Posts Tagged ‘economics


New Tax Law May Boost Jobs – But Overseas

New Tax Law May Boost Jobs – But Overseas

Tax Law may Boost Jobs – but overseas by Natalie Kitroeff

Updated 3:32 pm, Wednesday, January 10, 2018

In Indiana, Missouri and Pennsylvania, President Trump used the same promise to sell the tax bill: It would bring jobs streaming back to struggling cities and towns.

“Factories will be pouring into this country,” Trump told a crowd in St. Charles, Mo., in November. “The tax cut will mean more companies moving to America, staying in America and hiring American workers right here.”

The bill that Trump signed, however, could actually make it attractive for companies to put more assembly lines on foreign soil.

Under the new law, income made by U.S. companies’ overseas subsidiaries will face U.S. taxes that are half the rate applied to their domestic income, 10.5 percent compared with the new top corporate rate of 21 percent.


“It’s sort of an America-last tax policy,” said Kimberly Clausing, an economist at Reed College in Portland, Ore., who studies tax policy. “We are basically saying that if you earn in the U.S. you pay X, and if you earn abroad, you pay X divided by two.”

What could be more dangerous for U.S. workers, economists said, is that the bill ends up creating a tax break for manufacturers with foreign operations. Under the new rules, beyond the lower rate, companies will not have to pay U.S. taxes on the money they earn from plants or equipment located abroad, if those earnings amount to 10 percent or less of the total investment.

The Republican vision for the tax plan was to make the United States a more competitive place to do business. Supporters contend that the new rules do not encourage companies to locate overseas. Rather, they say, slashing the corporate rate will make it more attractive to set up shop at home, since many other advanced economies have higher taxes.

And manufacturers do not simply follow accountants’ advice. They consider taxes, but they also look at an array of other factors when deciding where to build a new plant.

Before the tax overhaul, companies had to pay the standard corporate tax on money earned abroad, with a top rate of 35 percent, but only when they brought that income back into the U.S.

Many corporations responded by keeping their profit abroad indefinitely. A record $2.6 trillion was in offshore accounts as of 2015, according to the Joint Committee on Taxation, a congressional panel. Republicans argued that the system deprived the U.S. economy of investments that could have financed new ventures and hiring at home.

It also meant that many multinationals effectively paid no U.S. tax on their overseas earnings. The new bill, supporters point out, will prevent that from happening on such a large scale in the future.

“It’s a vast improvement from what was on the books,” said Ray Beeman, a tax lawyer at Ernst & Young who worked on a tax reform proposal that was a precursor to the current law when he was counsel to the House Ways and Means Committee, under Republican leadership, from 2011 to 2014.

To prevent an exodus of businesses from the United States, the law establishes a minimum tax rate of 10.5 percent every year.

Companies will get credit for up to 80 percent of the taxes they pay to foreign governments. But if the total still comes to less than 10.5 percent of the income they earn abroad, they have to make up the difference with a check to the U.S. government.

So while companies will now have to pay some tax in most cases, wherever they operate, they will pay much less on what they make abroad than at home.

“Having such a low rate on foreign income is outrageous,” said Stephen Shay, a senior lecturer at Harvard Law School and a Treasury Department official during the Reagan and Obama administrations. “It creates terrible incentives.”

Shay said the new rule could make a big difference for small and medium-size companies, which make up a vast majority of U.S. businesses. When those companies used to ask him whether to open offices abroad, he advised against it if they needed to bring their cash home.

Such companies, Shay said, now have no reason to resist the temptation to shift some of their operations abroad, since they would end up paying half the rate they would pay in the United States.

Some companies may not want to leave the comforts of home for a cut in their tax bill. Plants are expensive — they can cost more than $1 billion to buy and to outfit with the necessary machinery. Manufacturers also gravitate toward stable, affordable locales where they can reach their customers easily and hire skilled workers.

“You may prefer to stay in the U.S., with the protections of our legal system, our infrastructure and our labor force,” said Steven Rosenthal of the nonpartisan Tax Policy Center.

Natalie Kitroeff is a New York Times writer.

Editor’s Note

Major Point: Trump Tax Scam – If you make stuff in the USA, you pay 21%, if you make stuff in foreign lands, you pay 10.5% in taxes. This is an incentive for companies to leave the U.S.



GOP Tax Bill – Trumped Up Trickle-down Tax Plan

The GOP Tax Bill – The Trumped Up Trickle-down Tax Plan

What could be easier than passing a bill that cuts taxes on US citizens? It should be easier than falling down. I mean who doesn’t want to pay less on their taxes? But this is not what the GOP tax bill is. First and foremost, the tax cut is for the benefit of the sponsors of the Grand Old Party. It starts with the permanent tax cuts to large corporations. Next, you add other goodies, like getting rid of the Alternate Minimum Tax (which makes some very rich people pay at least some income tax), getting rid of the Estate Tax (House Plan and the Pass Through Tax Reduction for the wealthy. From these cornerstone, all other legislation follows. To get at least some support for their plan, the GOP feigned that they were going to cut taxes on the middle class. And, in order not to blow a giant blackhole in the Federal budget, the GOP has taken away tax deductions used by the middle class.

How popular is this Tax Plan?

The GOP Tax Plan is extremely unpopular, only 25% approve and 52% disapprove – see Axios Link. But The GOP wants to pass it anyway.

Why The GOP Tax Bill is Bad For America?

