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“Free Trade” Has Failed!

[COMMENT:   Yes, but what we have is NOT free trade.  It is free only for those who have been colluding with Big Bureaucratic Government for their own ends.  A form of fascism. 

Government is to be the referee, not a participant in commerce, education, or welfare.  It cannot be a neutral referee when it is playing in the game.  I think the following article points in a realistic direction.  

It would help to get rid of the IRS and the (non) Federal (non) Reserve also.  Both are control mechanisms which benefit a small cartel of persons who own the banks which run the Fed.   Much, if not most, of our inflatino is caused by the creating of money out of thin are by the Fed, which is the same thing as printing money.  We must also get back on the gold standard, where money has real backing, and cannot be so easily manipulated by the bankers or the politicians in cahoots with each other.   

As the response at the end indicates, real "free" trade means the keeping of a level playing field, not the removal of all order and direction. 

No source given for this article.      E. Fox]

Huge Fiscal and Trade Deficits

Millions of Good Jobs and Thousands of Our Best Wealth Producing Companies


These deficits have created an “unsustainable financial imbalance” that must be


“Balanced Trade” Is the Way

The world economy is out of balance. Nations like Germany, Japan and China have been producing more than they consume and by using the Value Added Tax and unfair business practices are dumping the excess in the United States, which has caused the U.S. to consume more than it produces. This has destroyed the good jobs and wealth producing companies and has created an “unsustainable financial imbalance.” We need a simple, practicable and effective way to induce our trading partners to play fair.

In 29 years the United States has gone from the world’s largest net creditor of $500 billion dollars to the largest net debtor of almost $5 trillion dollars.

A devalued Dollar and changes to the Tax Code which would stimulate investment and the economy will not reduce the trade deficit. They have always, since we became an open, unprotected “Market” in 1971, increased the trade deficit. Eliminating the fiscal deficit would have little impact on the trade deficit according to a recent Federal Reserve Bank report. However, eliminating the trade deficit would significantly reduce the fiscal deficit.

Imposing a Value Added Equalization Tax on imports, providing a Value Added Equalization Tax Credit for exports, restoring and enforcing our anti-trust laws against the foreign cartels and U.S. multinationals that use unfair business practices would help level the playing field and provide significant relief. In addition the original GATT agreement provides for the use of nondiscriminatory Variable Trade Balancing Tariffs to correct financial imbalances. These are the simple, practicable and effective things that must be done to induce our trading partners to play fair, restore our industrial base and balance trade to eliminate the “unsustainable financial imbalance.”




By John Jones, Chairman

Cummins-American Corp.

800 Waukegan Road, Glenview, Illinois 60025



“Free Trade” Has Failed

The United States has been running ever- increasing annual trade deficits since it became an open unprotected economy in 1971. We are paying for these goods and services by selling our wealth producing assets to and borrowing from foreign interests.

2003 Fortune Magazine chart, edited to add data up to 2005

In 29 years the U.S. has gone from the world’s largest net creditor to the largest net debtor of almost $5 trillion dollars.

Real wages for non-supervisory workers peaked in 1973: since then the percentage of families in poverty has increased by more than 100% to almost 17%. The prices of “low cost” imports have not been low enough to increase the real wages for more than 80% of the workforce.


Before “Free Trade”, the U.S. was a major producer and exporter of almost every type of manufactured product. We now must depend on foreign sources for far too many vital products.

Manufacturing is the major engine for the creation of a nation’s wealth. All other activities depend upon it for increased efficiency. We became a superpower because of our industrial supremacy.

Why has “Free Trade” Failed?

“Free Trade” doctrine does not recognize that the playing field will never be level because all nations do not tax and regulate in the same way. It also does not recognize that a market must be protected from the use of unfair business practices to be “free.” Our government, under Free Trade, has no practicable way to make foreign owned corporations play fair. The major unfair practices used are: the “dumping” of high-tech and large-scale manufactured products by their cartels; the illegal use of intellectual property; the devaluation of their currencies; and the use of poverty level wages. A few retailers like Wal-Mart, because of their huge size, also contribute to the destruction of U.S. manufacturers by the use of unfair purchasing practices and sourcing in poverty wage countries like China. This is less efficient, but the low wages more than offset the reduced efficiency. The multinationals are also reducing the real wages of their U.S. workers and the prices paid to their U.S. suppliers. This is destroying the middle class and the privately-held companies that have historically created most of the new jobs.

American manufacturers of high-tech and large-scale manufactured products are not able to successfully compete with the foreign cartels, even though American workers are more efficient and are paid less than those in Germany and Japan. These products are particularly vulnerable to dumping. The fixed costs are high not only because of the large investment in plant and equipment, but of more importance, because of the research, development, engineering and technical support that is needed to maintain quality and develop new products. For example, our company, Cummins-Allison, is a high-tech manufacturer and has almost twice as many engineers as direct labor employees.

The cartel agreements provide prices high enough on their domestic sales to cover all fixed costs, at less than full plant capacity, including those located in the U.S. For example, prices in Japan are three times and in Germany two times the prices in the U.S. for the type of equipment made by our company. German and Japanese cars cost up to 50% more in their home markets than in the United States.

The cartels can therefore dump at any price above their direct labor, variable burden and material cost and increase their profit. As a result prices in the U.S. market are not high enough to provide sufficient margins to adequately cover the costs to maintain quality and develop new products. It appears that American firms are poorly managed.

There are no longer any significant U.S. owned machine tool or consumer electronics firms. Almost all of our steel companies have been through bankruptcy and now that their legacy costs have been eliminated they are being sold to foreign interests. As U.S. automakers have lost market share they have been forced to retire thousands of workers early. This has left them with huge legacy costs. The foreign auto makers do not have this enormous financial burden. Under “Free Trade” General Motors, Chrysler and Ford will continue to lose market share and eventually will be liquidated or foreign-owned.

