March 11, 2007


Freer trade, freer markets, freer societies!!!

From: The Wall Street Journal

GOP Protectionists

March 6, 2007; Page A19

As the GOP stumbles around Washington trying to be the party of Herbert Hoover, it's sad to see so many Republicans drifting so far and so fast from the Reagan model that helped pave the way for the great, non-inflationary economic and jobs expansion of the past 25 years.

Sen. Lindsey Graham, (R, SC) threatens China with a 28% tariff for daring to tie the yuan to the dollar. Rep. Tom Tancredo, running for president, is miffed at President Bush for trying to design comprehensive immigration-reform legislation. The president wants a guest-worker program that could help alleviate border problems in the Southwest.

But Mr. Tancredo is a sissy compared to my old pal Duncan Hunter, the congressman from San Diego. He's also running in the GOP primaries as an unambiguous Hoover-like protectionist and anti-globalization candidate. Then there's my other old friend Pat Buchanan, railing against Japan and Toyota for having the chutzpah to sell so many cars in the U.S., even going so far as to build manufacturing plants right here under our noses.

Mr. Buchanan resigned from the GOP a few years ago because Republicans weren't tough enough on trade, tariffs and immigration for his so-called "economic nationalism" model. His answer to the competition faced by U.S. automakers from abroad is to bash Japan, and to accuse those of us who believe in classical free-trade policies of being "fanatics" who cause U.S. manufacturing to move offshore. Adam Smith and David Ricardo are spinning in their graves!

In the interest of full disclosure, I'm on the advisory board of Toyota North America and now drive a hybrid Lexus. But I also believe that the real answer for U.S. auto companies is a decrease in tax rates, lower costs of labor and greater flexibility in future union contracts. The attack on a trading partner like Japan is misguided when the real enemy of American jobs and auto production comes from Washington and Detroit. Having driven American automobiles for 50 of my 71 years, my long-term, (and short-term) solution to the profound challenges faced by U.S. manufacturers is to reform the complex, confusing and confiscatory U.S. tax code, and to ease the onerous regulatory burden that undermines our ability to compete in the global economy.

The suggestion that Japan manipulates its currency for trade advantages - even though the yen has appreciated against the dollar by 75% since 1985 - is misleading. The same attack could have been made against the U.S. when the Fed lowered the federal-funds rate to 1% in 2003 in order to boost the economy. Every central bank manipulates its currency to some degree in that they control the printing of the supply of money that determines the value of their currency.

Protectionists claim that the trade deficit threatens the dollar and causes it to fall, further de-industrializing America and diminishing our freedoms. In reality, the trade deficit is just the other side of what President Reagan correctly called the capital account surplus, which reflects foreign investment leading to increased production, output and job creation in the U.S.

As a case in point, since coming to America 50 years ago Toyota has invested more than $14 billion in our domestic economy and set up 10 manufacturing plants. It has "insourced" more than 380,000 jobs since 1981, and just announced an 11th plant, with more U.S. jobs. Toyota pays close to $15 billion in wages to American workers.

Overall, since the 2001 recession, according to David Malpass of Bear Stearns, the U.S. economy has created 9.3 million jobs; Japan only 350,000. As for the legacy health costs and pension costs for U.S. auto workers, protectionists would better spend their time lobbying for Detroit to move to health-savings accounts and defined pension-contribution plans. Defined-benefits pension plans are far too costly for auto makers, as economist Arthur Laffer has written and lectured about for years.

Protectionist views on trade resemble Al Gore on global warming: Pessimism permeates their arguments and they misuse statistics to drive their propaganda on these very important issues. Mr. Buchanan, for example, argues that the U.S is witnessing the passing of our nation as the greatest industrial power the world has ever seen. Nonsense: Half the wealth our nation has ever produced was generated in the last 25 years or so.

With the recent passing of Milton Friedman and Ronald Reagan, we've lost two great champions of the free-enterprise and free-trade policies that helped lay the groundwork for the last two decades of low unemployment and low inflation, fostering the growing class of working families who own stocks, bonds and property.

The answers to our challenges in today's global marketplace can be found in sound money, lower tax rates on capital and labor, an easing of regulatory burdens, and the welcoming of foreign investment and trade with nations like Japan. Isolationism and protectionism are not worthy of 21st century America.

Mr. Kemp is founder and chairman of Kemp Partners and former Secretary of Housing and Urban Development.

Copyright 2007 - The Wall Street Journal

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