on January 14, Evergreen Solar decided to form a joint venture with a Chinese company, lay off 800 American workers at its main plant in Massachusetts, and move to China, citing “higher government support available in China.” I guess the $43 million they got from Massachusetts in 2008 wasn’t enough to keep them from entering discussions with China in 2009 to move the plant overseas.
The danger of what can happen when an American company falls into Chinese hands is detailed very well within the intentions of Chinese-owned Volvo (Ford sold Volvo to China-based Zhejiang Geely Holding Group last year). According to a January 13, 2011, Wall Street Journal article, Volvo is considering becoming the first major automaker to export China-built cars to the U.S. That’s not a surprising scenario to be dreamed up by a Chinese-owned company, is it? It’s becoming clearer than ever that America needs less foreign investment and more American investment.
Reducing job-killing foreign investment in the United States isn’t going to get any easier as more American companies fall into foreign hands and Chinese companies get to call the shots on what’s best for their home companies. The best way we can do our part as consumers is to educate ourselves on which companies are American owned and which ones are foreign owned and then support our American-owned companies. That will keep more jobs, profits, and much-needed tax revenue within our borders.
Friedrich List, a German economist who also lived in America for several years and wrote The National System of Political Economy in 1841 before he died in 1846, once said, “The power of producing wealth is infinitely more important than the wealth itself.” I would add that by keeping the ownership of our companies in American hands, America retains the power to create wealth.
Buy American Mention of the Week
Eleven easy ways to buy American in 2011
By Roger Simmermaker
January 4, 2011
Consumers are seemingly more sensitive to buying American around the holidays than most other times during the year. Perhaps because it’s because as we search for gifts for those on our Christmas list, we run across the words “made in China” a little more often than we would like.
But now that Christmas is over and the New Year has begun, how can we continue to buy American if the bulk of our purchases, for the time being at least, are over?
The good news is that buying American doesn’t always have to involve items that are big enough or expensive enough to put under the Christmas tree, and there are more opportunities to buy American than for just big ticket items like cars, lawnmowers, or large appliances.
Some the easiest – and most inexpensive – ways to buy American are in areas where the consumer is really indifferent as to which product to buy. The good news is that when it comes to simple, everyday items like soap, deodorant, or cotton swabs, usually any product will do since the price difference is usually negligible. The even better news is that sometimes it’s even cheaper to buy American than not.
So here are eleven easy ways to buy American in 2011 using the money you’re already going to spend anyway.
Cotton Swabs. Don’t call them Q-Tips. The Q-Tips brand is made in America, but guess what? The company that owns the brand isn’t American at all. The name of the company is called Unilever (ever seen Lever 2000 soap?), which is a joint venture between England and The Netherlands. An American alternative would be the CVS or Walgreen’s brand, which are both made in USA as well for about the same price. Both CVS and Walgreen’s are American-owned companies and are based in the United States.
Deodorant. Suave and Dove are both owned by Unilever, so the profits go overseas and the taxes are paid overseas to foreign governments when you buy either of these brands. Want an American brand to buy and save money, too? Go to the Dollar Tree store and buy the Speed Stick brand for $1 each, which is made in USA by American-owned Colgate-Palmolive. If you drop five or ten dollars, you won’t have to go back to the store for this item anytime soon.
Bath Soap. Irish Spring sounds like it might be foreign, but it’s actually an American brand made in the United States. Ivory soap is American, too. Jergens is made in America, but Jergens is owned by a Japanese company. Think of it like this: Just like a Toyota made in the U.S. is still a Japanese car, a bar of Jergens soap made in the U.S. is still a Japanese soap. Dial is owned by a German company.
Mustard. French’s mustard isn’t French. It’s owned by the British. Grey Poupon sounds like it might be foreign, but it’s owned by an American company, and is made in America.
Pasta sauce. Did you know Ragu is owned by Unilever, the foreign-owned company we learned about in examples one and two? Prego is an American brand owned by the Campbell Soup Company, and is made in the United States.
Disinfectant. Lysol and Clorox are both effective disinfectants and there is little if any price difference between the two, but only one is American owned. Lysol used to be owned by Kodak, but Kodak sold it to a British company in 1995. Clorox is American owned.
Coffee. Two of the most popular brands in the United States are Maxwell House and Taster’s Choice, but only one is owned by a company based in the United States. Taster’s Choice is made by Switzerland-based Nestle – the largest food company in the world. Maxwell House is an American brand. The coffee beans for both brands are imported, however. For truly American coffee from tree to cup (the beans come from Hawaii) check out the USA Coffee Company at www.USACoffeeCompany.com.
Cosmetics. Revlon is an American-owned company and many (not all) of their products are made in the United States. Maybelline was American-owned until 1996 when French-owned L’Oreal bought the company for $758 million.
Bottled water. Now that we know the French own at least one brand many probably thought was American owned, what other popular brands are owned by companies based in France? You might be surprised to know that Dannon bottled water (and other Dannon products like yogurt) are French owned. Aquafina (owned by Pepsi) and Dasani (owned by Coca-Cola) are American brands.
