Category: Howard Richman

On Trade, Trump Is Acting in the Best Interest of the USA


On Thursday, President Trump, surrounded by steel workers in the Oval Office, signed a memo imposing tariffs on steel (25%) and aluminum (10%) that are imported to the United States.

He carved out two exceptions to the tariffs:

  1. Canada and Mexico would be temporarily exempted from the tariffs, pending the outcome of the ongoing renegotiation of NAFTA.  The U.S. will likely insist that products imported tariff-free into the U.S. use steel produced within NAFTA.
  2. He directed USTR (U.S. trade representative) Robert C. Lighthizer to negotiate with those military allies that want to be excluded from the tariffs, but such exclusions would require trade reciprocity.  The Trump administration is expert at using economic leverage to produce negotiated outcomes that benefit the United States.

This announcement marks a victory for the trade deficit hawks in President Trump’s inner circle of economic advisers, including Wilbur Ross, Trump’s secretary of commerce, and University of California at Irvine economics professor Peter Navarro, who was recently elevated to the ranks of the president’s top-level advisers.

The economic recovery being produced by President Trump’s tax cuts and deregulation is at stake.  During the fourth quarter of 2017, real GDP grew at a 2.5% clip, which is good compared to growth rates during the Obama years, but it could have been much better.  Here are the contributions to growth during the fourth quarter:








Contributor to GDP

Resulting Growth

Consumption

2.6%

Fixed Investment

1.3%

Change in Inventories

-0.7%

Government Purchases

0.5%

Net Exports

-1.3%

Total

2.5%

The reduction of inventories by 0.7% is not of concern.  It simply means that business inventories declined by 0.7% of our GDP, probably because businesses were selling more than they had anticipated.  The concerning factor is the worsening net exports (i.e., trade balance), which reduced GDP growth by 1.3% of our GDP.  If not for the worsening trade balance, GDP growth would have been an outstanding 3.8% during the fourth quarter. 

Critics point out that the tariffs will raise the price of products fabricated with steel or aluminum.  But the existing low prices of iron and steel and aluminum are at the expense of American producers in those industries.  American consumers should not be favored at the expense of American wage-earners.

The reality is that the same countries that produced the most steel in the world produced the largest trade deficits in the United States (deficits shown as negative trade balances):

 





















Country

Steel Production millions of tonnes

U.S. Trade Balance millions of dollars

China

808.4

-316,273

Japan

104.8

-58,286

India

95.6

-19,455

United States

78.5

—–

Russia

70.8

*-10,016

South Korea

68.6

-18,977

Germany

42.1

-52,886

Turkey

33.2

*330

Brazil

31.3

6,322

Ukraine

24.2

*809

Italy

23.4

-27,061

Taiwan

21.8

-14,739

Mexico

18.8

-59,286

Iran

17.9

*75

France

14.4

-12,454

Spain

13.6

*-4,646

Canada

12.6

-13,765

Total

1629.6

-568,400

*goods only, does not include services

The biggest steel-producing country in the world in 2016 was China, which accounted for about half of the world’s steel production and more than half of the U.S. trade deficit.  Imposing tariffs on such products is a way to balance trade.

What of fears of a trade war?  Most of the above countries are already participating in a trade war with the United States, except that the United States has not been fighting back.  The governments of these countries have been manipulating the terms of trade to enhance their exports to the United States and keep out U.S. products.  As a result, we get debt, and they get the new factories and the R&D that needs to locate near factories.

The policy goal as we move forward with these tariffs should be to balance the U.S. overall global trading position.  The American working class has suffered tremendously as the result of imbalanced global competition.  The many vocal advocates of the “free trade” that has decimated the American working class are currently shouting that if Trump tries anything to level that playing field, it will be a disaster.  It is the “free trade” policy that has been a disaster.

It is time to give tariffs a try.  The Trump economic boom and America’s economic future are at stake.

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 Thursday, President Trump, surrounded by steel workers in the Oval Office, signed a memo imposing tariffs on steel (25%) and aluminum (10%) that are imported to the United States.

