Does our government trade with Japan?

The short and correct answer is no, and our government does not trade with any other country either. Walter Williams offers us a timely lesson today since Congress, talk radio and the nation is discussing the proposed bailout of the nations big three automakers.

I’m not sure if GM, Ford and Chrysler really make up the nations big three anymore, but I do know that when we recently purchased a Toyota, we worked with a dealer – not the United States or Japanese government.

In Trade versus Protectionism, Prof. Williams lays out some facts concerning who people trade with – usually other people – and how manufacturing has changed in the United States and around the globe.

While it might be convenient to speak of one country trading with another, such aggregation can conceal a lot of evil, particularly when people call for trade barriers. For example, what would be a moral case for third-party interference, by either the Japanese Diet or the U.S. Congress, with an exchange between me and Toyota Motor Corporation?

Williams argues there is no moral grounds for a government to step in between two individuals and interfere with a normal transaction. I use the phrase “normal transaction” since the good professor does not mention that there is a moral requirement – stipulated by an oath of office – that requires Congress and the Executive Branch to preserve, protect and defend the Constitution and the people of the United States.

In other words, just because Electric Boat can build a nuclear submarine does not mean EB can sell a sub to Venezuela.

So, what does a protectionist stance bring countries who are trying to protect the value of goods and services for their own people? The simple fact is that tariffs and excess regulation – implemented in the U.S. and other countries – increase the price of goods and services.

Did you know the Japanese pay three to four times the world rate for rice? Protecting rice growers in Japan by instituting high tariffs on imported rice, the government ensures the people pay a higher price to subsidize the local growers.

Do excess tariffs help importers? Obviously not, so it’s clear that nobody wins. Fair trade is free trade.

“Steve, but what about all of the jobs that are protected?” you ask. Well the question implies that jobs are lost because of free trade agreements. We’ve all heard about companies moving manufacturing plants to other countries – or other states – simply because the cost of doing business is less.

The problem is not free trade, the problem is excessive regulation and taxes in countries – or again states – that force businesses to do what they need to do to stay competitive in the market place.

I’ve highlighted states and not just countries to make a point. With all other factors equal, if you had the choice to build a business in Suffield, Connecticut with a 7.5 percent corporate tax rate or Agawam, Massachusetts with a 9.5 percent corporate tax rate, where would you build?

I understand that the national pride kicks in when a company moves manufacturing out of the country, but for some reason state pride rarely kicks in when a manufacture moves from Connecticut to South Carolina. Gut check for the Connecticut legislature – that manufacture moved to South Carolina because it’s cheaper to do business there and they need to stay competitive.

Of course, they could stay in Connecticut and hope that the state would institute a tariff on goods coming from South Carolina. Good luck, they will be out of business soon.

So, has the United States lost manufacturing jobs? The quick answer is yes, but we’ve also lost agriculture positions, and the guys manufacturing buggy whips back in 1910 would certainly have a tough time finding a gig in 2008.

Although job numbers are important, we must note our manufacturing output has increased. Back to the professors column.

In each of the past 60 years, U.S. manufacturing output growth has averaged 4 percent and productivity growth has averaged 3 percent.

Manufacturing is going through the same process as agriculture. In 1900, 41 percent of American workers were employed in agriculture; today, only 2 percent are and agricultural output is greater. In 1940, 35 percent of workers were employed in manufacturing jobs; today, it’s about 10 percent. Again, because of huge productivity gains, manufacturing output is greater.

The decline in manufacturing employment is not limited to the U.S. Since 2000, China has lost over 4.5 million manufacturing jobs. In fact, nine of the top 10 manufacturing countries, which produce 75 percent of the world’s manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada, and Mexico), have lost manufacturing jobs but their manufacturing output has risen.

Want to increase manufacturing jobs here in the United States? Make it more profitable for manufactures to do business here by lowering corporate tax burdens and removing excess regulations.