Peanut Butter. They say choosy mothers choose Jif. Choosy patriotic Americans choose Jif, too, because Jif is American-owned. Skippy is owned by our favorite foreign brand Unilever.
Apparel. Why shop at Wal-Mart and buy foreign-made t-shirts when you can buy American-made t-shirts from All American Clothing Company (www.AllAmericanClothing.com) where they use 100% U.S.-grown cotton for just $7.99. Are the shirts in Wal-Mart that much cheaper? I have to admit I don’t know because I don’t shop there. But I do know Wal-Mart is the biggest seller of Chinese-made goods on the planet.
Okay, I had to give another example because this is probably the best one, and since winter is still here, we might be adding some hot chocolate to our shopping cart at the supermarket. Swiss Miss is American owned, but Carnation is owned by the Swiss.
The good news is that the more we buy American-owned and American-made products, the more powerful and positive impact we will have on the U.S. economy. And the even better news is we can usually do it without any extra cost or inconvenience to the consumer. Awareness is the key.
Prior to the start of 2010, Gerald Celente, an American trend forecaster, publisher of the Trends Journal, and an author who has made several accurate predictions like the 1987 stock market crash, the collapse of the Soviet Union in 1991, the 1997 Asian currency crash and the 2007 subprime mortgage scandal, made the following one of his top ten predictions for the year:
8. Not Made In China. A "Buy Local/My Country First" backlash will be the first sign of what we forecast will become a massive, "circle-the-wagons" movement. As economies continue to decline and even more jobs are lost and/or sent abroad, it will be seen as politically incorrect and financially self-defeating to plunk down money to enrich multinationals at the expense of local and domestic producers.
Now I don’t normally make predictions myself, but I’ll venture out on a limb and make this one: 2011 will be the year that China makes a major attempt to buy American assets with money that used to be ours. Allow me to explain what I mean about the “money that used to be ours” part.
For almost 30 years, America has been fixated on (largely to our own detriment) lowering domestic tariffs while getting little in return and crafting endless “free trade” deals. The basic mindset has been, starting with the Ford Administration, that any trade deal was a good trade deal. 1975 was the last year the United States had a trade surplus, and now we have twin deficits (budget and trade) as far as the eye can see.
During the Reagan Administration, we went from being a creditor nation to a debtor nation. We became a nation based on consumption rather than production. Our domestic manufacturing sector has (until recently, at least) been in decline, and we lost thousands of production jobs, most notably to China. For example, over 90 percent of the clothing and toys we buy is imported. There are scarcely any toy manufacturers here today, but there are hundreds of thousands of Chinese workers making toys for the American market.
Not surprisingly, traditional national foundations like independence, self-sufficiency, and self-reliance were thrown out the window as we assumed free trade and globalization were the best things to come along since sliced bread (fortunately most of our bread was still baked in America). Economists, policy-makers, Congress, and all the presidents since Gerald Ford backed up the seemingly undeniable notion. Anyone who disagreed with the free-trade-uber-alles idea (like me) was either a Xenophobe, a protectionist, an isolationist, or was living in the past. Ironically, the policies of the past (like between 1947 and the beginning of the Ford administration when we had trade surpluses, no national debt, a higher GDP, a more solid gold standard, and smart protectionism) were actually better.
The new normal on trade policy dictated that we send China our dollars, and they in turn would send us cheaper goods than we could make for ourselves. They would also get “most favored nation” (MFN) status, which was later re-named the less antagonistic “normal trade relations” (NTR) status, and finally permanent normal trade relations (PNTR) status. Funny thing is we never bothered to give our own country (along with our own manufacturers and producers) anything close to a “most favored” status. The pasture is always greener on the other side, I suppose.
Free trade was the policy of the day and subsequently several decades. And with that free trade, we gave foreign producers easier and lower-cost access to our consumers than we gave our own American producers. We practiced free trade with a protectionist China (and countless other protectionist countries) and kept our market wide open in the belief that the rest of the world would see the light about how our trade theory was superior and eventually follow suit if we waited and pleaded long enough. But the world eventually saw that this “superior” trade theory also brought unsustainable debt, unsustainable trade and budget deficits, the need to make tough decisions on taxes and spending, and the like. China, whose economy routinely grows at 10 percent each year while ours languishes between two percent and three percent, chose not to follow the U.S. model, but rather chose the more-protectionist Japanese model, seeing how that country had successfully amassed huge trade surpluses with us and siphoned away manufacturing jobs from us while giving us little in exchange.
As hundreds of thousands of Chinese make our toys, we send them American dollars. Since Chinese workers don’t pay taxes to America (including taxes to support today’s fiscally-challenged Social Security) we have a shortage of national revenue to pay for the things “We the People” have demanded from the use of our tax dollars. Budget deficits mount. Trade deficits follow.
Short on cash to meet our obligations, we need to borrow money to stay afloat. So we borrow money from China (money that used to be ours before we sent it to them to buy toys, clothes, and other products that used to be linked to American jobs and a growing chorus of the elite decided Americans did not want), and pledged to pay them interest on it.
