How to Solve the Trade Deficit – Part II

This is the second part of my essay on How to Solve the Trade Deficit. You should start with Part I if you haven’t already read it.

How to Solve the Trade Deficit – The Medium Answer

My personal preference for solving the remaining minority of the trade deficit after solving the imported petroleum and oil problem includes rebuilding the manufacturing base.  Part of this is a national security consideration.  By ensuring we have enough production capability within our borders, we would be able to convert these to facilities in the event of another catastrophic global war.  My preference would be:

• Substantial tax credits for manufacturers to diversify the economy and reduce our reliance upon service jobs.  This includes things such as:
  • Drastically reduced corporate tax rates for manufacturing plants
  • Super-aggressive depreciation deductions for manufacturing plants but only for facilities physically located on United States soil in the 50 states and employing at least 95% domestic workforces.
    
  • Huge incentives to repatriate foreign earnings (that is, profits made in foreign countries brought back to the United States) and reinvested on our own soil in domestic jobs.  If General Electric can take its profits from Russia and China and put them to work in Indiana without paying a penny in Federal taxes, they will do it to improve returns for shareholders.  Now, we have folks in Indianapolis with jobs instead of in Shanghai.  Again, even though corporate taxes would be obliterated, you would have better, higher paying jobs and those individual citizens will be paying income taxes, state taxes, property taxes, and sales tax to the Federal, State, and Local governments.)
  • A slightly higher tax rate on all profits from manufacturing plants located outside of the United States, including for licenses to manufacturer.  If you own the patent to a device like a special hanger sold on television infomercials and you have it made in China instead of the United States, your taxes would be higher on the profits.
• Destroying the current American auto companies and starting over from scratch.  The reality is that auto jobs are only going to be mid-tier jobs in the future; you can’t afford to pay someone $65 an hour plus health benefits.  The “new” auto workers are those in health care and technology.  We need to be able to produce cars for cheaper than Japan and China, no exceptions.  If you want a good life, you need to be involved in the fields that are in demand and that can’t be outsourced easily.  No one has a “right” to make a middle class living in a field just because their daddy did.  When the whales died out, the whalers had to find a new livelihood.  We need to make cars affordable and nice enough that anytime someone wants a new vehicle, they choose to buy American because we have the better, cheaper product not because they feel obligated to do so.  That means that most of the existing auto workers are out of luck.  As I mentioned in Part I, this alone would solve the remainder of the trade deficit.

Some Controversial Suggestions Others Have Proposed for Solving the Trade Deficits

There are a few other options for solving the trade deficit that many people don’t like (including some of which I hate) but they are worth mentioning:

• Trash the United States dollar by running huge fiscal deficits to lower the cost of exports, making our goods more attractive to the world.  This is why billionaire bond investor Bill Gross recommended in an open-letter to then-candidate Obama that if he really cared about the middle class and saving the nation from horrible deflation, he would need to run deficits so massive they called him “Trillion Dollar Obama”.  There are economists who disagree with this assessment, arguing that the yen has appreciated relative to the dollar yet Japan is still running long-term trade surpluses, so this is a debate for another time.  Unfortunately, this pushes massive future tax burdens from interest expense onto the next generation.  As a general rule, I’m not a fan of this approach.

• Establishing a bifurcated education system somewhat akin to Germany where teenagers who want to go into manufacturing, craftsmanship, and production based industries would separate off into a different school from those who were going into knowledge based careers and spend time training specifically for their desired occupation as opposed to learning, say, advanced trigonometry, which is useless to them.  This may help restore pride to production based jobs and make them attractive to people who otherwise want to avoid the social stigma.

• Put massive tariffs in place to force people to buy American.  I will discuss this in a later part of the essay so I don’t want to get into it now but I think, in general, it is a disastrous form of welfare that can kill the economy.

Continue to How to Solve the Trade Deficit – Part III …

Related posts:

1. How to Solve the Trade Deficit – A Five-Part Essay on the American Trade Imbalance
2. How to Solve the Trade Deficit – Part I
3. How to Solve the Trade Deficit – Part V
4. How to Solve the Trade Deficit – Part IV
5. How to Solve the Trade Deficit – Part III
6. A Reader Question About the Trade Deficit
7. Free Trade Isn’t Always Fair Trade
8. My Thoughts on New Jersey Governor Chris Christie on Solving the New Jersey Budget Deficit
9. American Manufacturing Profits Are the Same After Inflation As In 1960
10. China Targeted in Bill on Currency Manipulation