- - Tuesday, January 31, 2012

ANALYSIS/OPINON:

Whatever they think of his social conservatism, real friends of domestic manufacturing - and, by extension, a genuinely healthy U.S. economy - owe Rick Santorum a hearty, “Thanks.”

The Republican presidential underdog has touted the importance of American industry with the type of passion and insight long missing among most Democrats and Republicans.

Mr. Santorum has not only pushed for special treatment for manufacturing in his economic policy platform - the former senator from Pennsylvania has provided a cogent rationale, reminding dogmatic Republicans and conservatives in particular that industry faces offshoring and foreign competition threats simply absent for most service sectors.

Just as important, Mr. Santorum has eloquently explained the vital link between manufacturing’s stagnation on the one hand, and, on the other, the divisive forces fracking so many middle-class families and breeding so many social and cultural pathologies. It’s an intelligently populist message that, with a bigger dose of tolerance, has extraordinary potential to unite blue collar Reagan Democrats and other downwardly mobile Republicans and independents into a powerful and perhaps winning national political coalition.

Consequently, whatever Mr. Santorum’s short-term political fate, real manufacturing supporters should start showing him why the standard conservative cure-all of tax cuts - and even his proposal to end federal corporate income taxes for manufacturers - can’t significantly advance the manufacturing, broader economic and core values goals shared by so many Americans.

Of course, Mr. Santorum also supports nontax economic measures, such as cutting regulations and federal spending. But even the biggest realistic regulatory and spending rollbacks would still leave huge gaps between government burdens on business in the United States and in third-world economic competitors, such as China in particular. So clearly Mr. Santorum, like most other conservatives (and even President Obama to a much lesser extent lately), has pinned his hopes largely on tax cutting.

Unfortunately, other countries’ market-rigging dwarfs the effects of taxes on manufacturing. For example, in 2008 - the last year for which Internal Revenue Service data is available - U.S.-based manufacturers paid about $74 billion in federal corporate income tax. The 161,000-plus S corporations listed as manufacturers paid about $5.7 billion.

Of course, their shareholders paid personal income taxes. Tax compliance headaches generate big but hard-to-quantify financial costs on all businesses. And however they’re structured, most manufacturers paid a variety of state and local taxes beyond Washington’s control.

But in 2008 alone, the Chinese government in effect spent $235 billion to keep its currency considerably and artificially cheaper than America’s. This practice gives China-based manufacturers equally considerable and artificial price advantages over U.S. counterparts. Over the next five years, moreover, Beijing plans to spend $1.5 trillion to subsidize “strategic” sectors such as high-end equipment, biotechnology, information technology, advanced materials and numerous green industries. Such supports, of course, represent just the tip of a Chinese manufacturing subsidy iceberg.

Nor is the problem limited to China. Last year, Japan spent $175 billion to slow the yen’s surge against the dollar and other competitor currencies, and unveiled $26 billion in subsidies to keep factories and jobs from emigrating. American officials estimate that a single airliner model produced by Europe’s Airbus consortium, the A380, has attracted more than $6 billion in subsidies. Indeed, official foreign handouts for manufacturing have become so common that subsidization looks more like the rule than the exception in global industrial competition. And this market-rigging doesn’t even include the foreign trade barriers that remain so pervasive.

As domestic manufacturers keep telling American politicians, they’re often competing not simply against foreign companies, but against foreign governments. That’s why, although tax and other domestic policy reforms can help industry, only directly re-balancing trade flows will matter decisively. Mr. Santorum is a potentially receptive audience with the mainstream conservative street cred urgently needed for trade overhaul to succeed. It’s time to start sending him the message.

• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website, AmericanEconomicAlert.org.

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