He carved out two exceptions to the tariffs:

  1. Canada and Mexico would be temporarily exempted from the tariffs, pending the outcome of the ongoing renegotiation of NAFTA.  The U.S. will likely insist that products imported tariff-free into the U.S. use steel produced within NAFTA.
  2. He directed USTR (U.S. trade representative) Robert C. Lighthizer to negotiate with those military allies that want to be excluded from the tariffs, but such exclusions would require trade reciprocity.  The Trump administration is expert at using economic leverage to produce negotiated outcomes that benefit the United States.

This announcement marks a victory for the trade deficit hawks in President Trump’s inner circle of economic advisers, including Wilbur Ross, Trump’s secretary of commerce, and University of California at Irvine economics professor Peter Navarro, who was recently elevated to the ranks of the president’s top-level advisers.

The economic recovery being produced by President Trump’s tax cuts and deregulation is at stake.  During the fourth quarter of 2017, real GDP grew at a 2.5% clip, which is good compared to growth rates during the Obama years, but it could have been much better.  Here are the contributions to growth during the fourth quarter:








Contributor to GDP

Resulting Growth

Consumption

2.6%

Fixed Investment

1.3%

Change in Inventories

-0.7%

Government Purchases

0.5%

Net Exports

-1.3%

Total

2.5%

The reduction of inventories by 0.7% is not of concern.  It simply means that business inventories declined by 0.7% of our GDP, probably because businesses were selling more than they had anticipated.  The concerning factor is the worsening net exports (i.e., trade balance), which reduced GDP growth by 1.3% of our GDP.  If not for the worsening trade balance, GDP growth would have been an outstanding 3.8% during the fourth quarter. 

Critics point out that the tariffs will raise the price of products fabricated with steel or aluminum.  But the existing low prices of iron and steel and aluminum are at the expense of American producers in those industries.  American consumers should not be favored at the expense of American wage-earners.

The reality is that the same countries that produced the most steel in the world produced the largest trade deficits in the United States (deficits shown as negative trade balances):

 





















Country

Steel Production millions of tonnes

U.S. Trade Balance millions of dollars

China

808.4

-316,273

Japan

104.8

-58,286

India

95.6

-19,455

United States

78.5

—–

Russia

70.8

*-10,016

South Korea

68.6

-18,977

Germany

42.1

-52,886

Turkey

33.2

*330

Brazil

31.3

6,322

Ukraine

24.2

*809

Italy

23.4

-27,061

Taiwan

21.8

-14,739

Mexico

18.8

-59,286

Iran

17.9

*75

France

14.4

-12,454

Spain

13.6

*-4,646

Canada

12.6

-13,765

Total

1629.6

-568,400

*goods only, does not include services

The biggest steel-producing country in the world in 2016 was China, which accounted for about half of the world’s steel production and more than half of the U.S. trade deficit.  Imposing tariffs on such products is a way to balance trade.

What of fears of a trade war?  Most of the above countries are already participating in a trade war with the United States, except that the United States has not been fighting back.  The governments of these countries have been manipulating the terms of trade to enhance their exports to the United States and keep out U.S. products.  As a result, we get debt, and they get the new factories and the R&D that needs to locate near factories.

The policy goal as we move forward with these tariffs should be to balance the U.S. overall global trading position.  The American working class has suffered tremendously as the result of imbalanced global competition.  The many vocal advocates of the “free trade” that has decimated the American working class are currently shouting that if Trump tries anything to level that playing field, it will be a disaster.  It is the “free trade” policy that has been a disaster.

It is time to give tariffs a try.  The Trump economic boom and America’s economic future are at stake.

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.



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China's Predatory Economics and How to Stop It


There is a global contest underway between two economic and political models.  One model is liberty and democracy, and the other is state control and totalitarianism.  Fortunately (and hopefully not too late), U.S. policymakers have awakened to the nature of the current challenge.

During an October 18 speech about the U.S-India relationship, secretary of state Rex Tillerson sought to build ties with Asian democracies.  He argued that “[t]he emerging Delhi-Washington strategic partnership stands upon a shared commitment upholding the rule of law, freedom of navigation, universal values, and free trade” and criticized China’s “predatory economics.”

