Thursday, May 03, 2007

Screwing US Workers Courtesy of "Trade Regs"

There are plenty of reasons that US plants are closing and manufacturing moves to China. We've already discussed wages, benefits, safety and ecological regs, and currency manipulation. Beyond that, in many countries, there's the tax scam.

And that tax scam is "negotiated" by the US Department of Commerce's very own Business-School Whizzes. (These are folks who could make Bob MacNamara seem like a genius...)

One way the United States is different from nearly all other countries is its system of taxation. The United States imposes taxes on income. We pay taxes on what we earn. Whereas 157 other countries impose taxes on consumption. They pay taxes on what they buy and call them value-added taxes, or VAT. The VAT system not only operates as a bribe to induce U.S. plants to move overseas, but it also operates to prevent U.S. products from being competitively sold in foreign countries. Here is how it works.

When a U.S. product, such as an automobile, arrives at another country's port, the foreign government slaps on a VAT import tax that is a percentage of the price of the U.S. product, the transportation cost to get it to the foreign country, and the tariff that the foreign country charges.

For 40 years, the United States has been signing trade agreements that were supposed to reduce or eliminate tariffs and thereby promote free trade. European countries sanctimoniously proclaim that they are reducing their tariffs, but in fact they replaced their tariffs with a steadily increasing VAT.

In 1968, the average tariff rate collected by European Union countries was 10.4 percent, and the average VAT rate was 13.44 percent, making a trade barrier against U.S. goods of 23.84 percent. By 2006, the average tariff rate declined to 4.4 percent, but the average VAT rate climbed to 19.36 percent, making the trade barrier against U.S. products 23.76 percent.
Foreign countries substituted high VAT rates for high tariff rates, thereby maintaining their border barriers against competition from U.S. goods. The result is that most foreign countries still have de facto tariffs against U.S. goods that are as high or higher than their tariffs of 40 years ago.

We've commented that a consumption tax would be a good thing for the USA. After all, it's progressive, and by its very nature encourages saving, not spending.

So we have another good reason: to keep up with the Joneses...

Foreign governmental use of the VAT has inflicted U.S. industry with monumental costs, increasing every year, and reaching $327 billion in 2006. That's the sum of the VAT rebates paid to companies that ship foreign-made products to the United States, plus the VAT paid by U.S. companies for the privilege of selling their products in foreign countries.

The current system is not the result of the free market or free trade, but the failure of our government to expose and counter the dishonest practices of U.S. trading partners. After 40 years of tolerating this rip-off, it is time for national leaders to demand a new strategy and a level playing field.

Using the 'economic multiplier' we have about $1 TRILLION dollars' impact on the US economy in 2006. Think that might have been good for the GDP? How about manufacturing employment?

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