1. Tax Cuts To The Corporations Do Not Increase American Jobs or Increase Wages.

a) Trickle-down theory is a farce

The GOP Tax Plan is a re-hash of trickle-down economics, sometimes called Voodoo economics. The outrageous theory is that if you give money to the rich, it will trickle-down to the middle class. We have overwhelming evidence that it has never worked. The Reagan tax cuts, the first recent trickle-down tax cut, not only did not create more jobs, but it was the start of the widening economic disparity that has continued to widen. Even, more recently  the experience of the Republican-dominant state of Kansas has shown to nearly bankrupt the state.

b) The Real corporate tax rate is 15%, With the Corporate Tax decrease the real rate will be 8.5%

Corporations are making all time profits, capital can be borrowed at incredibly low rates and yet these corporations don’t hire any new employees or pay them more. There has been a change in the thinking of corporations. In the 1960’s, Corporations made up 21% of the total federal revenue. Now, in 2016 Corporations pay only 9% of the total federal revenue (CPPD), which means the bigger share comes from the middle class. And, now, the GOP wants to decrease the corporation tax rate from 35% to 20%!!! Not that Corporations pay 35% income tax, after all their lobby-filled special tax exemptions, corporations pay only 15% on income (Forbes) – and if you decrease the nominal rate from 35% to 20% without getting rid of these exemptions, the real corporation tax rate would be 8.5%. So, what would be the percentage of corporation revenue to Federal Revenue after this GOP tax cut? It would decrease the revenue towards to the Federal government from an already all time low of 9% to an obscene rate of 5%. Together, with the elimination of the estate tax, this means that the middle class will have to pitch in even more.

c) Why Don’t Corporations hire more or pay more with record breaking profits?

Corporations have had a change in philosophy/conscious. Since the 1970s, corporations’ goal has been to maximize profit while enriching their CEOs and shareholders. It used to be that a corporation would only “down-size” (resorting to mass firings) when the corporation profits were negative. Then, in the 1980s, corporations started downsizing when profits were static and, now, corporations routinely downsize even when they are pulling down record profits. So, what do corporations do with these record profits if they are not creating more jobs or paying higher wages? First, pay CEOs more: CEOs pay has been skyrocketing every year. The ratio of CEO pay to workers is 335 to 1. It used to be 17/1 in 1980. The second thing corporations do is pay more dividends to stockholders. The third thing corporations do with their record profits is they buy back their own stock to pump up their price in the stock market. (This practice should be illegal). Fourth, corporations, thanks to the Republican-dominant Supreme Court created the Citizens United Decision which allows corporations to contribute unlimited money into campaigns, which sends tons of money to their minions, so, the GOP can pass laws like the Trumped Up Trickle-down Tax Plan. The circle of greed continues.

2. Why is only One Party Doing this Tax Plan?

Like the unsuccessful repeal of the Affordable Care Act, The Republicans have been plotting in secret to pass the Trumped-Up, Trickle-down Plan through a process called Reconciliation. By using Reconciliation, only a simple majority is needed, the issue must be budgetary and would not increase significantly the federal deficit beyond a 10 year term limit. So, how does a plan that increases the federal deficit by $1.4 – 1.7 trillion fit that definition? I do not think it does. And because the GOP has majorities in the Senate, The House as well as The President, the  Republicans feel that they can do whatever their sponsors want. And despite what the public wants (52% disapprove), The GOP might just pass this pile of steaming garbage.

3. Who Profits of this Tax Plan?

Who are the winners of this plan(Wash. Post)? 62% of the money from this Republican Tax Plan goes to the top 1%. Obviously, corporations are the biggest winners. People making at least $200,000 and up are also winners – they will be rid of the Alternate Minimum Tax (Donald Trump would have gained $31 million in his 2005 Tax return). The House Tax Plan eliminates the Estate Tax, but today’s Senate Plan increases the the exemption to 11 million for a couple. In another give-away to the wealthy is a reduction in the tax rate who use a process called “Pass Through”. This is where a wealthy person who has a sole proprietorship or limited corporation income from their business transfers into their personal income at a rate of 25% instead of 39.5%.

4. Who Are The Losers of the Trumped-Up, Trickledown Tax Plan?

The GOP Tax plan is very tricky. Things like the repeal of the Estate Tax and decrease of Corporate tax are gradually phased in and are permanent, while the tax breaks to the middle class are gradually phased out and are temporary, which means that the middle class will pay more by 2027.

The Losers:

  1. Families with three or more children
  2. People that deduct state and local taxes from their federal taxes.
  3. Working poor.
  4. College students
  5. Small Businesses
  6. People who pay for Health insurance
  7. People who deduct home mortgage
  8. People Who adopt
  9. People who deduct medical expenses
  10. Wind Energy Producers
  11. Ph.D Students
  12. Electric vehicle buyers.

Below is a chart from the Congressional Budget Office which shows what the effect the Tax plan together with the repeal of the Affordable Care Act: Bottom line – people making $40,000 or less will be paying more. Also, 13 million more people will be off Health Insurance, which means more uninsured people showing up in Emergency Rooms whose bill will eventually paid by the taxpayers and not the bankrupt patients.


5. Top Economics Say GOP Tax Plan Will Not Increase Jobs and will cause a large Federal Deficit.

The University of Chicago School of Business asked 38 economists about the GOP Tax Plan. All agreed that trickle-down economics does not work and will only a create more than a trillion dollar federal debt, possibly $1.4 to 1.7 trillion. Some economists think that the deficit will be much more than this. So, Why pass this Tax Plan?!!! This is called a re-distribution of wealth from the middle class to the wealthy.

6. Some Other Things To Think About

With the Republicans purposely creating a huge federal deficit, the GOP have a chance to automatically cut other programs, something the GOP does not like to talk about. Automatic cuts (Paygo) means that the GOP would cut Medicare by $25 billion the first year and $400 Billion over ten years. It would also decrease Medicaid by $17 billion. Customs and Border Patrol, the Student Loan Administration and the Military Retirement Fund would also face the scalpel. But to decrease funds to Social Security, the GOP would have to separately vote on that (as it is not part of Paygo). But the GOP will surely eliminate many programs for the poor and the disabled – meals on wheels, vocational schools, etc, etc. If you hadn’t already known this, this Tax Plan is a bare-knuckled message to everybody: the Republican Party is the Party of the 1%, the ones responsible for the Washington Insiders cesspool, and the ones responsible for the greatest income disparity between the wealthy and the middle class. The Republicans and Donald Trump care not a whit for the working class. In a time of economic prosperity, we are supposed to pay down our debt, not increase it by $1.44 trillion. What happens if we hit another recession within the next 10 years? A total disaster would occur. The Republican Tax plan is totally irresponsible.



