Why America slept

By ERNEST F. HOLLINGS, former U. S. senator

JAN. 11, 2012 -- As a student at Harvard, John Fitzgerald Kennedy traveled Europe. Kennedy could see the rise of Hitler and realized England had adopted a policy of appeasement to the rise. In his senior year, he wrote his award-winning book, Why England Slept. Today, the United States adopts a policy of appeasement to globalization.


Globalization is nothing more than a trade war with production looking for a country cheaper to produce. And the war has expanded from trade to production, research, technology, techniques, jobs, payrolls -- the economy. Every nation struggles in the economy war to maintain and build its economy - except the United States.

In the New Hampshire debate (1/7/12), Governor Huntsman exclaims: "We don't want to start a trade war." Japan started the trade war after World War II by closing its market, subsidizing its manufacture, selling its export at cost, making up the profit in its closed market -- making Toyota #1 as GM went broke. In the same debate, Governor Romney exclaims: "We've got to stop China from stealing our jobs." China steals intellectual property -- not jobs. President Obama and Congress do the "stealing" by continuing the tax benefit to off-shore jobs.

Corporate America invests in China because there are no labor, safety or environmental concerns. If you make a profit, pay no corporate tax unless profits are repatriated. Just reinvest for more profit. If not profitable, walk away with no legacy cost. Facing this kind of competition in globalization, the United States must develop an economy attractive to invest and protect the investment.

"The way to stop China's predatory practices is retaliate, but President Obama refuses to retaliate or enforce our trade laws."

-- Hollings

The President and Congress say they are developing an economy to create jobs in the United States. Tax cuts or Federal aid for policemen, firemen and teachers is no way to build an economy. It takes private investment. Ed Schultz, on MSNBC, continually exclaims: "You can't increase the taxes on the job creators. Really? Where are the jobs?" In China.

To get Corporate America out of China and investing in the United States, we've got to lower the taxes "on the job creators." All we have to do is to take the tax benefit to off-shore jobs and give it to Corporate America to on-shore jobs - replace the 35% corporate tax with a 6% value added tax. This tax cut reduces the cost of exports 29%, creating jobs. It releases $1.2 trillion in off-shore profits for Corporate America to repatriate and create millions of jobs. In 2010, the corporate tax produced revenues of $194.1 billion. A 2010 6% VAT would have produced $700 billion.

The VAT is a tax on consumption, not income. The more you spend, the more you pay. The poor have to spend most of their income on food, health and housing, so exemptions for the poor leaves billions to pay down the debt. The VAT is self-enforcing: you either pay it or pass it on. Much of the IRS can be eliminated, cutting the size of government. The VAT has no loopholes, so it eliminates the tax lobbyists. The lobbyists will howl: "You can't go for a national sales tax." This is not a national sales tax. It's cutting the 35% corporate tax to a 6% VAT.

We must get in step with the 141 countries that use a VAT to compete in globalization or keep losing our economy. Germany uses its 19% VAT, which is rebated on exports, to produce green jobs in the United States 13% cheaper than any domestic production. It produces the parts at high cost in Germany to avoid any tax; ships the parts at 3% cost, and assembles the parts in Charleston, S. C., at 3% cost, producing windmills.

The way to stop China's predatory practices is retaliate, but President Obama refuses to retaliate or enforce our trade laws. We passed the Defense Production Act in 1950 to make sure that we had defense materiel on hand to defend the country. In 1991, Admiral William Crowe, former Chairman of the Joint Chiefs of Staff, warned us that we were depending on foreign favor to defend the country. We were off-shoring too much of our defense manufacture. Having defeated Russia in Afghanistan, we're now begging Russia for helicopters for Afghanistan.

If President Obama would enforce the Defense Production Act, it would create millions of jobs. Instead of TARP, if President Obama imposed a tariff on imported automobiles like Brazil, or imposed a 10% surcharge on imports like President Nixon did in 1971, when our trade deficit was a miniscule of what it is today, it would create millions of jobs. If President Obama would protect steel, motor vehicles, computers and machine tools like President Reagan did in 1984, it would create millions of jobs. Instead of enforcing our trade laws, President Obama calls for free trade and warns against protectionism.
The duty of Corporate America is to make a profit -- not develop the economy. Corporate America will work an economy any way a government fashions it -- be it free or communist. Intel has gone from the United States to Ireland, to China, now in communist Vietnam.

The duty of government is to develop and protect a strong economy. The United States was founded on protectionism and made an economic superpower with the Tariff Act of 1789. Wall Street, the big banks, and Corporate America want to keep the easy off-shore profits flowing. But if the President and Congress adopt a VAT to compete in globalization; if the President and Congress enforce our trade laws or retaliate against predatory practices, this will cut into the off-shore profits. So any move the President and Congress make to fight in the economy war is met with cries of "free trade," "protectionism," "don't start a trade war." Wall Street, the big banks and Corporate America are the biggest contributors to the President and Congress. So the President and most of the Congress join in the cries.

Our country has 24 million Americans looking for jobs. But the President and Congress continue to subsidize the off-shoring of jobs and the economy. In The Time Of Our Lives Tom Brokaw relates: "Wherever I go I am asked what has happened to us? Have we lost our way?" Not lost -- just asleep. Wall Street, the big banks and Corporate America pay the President and Congress to keep the country asleep.

Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).

© 2012, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

Today, Hollings continues to be influential in public affairs and offers this Web site as a compendium of current and past positions on public issues. Learn more about Fritz Hollings.

NEWS: Hollings receives French honor

France honored retired U.S. Sen. Fritz Hollings on in 2013 by awarding him the Legion of Honor for his World War II service. More.

Receive commentary via The Huffington Post

Please visit Sen. Hollings' section of The Huffington Post where you can get an RSS of his columns, subscribe by email or use social media.

The Hollings legacy

Click here to learn more about Hollings' impressive and distinguished record of public service.

2014 commentaries

Previous commentaries

Read the new book

The University of South Carolina Press in 2008 published Making Government Work, a new book by Sen. Hollings. Learn more.