According to Tillerson, the Chinese government has been lending money to developing countries in a way that gives their victims debt, but not jobs, and sometimes ends up with their assets being owned by China.  Specifically, Tillerson said:

We have watched the activities and actions of others in the region, in particular China, and the financing mechanisms it brings to many of these countries [in the Indo-Pacific region] which result in saddling them with enormous levels of debt. They don’t often create the jobs, which infrastructure projects should be tremendous job creators in these economies, but too often, foreign workers are brought in to execute these infrastructure projects. Financing is structured in a way that makes it very difficult for them to obtain future financing, and oftentimes has very subtle triggers in the financing that results in financial default and the conversion of debt to equity.

China’s predatory policies in the Third World are of a piece with its approach to the United States.  Like a pusher seeking to entrap an addict, China provides cheap loans and subsidized products in order to achieve long-term objectives, expand its power, and create dependency.

Chinese predatory economics has had similar negative effects upon the United States.

  1. Loans.  China has been lending the proceeds of its trade surplus to the U.S. in order to keep the dollar-yuan exchange rate from falling to a trade-balancing level.
  2. Debt.  As a result of these loans to the United States, the U.S. owes the Chinese government trillions of dollars.  The exact amount is not known, since China lends us money using foreign banks as intermediaries, taking advantage of a tax loophole that Congress should close.
  3. Jobs.  American manufacturing workers produce about $120,000’s worth of product each.  Thus, if our $320-billion trade deficit with China were balanced, American workers would gain about 2.7 million productive jobs.
  4. Assets.  China has been using the proceeds of its trade surpluses with the U.S. to buy up U.S. assets and acquire U.S. technology – literally buying our comparative advantage.  We will be paying dividends, rents, and interest to China for generations.
  5. Power.  China has displaced or soon will displace (depending upon your metric) the U.S. as the world’s largest economy.

A centerpiece of China’s predatory economic policy toward the United States is an enormous trade imbalance.  The graph below shows the U.S. trade deficit in goods and services with China for the year ending with the quarter specified:

As shown in the graph, the U.S. trade deficit with China rose steadily during the presidencies of George W. Bush and Obama.  During Bush’s term, China grew its trade surplus with the United States from $81 billion to $263 billion, representing about 1.5 million U.S. manufacturing jobs lost.  During Obama’s term, the trade deficit rose from $263 billion to $309 billion, representing about 380,000 additional manufacturing jobs lost.  These losses propelled Trump’s Rust-Belt Electoral College victories.

During the first two quarters of 2017, the U.S. trade deficit with China rose from $309 billion to $320 billion, so President Trump has not yet stopped the bleeding of jobs.  However, there are some good signs.  In June, China started letting in American beef.  In July, Foxconn, which mostly produces in China, unveiled plans to build a $10-billion LCD display plant in Wisconsin.

The predatory economic strategy that the Chinese government has been following with the U.S. is known as mercantilism, which University of Chicago Professor Jacob Viner defined as the strategy of placing tariffs (and other barriers) upon foreign products while at the same time buying foreign assets (mainly stocks, bonds, and precious metals).

In his 1776 magnum opus (An Inquiry into the Nature and Causes of the Wealth of Nations), Adam Smith decried it as a policy of “beggaring all their neighbors.”  In the chapter about mercantilism in his 1936 magnum opus (General Theory of Employment, Interest and Money), John Maynard Keynes discussed its effectiveness:

[A] favorable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression.

In an article published in 1997 in an American economics journal (Dynamic Analysis of the Viner Model of Mercantilism), prominent Chinese economist Heng-fu Zou demonstrated mathematically that mercantilism works.

Business economist Peter Navarro, President Trump’s White House trade adviser, in his 2011 book with Greg Autry summarized the disastrous effect that Chinese mercantilism has had upon the U.S. economy:

China’s “weapons of job destruction” include massive illegal export subsidies, the rampant counterfeiting of U.S. intellectual property, pitifully lax environmental protections, and the pervasive use of slave labor. The centerpiece of Chinese mercantilism is, however, a shamelessly manipulated currency that heavily taxes U.S. manufacturers, extravagantly stimulates Chinese exports, and has led to a ticking time bomb U.S.-China trade deficit close to a billion dollars a day.