Make or Break Moment for Trump on Trade

Manufacturing Group says Asia trip ‘make-or-break’ for President Trump

The Alliance for American Manufacturing (AAM) is declaring President Donald Trump’s trip to Asia a “make-or-break moment” for the administration on trade.

Thus far, the organization stated in a recent press release, he has not delivered on his promise to transform the United States’ trade relationship with China, adding that he “hasn’t delivered” and that the upcoming trip will prove “whether he will be able to get the job done.”

“One-sided trade with many Asian countries have led to factory closures and job losses,” said AAM President Scott Paul. “I’m glad Trump made trade relationships a priority, but without action, American workers continue to struggle.”

The major unfulfilled promises, Paul said, were cutting trade deficits, labeling China a currency manipulator, and stopping the country’s surge of steel imports.

“After 10 months in office, American workers will be anxiously watching to see if you will turn your tough trade rhetoric into real action,” Paul wrote in a letter to the president. “Despite your campaign promises to crack down on unfair trade and negotiate better trade agreements, since taking office, your words on many issues have resulted in either inaction or confusion as to the path forward.”

Because of this inaction, Paul noted, more than 21% additional steel has hit America’s shores, contributing in part to layoffs at two Pennsylvania steel mills, “including one that produces armor plate used in the production of vehicles that protect service men and women from IED attacks in Afghanistan.”

“Our national security rests on a healthy industrial base,” Paul said. “If domestic manufacturing capabilities deteriorate further, we may be forced to rely on countries like China and Russia to supply steel for our military and critical infrastructure needs. We cannot let that happen.”

Editor’s Comments

Day #293 of the Trump’s Presidency.

What has Donald Trump done to decrease the trade deficit and to bring back jobs from the USA? No longer does Trump try to take credit for jobs  coming back to the USA. Those decision were made by corporations that had been pursuing the process for years. Regarding Trump clothing: Has he even brought his Trump clothing-line jobs (or Ivanka’s) back from China? No. Does he even mention that he has jobs over there? No.

What about the withdraw from the Trans Pacific Partnership (TPP)? Well, the TPP never passed during the Obama administration, so it was already dead. He just said he wasn’t going to resurrect it from the dead. In fact, Trump has always boasted that he was a Free Trader (see Trump Clothing – Offshorer-in-chief) as late as October 18,2015.

Trump said he was going to rip up all the Free Trade Agreements when he took office. Has that happened? No. There are some minor negotiations going on with Canada and Mexico. Yes, two rounds so far. Did he get “business men” to negotiate these deals like he boasted would be a great idea? No. He hired Robert Lighthizer, diplomat, lawyer and trade representative. He was chosen only because he was a critic of the China.

His first executive order regarding trade on April 18, 2017, was “Buy American, Hire American.” Part of this order was just a reinstatement of an existing law: 1933 Buy American Act, where the military must buy made in USA when possible. The other part: tighten rules that award visas to skilled foreign workers and directs the federal government to enforce rules that bar foreign contractors from bidding on federal projects. Counterpoint (just this week): Trump gets visas for 70 foreign workers at Mar-a-Lago.

As Scott Paul has said, America continues to off-shore jobs, and it is not slowing down due to Trump’s Presidency. That is because the CEOs know that Trump will not punish corporations for off-shoring. Nor is China afraid that Trump will call them a currency manipulator. The Trump strategy is similar to his immigration policy: Build a $100 billion wall that will not stop anybody from coming and punish immigrants who dare to come over. That doesn’t work. Instead, if you fined employers who hire undocumented immigrants, like $2200 per worker and a week in jail for offenders – that would stop illegal immigration in a heartbeat.

Truth is Trump does not care about American jobs or American manufacturing. He just says things to sell you things. Still 33% of the population still believe this. Trump would rather pass the GOP tax plan which would help himself personally: eliminating the Estate Tax and eliminating the Alternate Minimum Tax which would save him $18 million per year based on the one public tax return that we can get a hold of.  In fact, I feel that Trump has cooled off the Made in America movement. He has been a terrible spokesman. I severely doubt that he can deliver, especially, on the things that he doesn’t really believe in.


Following Up: More on Why Tariffs Can Bring Back Much U.S. Manufacturing

What a shame that David Barboza’s New York Times article on all the help from government in China that powerfully shaped Apple’s investment decisions was published during the holiday. So starts the follow up story by Alan Tonelson. Barboza’s article shows exactly how China’s hands-on approach to economic policy has been a major success to uplifting China’s status to the number one economy in the world. Tonelson opines that it is tariffs than can bring U.S. manufacturing back.

Source: Following Up: More on Why Tariffs Can Bring Back Much U.S. Manufacturing

Following Up: More on Why Tariffs Can Bring Back Much U.S. Manufacturing

What a shame that David Barboza’s New York Times article on all the help from government in China that powerfully shaped Apple’s investment decisions was published during the holiday week – when so many Americans are paying so little attention to the news . A Pulitzer-worthy piece of reporting, it also adds to the abundant evidence debunking two critical claims often made about the globalization of manufacturing.

First, the article makes clear how much offshoring of American industry has taken place due to foreign government decisions that clash violently with the idea of “free trade.” And second, it exposes further weaknesses in a related, though more recent, claim that most offshoring during the 21st century has stemmed not from foreign tariffs and similar interventionist economic policies, but from technological innovations that enable effective management over far-flung international manufacturing operations. This second claim is especially important, since it’s also been used to demonstrate that American tariffs will be unable to reverse this offshoring significantly.


Apple’s chief manufacturing partner in China, Foxconn, claims that the government supports it receives in the PRC are “no different than similar tax breaks all companies get in locations around the world for major investments.” And Barboza mistakenly seems to confirm this argument, characterizing China’s various market-distorting practices as “not unlike” those “in other countries, “including the United States, where states and cities vie for companies” – except that they are much greater in scale and much more secretive.