Then, all those American workers we intentionally allowed to be fired from their jobs making toys and clothes and the like were retrained with taxpayer dollars for new jobs they didn’t want in the first place. We routinely spend hundreds of millions of dollars for the privilege of putting American in unemployment lines so we can send them back to school on the taxpayer dole and retrain them for the “jobs of the future.” Explain that strategy to a former auto plant employee in Michigan, who qualified to take courses for one of the new “green jobs” and now earns half of the $50,000 annually he used to make.
So what does China have up their Chinese-made shirt sleeve for 2011? Flush with nearly a trillion U.S. dollars of cash reserves, they’re going to get more aggressive at seeking to siphon American dollars through the profits generated from formerly American-owned companies.
This signals a shift in the traditional Chinese strategy of exporting endless goods to America for our endless consumption. America has become increasingly sensitive to the flood of Chinese imports, as seen by the Obama Administration’s 35 percent tariff on Chinese tires, which was recently held up by the WTO (World Trade Organization).
There’s a chance we might become sensitive enough to thwart major Chinese takeovers of American companies before more major damage is done, but that doesn’t mean China won’t make a concerted effort to gain substantial ground before we do.
Chinese-owned Huawei Technologies acquired Bay Area start-up 3Leaf Systems’ staff and intellectual property in May. 3Leaf Systems is a technology firm that develops technology to make server computers synchronize and work together to form a more powerful machine. Executives from the two companies didn't think the acquisition would prompt a review by the Committee on Foreign Investment in the U.S. (CFIUS) because it wasn’t an outright 100 percent takeover, but the acquisition has now been held up on national security concerns.
In October, Chinese offshore oil company (CNOOC) Ltd paid $1.1 billion for a stake in Chesapeake Energy Corp's shale project in southern Texas. Earlier this month, the Wall Street Journal detailed the latest sign of China’s escalating appetite for U.S.-owned companies as Chinese-owned Bright Food Group Co. announced it was close to coughing up nearly $3 billion to purchase vitamin retailer GNC Holdings Inc.
Meanwhile, China now boasts of the world’s fastest supercomputer, as we scramble to restore our supposed leadership in high-technology (another area where the U.S. runs a trade deficit with China). Chinese engineers relied on Sparc technology, which originated from Sun Microsystems, and eventually plan to develop completely original microprocessors. If that happens, China will no longer need to rely on U.S. companies and will be far less vulnerable to export controls from the U.S. government, which restrict access to military applications technology.
China is making the transition from toys to high technology. Thanks to free trade, which has traded away our national sovereignty and leverage as a leader in high tech, we are hopelessly in debt to the Chinese, and they will raise the stakes in 2011 to buy American land, companies, factories, and assets with money that used to be ours.
We can’t stop Chinese and other foreign companies from buying American assets, but the good news is we can sure stop sending them the money with which to do it. We need to support American-owned companies that make things in the USA and not foreign-owned companies because we need a lot less foreign investment and a lot more American investment. Let’s buy American and ensure that there will always be American left to buy.
Buy American Mention of the Week
Signed, sealed, and certified ‘Made in USA’
By Roger Simmermaker
December 4, 2010
We’ve all heard the media continue to report on the dangers of product recalls - courtesy of foreign countries - like dog food, drywall, toys, vitamins, milk, and lead paint. As a result, more consumers are actively reading labels and shopping accordingly. A recent Gallup Poll found that 72% of Americans are paying "heightened attention" to the country of origin.
The American consumer has spoken loud and clear. Most prefer to buy American and are willing to pay more for it. The same Gallup Poll revealed that 94% of Americans would pay more for foods grown or produced in the United States.
It follows then that the next, natural step would be to have the products we see and buy so often certified as either manufactured or grown in the United States. American consumers get peace of mind, and American businesses can strengthen their brands by building loyalty and trust while emphasizing their commitment to keeping jobs in the United States.
‘Made in USA Certified’ (www.USA-C.com) is the place to go for businesses that have all these goals in mind. Their criterion for qualification is pretty straightforward, and here it is:
• Products must be verified as having their core components manufactured or grown in the United States of America, as well as 100% of their assembly conducted in the U.S.A.
• In the case of consumables (human and animal), 100% of the core components as well as 100% of the assembly must be conducted in the United States of America.
To qualify for the Service in USA Certified™ Seal:
• A business must demonstrate that all labor is provided exclusively from within the United States of America.
At USA-C, they say the process of getting certified is as easy as 1-2-3.
Their clients range from service companies such as The Whole Bain Group (smart web design and social media strategies) to familiar manufacturers like All American Clothing, which I have featured or mentioned in some of my past articles.
On the USA-C testimonials page, you can read comments from companies that have happily been through the certification process like lingerie design and manufacture firm Hanky Panky, burn-care product maker WaterJel Technologies, domestic dog treat maker Kona’s Chips, and the Franklin Instrument Company.
The membership benefits of working with ‘Made in USA Certified’ are many. You’ll get access to other ‘Made in USA Certified’ companies and the chance to partner with them to help expand your business opportunities through networking. After all, companies that have consumer patriotism as their core belief work better when they work together.
