Global Free trade costs the US big time

[murray]

“While the United States has a corporate income tax, our trade rivals use a value-added tax. At each level of production, a tax is imposed on the value added to the product. Under the rules of global trade, nations may rebate VAT levies on exports, and impose the equivalent of a VAT on imports.
Assume a VAT that adds up to 15 percent of the cost of a new car in Japan. If Toyota ships 1 million cars to the United States valued at $20,000 each, $20 billion worth of Toyotas, they can claim a rebate of the VAT of $3,000 on each car, or $3 billion – a powerful incentive to export. But each U.S. car arriving at the Yokohama docks will have 15 percent added to its sticker price to make up for Japan’s VAT.
This amounts to a foreign subsidy on exports to the United States and a foreign tax on imports from America. Uncle Sam gets hit coming and going. It is as though, after firing a round of 66 in the Masters, Tiger Woods has five strokes added to his score for a 71, and five strokes are subtracted from the scores of his rivals. Even Tiger would bring home few trophies with those kind of ground rules.
The total tax disadvantage to U.S. producers – of VAT rebates and VAT equivalents imposed on U.S. products – is estimated at $294 billion”.

Full story worth a read –

How to Bring Manufacturing Back Home

Are there any experts in this subject on this board? Is it really this simple an explanation on how we’re getting screwed? And why is it that *we* are so hell bent on perpetuating this arrangement?

[PerryChase]

I refuse to even listen to anything that Buchanan has to say, much less debate his arguments. Not worth to dignify with a response.

[Daniel]

Fully agree with PerryChase.

[Anonymous]

“While the United States has a corporate income tax, our trade rivals use a value-added tax”: or how to confuse 2 completely different taxes.
The US has corporate taxes, so do all European countries. European countries have VAT, the US has a “sales tax”, same thing. The only things that differ are the tax rates.
So the article is flawed from its premise.

[rankandfile]

Perry and Daniel why did you both respond to the post by saying that you aren't going to dignify it with a reponse? Isn't that considered saying one thing and doing another? Why post a response at all?

[rseiser]

Here is my limited knowledge, but you might post the question on Cafe Hayek, Mises Institute, or some other Austrian Economist forum.

First of all, a wise economist once said: “Nothing in economics is that simple that it can be explained in one sentence, except this sentence”.

Regarding the VAT, there seem to be a lot of moving parts. First, I would distinguish between an internal tax on consumption (i.e. VAT, sales tax) and an external tariff. In the case of the VAT you are taxed whatever you consume, while in the tariff your are only taxed if you consume some other country’s product. I think history has shown that the former seems to work ok, while tariffs have caused more problems. I assume that tariffs don’t work, since it just prevents the division of labor. If I make a tariff against Middle-east oil and try to use more expensive domestic oil (from under the Rockies and offshore) what’s the point? It’s probably better to use Middle-east oil and sell them something we are good at (e.g. computer chips). Here, everybody benefits.
The VAT, however, could be justified by the Austrian motto: “First, you have to produce, before you can consume.”, and that supply and demand are not exactly symmetric (demand is infinite, but supply isn’t). So a VAT would steer people a little away from borrowing to consume before they have produced anything. Not sure, if that makes it worth by itself, but I think a VAT (or sales tax) could be useful if other people get hurt too by someone’s consumption. If you buy as much stuff as you want, you probably create a lot of pollution and waste that other people have to deal with in one way or the other without getting compensated.

Back to the original question.
I don’t see how the Japanese example would constitute a tariff. It doesn’t earn Toyota more on a car that they export vs. sell in Japan. All it does is to make the exported car cost 2,000,000 Yen, and the car sold in Japan costs 2,000,000 + 200,000 Yen, if VAT was 10%. (Toyota gets 2,000,000 either way.) So a guy driving in Japan has to pay 200,000 VAT, and a guy in the US not. So what? That doesn’t make anybody chose a Japanese car over an American car. It just makes people in Japan a little more cautious in whatever they consume. And if the government receives a lot of VAT, they can lower income-taxes or provide infrastructure or education (as long as that doesn’t get squandered). Or they could cover some of their deficit and print less money (something the US might want to think about, haha).

[LookoutBelow]

Globalization is a hideous failure.

People and govts like to dream up new words, catch phrases and colloquilisms to describe the age old capitalistic method of exploiting cheap labor from poor, uneducated 3 rd world countries with corrupt govts.

Do the people of China live a better life now that Wal-Mart and everybody else manufactures there ? I should say definitely NOT ! Do a few of the elite Chinese live better ? Decidely YES !

Charity begins at home.

Its the way of the world, get used to it, eventually like in the 30's it all fails and we begin again.  

 

[Author]

Posts