But the author himself provides key examples to the contrary. For instance, the Chinese province in which Apple’s manufacturing is concentrated is actively encouraging Foxconn to export. And when the company meets these targets, it gets hefty bonuses. Exports were also fostered via rebates for the value-added tax Foxconn would otherwise pay for at least the first five years of its operation.

Nor was China’s central government simply a bystander. Of course, the value of its currency was manipulated – which artificially lowered the price of goods China exported (including those from factories affiliated with foreign companies like Apple) and raised the price of imports for Chinese individual and certain business consumers. But there was also this scheme described by Barboza:

“Since China began opening its economy to the outside world in the 1980s, the government’s policies have encouraged manufacturing and exports with the creation of special economic zones. But those same policies have discouraged domestic consumption of overseas brands.

“Most products made in China by big multinationals had to be physically shipped out of the country and then brought back so that they could be taxed as imports — hence, the U-turn employed by many companies.”

Revealingly, these arrangements stayed in place well into the 21st century, and similar export-focused zones can still be found all over China.

Barboza’s reporting also bears out arguments I made in a post last week on this subject – that technological change has been a necessary, but not sufficient, condition for the export of advanced manufacturing capacity, and that much offshoring was encouraged by the guarantees of wide-open access to the U.S. market provided by trade policy decisions like backing China’s entry into the World Trade Organization.

As the author notes, “When Apple first moved into China, the country was largely a low-cost production site.” That was in the late-1990s. He also quotes a former long-time executive for Wal-Mart and other multinationals as stating that most of these firms’ China investments represented “supply chains good at making things in the East and selling them in the West.”

China’s domestic market has of course developed impressively since then. But as I observed last week, the continuing importance of exports to these firms’ business models has been spotlighted by their loud protests of Donald Trump’s plans to erect trade barriers against production they aim at American customers.

But it’s also crucial to point out that this initial offshoring of production set in motion a dynamic with huge future implications for America’s economy and for today’s claims about “knowledge-based” offshoring of scientific and technical knowhow – and jobs – that supposedly are immune to trade policy overhaul. Simply put, the offshoring of production made the export of manufacturing’s more knowledge-based activity inevitable in case after case.

The two main reasons: First, super low-cost developing countries are full of smart, people that are highly educable, and trainable by multinational corporations; and second, manufacturing production and innovation rarely exist in isolation. Their relationship is typically interactive, and fueled by continuing and close contact between the researchers and engineers and product designers etc who come up with new products and processes, and the production supervisors and other workers who need to translate their ideas into real world products.

And don’t take my word for it. Listen instead to the late Andrew Grove, founder of Intel. Or Hank Nothhaft, retired Chairman and CEO of Tessera Technologies. Or former Allegheny Technologies executive Jack Schilling. Or the Defense Science Board (both quoted in this 2010 study).

In other words, Apple has found success in locating its manufacturing “brain work” thousands of miles from its production work.  But that formula appears to be the exception, not the rule, in manufacturing, including in advanced manufacturing.  And interestingly, this tech giant has recently announced it’s building its first two research and development centers in China.

So the United States has a fundamental choice ahead of it.  It can keep listening to multinational companies and their hired guns, pretend that the keys to long-term prosperity move around the world purely or even largely due to market forces, and run ever greater risks of sliding into second-class status.  Or it can finally recognize Washington’s immense potential power over globalization, and use it to make sure this process works for its own citizens and domestic producers as well.

Editor’s Note

Most economists are still Free-Trade advocates even though almost all economists have seen the devastating effect of NAFTA and the World Trade Organization which has caused havoc on the US economy: severe losses in US manufacturing, a decreasing middle class, an exploding Trade deficit and crippling effects to the many small towns across the US who had their manufacturing plants offshored to China and Vietnam. These economists love to use the derogatory term “Protectionism” if anybody interfered with the do-no-wrong plan of Free Trade. Even if any policy saved American jobs, improved the economy, made America a great manufacturing power again – all of these great things would be belittled by the term “protectionism”. It is these same economists who are also skeptical that raising tariffs would indeed create more jobs, more manufacturing and a better US economy. But, of course, these tariffs would do this. It has been proven over and over again for centuries. That is why our Founding Fathers imposed tariffs on imports, so nations like England and the Netherlands wouldn’t swamp our businesses with products that would damage our fledgling US businesses. If the U.S. government increased import tariffs, it would greatly reduce companies wanting to offshore. And if we could get rid of the tax breaks that make it easier for US companies to offshore, this would also keep businesses here. Like it or not, import tariffs are the only way to level the playing field for American businesses and the only way to forever stop businesses from abandoning the United States. Don’t use the derogatory word “Protectionism” use the term ABSP – American Business Survival Policy.


Manufacturing Has Been the Economic Engine of the USA

Manufacturing has been the Economic Engine of the USA

I want to remind everybody about the importance of manufacturing and its vital importance to the U.S. economy. Manufacturing has been the heart of the soul of America. It has been the main “Job Creator” since the 1800s. It is too bad we have abandoned manufacturing by offshoring millions of these U.S. jobs to other countries over the past three decades. It is not only the United States that has had to deal with the loss of manufacturing, but, also, the countries in Europe (except Germany) and Australia. It has been a very difficult adjustment for all of these countries. This one of the major reasons why there is so much unrest in these countries. For the United States, the areas that have been hardest hit have been small towns. Once upon a time, these small towns were agricultural (farming). Over time, with less need for people to work in the fields, these previous “farm” towns became great places to set up for manufacturing because of its lower cost of living. Many jobs were ciphered from the large cities to the small towns. Many big cities have been able to adjust (not all) with this transition. However, the small towns have been decimated by the loss of manufacturing since 1980.

Let us look at a few issues regarding history and globalization.