After the admittedly rigorous certification process, once your ‘Made in USA Certified’ Seal is granted, you’ll be on your way to differentiating your company from the competition.
And since ‘Made in USA Certified’ complies with U.S. federal laws and regulations, should the Federal Trade Commission (FTC) ever question your ‘made in USA’ claim through their own audit or at the request of a concerned patriotic consumer, ‘Made in USA Certified’ will provide all associated documentation supporting your product(s) or services claim.
So if you own a company, work with a company, or know of a company that wants to add value to their brand and give their consumers peace of mind in what has become an increasing cut-throat global economy where profit has taken precedence all too often ahead of what’s best and safest for the American marketplace, you might want to give ‘Made in USA Certified’ a long, hard look.
Buy American Mention of the Week
How to have a ‘Made in USA’ Halloween Holiday
By Roger Simmermaker
Wednesday, October 20, 2010
Halloween is creeping up on us, and many Americans soon will make final purchases for things like decorations, costumes, and candy to make it a fun holiday for kids and grown ups too.
The new Halloween edition of the American-made Retail E-guide is ready to go so when parents and kids get ready to go to the stores to choose everything they need that puts “happy” into Happy Halloween, they can buy American at the same time.
Of course one of the things that makes patriotic consumers happy, along with a fun and safe Halloween, is to know that the money they spend on candy, costumes, and decorations is spent on American products so countries like China don’t reap all the financial rewards of our American celebrations.
The original American-made Retail E-guide created in August features over 2,300 American-made items available in over a dozen retail stores across America. Now, over 200 American-made Halloween-related items have been added to the e-guide for a total of over 2,500 American-made products!
You might be surprised to know that a lot of the candy available to us on the shelves of many stores is made in China and various other foreign countries. The Halloween edition of the American-made Retail E-guide will guide you to the right kind of candy that is made here in the USA to make it an especially ‘sweet’ holiday for the American men and women employed by various domestic confectionery companies.
For example, did you know Life Savers Big Ring gummies are made in Mexico, and that many other gummi bear products are made in China? Did you know that York Peppermint Patties are also imported, and a lot of candy products don’t even mention where they are made?
The Halloween edition of the American-made Retail E-guide shows you how and where to find all of the candy you need to satisfy the sweet tooth of all those trick-or-treaters without compromising on the quality of the some of the best and most popular brands.
Even though many parents put their creativity to work and make their own costumes for their children, if you want to find an American-made costume at a retail store (admittedly I only found one), it’s in the Halloween edition of the American-made E-guide.
You can also find a lot of American-made accessories like makeup, vampire fangs, and face-painting kits, that will enhance your costume or outfit regardless if it’s store-bought or created at home.
If you’re having a Halloween party at your place, the new e-guide will show you where to find all the best American-made party favors from the Halloween plates with which you serve your food to the Halloween-style icing and edible glitter that goes on the cake.
Putting up Halloween decorations around the house? While it is true that most electrical decorations are imported, you can still buy a decent amount of American-made Halloween decorations to either spice-up or spook-up your place. The e-guide shows you where to shop so you can spend most of your time putting up your decorations rather than driving around town looking for them. The new e-guide will even show you where to find American-grown pumpkins.
And don’t forget that just like the original 2,300-plus product guide you’ll be receiving along with the guide to over 200 Halloween products, I’ve also listed the prices in case you find a better deal on the item you’re looking for at another store to save you money.
For example, I found 12 feet of American-made Halloween-style garland at Family Dollar for just $2.50 and nine feet of the same style at a JoAnn store that was made in China for $4.99, which reinforces my argument that buying American-made doesn’t always cost more money.
To receive the new 2,500-plus product Halloween edition of the American-made Retail E-guide (which includes the original 2,300-item e-guide with over 200 Halloween-related items listed), here’s what you need to do: Simply order any item ($3.50 and up) from the USA Shop and type “Halloween” for the promo code during checkout, and I’ll personally email your Halloween edition of the American-made Retail E-guide to you.
If you already ordered the previous American-made E-guide, you will be emailed the new E-guide for free and you will also receive free updates for one full year. Likewise, those who order the new Halloween Edition of the American-made E-guide (with their purchase from the USA Shop) will also receive updates for one full year.
It’s not a spooky concept to want America to reap the rewards of our purchases for Halloween. We all want to have a fun and safe holiday, but this year, let’s find and buy the right kind of candy and other products that keep our dollars at home circulating in our economy.
Buy American Mention of the Week
‘Protectionist’ is not an insult
By Roger Simmermaker
June 23, 2010
Dartmouth economics professor Douglas Irwin joined the never-ending, undeserved assault on the Smoot-Hawley tariff in his June 18 Wall Street Journal opinion column, titled How ‘Protectionist’ Became An Insult.
He claims that when President Herbert Hoover President Herbert Hoover signed the infamous Smoot-Hawley tariff on June 17, 1930, to which he refers as “a Republican ploy to gain the farm vote in the 1928 election,it significantly raised the duties on imported goods” and “contributed to a collapse in world trade and the spread of protectionism around the globe.”
