One of the biggest challenges facing the American economy is that we lack a domestic manufacturing base. Simply put we do not produce anything anymore. We buy tons of foreign goods and then wonder why we are lacking jobs. We import most of our goods which has resulted in a huge trade deficit and industrial job losses. Our economy has transitioned from an agricultural society to an industrial society to a service economy. The problem with being a service economy is that services are the first thing that consumers eliminate during difficult times. We need to become more of a mixed economy that combines industrial production with service.
In 2006 Warren Buffett said, ”The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.” The US trade deficit severely hinders US economic growth. As Buffett puts it, “Our country’s net worth is now being transferred abroad at an alarming rate.”
Most of our electronics are developed by foreign companies. Philips, Toshiba, Sony, Hitachi, Samsung and Sharp dominate the US market in terms of television sales. Who owns a Zenith anymore? Are Magnavox and RCA American companies? No, they were sold off to foreign companies that use the American brand names. Popular electronics items like the ipod are mostly manufactured overseas and then sold in the US. We are also losing more of the US automobile market. Toyota just surpassed General Motors to become number 1 in global sales. Even clothing and apparel sales in the US are dominated by foreign countries. Over 90 percent of clothing and shoes sold in the United States are made in foreign countries.
We need a multifaceted approach to address these problems:
(1) We need to increase the tariffs on foreign goods so that they are more expensive than domestic goods. Increased tariffs would only apply to countries in which we have a massive trade imbalance such as China. According to the Economic Policy Institute, the US has lost more than 2 million jobs since China joined the World Trade Organization. China illegally subsidizes a large number of their exports to the US so that their products will be cheaper than US products. The US has the largest trade imbalance with China. China exports 5 times as many US goods as it imports.
(2) We need to demand the same level of quality in all foreign goods as American goods or reduce the standards for American companies. China consistently imports unsafe items to America such as toys, pet food, toothpaste and other consumer products. US companies suffer from much heavier product regulations than Chinese manufacturers do. Either make all regulations uniform or allow US companies the same lax regulations that foreign countries enjoy.
(3) We need foreign countries to stop manipulating their currencies. China is the best example of this. China has historically devalued its currency so that its exports are cheaper than other countries. Even during this global economic crisis, China continues to devalue its currency at a time when America needs the yuan to strengthen. Consumers gain from lower prices in the short run but the US economy and US companies suffer the most in the long run. People don’t understand that by buying cheaper foreign goods today, you eliminate US jobs and decrease wages over time.
Other factors persist such as concessions from industrial unions. Employers need to pay a fair and liveable wage to unions but do need to get union workers to agree to some cost cutting measures.
Without a return to its manufacturing base the United States will struggle to attain any viable long term economic growth.
Photo by asecondhandconjecture
I would just like to point out that the Smoot-Hawley tariff of 1929 was one of main causes of the Great Depression. Raising tariffs does not work because every country creates the same barriers against US products hurting our over $1 trillion in exports each year.
Agree with Brett Hummel that raising tariffs will not work. This article does not address the fundamental reason that we don’t manufacture in the US anymore. And that is cheaper labor costs overseas.
@Brett Hummel
I think that increased tariffs should only apply to when dealing with countries like China. Increased tariffs would have no affect on agreements such as NAFTA and other countries in which we enjoy free trade. How long do we allow China to continue its illegal policies and still manage to export large numbers of products to the US? We cannot regain a strong dollar and reduce our national debt unless something is done about the great trade imbalance.
“We need to increase the tariffs on foreign goods so that they are more expensive than domestic goods. Increased tariffs would only apply to countries in which we have a massive trade imbalance such as China.”
IMO Tariffs could be acceptable to compensate for subsidies (and tactics such as the yuan devaluation), but either way, these tariffs will hurt US consumers.
“We need to demand the same level of quality in all foreign goods as American goods or reduce the standards for American companies. China consistently imports unsafe items to America such as toys, pet food, toothpaste and other consumer products. US companies suffer from much heavier product regulations than Chinese manufacturers do. Either make all regulations uniform or allow US companies the same lax regulations that foreign countries enjoy.”
This is really up to the US consumer. Regardless, if US consumers want higher quality then why aren’t they also demanding it of the Chinese companies? I think that a lot of people like being able to buy cheap stuff even if the quality isn’t the greatest. Since this is a subjective opinion, we cannot say it’s right nor wrong even if we disagree with it. You can always purchase more expensive US goods if you prefer.
Perhaps today there is too much red tape on US companies preventing them from accumulating the capital necessary to compete. Did you know that the US once not only made the best cars, but also paid the highest wages in the world? How were they able to do both of those at the same time? Through high productivity via high use of capital.
“We need foreign countries to stop manipulating their currencies.” Why not, but the US does this just as much so it’s hypocritical for the US to dictate to other countries about this. Besides, did you know that when these other countries manipulate their currencies, there is a cost to doing so? Chinese consumers are much poorer than they would be with a higher Yuan. *WE’RE* the ones benefiting from the low Yuan, even if we’re also stupid enough to keep government spending high off the backs of the Chinese. Sooner or later this will blow up, either slowly or quickly but it’s certainly not sustainable forever.
Kevin, I absolutely agree with everyone of these points! Why regulate our companies to death but allow foreign goods to easily come in due to lax standards. Make the playing field fair to all!
Import all the goods you want – just don’t buy them – it is that simple. Nothing is forcing us to buy foreign products. We can argue over all the issues – our labor unions, regulations, tariffs, manipulating currencies but the bottom line is if you don’t buy, it won’t sell – just say no (and you can – really you can)
I wish we would buy less foreign goods and more domestic products.