Is Globalization good?

It depends on how you look at it. Globalization has meant there has been a great improvement of infrastructure to many third world countries. Global poverty has greatly improved over the past three decades. For Europe and the United States, globalization has meant the loss of manufacturing to these third world countries. In the USA, it has caused the loss of 20 million manufacturing jobs to these lower-cost countries since 1980 (8 million manufacturing and 12 million associated manufacturing jobs). Globalization has meant economic hardship for the US, Europe and Australia.

Manufacturing: The Heart of the US economy for More Than a Century

Question: When did the United States first become a major player in economics?

Answer: 1870. The United States was re-building from the civil war. Government was free to complete infrastructure projects such as building railroads, making new trails, canals, and new shipping ports. Industrialization with its ability to make mass-produced, cheaper and newly innovated products created new jobs. And with its newly improved infrastructure, the US could send its products to its ever-expanding borders as well as exporting its products to other countries. Soon, American steel production surpassed the combined total of Britain, Germany and France. By 1890, the USA surpassed Britain for first place in manufacturing output.


A Graph of the Greatest World Economies from Year 1 A.D. to 2008

In the early years it was China and India who had the greatest economies based on their shipping of its wealth of goods.

The following graph shows the history of the World’s GDP and the percentage contribution by major countries.

(Source: History of World GDP)
The shrinking of the US economy started when the U.S. deliberately allowed manufacturing to disappear with the passage of Free Trade Acts in the 1990s. China, as of 2015, is the number one economy in the world.

Why is Manufacturing so Vital for the US Economy?

  1. According to the Bureau of Economic Analysis, every dollar spent in manufacturing generates $1.48 in economic activity, more than any other major economic sector.
  2. Each manufacturing job creates three other jobs. In the U.S., the Economic Policy Institute has found that each manufacturing job supports three other jobs in the wider economy, through something called “the multiplier effect.”
  3. The growth of manufacturing machinery output, (and technological improvements in that machinery), are the main drivers of economic growth.  Just consider the explosion of the Internet, iPhones, and the like — all made possible by a small subset of production machinery called semiconductor-making equipment (SME), which itself is dependent on other forms of production machinery.
  4. Global Trade is based on goods, not services. A country can’t trade services for most of its goods. According to the WTO, 80% of world trade among regions is merchandise trade — that is, only 20% of world trade is in services.
  5. Services are mostly the act of using manufactured goods.
  6. While manufacturing is only 12% of the U.S. economy, it accounts for two-thirds of all private spending on R&D. While it provides only 9% of U.S. jobs, it employs one out of three engineers. Fully 60% of royalties from licensing intellectual property go to manufacturing firms.
  7. Manufacturing is the engine that drives U.S. innovation.

There are still Free Traders who feel that U.S. manufacturing is not important. Of course, the Free Traders have a hard time contradicting the following graph.The graph demonstrates what happens to the middle class when we abandon supporting manufacturing.

When we employed Top Down Economics – We cut taxes. Technology and competition from abroad started whittling away at blue collar jobs and pay. The financial markets took off. And so when growth returned, it favored the investment class — the top 20 percent, and especially the top 5 percent (and, though it’s not on this chart, the top 1 percent more than anybody).


How Free Trade Has Hurt The US Economy

Since the beginning of the United States, in order to protect U.S. Businesses from being overrun by products from other established countries, our Founding Fathers did what other countries did to protect their own country’s businesses, they levied an import tax. The import tax kept the price of foreign goods more expensive, giving our own business a fair playing field. The import tax fee was anywhere from 50 – 200% on each item.

Then, in the 1970s, some new school economic geniuses thought that it was silly to stay with the tried and true. So, they pressed for “Free Trade” – which meant import taxes are eliminated. It meant lower prices for imported goods, people would spend more. A win/win situation thought these geniuses. These same geniuses also thought Trickle-down economics would also be beneficial – which has caused 90% of all profits to go to the top 1% and caused the greatest economic inequality since the 1920s. The Free Trade agreements (NAFTA, CAFTA, WTO) did eliminate many import taxes especially into the USA, but corporations started to notice that they could maximize profits by moving their companies to other countries with their lower cost of living. So, they started new companies in China, Mexico and started closing factories in the United States to open factories in these third world countries (offshoring). This is our present situation. The United States is still a Free Trade nation with manufacturing continuing to wobble – making only 4% of what Americans need.

Which Political Party is for Free Trade?

The Libertarian Party is the greatest backer of Free Trade by far. Gary Johnson, their Presidential candidate has said they are definitely Free Trade at all costs and would like to pass The Trans-Pacific Partnership Free Trade Treaty – a deal with the USA and 13 other Asian Nations (not including China at this time).  The TPP waits is Congress waiting to be ratified. The Libertarian Party is Pro- Big Business, feels that consolidation of business into fewer larger corporations (monopolies) is fine, thinks that the “Citizen United” decision is good – Corporations can put unlimited money into elections. They are against “entitlements” like Social Security, Medicare and Medicaid.

The Democratic Party has always been the political party against Free Trade. Backed by Unions who felt that Free Trade jobs would take away American jobs – the unions were correct. Unions within private businesses comprise only 7% of companies where it used to run about 45-50% in the 1950s. The Democrats who have been for Free Trade are the so-called “Business Friendly” Democrats. During the 1990s, when Free Trade was the most popular the split was 60% against Free Trade and 40% for Free Trade. Today, the Democratic Party is 80% against Free Trade and 20% for Free Trade.

The Republican Party has always been Free Trade. They are still 95 to 98% Pro Free Trade. The exception is Donald Trump. Now, the question is whether Donald Trump is truly against Free Trade. He has always said I have been the greatest Free Trader. Trump has always been a follower of polls and once he saw that a substantial number of Americans were skeptical of Free Trade he changed his tune. But he has really no plan. He rarely tells the truth. The question is whether the Republican Party is the Trump Party and would get rid of Free Trade (highly doubtful) or that Donald Trump is Pro- Republican and nothing would change (it is more likely that the TPP would pass silently under the cover of darkness under his administration).