We have permitted the Japanese and German cartels to destroy and acquire too many U.S. manufacturers. Now China, a giant cartel, has joined them to destroy or acquire those that remain. Our government should protect these companies by restoring our anti-trust laws and using them against the foreign cartels and U.S. companies like Wal-Mart that employ these unfair business practices. Protection is the major purpose of government. If we do not adopt the “Balanced Trade” policy we will become, as Warren Buffett stated, “a nation of share croppers.”

China Breaks All the Rules

In “Unrestricted Warfare”, a book by two Chinese army officers published in 1991, tactics are proposed to compensate for the military superiority of the United States. One of the authors in an interview said “the first rule of unrestricted warfare is that there are no rules, with nothing forbidden.” One of the tactics proposed is a Trade War because the U.S. will not realize it is in a war and will play by the rules. China, Japan and Germany are winning by breaking the rules.




It Is Time To Act

Our open, unprotected “Market” has destroyed so many U.S. manufacturers that we no longer make most of the products we exported before “Free Trade.” We now must import these products. In 1964 imports of goods were 73% of exports. Imports are now 188% of exports. As a result, when the dollar’s value is reduced, exports do not increase enough to offset the increased cost of the imports and the deficit increases. This means we must manufacture the products that were made by the companies “Free Trade” destroyed. This cannot be done under “Free Trade.” For example, the Euro would have to go above $3.25 and the Yen to less than 42.4 to the dollar before the-out-of pocket cost and therefore the prices of all the products the German and Japanese competitors of Cummins-Allison dump here would be high enough for U.S. manufacturers to cover all of the cost to produce these products. China’s position is unchanged by a devalued dollar because its currency is tied to the dollar. Under “Free Trade” the trade deficits will continue to increase as more U.S. manufacturers are destroyed.

“Balanced Trade” is the way

The original GATT agreement provides for the use of nondiscriminatory variable tariffs to correct financial imbalances. To comply with this provision of GATT, trade balancing tariffs would be imposed on all imports of all products and services from every nation. A tariff on a few select products like sugar, shrimp, or steel does not work.

The Variable Trade Balancing Tariff rate would start at 20% and increase gradually until the U.S. current account balance equals the 5 year average for the OECD countries within 3 to 5 years. This would provide time to bring back to the U.S., in an orderly fashion, the manufacturing that has been outsourced.

A Value Added Equalization Tax would be imposed on imports equal to the VAT rate of the country that exported the product. Value Added Tax Equalization Credits would be given to U.S. owned manufacturers equal to the VAT imposed on their exports. This would offset the advantage that the VAT provides foreign manufacturers without giving up the use of the income tax. VAT Equalization Credits would not be given to U.S. subsidiaries of foreign corporations.

To prevent the illegal use of patents and copyrights the customs department should provide special inspection of imports from countries that deny adequate protection of intellectual property. The cost would be offset by an inspection fee paid by the importer.

Section 337 of the tariff act of 1930 should be changed to permit the collection of damages and legal fees from the importers of products that infringe U.S. patents.

A price and legacy equalization tax of 20% should be imposed on the products produced in the plants that foreign corporations operate in the U.S. This would offset the unfair advantages gained by dumping the products they make in their U.S. plants, paying very little, if any, U.S. income tax and not paying any of the legacy cost they have created by their use of unfair business practices. The revenue would be used to pay the legacy costs of the workers retired early by U.S. manufactures that have lost market share to the Foreign Cartels. U.S. owned automobile manufacturers now have less than half the U.S. market but support 99.9% of all retired auto workers. In contrast the foreign owned U.S. automobile manufacturers support only 0.1%.

Adopting the “Balanced Trade” policy will motivate U.S. multinationals to do what is in the best interest of the United States. Under “Free Trade”, their short term interests are not compatible with the best interest of our country.

The revenue received from the Variable Trade Balancing Tariffs should be used to reduce social security and personal income taxes to offset the increased cost of imports.

What If Trade Had Balanced In 2006?

The U.S. would have produced an additional $836 billion dollars worth of goods and services. This would have provided 9.2 million jobs and employed most of those looking for work or forced to retired early.

The federal, state and local governments would have collected an additional $348 billion dollars in tax revenue instead of providing over $40 billion dollars in unemployment benefits.

The Variable Tariffs, at 20% on $2.201 trillion dollars of imports, would have reduced social security and income taxes for individuals by $440 billion dollars.

If the U.S. had become a “Balanced Trade” instead of a “Free Trade” economy after WWII, growth rates of Gross Domestic Product, Real Wages, and productivity would have been at least as great and because of computerized automation greater, than when the U.S. market was protected.

Real Wages and GDP would be almost twice what they are. The cost of health care, education and Social Security would not be the burden they have become because workers would be earning more and not forced to retire early. The percentage of families in poverty would have continued to decline and by now would be virtually eliminated. And we would still be a net creditor nation.

The standard of living in the rest of the world could also be higher. Their workers should be paid more so they can afford to buy what they produce instead of dumping in the U.S.

The world economy would be more efficient because nations would be trading only those products where they have a real “comparative advantage.”

“Balanced Trade” is the key.

Here is one response to the article:

This piece is absolutely correct in my view.  A total Laissez Faire policy in government is as destructive as dictatorial over regulation.

 In the US, one role of government is to maintain a level playing field for all players (open markets).  The other role of government is to protect players from abuse (regulation) and to protect the playing field itself (rational international trade policies).  The left wing wants total control which leads to recession.  The right wing wants zero regulation which has led to today’s financial collapse.  We haven’t had balance in our country for a long, long time.   Joe M.

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Date Posted -  10/08/2008   -   Date Last Edited - 09/15/2012