Why Multinational Corporations Favor Hillary

On August 24, Apple CEO Tim Cook will host a fundraiser for Democratic Party presidential candidate Hillary Clinton. The minimum donation required to attend will be $2,700, with $50,000 a suggested donation. Apple is incorporated in the U.S., but its products are produced in China.

At least Apple still designs its products in the United States. In contrast, many other American multinationals have moved research and development abroad so as to be near their factories. And the U.S. has also been losing the technological advances that occur on the factory floor due to learning by doing. As a result of these factors, the U.S. has been losing its technological lead.

Republican Party presidential candidate Donald Trump has announced his intention to threaten across-the-board tariffs against at least three of America’s trade-surplus trading partners (China, Japan, and Mexico) in order to force those countries into trade-balancing negotiations. Under existing legislation, his Commerce Department would have the authority to impose such tariffs.

From Lincoln to Reagan, Republican presidents supported American production, usually through protective tariffs, while Democrats, from Jackson to Obama, were free traders. Trump would return the Republican Party to its traditional position.

Prominent economists are divided on trade. The lead-author’s dissertation advisor, University of Chicago economist Milton Friedman, favored free trade, but he was mostly writing when the U.S. had a trade surplus.

In contrast, British economist John Maynard Keynes supported tariffs when Britain was experiencing trade deficits. In 1931 he proposed (in what was called the addendum to the Macmillan Report) a system of tariffs upon British imports to be used to subsidize British exports in order to balance British trade.

During World War II, Keynes tried to set up a postwar system that would keep trade in balance by letting trade-deficit countries, but not trade surplus countries, impose tariffs and/or reduce their exchange rates. But he was overruled at Bretton Woods, where the postwar international agreements were negotiated, by America’s chief negotiator Harry Dexter White, a Soviet agent.

Economic history shows that the effect of tariffs depends upon trade balances. When trade is balanced, all trading partners benefit, but benefit could increase even more in the absence of tariffs. When trade is not in balance, countries sometimes use tariffs and other barriers to imports and/or subsidies to exports to gain a trade surplus, what 18th Century Scottish economist Adam Smith called a policy of “beggaring all their neighbours.” Their economies grow at the expense of their trading partners.

Countries with trade surpluses grow in relative power, while those with trade deficits shrink. For example, Bill Clinton’s trade agreement with China led to steadily worsening trade deficits, with concomitant transfer of U.S. economic growth and political power to China.

From 2001-2013, the U.S. lost 3.2 million jobs to China, according to a study by EPI Director of Trade and Manufacturing Policy Research Robert E. Scott. About two-thirds of those jobs, or 2.4 million, were in manufacturing. When workers lost middle-class manufacturing jobs, they were often forced into lower-paying (because less-productive) jobs in the service sector. Largely as a result, American median income declined steadily over that period.

U.S. economic growth has followed the U.S. trade balance downwards. The U.S. average trade balance (as a percentage of GDP) sank to a negative 3.8 percent during the 2006-2015 decade from a positive 0.6 percent during the 1956-1965 decade. Meanwhile U.S. annual economic growth sank to just 1.4 percent from 2006-2015 after averaging 3.4 percent over the previous five decades.

We have proposed a single-country-variable-tariff called the Scaled Tariff to address chronic trade deficits. The tariff rate rises or falls as the U.S. trade deficit with a trade surplus country rises and falls. The single-country-variable tariff is a simple remedy and has the virtue that it requires no negotiation at all and is compliant with World Trade Organization rules.

American presidents should have ordered across-the-board tariffs against the trade surplus countries long ago, but large campaign contributions from multinationals producing in those countries may have prevented them from doing so.

Only a candidate that is largely self-financed can afford to act in America’s interest. If Trump loses, it may be decades before another candidate puts America’s interest ahead of that of the big campaign contributors. Trump may be our last chance to end our trade-deficit caused decline in economic growth and political power.