A key challenge for U.S. economic policy is to force China to abandon its mercantilism.  If the Trump administration is able to convert the U.S.-China trade relationship from the current victim-prey relationship, to a balanced-trade relationship, both countries would benefit from the growing trade.  When trade is balanced, both countries trade what they can produce with comparative advantage for what the other can produce with comparative advantage.

Past administrations suffered from the delusion that allowing Chinese mercantilism to proceed unhindered would lead China to become democratic and encourage China to become a responsible stakeholder in the global political system.  Alas, this has merely enabled China’s quest to become a totalitarian global hegemon.

In an October 18 speech to the Chinese Communist Party Congress, China’s leader heralded the “new era” of Chinese power.  He asserted that “the political system of socialism with Chinese characteristics is a great creation.”  Meanwhile, Amnesty International’s 2016-2017 report noted that “[t]he nationwide crackdown on human rights lawyers and activists continued throughout the year,” and the Heritage Foundation rated China’s economy as “mostly unfree” and noted “little momentum for reform.”

The key to ending China’s mercantilism is to stop tolerating it.  To that end, the administration should impose a tariff upon Chinese imports that is scaled so it takes in half of the U.S. trade deficit as U.S. government revenue.  Half of the current U.S. trade deficit with China is $160 billion, and we imported $500 billion from China during the last year, so the current tariff rate (to be readjusted quarterly) should be 32%.

This would incentivize an end to mercantilism.  If China lets in American products, begins treating them fairly, and stops distorting the terms of trade, then the rate will decline.  And this strategy is legal under WTO rules, which let trade deficit countries impose trade-balancing tariffs.

If Chinese predatory economics is allowed to continue, China will continue to gain our industrial strength and will replace us as the world’s premier economic power.  Tillerson’s remarks suggest that the Trump administration is aware of China’s predatory strategy and is preparing to take steps to end it.

Fighting Chinese mercantilism is a critical step toward ensuring that free trade, human rights, and democracy can continue to increase prosperity and expand human dignity here and abroad.

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.

There is a global contest underway between two economic and political models.  One model is liberty and democracy, and the other is state control and totalitarianism.  Fortunately (and hopefully not too late), U.S. policymakers have awakened to the nature of the current challenge.

During an October 18 speech about the U.S-India relationship, secretary of state Rex Tillerson sought to build ties with Asian democracies.  He argued that “[t]he emerging Delhi-Washington strategic partnership stands upon a shared commitment upholding the rule of law, freedom of navigation, universal values, and free trade” and criticized China’s “predatory economics.”

According to Tillerson, the Chinese government has been lending money to developing countries in a way that gives their victims debt, but not jobs, and sometimes ends up with their assets being owned by China.  Specifically, Tillerson said:

We have watched the activities and actions of others in the region, in particular China, and the financing mechanisms it brings to many of these countries [in the Indo-Pacific region] which result in saddling them with enormous levels of debt. They don’t often create the jobs, which infrastructure projects should be tremendous job creators in these economies, but too often, foreign workers are brought in to execute these infrastructure projects. Financing is structured in a way that makes it very difficult for them to obtain future financing, and oftentimes has very subtle triggers in the financing that results in financial default and the conversion of debt to equity.

China’s predatory policies in the Third World are of a piece with its approach to the United States.  Like a pusher seeking to entrap an addict, China provides cheap loans and subsidized products in order to achieve long-term objectives, expand its power, and create dependency.

Chinese predatory economics has had similar negative effects upon the United States.