The future is now.


What’s Our Duty to the People Globalization Leaves Behind?

What’s Our Duty to the People Globalization Leaves Behind?

by Steven Rattner on January 26, 2016 in The New York Times

The title is interesting, isn’t it? When you mention the word “globalization”, your mind immediately says, “Oh, Oh, this is about economics, this must be a story written by an economist.” But then the title talks of a duty to people who have been left behind. This is never, ever, a subject of modern day economics. Economists think only about money, not about the “true costs.”

This story is about a writer who goes and visits a Free Trade Think Tank (yes they do exist). Click the link below to see the whole article and a couple of the graphs that I could not reproduce.

Thanks to The Alliance of American manufacturing for pointing out this article. For the bullet points see the end of the article.

Source: What’s Our Duty to the People Globalization Leaves Behind? – The New York Times

 Workers at a Kia factory in Pesqueria, Mexico. Credit Susana Gonzalez/Bloomberg

Workers at a Kia factory in Pesqueria, Mexico. Credit Susana Gonzalez/Bloomberg

A FEW days ago, I visited the shiny headquarters of the Peterson Institute for International Economics on “think tank row” in Washington — basically, the locker room of the Team Globalization and Free Trade cheering squad.

I was there to take part in a discussion of an old friend’s outstanding book on the subject, Steven R. Weisman’s “The Great Tradeoff: Confronting Moral Conflicts in the Era of Globalization.”

After praising Steve’s book, I emphasized that I had paid attention in economics class and understood that globalization incontrovertibly has benefited not only the world but also the United States. That’s in part because trade permits Americans to buy goods at lower prices; the added purchasing power helps our economy expand faster.

But I soon pivoted to my experience working in the Obama administration on the auto rescue, an experience that had seared into me the sense that intermingled among the many winners from globalization were a substantial number of losers.

So far, so good. Then I went rogue and uttered two blasphemous words: “Ross Perot.” He had a point, I said heretically, when he campaigned in 1992 against the landmark North American Free Trade Agreement, saying that it would result in a “giant sucking sound” of jobs headed south to Mexico.

A cool breeze drifted toward me.

As I looked out at my audience, I realized that the room was filled with winners — folks who, from all appearances, earned their livings from intellectual labor. Neither their jobs nor their wages were in jeopardy as countries ranging from Vietnam to Colombia became more competitive with us.

I pressed on.

Last year, according to the recent figures, our nation added 2.65 million new jobs. Just 30,000 of them were in manufacturing. So much for the widely trumpeted renaissance of Made in America.

At first glance, the automobile industry looks to be in better shape. From the depths of the crisis in 2009 through 2013, employment in the auto manufacturing sector in the United States rose by 23 percent, to 690,000 from 560,000.

That sounds pretty good, I said, except that employment in the Mexican auto sector rose to 589,000 from 368,000 during the same period, an increase of 60 percent. I’m happy that 221,000 more Mexicans got jobs, but let’s be honest: Absent open borders, many of those jobs would have been in America.

The wage picture looks even worse. Since January 2009, inflation-adjusted private sector wages across the economy have risen by 2.5 percent. In the fields of education, health and information, they are up by more than 3 percent. Meanwhile, in manufacturing, pay has fallen by 0.8 percent, and in the auto sector, by 12.7 percent.

“Last point,” I said to the 100 or so guests: Average manufacturing compensation costs (includes wages and benefits) in the United States in 2012 were $35.67 per hour; in Mexico, they were $6.36 per hour. “And American auto executives will tell you that the productivity they get in Mexico is at least as good as what they get in the United States.”

My central argument was not that we should close our borders or retreat from the world; it was that we need to be sensitive to the losers and try to help. The point — well illustrated in Steve’s book — is that globalization is not only an economic matter but also a moral one.

Presently, the institute’s blunt director, Adam Posen, used his final moments to shut me down, declaring that the “fetishization” of any industry was “immoral.” The problem of manufacturing is technology, he declared flatly.

Blaming technology is a common refrain from economists who hate the thought that globalization is not the world’s unambiguous salvation.

Sorry, Adam, I thought silently, having been afforded no time to respond. If technology were the source of manufacturing workers’ woes, productivity would be rising sharply, which it surely isn’t (notwithstanding claims by some economists that official statistics have been understating efficiency gains).

“Don’t blame the robots for lost manufacturing jobs,” read the headline in a blog post last spring by two scholars at the venerable Brookings Institution.

I have never forgotten a powerful article I read in Foreign Affairs in 2007 that called for huge tax redistribution, both as a moral matter and as a mechanism for ensuring political support for free trade. (The authors were hardly left-wing shills — one had served in the administration of President George W. Bush.)

That still sounds like the right idea to me.

It’s not only morally wrong to fail to help those on the losing end of globalization, but it will also end badly politically, as the ascendant candidacy of Donald J. Trump illustrates.


Editor’s Comments

There are many economists who still believe that Globalization, Free Trade, minimal government intervention, and Trickledown economics-  the cornerstones of “Extreme Capitalism” – is still good for the USA. However more and more economists are abandoning this 40 year old economic theory after many years actual implementation, they have seen the error in their ways. Hallelujah!

  • Comparison of auto manufacturing jobs

USA  2009          2013                    % increase

560,000              630,000                23%

Mexico 2009     2013

368,000             589,000                60%

  • Number of new American manufacturing jobs for 2015 – 30,000 jobs (out of a total of 2.65 million new jobs in USA for 2015)
  • % decrease in pay – 0.8% in American manufacturing
  • % decrease in pay – 12.7% in American auto manufacturing


  • Economists never pay attention to the human costs of globalization.
  • Economists would like to blame technology instead of offshoring for the loss of American jobs.