Irwin also lectures free trade skeptics by warning us “that any protectionist move by the U.S. will be counterproductive if it leads to foreign retaliation,” which essentially means we should be content with an unrestrained, trade deficit-escalating, job-killing, national revenue-destroying, independence-eliminating, GDP-reducing, flood of imports as any defense mechanism to stop them is a futile and perpetually losing proposition. I wonder why none of the countless countries across the globe that have run longtime trade surpluses with the U.S. never seem to think it can be counterproductive when they slap high tariffs on our exports.
At least Mr. Irwin is willing to admit most economists don’t claim the Smoot-Hawley tariff was responsible for the Great Depression, which is merely an exercise of stating the obvious since it was enacted over 8 months after the October, 1929 stock-market collapse.
Rather than disect Mr. Irwin’s flawed logic point by point, however, I’ll provide my own compelling case, complete with historical facts, as to why the Smoot-Hawley tariff did not contribute to a sharp decline in world trade back in the 1930s.
Campaigning against Herbert Hoover for the presidency in 1932, Franklin D. Roosevelt saw the tariff as a way to get a leg up on his Republican opponent’s incumbent bid. Even the Democrat party platform of 1928 proclaimed that tariffs were necessary to sustain “legitimate business and a high standard of wages for American labor.” The platform also encouraged the equalization of the cost between production at home and abroad to “safeguard...the wage of the American laborer.”
The confidence Hoover expressed in high tariffs in his re-election bid was echoed throughout the campaign. If the word of the day was that high tariffs had caused the Great Depression, Hoover’s stance would have obvious political suicide. Even FDR was unable to totally shake the call for high tariffs. On the campaign trail in October 1932, he proclaimed, “I favor continued protection for American agriculture as well as American industry.”
Regardless of how one calculates tariff rates, as either a percentage of imports where tariffs are applied or as a percentage of all imports, duty-free or not, the Smoot-Hawley tariff did not have the highest rates in U.S. history. That claim belongs to the Tariff of Abominations of 1828, which caused neither a depression nor recession. With the belief that high tariffs cause depressions and hamper economic growth, one has to wonder why there wasn’t a Great Depression of the 1830s.
In their attempts to vilify Senator Smoot and Representative Hawley for proposing such extremely high tariff rates, many politicians, economists, and textbook writers seem to miss the fact that the 59.1 percent tariff rate (up from 44.6 percent) only applied to one-third of all imports in 1932. The 59.1 percent rate is derived by using the most liberal method for calculating tariff percentages, and is actually higher than it should be. The reason the tariff was determined to be at such a falsely high level is because over 50 percent of imports had tariffs applied at a fixed rate.
For example, if a particular good had a tariff rate of 25 cents per pound, and the product sold for a dollar, the tariff percentage was represented at 25 percent. However, with the prices falling for goods as the economy collapsed, the tariff rate would double if the value of the good was reduced by one-half. So what was a 25 percent tariff rate before the depression instantly became a 50 percent tariff, although the consumer was actually getting the same product for cheaper at the newly calculated higher tariff rate. In other words, a product that cost a dollar at a 25 percent tariff would cost $1.25, but if the price fell to 50 cents, the tariff was still 25 cents and the product now only cost 75 cents, but the tariff rate was now calculated to be 50 percent.
The Smoot-Hawley tariff did raise duties on particular import sensitive goods, such as Canadian agriculture, that were already on the tariff list, but also increased the amount of goods to which no tariffs were applied compared to the Fordney-McCumber tariff of 1922.
Few will mention or acknowledge that President Hoover raised the top income tax rate from 25 percent to 65 percent in 1932, and FDR continued this atrocious policy by further raising the rate to 79 percent. This insurmountable climb in the income tax rate reaped far more damage on the American consumer than any modest tariff increase on a select amount of import-sensitive items. Keep in mind that tariffs are a discretionary, indirect tax. The consumer can choose to buy the import or the domestic good, and therefore refuse to pay the tariff. No consumer escapes direct income taxes. Everyone must pay.
America certainly was not the only nation to raise tariff rates before the depression, as many nations raised tariffs after World War I. France, Germany, Spain, Italy, Yugoslavia, Hungary, Czechoslovakia, Bulgaria, Romania, Belgium and Holland all raised their tariffs on imports to levels comparable to those before World War I. Even Britain, a free trade nation, declared that “new industries since 1915 would need careful nurturing and protection if foreign competition were not again to reduce Britain to a technological colony.” The message was clear. Nations were rebuilding their industries after World War I and needed protection to re-develop them.
But what affect did the tariff have? History shows that the crash was much more likely to affect the stock market due to the inability of Congress to pass a tariff bill at all than because of the possibility that Congress might pass a high tariff bill. A business community and its nation perceived a lack of leadership, gridlock, and political maneuvering, rather than tending to the needs of the country. Records show that when Representative Hawley’s bill passed the House Chamber five months before the stock market crashed, the Dow climbed over 5 points to 298.87.
