Trump’s “Made in America” Promises Fail to Address Systemic Problems in U.S. Economy

I love buying goods made in the USA. It’s a tradition taught by my father, who tries his best to avoid purchasing goods made in China if an American alternative is available.

Traveling the presidential campaign trail in 2011 and 2012, I heard from Iowa farmers that they regretted how the corn they grew was feeding Americans less and less frequently. My own home state of Louisiana faced a similar identity crisis as sugar cane—a legacy crop that provided steady income for generation after generation—became cheaper to purchase from Caribbean nations than from American farmers.

President-elect Donald Trump spent a lot of time telling voters he was going to bring jobs back to the United States. He didn’t really explain how, other than saying companies would be sorry for leaving.

Since he’s been elected, we’ve gotten a better idea of how he’d achieve that. With the recent Carrier deal, Trump showed he is willing to use the presidential bully pulpit to shame companies from leaving our shores. Some free marketeers sounded the alarm that such politicking, even in its most rudimentary form, was just another example of crony capitalism.

But a lot of voters loved it. They loved the idea of a strongman standing up for the American people and putting a big company in what they believe is its rightful place.

While the bluster about American companies sinisterly sending jobs overseas might appeal to voters’ frustration and economic isolation, there’s a simple reality that President-elect Trump has not articulated: American goods are extremely expensive to produce. It has made us uncompetitive in world markets we should otherwise dominate with our abundance of natural resources, intellectual gifts and work ethic.

But, explaining why this is the case is a little more difficult than just promising you will — through coercion and humiliation, in the case of Trump — prevent companies from expanding overseas. The policy catalysts for corporations fleeing the United States can be complex, and, sometimes, Americans are in denial they even exist.

Source: Mercatus Center

First, the U.S. corporate income tax rate is the highest in the industrialized world. At 39.6 percent, it is higher than the worldwide average of 29.8 percent — a figure derived by including the rates of countries largely uncompetitive in international commerce.

Among our commercial peers, Ireland has a corporate income tax rate at 12.5 percent, while Brazil’s is a combined 25 percent. Germany typically levies about a 15 percent tax on companies, and South Korea’s corporate income tax ranges from 10 percent to 20 percent. With rates as uncompetitive as ours, our ability to remain the world’s largest and most important economy speaks to our innovation, size and commercial diversity, even in spite of the unnatural barriers to commerce created by an aggressive federal government.

Another key factor in counterproductive corporate tax policy is our practice of discouraging repatriation. Most nations impose a territorial tax system, which allows domestic companies to earn profits overseas, pay taxes to those other nations and bring their money home without penalty. The U.S. taxes all monies returned to the country through repatriation, even though corporations have already paid taxes abroad. Even though companies can write off the taxes paid to other nations on their federal income taxes in the U.S., our exorbitant corporate income tax rate means that companies are still paying double tax if they try to return profits to America to invest at home.

This is something Republicans have considered to be a crucial part of tax reform for some time. They believe that ending taxes on repatriated profits would allow American companies to accelerate hiring at home, bolster pensions for employees, invest in new equipment and so on.

The Left, on the other hand, has seen taxing repatriated profits as a way to punish companies for taking jobs overseas. But, part of the reason companies have done so in the first place is because America’s tax system makes it enormously challenging to invest in people, products and production here at home.

Unfortunately, taxation isn’t the only anti-business policy created by the federal government that has stunted economic growth, and thus, the creation of jobs and wealth. Burdensome regulations, especially compared to other nations with a much smaller regulatory regime, mean companies spend a great deal of time and money complying with rules created by unelected and unaccountable bureaucrats, many of whom have very little knowledge of the industry they’re regulating.

According to the National Association of Manufacturers, American businesses spent $2.028 trillion in 2014 to comply with government regulations of their industries. On average, companies spent 21 percent of their annual payroll on regulatory compliance, or about $233,182 per organization. Eighty-eight percent of manufacturing leaders surveyed said “federal regulations are a top challenge for their firm.”

Additionally, increased dominance of labor unions in the workplace, even as union membership has plummeted to historic lows nationwide, have made doing business far more expensive for job creators. Democrat proposals such as “card check” would result in compulsory union membership, exacerbating the costs of maintaining and recruiting new employees. From expensive lawyers spending hundreds of thousands of hours on collective bargaining dramas to the administration of political activity, the union stranglehold has put the interest of those in charge of unions ahead of their actual members.

To be clear, I’m not advocating the elimination of private sector unions (public sector unions, on the other hand, have far fewer merits). They have been powerful advocates on behalf of working people on matters such as safety and fair pay.

But it’s important that workers who support robust, ever-expanding unions understand that in doing so, they’re undercutting their own opportunities at job stability and industry growth that would employ more people. Fact is, unions no longer represent what they once did. They are political agents within workplaces, within industries and within the greater political system.

As in any economic scenario, these costs all get passed to consumers in the form of higher prices for goods. If American products are more expensive, it means the United States is less competitive in the international marketplace and even at home.

If American-made goods aren’t competitively priced as a result of these unnecessary market factors, it means a lot fewer of them will be bought. Lower demand for American products equates with fewer jobs to make them. If there are fewer jobs to be had, fewer people will be working.

So when President-elect Trump talks about mandating that government contractors use American goods to keep with a particular campaign promise, he’s actually only putting a bandage on a systemic illness that undercuts the country’s ability to achieve meaningful, lasting economic growth.

In the case of infrastructure spending, it will either mean that the government will be able to complete fewer projects or it will cost much more to finish them. In the first scenario, that means fewer American workers will have the opportunity to get good-paying jobs during a time of widespread underemployment. In the second, it means that taxpayers will be stuck paying for a bigger price tag at a time when the country is in $20 trillion in debt and can’t really afford it.

When Trump brags about keeping Carrier in the United States, thereby saving 1,000 jobs, he fails to recognize that hundreds of thousands of jobs won’t be created unless major federal policy reforms — such as reforms to our regulatory system, labor relations and tax schemes — follow. And you can’t reverse decades of anti-growth economic policies by pressuring every individual business in America.

To make matters worse, he supports a departure from longstanding Republican policy on things like repatriation tax reform that would lure companies back to the United States that had been chased away by a punitive tax system. While it may seem satisfying to some of his core voters to exact revenge upon major corporations, they’re actually undercutting the possibility of bringing capital back home to create jobs here. It may feel good today, but having jobs feels better in the long run.

Republicans want to build things at home. We long for a return to astronomical economic growth of decades past, where Americans of all skill levels and educational background can achieve financial stability and mobility for their families. But, we understand that can only be accomplished by making real policy adjustments that reflect economic truths proven time and time again by our own history.

Tackling these challenges takes a bit of intellectual curiosity and political bravery. Congressional Republicans have proposed bold reforms like these for a while. With luck, Trump will listen to their expertise and consider their proposals earnestly.

If he’s serious about flooding the international markets with American goods made by American workers, then he needs to be serious about making major changes to how this country does business. For every Carrier he saves, there are thousands of American businesses that haven’t been and won’t be so lucky.

They’d surely benefit from a president working with a Congress that understands what it would take to help them all.

Ellen Carmichael is a senior writer for Opportunity Lives. Follow her on Twitter @ellencarmichael.