Extreme Capitalism economists always downplay the impact of American job loss on American citizens – of course, they are economists – people are just numbers to them. However, these economists do not want to appear like they are callus and uncaring, that is why they hypocritically say that the loss of  American jobs is due to technology. Wrong! Those new 223,000 automobile manufacturing jobs in Mexico used to be American jobs, they were not lost to technology. All those millions of new jobs in  China, they were lost American jobs. Why do you think we have stubbornly low economic growth here in the USA?  Because we offshore millions of jobs each year more than we create. Think of the economy as a bucket – the fuller it gets – the better the pay of workers and more money going into the US economy, but since the Extreme Capitalism policies of the 1980s, we have a sieve instead of a bucket. There is finite number of jobs that can be created each year and if you distribute them all over the universe there is much less available for the USA.

We need to stop offshoring, we need to stop Free Market Treaties which eliminate import taxes and allows dumping of foreign products onto our shores putting US businesses at a disadvantage and putting many of them out of business. Buy American.


Why Chinese Factories Fare Poorly in the U.S. – The New Yorker

The following article is from The New Yorker. The article is about the increase of Chinese owned factories in the United States and some of the problems that these factories are having. Chinese factories are used to having huge worker turnover with lot of workers ready to replace the old ones, poor pay, and passive workers who are used to being bullied  – this approach has not gone well with American workers. I recommend reading the whole article, but if you just want my bullet points, scroll down to the bottom. Thanks to the Alliance of American Manufacturing for pointing out this article.

Source: Why Chinese Factories Fare Poorly in the U.S. – The New Yorker

written by Jeffrey Rothfeder

Why Chinese Factories Fare Poorly in The U.S.


In September, on an abandoned forty-acre Westinghouse factory site in Springfield, Massachusetts, the China Railway Rolling Stock Corporation (C.R.R.C.) broke ground on a sixty-million-dollar plant to assemble subway cars for Boston’s Orange and Red lines. Although commentary on the Chinese-American trade relationship is often colored by suspicion and xenophobia, virtually no one in Massachusetts publicly opposed the arrival of C.R.R.C., a state-owned enterprise controlled by Beijing.

After all, Springfield is not a position to be picky about its economic partners. Once a dominant manufacturing city—the assembly line and the concept of interchangeable parts were invented there, in munitions factories that were centers of global innovation for much of the nineteenth century—Springfield has been spiralling downward for decades. Currently, unemployment there stands just above the national level, but the city depends on state government and municipal services, not the private sector, for much of its cash flow and jobs. In just the past five years, even as U.S. industrial employment has surged some 7.5 per cent, representing nearly a million new jobs, about two thousand additional manufacturing positions have disappeared from Springfield.

Curiously, though, no one has been complaining about the growth of Chinese manufacturing elsewhere in the U.S., either. For at least the past seven years China has been the fastest-growing source of non-domestic business expansion in the U.S. In fact, Chinese foreign direct investment here—that is, the amount of money used to acquire American companies or to build factories and other commercial facilities—reached record levels in 2014, about twelve billion dollars, up from five billion in 2009. Moreover, in the first six months of 2015, Chinese direct investment in the U.S. rose nearly fifty per cent compared with the same period the year before, according to the Rhodium Group, which tracks Asian economies.

Lately, most of this investment has been in real estate (such as Anbang’s $1.95 billion purchase of the Waldorf Astoria hotel in Manhattan, from Hilton) and technology (such as Lenovo’s $2.9 billion acquisition of Motorola Mobility, from Google). But manufacturing has also been a frequent target, beginning as early as 2000, when the Qingdao-based appliance maker Haier made Camden, South Carolina, the site of the first Chinese factory in the U.S. Since then, Chinese manufacturers have acquired or built facilities to produce textiles, copper, steel, automobile supplies, renewable-energy equipment, and industrial machinery, among other items, in dozens of states.

China’s emergence in the U.S. economy recalls another transplant frenzy some three decades ago, when Japanese companies entered the U.S. in droves, swallowing up iconic symbols, like Rockefeller Center and Pebble Beach Golf Club, and raising automobile and steel plants in the Rust Belt. Back then, the general response was anger and fear. After Honda Motors opened the first Japanese auto plant in the U.S., in Marysville, Ohio, in the early nineteen-eighties, followed by an engine factory in nearby Anna, Ohio, the company faced an onslaught of vicious anti-Japanese ads on TV and in print, often supported by American manufacturing trade and labor groups. In one memorable incident that grabbed headlines across the country, William Leitz, the mayor of Wapakoneta, Ohio, angrily resigned his position, saying that he could not work side by side with the Japanese. “I was on a destroyer [in the South Pacific] that was sunk,” he said. “I’m an American, and I love my country.”

The comparably subdued response to Chinese manufacturers speaks, on one hand, to changing circumstances, especially the broad acceptance of globalization in the United States and the desire, on the part of some politicians and business leaders, to create manufacturing jobs by whatever means necessary. But it also follows from a conclusion that American companies have reached about their Chinese counterparts: namely, that they are, thus far, relatively inconsequential rivals. Despite contracts like the one in Springfield, most U.S. producers don’t think Chinese manufacturing is good enough to pose nearly the same level of threat as Japanese companies did, decades ago.

The arrival in the U.S. of Japanese manufacturing methods precipitated a radical transformation in the accepted ideology behind how assembly lines should operate and how the highest levels of industrial productivity are achieved. This new factory model, which the Japanese call lean manufacturing, offered a blueprint for continuous plant improvement and innovation, driven by workers who are encouraged to experiment with new ways to enhance quality and productivity, and to minimize waste and inefficiency. In a lean factory, employee creativity and coöperation between management and assemblers are paramount, even if plant output is temporarily slowed to, for example, fix defects before a product is finished or to implement an untried process.