After Senator Smoot proposed an even more protectionist Senate version, the market peaked at 381 points. However, Idaho republican Senator William Borah formed a coalition of constituents to defeat the bill. On October 3, the Dow lost 15 points. The front page of the New York Times stated: “Hoover Defeated on Flexible Tariff; Coalition in Senate, 47 to 42, Takes From President Duty-Fixing Power.” Although Hoover sustained veto power, the perception was that he had no majority in Congress to pass the tariff bill. Democratic Senator George Norris tacked on an agricultural subsidies program, and Senator William Borah and his coalition of agrarian Republicans took charge of writing the tariff.
Prior to the crash, the National Association of Manufacturers complained to President Hoover of the inability of business to make decisions of industrial expansion, since the tariff bill had been haggled over for five months. The Bankers Trust director and former vice-president, Fred Kent, blamed the Democratic coalition, led by Senator George Norris, for their part in the stock market crash. “Industry cannot proceed, employ men, buy and process raw materials unless it can feel confident of markets,” said Kent. “There was a fear that if this [insurgent] bloc succeeded in rewriting the tariff bill in its own way, it might come to believe that it had the power to reduce tariffs.” William Borah responded that if the fight of his coalition “shakes the Stock Exchange to the earth, let it go.”
The volume of trade in respect to imports did drop off in 1930 after the passage of the Smoot-Hawley tariff, but what nation would not see a reduction in imports if the buying power of their citizens had just been cut in half or worse? One would think that out of the total volume of U.S. imports, during the deep depression years, import growth of non-dutiable goods would outpace those upon which duties were levied. However, this is not the case.
From 1929 to 1931, the volume of both dutiable and non-dutiable imports declined almost equally at 52 percent. In fact, there were one hundred products that had higher tariffs applied to them that actually saw an increase in import volume. It is very interesting that despite the reduced buying power of Americans coupled with the fact higher import duties were being collected on some of these items, it did not eliminate the attempt by foreign producers to gain a greater share of the U.S. market. It is obvious that not only with the Smoot-Hawley tariff, but also with the preceding Fordney-McCumber Act of 1922, and basically since the first tariff in 1789, there was no decisive negative relationship between higher tariffs and import volumes.
Concerning Dartmouth Professor Douglas Irwin’s charge that nations enacted retaliatory tariffs against the United States for passing the Smoot-Hawley bill, historical documents do not support this view. Great Britain did not release any formal protests since it regarded the United States as a sovereign nation that did not look favorably upon other nations meddling in their affairs. Great Britain was also concerned that a formal protest might encourage still higher tariffs, which might work to the disadvantage of their exporters. Great Britain was one of America’s leading trading partners, and avoided any formal protest. Sir Esme Howard, the British Ambassador to Washington at the time, informed London that “official representations...against the proposed tariff increases...[would be] a mistake.”
Foreign diplomats generally avoided specific threats of retaliation against the United States since any such language would be considered an infringement upon national sovereignty, and it was not the place of foreign governments to protest the Constitutionally enacted laws of the United States. Furthermore, the word “protest” during the time of the Great Depression did not automatically express dissatisfaction with U.S. trade policy. The word “protest” usually represented the argument that treaty rights of a foreign nation had been violated.
Historical records show that the Smoot-Hawley tariff did little to encourage foreign countries to retaliate with high tariffs of their own. In May 1931, the State Department report found that “by far the largest number of countries do not discriminate against the commerce of the United States in any way.” Data from the U.S. Commerce Department show that the reason for the severe drop in exports in almost every American export industry was because of economic problems related to the depression, not foreign retaliation for higher U.S. tariffs.
Some U.S. exports actually saw significant gains in foreign market share. Exports of apples, pears and grapefruits increased. Exports of prunes went up 31 percent, and exports of dried apricots soared higher by 72 percent. Exports of raw materials such as cotton and rayon held steady. Exports of American films increased 49 percent, and exports of false teeth rose 24 percent.
Irwin’s assertion that the Smoot-Hawley tariff contributed to a collapse in world trade and the spread of protectionism around the globe is a myth based on ignorance of historical facts in favor of pursuing economic textbook theory.In this case, only America blames America.
Republican Senator John Heinz III, who died tragically in a plane crash in 1991, had this to say about the Smoot-Hawley myth in 1985:
“It gravely concerns me that every time someone in this administration or the Congress gives a speech about a more aggressive trade policy, or the need to confront our trading partners with their subsidies, barriers to imports and other unfair practices, others in Congress immediately react with speeches on the return of the Smoot-Hawley Tariff Act of 1930, and the dark days of blatant protectionism and depression. It seems that for many of us that Smoot-Hawley has become a code word for protectionism and, in turn, a code word for the depression. The changes supposedly wrought by this single bill in 1930 appear fantastic.”
Further analysis of the economy during the depression years reveals that nearly two-thirds of the drop in imports between 1929 and 1933 occurred prior to the Smoot-Hawley tariff.
Back on July 12, 2001, I wrote the following, which was published in the second edition of How Americans Can Buy American, comparing our surrent situation to that of the 1930s: “We are on another unsustainable path now as we were then, but we have refused to learn from history. However, this time, when it becomes obvious that the path we are on is unsustainable, America will not be able to blame a policy of domestic protection.”
