An American Economy for Americans

by Patrick J. Buchanan – April 12, 1996

This year the U.S. merchandise trade deficit is running at $200 billion. By Trade Representative Mickey Kantor’s own figures – $1 billion in exports equals 20,000 jobs -our appetite for foreign goods will cost fellow Americans four million jobs.

One wonders what it takes to shake our free-trade friends out of their dogmatic slumber.

Since the Nixon era, the dollar has fallen 75% against the yen, 60% against the mark. In 1950 we produced half the world’s goods; today we produce a fourth. For the first time, more Americans work In government than in manufacturing.

We pay in other coin, too, for worshipping this golden calf. In lost sovereignty, as we implore a powerful new World Trade Organization to let us defend crucial U.S. interests. In a growing dependency on foreigners to buy our bonds and sell us their oil. In $50 billion bailouts of bankrupts like Mexico, lest they collapse and take us down with them.

We are paying, too, in social costs: in a burnt-out Detroit, once the forge of the Great Arsenal of Democracy, in ghost towns that were once factory towns, in the stagnant wages of an alienated working class and a middle class newly introduced to insecurity.

If Republicans cannot see the economic consequences of this New World Order, they had best recognize the political. In 1992 a third of the Reagan coalition bolted to Ross Perot. By the time the Nafta passed, grass-roots Republicans had turned against it. GATT had to be rammed through a lame-duck session of Congress. To ship Mexico tens of billions to pay off its bondholders at Citibank and Goldman Sachs, President Clinton had to act by executive order. You don’t need a weatherman to know which way the wind is blowing. But why do Republicans remain fixated on “free-trade” ideology?

Woodrow Wilson was our century’s first free-trade president. But he was no conservative. Frederick Bastiat, French celebrant of free trade, declared as its end, “formation of a peaceful, ecumenical, indissoluble union of the peoples of the world.” One understands why Deputy Secretary of State Strobe Talbott would buy into such nonsense. But why have U.S. conservatives become such zealous converts?

The opportunity is at hand to jettison a New World Order Americans have rejected in their hearts, to build a new coalition of supply-siders and economic nationalists. Marry the growth agenda of Ronald Reagan to the America First philosophy of the four men whose faces are carved on Mount Rushmore – and the future is ours.

Here are the elements of a plan that can make America the enterprise zone of the industrial world.

Impose a flat tax on incomes above $25,000 for a family of four with deductions only for mortgage interest and charitable contributions. By simplifying the tax code, we could radically downsize the IRS.

Impose a flat tax on big corporations, with a much lower tax rate on small businesses. This would leave in the cash drawers of our job-creating small companies more income to hire American workers.

Eliminate taxes on interest and dividends for individuals to spur family saving and investment.

Eliminate inheritance taxes on family farms, businesses and estates of less than $5 million. This would let children inherit what they, their parents and grandparents put together with sweat and sacrifice.

Declare a six-month holiday where long-term capital gains would be taxed at sales-tax rates. This would unlock hundreds of billions in assets – stocks, bonds, real estate, equipment, a volcano of activity would erupt.
Message this reformed U.S. tax code would send; Work. save, invest here in the land of the free, and you will retain more of your earnings than in any other country.

As this tax reform provides for some capital gains and estate tax revenue (Rep. Dick Armey’s does not), our flat tax rate can be lower than his 17%. It can be lowered further still by using revenue from consumption taxes on foreign goods.

Impose a 10% tariff on Japanese imports. This would generate $12 billion, enough to eliminate almost all U.S. taxes on small business.

Impose a 20% tariff on Chinese imports. China is using its $35 billion trade surplus with us to pursue policies of belligerence and repression. We ought not accord it the same privileged trade status we accord Britain. The $8 billion this tariff would yield is enough to pay fully for eliminating inheritance taxes on all U.S. small businesses and family farms.

Impose a social tariff on Third World manufactured goods. Purpose; Insulate the wages of U.S. workers from downward pressure from foreign laborers who must work for $1 an hour, or less. It is mindless to enact health, safety and environmental laws, wage laws and family leave laws. and then, via Nafta and GATT, to invite the very companies Congress is regulating to move to Mexico or Asia.
“The fundamental bond that unites men into society is the interpersonal exchange of goods and services,” Ludwig Von Mises said. Let’s replace ties with foreigners with ties among Americans.

A tariff on China or Japan will make Iowa “a dust bowl.” wails Phil Gramm. Asia will retaliate; our farm economy, dependent on exports, will die. But this is the counsel of fear and timidity. Had we followed it in the Cold War we would all be speaking Russian.

Together, Japan and China enjoy a $100 billion trade surplus at our expense. Japan has 25% of the U.S. auto market; we have but 1% of Japan’s. The Japanese economy is four times as dependent on sales to us as we are on sales to Japan. Would Tokyo toss this away out of pique at a trade hawk in the Oval Office?

If foreign regimes don’t like the new U.S. policy, let them not like it. This is our land; America is our country; the U.S. our market. We decide who enters here and who does not.

Toward free traders let us practice free trade. With predatory traders, it is time we learned to play hardball again.

As for multinational-corporations, whose loyalty is only to the bottom line on a balance sheet, inform these amoral behemoths they are welcome to bring in their capital and build their plants. But if they shut down factories here to open overseas, they will pay a price for the readmission of their goods into America’s market.

Who, after all, is the American economy for, if not Americans?

With tariffs we can shift the burden of taxes off the incomes of U.S. workers and small businesses, onto consumers of foreign goods. “By the tariff System” said Lincoln, “the whole revenue is paid by the consumers of foreign goods. . . . The man who contents himself to live upon the products of his own country pays nothing at all.”

This plan marrys the growth ideas of Ronald Reagan to “The American System” devised by Hamilton and Washington, pursued by Jefferson and Lincoln, perfected by Theodore Roosevelt and Calvin Coolidge. That system converted America from a seaboard country of farmers into the mightiest industrial power on earth. America’s giants blazed the trail and gave us the map; let us follow It.