Armed with this uncluttered but potent set of ideas, Japanese factories were consistently more efficient and inexpensive to operate than their American counterparts, and their products were more reliable, durable, and attractive to consumers. Faced with these advantages, the initial disdain aimed at the Japanese companies was impossible to support for very long. In the early nineteen-nineties, Japanese manufacturing became the subject of an unlikely best-selling book, “The Machine That Changed the World,” and inspired a spate of analysis, implementation programs, educational programs, and self-help pamphlets. Today, no Western manufacturer can hope to compete on a global stage without adopting some version of lean production—an undertaking that remains difficult for many firms, because it can require altering not just assembly processes but a company’s culture, especially where worker roles, management, and methods of innovation are concerned.

It’s in these areas, though, that Chinese manufacturers are weakest. The country’s factory boom was made possible, instead, by low wages, subpar conditions, and few benefits. That strategy can succeed in emerging nations, especially ones with large labor pools, but it is not feasible in developed economies. The shortcomings of Chinese factories are most apparent in the relationship between managers and employees, which is based on an anachronistic top-down view of a factory as a place where the authority of supervisors is paramount, and workers are expected to take directions, perform tasks, do their work, and go home. There have been multiple reports of Chinese employers in the U.S. complaining that American workers are too outspoken and independent and are unable to follow rules. An American former executive of a Chinese firm operating in the U.S. told me that Chinese managers would complain, for example, that factory workers would arrive at a job five minutes late and not feel inclined to apologize. Such insouciance at plants inside China would lead laborers to be punished, for example by being sent home for the day, losing pay, forfeiting benefits, or being reassigned to more menial tasks. In the U.S., this approach has typically led employees to become more defiant and less assiduous. At Haier’s factory in South Carolina, Chinese managers had to be sent back to Asia because they were alienating workers and threatening productivity.

Perhaps the most extraordinary illustration of strained relations in Chinese factories occurred at the Golden Dragon copper-tube factory in Wilcox County, Alabama, last year, when workers voted to unionize the plant—an unlikely step in a right-to-work state where only about ten per cent of factory employees belong to organized labor, and in the face of a relentless and expensive “vote no” campaign led by Governor Robert Bentley. Golden Dragon workers complained that they received few benefits and that their wages, about eleven dollars an hour, were far below the pay for similar jobs in American copper plants in the South. Moreover, according to the union, the Occupational Safety and Health Administration had found fourteen serious health and safety violations in the factory in the first few months after it opened, in May, 2014. The vote was an extraordinary step, and an indictment of the factory conditions that at least one Chinese manufacturer expected to be able to export.

The perception that employees are interchangeable and replaceable has led turnover at factories in China to average an astounding thirty-five per cent a year among workers employed at least six months, according to Renaud Anjoran, an operations manager at China Manufacturing Consultants, in Shenzhen. “They’re seeing similar rates in their American operations. That’s a death sentence in the U.S., where employee skills, loyalty, continuity, job satisfaction and creativity—in other words, lean requirements—determine profitability,” he said. (Perhaps unsurprisingly, given these dynamics, Chinese factories are rapidly automating. Chinese companies now account for more than twenty-five per cent of global robotic-equipment sales, and it’s not unusual to come across a Chinese facility where as many as ninety per cent of the tasks are assigned to robots. Japanese manufacturers are among the least automated, by contrast, because, in their view, removing the human element eliminates the possibility of innovation.)

Moreover, some of the new facilities in the U.S., including the new C.R.R.C. plant in Springfield, are unlikely to be able to adapt their methods to the Japanese-inspired ones that predominate elsewhere here. C.R.R.C., like many other Chinese manufacturers in the U.S., is a state-owned enterprise, controlled by the Chinese government. State-owned enterprises accounted for about twenty-five per cent of Chinese investment in the U.S. this year, and since 2000 they have backed seventy per cent of China’s North American forays in the auto industry, according to the Rhodium Group. These companies do not enjoy a good reputation: recent research from C.E.I.C. Data found that they own forty per cent of the assets in China but deliver only twenty per cent of the country’s profits, and that their average return on assets is a meager two per cent, about fifty per cent below the private sector. But precisely because they lack the imperative to be profitable, productive, or competitive, state-owned enterprises like C.R.R.C. can underbid most other companies, winning contracts even when contract stipulations about quality, timeliness, worker treatment, salaries, and benefits are beyond their capabilities. Indeed, C.R.R.C.’s price for the Boston subway-cars job was two hundred million dollars lower than its nearest rival. Analysts contend that C.R.R.C. will almost certainly lose money on the deal, but that it was a strategic bid to gain a foothold in the U.S.

Given the deficiencies of Chinese manufacturers, the ho-hum response from U.S. manufacturers to the influx of new rivals makes sense; the welcome mats laid out by cities like Springfield are another matter. New factories are generally viewed as a source of good jobs and long-term economic improvement, and for that reason communities frequently offer companies discounted land and substantial tax breaks to open them. Springfield is forgiving about fifty per cent of C.R.R.C’s property taxes for the first three years and thirty per cent over ten years. But if the manufacturers turn out to be nothing more than low-paying loss leaders, cities may find that they’ve given away more than they receive in return. This would, in fact, be something to complain about.

Editor’s Comments

Bullet points from the article:

  • China is rapidly buying factories and real estate in the United States.
  • Unlike the 1980s, there has not been the Xenophobia like when Japan was doing the same thing. The reason: America is so used to globalization and offshoring of US jobs, that almost any  U.S. jobs are at a premium, therefore, the Chinese are being welcomed.
  • Japan’s effect on America’s manufacturing was positive and influential – Japanese management demanded quality and participation of labor to help make things better, which has eventually made it into many American management schemes.
  • Chinese management, however, has not been beneficial for US workers, in fact, their management technique is so retrograde that it is reminiscent of what US companies did in the early 1900s.
  • Many of the Chinese companies that start up companies here in the US are “State Supported.” This means a lot if not all of their finances come directly from the Chinese government, unlike US companies which almost never have any support from the Federal or State governments unless it is to give the companies tax breaks. Whether “State Support” is good or not is yet to be determined. Obviously in the short haul (the past 20 years) it has been an asset for China and their economy.

May 2018
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