  1. Loans.  China has been lending the proceeds of its trade surplus to the U.S. in order to keep the dollar-yuan exchange rate from falling to a trade-balancing level.
  2. Debt.  As a result of these loans to the United States, the U.S. owes the Chinese government trillions of dollars.  The exact amount is not known, since China lends us money using foreign banks as intermediaries, taking advantage of a tax loophole that Congress should close.
  3. Jobs.  American manufacturing workers produce about $120,000’s worth of product each.  Thus, if our $320-billion trade deficit with China were balanced, American workers would gain about 2.7 million productive jobs.
  4. Assets.  China has been using the proceeds of its trade surpluses with the U.S. to buy up U.S. assets and acquire U.S. technology – literally buying our comparative advantage.  We will be paying dividends, rents, and interest to China for generations.
  5. Power.  China has displaced or soon will displace (depending upon your metric) the U.S. as the world’s largest economy.

A centerpiece of China’s predatory economic policy toward the United States is an enormous trade imbalance.  The graph below shows the U.S. trade deficit in goods and services with China for the year ending with the quarter specified:

As shown in the graph, the U.S. trade deficit with China rose steadily during the presidencies of George W. Bush and Obama.  During Bush’s term, China grew its trade surplus with the United States from $81 billion to $263 billion, representing about 1.5 million U.S. manufacturing jobs lost.  During Obama’s term, the trade deficit rose from $263 billion to $309 billion, representing about 380,000 additional manufacturing jobs lost.  These losses propelled Trump’s Rust-Belt Electoral College victories.

During the first two quarters of 2017, the U.S. trade deficit with China rose from $309 billion to $320 billion, so President Trump has not yet stopped the bleeding of jobs.  However, there are some good signs.  In June, China started letting in American beef.  In July, Foxconn, which mostly produces in China, unveiled plans to build a $10-billion LCD display plant in Wisconsin.

The predatory economic strategy that the Chinese government has been following with the U.S. is known as mercantilism, which University of Chicago Professor Jacob Viner defined as the strategy of placing tariffs (and other barriers) upon foreign products while at the same time buying foreign assets (mainly stocks, bonds, and precious metals).

In his 1776 magnum opus (An Inquiry into the Nature and Causes of the Wealth of Nations), Adam Smith decried it as a policy of “beggaring all their neighbors.”  In the chapter about mercantilism in his 1936 magnum opus (General Theory of Employment, Interest and Money), John Maynard Keynes discussed its effectiveness:

[A] favorable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression.

In an article published in 1997 in an American economics journal (Dynamic Analysis of the Viner Model of Mercantilism), prominent Chinese economist Heng-fu Zou demonstrated mathematically that mercantilism works.

Business economist Peter Navarro, President Trump’s White House trade adviser, in his 2011 book with Greg Autry summarized the disastrous effect that Chinese mercantilism has had upon the U.S. economy:

China’s “weapons of job destruction” include massive illegal export subsidies, the rampant counterfeiting of U.S. intellectual property, pitifully lax environmental protections, and the pervasive use of slave labor. The centerpiece of Chinese mercantilism is, however, a shamelessly manipulated currency that heavily taxes U.S. manufacturers, extravagantly stimulates Chinese exports, and has led to a ticking time bomb U.S.-China trade deficit close to a billion dollars a day.

A key challenge for U.S. economic policy is to force China to abandon its mercantilism.  If the Trump administration is able to convert the U.S.-China trade relationship from the current victim-prey relationship, to a balanced-trade relationship, both countries would benefit from the growing trade.  When trade is balanced, both countries trade what they can produce with comparative advantage for what the other can produce with comparative advantage.

Past administrations suffered from the delusion that allowing Chinese mercantilism to proceed unhindered would lead China to become democratic and encourage China to become a responsible stakeholder in the global political system.  Alas, this has merely enabled China’s quest to become a totalitarian global hegemon.

In an October 18 speech to the Chinese Communist Party Congress, China’s leader heralded the “new era” of Chinese power.  He asserted that “the political system of socialism with Chinese characteristics is a great creation.”  Meanwhile, Amnesty International’s 2016-2017 report noted that “[t]he nationwide crackdown on human rights lawyers and activists continued throughout the year,” and the Heritage Foundation rated China’s economy as “mostly unfree” and noted “little momentum for reform.”

