Goyle’s criticism of Pompeo is based on a claim that Pompeo could have created jobs in Kansas, but instead chose to create them in Mexico and China. The latest allegations are regarding Sentry International, a company servicing the oilfield industry. Pompeo is currently president of that company.
A lengthy page on Goyle’s campaign website details the allegations. Some of the criticism Goyle levels against Pompeo is for things that many Kansans would applaud.
For example, one piece of Goyle’s evidence or criticism is this: “In February 2008, the Wichita Eagle reported that Sentry International sold mostly in Kansas, Oklahoma and Texas until Pompeo came on board as President. After that, the company began selling in other states and international markets.”
Normally, we would applaud a company growing its markets and sales. But evidently to Goyle, a Kansas company expanding is not good news.
Goyle’s argument then proceeds to criticize Sentry International for manufacturing some of the equipment it sells overseas, when it could — according to Goyle — be made in Kansas. He further claims that trade with China has cost Kansas jobs.
So far the only plan Goyle has advanced for stopping outsourcing is to eliminate the deferral of taxation of income that U.S. companies earn overseas. Currently, companies pay the host country’s tax, and then pay the difference between that tax and the U.S. tax when those profits are transferred to the U.S. Goyle — following President Obama’s lead — would do away with this referral.
The problem is that this action will probably drive more jobs overseas. The Wall Street Journal reported that when this tax deferral was eliminated to the U.S. shipping industry, the results was “a real disaster for U.S. shipping,” with U.S. shipping capacity falling by 50 percent over a period of years following this reform.
- In a competitive industry, taxing U.S.-owned operations at non-competitive international tax rates simply diminishes U.S. activity and advantages our foreign competitors.
- Reduced U.S. operations result in reduced employment and lower wages for American workers.
- Non-competitive international taxation of U.S. businesses leads to a lower standard of living for American workers.
In addition, the case study finds: “Recent analyses indicate that the 2004 legislation restoring deferral for foreign shipping income is reversing the decline in the U.S. shipping industry.”
Part of the problem is that U.S. corporate tax rates are highest in the developed world, next to Japan. Lowering U.S. tax rates — instead of increasing them, as Goyle advocates — would spur investment, including investment by foreign companies in the U.S.
Does outsourcing cost U.S. jobs?
Matthew J. Slaughter of Dartmouth University has researched and written extensively on outsourcing and its effects. Writing in the Wall Street Journal earlier this year about outsourcing and President Obama’s proposal to do away with the tax deferral — that’s the only solution Goyle is proposing — Slaughter wrote:
The fundamental assumption behind these proposals is that U.S. multinationals expand abroad only to “export” jobs out of the country. Thus, taxing their foreign operations more would boost tax revenues here and create desperately needed U.S. jobs.
This is simply wrong. These tax increases would not create American jobs, they would destroy them.
Academic research, including most recently by Harvard’s Mihir Desai and Fritz Foley and University of Michigan’s James Hines, has consistently found that expansion abroad by U.S. multinationals tends to support jobs based in the U.S. More investment and employment abroad is strongly associated with more investment and employment in American parent companies.
When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren’t substitutes. More hiring abroad stimulates more U.S. hiring. … To climb out of the recession, we need to create millions of the kinds of jobs that U.S. multinationals tend to create. Economic policy on all fronts should be encouraging job growth by these firms. The proposed international-tax reforms do precisely the opposite.
So while many people assume that when a U.S. company creates a job overseas it means one lost American job, that is simply not the case.
Protectionism — the next step?
Any plan to protect U.S. jobs from being sent overseas will have to resort to protectionist measures such as tariffs on imported goods. Goyle hasn’t advocated this. Instead, he has simply criticized his major opponent for running a global business, and has not advanced a plan to protect U.S. jobs except for eliminating the tax deferral. As we’ve seen above, that would harm U.S. job growth instead of helping.
What advocates of protectionism fail to realize is that trade is a two way street. It benefits both parties, or the transactions would not take place. And when governments try to intervene and restrict trade, everyone is hurt.
When President George W. Bush placed tariffs on imported steel in 2002, it was seen as a political move to protect steel-making jobs in Pennsylvania and West Virginia, two states he needed for his reelection, according to Washington Post analysis.
As a result of the tariff, steel-making jobs were saved. But jobs in steel-using industries were lost, and U.S. consumers paid more for products that contained steel.
When President Obama imposed tariffs on Chinese tires last year, he increased the cost of those tires for U.S. consumers. While this undoubtedly saved U.S. tire-making jobs, U.S. consumers of Chinese tires pay more. As these tires are primarily at the lower range of prices, it is mostly low income consumers who have to pay more to prop up U.S. tire worker jobs.
Then even more harm arises. China — perhaps in retaliation — has imposed tariffs on imported chicken. According to the New York Times, “The commerce ministry started the investigation less than two days after President Obama imposed steep tariffs on Chinese tires a year ago. Chinese officials have denied that the inquiry was in retaliation, but poultry is one of the few categories in which the United States runs a trade surplus with China, making it an ideal target for Chinese trade actions.”
While protectionist rhetoric sounds good to workers who are facing pressure from overseas competitors, we again have to remember that trade is a two way street. We also need to be aware that locally, Wichita exports a lot airplanes. If foreign nations were to restrict imports of U.S. aircraft, that would seriously harm the prospects of Wichita’s aviation industry. Kansas farmers, too, are exporters.
This is what the harsh reality of economics tell us — and there’s a reason why it’s called “the dismal science.”
The politics, however, are on Goyle’s side. As recently reported: “A Wall Street Journal/NBC News poll released Sept. 28 found that outsourcing was the top reason cited by Americans as the cause of the country’s economic problems — and that for the first time in years a majority (53%) of Americans say free-trade agreements have hurt the U.S.”
The residents of the fourth district of Kansas need to ask Goyle what specifically will he do to retain jobs in Kansas, and what will be the economic impact of these policies. All evidence tells us that the result will be harmful to Kansas and America.