The Richmans co-authored the 2014 book Balanced Trade published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

On August 24, Apple CEO Tim Cook will host a fundraiser for Democratic Party presidential candidate Hillary Clinton. The minimum donation required to attend will be $2,700, with $50,000 a suggested donation. Apple is incorporated in the U.S., but its products are produced in China.

At least Apple still designs its products in the United States. In contrast, many other American multinationals have moved research and development abroad so as to be near their factories. And the U.S. has also been losing the technological advances that occur on the factory floor due to learning by doing. As a result of these factors, the U.S. has been losing its technological lead.

Republican Party presidential candidate Donald Trump has announced his intention to threaten across-the-board tariffs against at least three of America’s trade-surplus trading partners (China, Japan, and Mexico) in order to force those countries into trade-balancing negotiations. Under existing legislation, his Commerce Department would have the authority to impose such tariffs.

From Lincoln to Reagan, Republican presidents supported American production, usually through protective tariffs, while Democrats, from Jackson to Obama, were free traders. Trump would return the Republican Party to its traditional position.

Prominent economists are divided on trade. The lead-author’s dissertation advisor, University of Chicago economist Milton Friedman, favored free trade, but he was mostly writing when the U.S. had a trade surplus.

In contrast, British economist John Maynard Keynes supported tariffs when Britain was experiencing trade deficits. In 1931 he proposed (in what was called the addendum to the Macmillan Report) a system of tariffs upon British imports to be used to subsidize British exports in order to balance British trade.

During World War II, Keynes tried to set up a postwar system that would keep trade in balance by letting trade-deficit countries, but not trade surplus countries, impose tariffs and/or reduce their exchange rates. But he was overruled at Bretton Woods, where the postwar international agreements were negotiated, by America’s chief negotiator Harry Dexter White, a Soviet agent.

Economic history shows that the effect of tariffs depends upon trade balances. When trade is balanced, all trading partners benefit, but benefit could increase even more in the absence of tariffs. When trade is not in balance, countries sometimes use tariffs and other barriers to imports and/or subsidies to exports to gain a trade surplus, what 18th Century Scottish economist Adam Smith called a policy of “beggaring all their neighbours.” Their economies grow at the expense of their trading partners.

Countries with trade surpluses grow in relative power, while those with trade deficits shrink. For example, Bill Clinton’s trade agreement with China led to steadily worsening trade deficits, with concomitant transfer of U.S. economic growth and political power to China.

From 2001-2013, the U.S. lost 3.2 million jobs to China, according to a study by EPI Director of Trade and Manufacturing Policy Research Robert E. Scott. About two-thirds of those jobs, or 2.4 million, were in manufacturing. When workers lost middle-class manufacturing jobs, they were often forced into lower-paying (because less-productive) jobs in the service sector. Largely as a result, American median income declined steadily over that period.

U.S. economic growth has followed the U.S. trade balance downwards. The U.S. average trade balance (as a percentage of GDP) sank to a negative 3.8 percent during the 2006-2015 decade from a positive 0.6 percent during the 1956-1965 decade. Meanwhile U.S. annual economic growth sank to just 1.4 percent from 2006-2015 after averaging 3.4 percent over the previous five decades.

We have proposed a single-country-variable-tariff called the Scaled Tariff to address chronic trade deficits. The tariff rate rises or falls as the U.S. trade deficit with a trade surplus country rises and falls. The single-country-variable tariff is a simple remedy and has the virtue that it requires no negotiation at all and is compliant with World Trade Organization rules.

American presidents should have ordered across-the-board tariffs against the trade surplus countries long ago, but large campaign contributions from multinationals producing in those countries may have prevented them from doing so.

Only a candidate that is largely self-financed can afford to act in America’s interest. If Trump loses, it may be decades before another candidate puts America’s interest ahead of that of the big campaign contributors. Trump may be our last chance to end our trade-deficit caused decline in economic growth and political power.

The Richmans co-authored the 2014 book Balanced Trade published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.