U.S. trade history, as well as the situation we find ourselves in today with adherence to free trade, continue to prove that for the United States, protectionsim equals prosperity and free trade equals failure.
Roger Simmermaker is the author of How Americans Can Buy American: The Power of ConsumerPatriotism and writes "Buy American Mention of the Week" articles for WorldNetDaily.com and his website www.howtobuyamerican.com. Roger is a member of the Machinists Union and National Writers Union, has been a frequent guest on Fox News, CNN, and MSNBC, and has been quoted in the USA Today, Wall Street Journal and Business Week among many other publications.
Buy American Mention of the Week 4-14-10
Double American exports? Not likely.
By Roger Simmermaker
Poor free-trade America. We just can’t seem to achieve a trade balance, let alone a trade surplus. The last time we ran a trade surplus was in 1975 when President Gerald Ford was in the White House.
Now President Obama is trying to double American exports over the next five years. Nice goal. Trouble is, most presidents have tried to increase exports over the last 35 years to try and get us back to at least a trade balance, but it just never seems to work. It might have something to do with getting other countries to go along with our plan. They never do and they never will. Why would they?
We cannot expect other countries to surrender their markets to us simply because we have stupidly surrendered our market to them. We seem to be engaged in a game of “Do you like us yet?” with other countries hoping we can eventually cash in on perceived popularity points. It hasn’t worked, and it won’t work. We’ve been giving foreign producers production-cost advantages over our own producers for at least 35 years now, and we can’t expect them to start “playing nice” with us and let us invade their markets to the tune of doubling our exports.
So what do we do? Well, according to an April 9, 2010 article in the Wall Street Journal “Review and Outlook” column “World Tariff Wars,” we certainly can’t raise tariffs. Why? Because other countries might retaliate and there might be “damage to U.S. leadership on free trade.” Let’s be honest; a policy that consistently results in persistent deficits is definitely not something we want to be leading in.
And let’s be clear. The terms ‘free trade’ and ‘free market’ cannot be found in any founding national document – such as the U.S. Constitution or Declaration of Independence – because they were never intended. The first bill to pass Congress on July 4, 1789, was for the seal of the United States. The second bill to ever pass Congress was a 50 percent tariff on numerous products (the first bill was for the seal of the United States on July 4, 1789.)
This country was not founded upon ‘free markets.’ It was founded on protection and fair play for American producers that abided by and absorbed the cost of various American laws intended to raise our standard of living. Everyone wants a safe place to work, pollution controls and clean water, etc. Protectionism (or protective tariffs) got us the long string of trade surpluses up to 1975. The ‘free market’ and ‘free trade’ mentality got us the long string of trade deficits from 1976 to present. These trade deficits play a significant role in the persistent budget deficits.
President Gerald Ford was one of the first to fabricate the phony link between free trade and what he called a “fair world economic system.” Case in point was his February 20, 1976, memorandum concerning the petition for import relief as filed by the United Shoe Workers of America, the Boot and Shoe Workers Union, and the American Footwear Industries Association.
In rejecting a remedy of import restraint, he pointed out how the U.S. footwear industry was “benefiting from a substantial increase in production, shipments, and employment” and that “a number of plants have reopened” while “profitability has improved.” If these conditions were true then, they certainly didn’t last long. Americans have to search long and hard for these days to find footwear made by their own countrymen.
President Ford’s intent through not granting import relief through restraining what would become the flood of products from foreign producers we experience today was to pursue a goal “to expand domestic employment and living standards through increased economic efficiency” according to the memorandum. I think we missed that goal. And we’ll miss the current goal of doubling U.S. exports unless we have the backbone to raise tariffs on foreign producers like they’ve raised tariffs on us.
It is clear President Ford’s goal did not come to pass. Did domestic employment expand in the long run? Did we eventually experience increased economic efficiency in the domestic footwear industry? And how can you chart the expansion of living standards resulting from an American industry that is nearly non-existent?
So what do we do? We put tariffs on producers that are harming, undercutting, and driving out the existence of domestic industries. But what if they retaliate with tariffs of their own? Then we retaliate back. What if we start a trade war? Then I say “So what?”
Perhaps George Meany, the first president of the AFL-CIO, put it best.
Listening to free traders, you would think there is no successful formula for U.S. trade surpluses. It is obvious through our experience over the last 35 years that free trade results in trade deficits for the United States. But the same free traders warn that restraining imports like President Gerald Ford failed to do, which has basically relegated the U.S. footwear industry to perpetual life support, will also result in trade deficits. Talk about a defeatist position! To free traders, no matter what America does, America loses.
The truth is every country wants access to our market. Every country wants to sell to us. The United States is the biggest consuming country the world has ever seen. If we cannot use our leverage to structure the rules of competition to our advantage, then we have proven we cannot compete since competition begins at the negotiating table.
The simple fact that we have such huge national leverage and are seemingly unable to figure out how to create trade surpluses shows how ineffective we really are as trade negotiations, and this is truly a national embarrassment. So those who would label protectionists as “defeatists” since they propose raising tariffs, are truly the ones who deserve the defeatist label since their free trade policies are those that have brought us defeat year in and year out.