The key to ending China’s mercantilism is to stop tolerating it.  To that end, the administration should impose a tariff upon Chinese imports that is scaled so it takes in half of the U.S. trade deficit as U.S. government revenue.  Half of the current U.S. trade deficit with China is $160 billion, and we imported $500 billion from China during the last year, so the current tariff rate (to be readjusted quarterly) should be 32%.

This would incentivize an end to mercantilism.  If China lets in American products, begins treating them fairly, and stops distorting the terms of trade, then the rate will decline.  And this strategy is legal under WTO rules, which let trade deficit countries impose trade-balancing tariffs.

If Chinese predatory economics is allowed to continue, China will continue to gain our industrial strength and will replace us as the world’s premier economic power.  Tillerson’s remarks suggest that the Trump administration is aware of China’s predatory strategy and is preparing to take steps to end it.

Fighting Chinese mercantilism is a critical step toward ensuring that free trade, human rights, and democracy can continue to increase prosperity and expand human dignity here and abroad.

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.



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European Union Loots Google


On June 27, the European Commission, an agency of the government of the European Union, placed a $2.71 billion fine upon Google, the American technological giant. To indicate the anti-American hostility of the Commission, it did not relate the fine to Google’s annual sales in the EU, but to Google’s world-wide sales.

The anti-trust authorities in a number of other countries could, taking a lesson from the EU’s action fine Google on the basis of its world-wide sales as well. Russia, South Korea, Turkey, and India are among the global enforcers who already have commenced their own investigations.

Google’s strong market position in search is based purely upon the high quality of the search results it returns. Its crime is that it makes a better product than anybody else and is trying to profit from that fact. If a better search engine emerges, Google will lose its dominant position.  

Economic Warfare Against the U.S.

This decision against Google comes in the wake of other decisions by the European Commission against American technological leaders. In 2009, the European Commission looted Intel of $1.45 billion and from 2004-2008 looted Microsoft of about $2 billion. And the European Commission is just getting started. It has already announced plans to loot American technological leader Qualcomm and six major U.S. film studios.

After the looting of Intel, many observers predicted that the EU’s next big target would be Google. In fact, we ourselves, back in May 2009, correctly made that prediction. We knew that the EU would loot Google, no matter what Google did, simply because “Google is big, dominant, and American.”

These record fines against Microsoft, Intel, and Google dwarf the fines that the European Commission levies against European companies for monopolistic violations. The reason for the disparity is simple. Member countries would object if their own companies were looted by the European Commission, a point once made by Wikipedia:

[S]ome analysts assert that the Commission’s monopoly policy … has been “largely ineffective,” because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges.

So why does the European Commission loot American Companies? EU’s antitrust chief Neelie Kroes once bragged:

I would like to draw your attention to Intel’s latest global advertising campaign which proposes Intel as the sponsors of tomorrow. Well now they are sponsors of the European taxpayers, so to say.

Are Fines of Tech Leaders Economically Legitimate?

Some anti-trust prosecutions are economically legitimate. When Congress passed the Sherman Anti-Trust Act in 1890, some American deal makers were combining all of the large competing companies in an industry so that they could gain the monopoly power needed to raise the prices of their products. Breaking up such trusts was economically justified in order to reduce prices for the consumer.

But there is no economic justification for looting technological leaders in order to prevent them from profiting from the monopolies that their technological leadership earned. These companies make enormous profits, and they invest a large part of those profits into research that drives economic growth.

This observation was first noted by economist J. A. Schumpeter, whose work led to the endogenous growth theory, the dominant modern theory of long-term economic growth. They invest enormous amounts in research in an attempt to stay ahead of their competition and also to expand markets for their products.

Schumpeter’s favorite example was the Aluminum Corporation of America. Even though its patent protection expired in 1909, it continued to engage in “cost-reducing research, in the economic development of the productive apparatus, [and] in teaching new uses for the product” (note 20, pp. 101-102).  It maintained its near monopoly for decades while it simultaneously reduced aluminum prices and expanded aluminum output.

Schumpeter wrote about ALCOA way back in 1943. But the intervening years have shown again and again that he was correct. Since World War II, companies that have had technological monopolies have continued to propel economic growth through their research. These innovative companies have included AT&T, IBM, Xerox, Microsoft, Intel and Google.

The European Commission is bleeding American technological leaders of the profits that could have been devoted to research. They are putting these companies on notice that they need to spend their effort worrying about government interference instead of researching new inventions.

Is the Prosecution of Google Legally Legitimate?

If the prosecution against Google were legitimate, Google would have been able to avoid prosecution by studying the decisions against Intel and Microsoft and avoiding their so-called “crimes.” But the criminal case against Google is simply due to Google being an American technological monopoly, and there was never anything that Google could do to avoid it.

If the prosecution against Google were legitimate, the penalties would correspond to the harm done. But, instead, the EU calibrates its loot so as to bleed its victims without killing them. That way, it can to loot again in the future or force its victim into paying for “protection.”

But the most important reason why the EU’s prosecution is illegitimate is because the EU lacks jurisdiction when it levies fines based upon Google’s worldwide sales. If every country could levy fines of five percent upon American companies’ world-wide revenues, a few taking such action could put American-based multinationals out of business.

In effect, the EU is claiming that Google’s operations in the U.S. are subject, not just to U.S. law, but to the EU’s laws as well. If these actions are allowed to stand, American companies would be held to “full, faith, and credit” to other nation’s laws, making European laws the law in the United States.

There is a basic principal at stake. International law must restrict fines to harm done within the borders of the countries that impose the fines. The European Union cannot be allowed to claim jurisdiction over the entire world.

What Should the United States Do?

The Europeans are taking away future inventions from the United States. They are bleeding the American geese that would have laid American golden eggs. The American government did nothing when Microsoft and Intel were looted. This is economic warfare, but only one side is fighting!

In 2016, the United States had a $93 billion trade deficit in goods and services with the European Union, partly produced through actions like this looting. Balancing our trade deficit with Europe would create about 700,000 U.S. manufacturing jobs. At the very least, we should promulgate a retaliatory trade-balancing tariff against European Union products.

Also, we are negotiating a multi-country treaty with the Europeans called the Transatlantic Trade and Investment Partnership (TTIP). We need to tell the European Union that we considers fines levied on U.S. multi-nationals on the basis of sales outside of Europe to be invalid and that such fines must be returned as a pre-condition for further negotiations.

The United States desperately needs a government that fights back against foreign looting of American companies. We protect Europe, while they loot us. We need to let the Europeans know that we are mad as hell and will not be taking this any more.

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 June 27, the European Commission, an agency of the government of the European Union, placed a $2.71 billion fine upon Google, the American technological giant. To indicate the anti-American hostility of the Commission, it did not relate the fine to Google’s annual sales in the EU, but to Google’s world-wide sales.

The anti-trust authorities in a number of other countries could, taking a lesson from the EU’s action fine Google on the basis of its world-wide sales as well. Russia, South Korea, Turkey, and India are among the global enforcers who already have commenced their own investigations.

Google’s strong market position in search is based purely upon the high quality of the search results it returns. Its crime is that it makes a better product than anybody else and is trying to profit from that fact. If a better search engine emerges, Google will lose its dominant position.  

Economic Warfare Against the U.S.

This decision against Google comes in the wake of other decisions by the European Commission against American technological leaders. In 2009, the European Commission looted Intel of $1.45 billion and from 2004-2008 looted Microsoft of about $2 billion. And the European Commission is just getting started. It has already announced plans to loot American technological leader Qualcomm and six major U.S. film studios.

After the looting of Intel, many observers predicted that the EU’s next big target would be Google. In fact, we ourselves, back in May 2009, correctly made that prediction. We knew that the EU would loot Google, no matter what Google did, simply because “Google is big, dominant, and American.”

These record fines against Microsoft, Intel, and Google dwarf the fines that the European Commission levies against European companies for monopolistic violations. The reason for the disparity is simple. Member countries would object if their own companies were looted by the European Commission, a point once made by Wikipedia:

[S]ome analysts assert that the Commission’s monopoly policy … has been “largely ineffective,” because of the resistance of individual Member State governments that sought to shield their most salient national companies from legal challenges.