Having to concentrate on and resort to industries that cannot be exported as a way to build employment is evidence we have accepted defeat. Free traders love competition, but in the same breath, they tell us we have to surrender certain industries to foreigners, thus withdrawing from competition. How can you celebrate and take pride in the very activity (competition) you outwardly avoid?
Remember, 1975 was the last year the United States had a trade surplus. President Ford’s memorandum was in 1976, and set us on a path to systematic trade deficits from which there seems no escape. Foreign countries that now experience trade surpluses are not going to accept more of our exports since that would only reduce their own domestic production levels and reduce their domestic employment. We have no more trade policy bargaining chips with which to pry open foreign markets since our markets are already open. Whether you like our current president or not, few have stood up to China and slapped tariffs on the communist country like President Obama did when he put import duties on Chinese tires as high as 35 percent.
And then there are the claims that free trade will spread democracy. Maybe we need to pay closer attention to what China’s self-professed intentions are. In February 2007, Chinese Premier Wen Jiabao declared that the Communist Party would (not might) “unswervingly adhere” to its current course for the next century. He made promises of economic development but no promises of democracy. It is time to stop pandering to China, letting them have their way, enduring their threats to America, stand up to them and end this game of “Do you like us yet?”
We need to stop granting ‘Most Favored Nation’ status to other countries and grant it to ourselves. Now more than ever, we need to bring production home to the United States, or home will never be the same.
Buy American Mention of the Week 2-10-10
An American-made Valentine’s Day
By Roger Simmermaker
Valentine’s Day is just around the corner. And guys, if you’re thinking about getting roses for that important woman in your life, you can be sure to get guaranteed American-grown roses from Jackson & Perkins, which delivers all of their roses from California's San JoaquinValley. But what if you’re interested in getting something other than the traditional Valentine’s Day gift of roses that can still claim the United States of America as the source?
Few things can warm an American heart more than a good, hot cup of coffee, and the best place to get it is from the USA Coffee Company at www.USACoffeeCompany.com where every bit of it is truly American from tree to cup.
Only American workers and American jobs are involved when you buy any of the many types of coffee and other related products from the USA Coffee Company, which grows all of their coffee in the great state of Hawaii. You can check out their V-Day Combo special and get free USPS Priority shipping.
America’s patriotic brick-and-mortar store American Aisle (www.AmericanAisle.com) has all kinds of American-made Valentine’s Day gifts at special prices to celebrate the special day with your sweetie. How about a vase full of Chocolate Red Roses on 14-inch stems complete with silk leaves for an amazingly low-priced $3.99? Also tough to beat is a six piece gift stick of creamy caramel-filled, milk chocolate molded hearts wrapped in red and gold foil for $4.99.
Also available at www.AmericanAisle.com (if you don’t live close enough to the Chicagoland area to visit their store in person) are Heart Pops for 59 cents each, Valentine Pretzels (14 ounce bag for $7.99), Red Candied Dried Tart Cherries for $1.99, a Hearts Filled Teddy Bear for $7.99, a Cupid Crunch Bag of candy for $5.99, along with milk chocolate pretzels, dark chocolate pretzels, and white chocolate pretzels for $7.99 each. How simpler (and cheaper) can it be to shower your sweetie with Valentine’s Day treats?
You can also buy American when you buy what I buy if you visit www.AmericanAisle.com and pick up their Icon Candle Heart for a mere $19.99. I can’t wait to fire up this candle and smell the romantic aroma blend of caramel, chocolate, and vanilla that I just know my wife will love. And now you can get 10 percent off your order using my special HTBA coupon code at checkout.
American Aisle is also having a moving sale between President’s Day on February 15th to February 21st, where you can get a whopping 40% off by using coupon code HTBAEX at checkout to get the lowest price ever.
At www.MadeInUSAForever.com you can choose from American-handcrafted Perla Fragola Strawberry White Chocolate or medium- and large-piece handcrafted chocolate by Maxmillan Chocolat by clicking the Food & Drinks tab on their website.
And why not consider classy clothing for the classy lady in your life from www.eagles-way.com? Show her she’s your “Sweet Valentine” and make her sparkle with a ladies fashion T with a valentine motif on a pink background. These three-quarter sleeve all-cotton shirts come with jewel decorations and are made in USA by Cactus Fashion. The Valentine motif shows the words “To my Valentine” and “All my Love Now and Forever” with valentine hearts and ribbons and sparkly gemstones.
So now it’s easy to satisfy your sweetie and do your part as a patriotic American by keeping your money in America where it should be for the benefit of other Americans who need jobs so they can take pleasure in satisfying sweeties of their own.
Roger Simmermaker is the author of How Americans Can Buy American: The Power of ConsumerPatriotism and writes "Buy American Mention of the Week" articles for WorldNetDaily.com and his website www.howtobuyamerican.com. Roger is a member of the Machinists Union, has been a frequent guest on Fox News, CNN, and MSNBC, and has been quoted in the USA Today, Wall Street Journal and Business Week among many other publications.