So why does the European Commission loot American Companies? EU’s antitrust chief Neelie Kroes once bragged:

I would like to draw your attention to Intel’s latest global advertising campaign which proposes Intel as the sponsors of tomorrow. Well now they are sponsors of the European taxpayers, so to say.

Are Fines of Tech Leaders Economically Legitimate?

Some anti-trust prosecutions are economically legitimate. When Congress passed the Sherman Anti-Trust Act in 1890, some American deal makers were combining all of the large competing companies in an industry so that they could gain the monopoly power needed to raise the prices of their products. Breaking up such trusts was economically justified in order to reduce prices for the consumer.

But there is no economic justification for looting technological leaders in order to prevent them from profiting from the monopolies that their technological leadership earned. These companies make enormous profits, and they invest a large part of those profits into research that drives economic growth.

This observation was first noted by economist J. A. Schumpeter, whose work led to the endogenous growth theory, the dominant modern theory of long-term economic growth. They invest enormous amounts in research in an attempt to stay ahead of their competition and also to expand markets for their products.

Schumpeter’s favorite example was the Aluminum Corporation of America. Even though its patent protection expired in 1909, it continued to engage in “cost-reducing research, in the economic development of the productive apparatus, [and] in teaching new uses for the product” (note 20, pp. 101-102).  It maintained its near monopoly for decades while it simultaneously reduced aluminum prices and expanded aluminum output.

Schumpeter wrote about ALCOA way back in 1943. But the intervening years have shown again and again that he was correct. Since World War II, companies that have had technological monopolies have continued to propel economic growth through their research. These innovative companies have included AT&T, IBM, Xerox, Microsoft, Intel and Google.

The European Commission is bleeding American technological leaders of the profits that could have been devoted to research. They are putting these companies on notice that they need to spend their effort worrying about government interference instead of researching new inventions.

Is the Prosecution of Google Legally Legitimate?

If the prosecution against Google were legitimate, Google would have been able to avoid prosecution by studying the decisions against Intel and Microsoft and avoiding their so-called “crimes.” But the criminal case against Google is simply due to Google being an American technological monopoly, and there was never anything that Google could do to avoid it.

If the prosecution against Google were legitimate, the penalties would correspond to the harm done. But, instead, the EU calibrates its loot so as to bleed its victims without killing them. That way, it can to loot again in the future or force its victim into paying for “protection.”

But the most important reason why the EU’s prosecution is illegitimate is because the EU lacks jurisdiction when it levies fines based upon Google’s worldwide sales. If every country could levy fines of five percent upon American companies’ world-wide revenues, a few taking such action could put American-based multinationals out of business.

In effect, the EU is claiming that Google’s operations in the U.S. are subject, not just to U.S. law, but to the EU’s laws as well. If these actions are allowed to stand, American companies would be held to “full, faith, and credit” to other nation’s laws, making European laws the law in the United States.

There is a basic principal at stake. International law must restrict fines to harm done within the borders of the countries that impose the fines. The European Union cannot be allowed to claim jurisdiction over the entire world.

What Should the United States Do?

The Europeans are taking away future inventions from the United States. They are bleeding the American geese that would have laid American golden eggs. The American government did nothing when Microsoft and Intel were looted. This is economic warfare, but only one side is fighting!

In 2016, the United States had a $93 billion trade deficit in goods and services with the European Union, partly produced through actions like this looting. Balancing our trade deficit with Europe would create about 700,000 U.S. manufacturing jobs. At the very least, we should promulgate a retaliatory trade-balancing tariff against European Union products.

Also, we are negotiating a multi-country treaty with the Europeans called the Transatlantic Trade and Investment Partnership (TTIP). We need to tell the European Union that we considers fines levied on U.S. multi-nationals on the basis of sales outside of Europe to be invalid and that such fines must be returned as a pre-condition for further negotiations.

The United States desperately needs a government that fights back against foreign looting of American companies. We protect Europe, while they loot us. We need to let the Europeans know that we are mad as hell and will not be taking this any more.

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.



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