| Submit your comments on this article |
| Economy |
| Why not just slap on tariffs? |
| 2017-01-19 |
| The trouble with the import tax and export credit system now under consideration by House Republicans is simple: it redistributes rewards and penalties arbitrarily. There are industries that are naturally dependent on imports, for example, retailers and oil refiners. President-elect Trump criticized the House plan as "too complicated," and he's right. The House is to encourage domestic production by refusing to allow corporations to treat imported items as an expense for tax purposes. But oil refiners import most of their raw material and add a limited amount of value by refining it. The cost of inputs is the majority of the final cost of refined products. If refiners can't expense their input costs, the results would be "devastating," according to a study by the Koch brothers. ...The Republican plan is something like chemotherapy: stress the whole body to kill a few cancer cells. It might help, or it might do more harm than good. But there's an economic equivalent of the new cancer therapies that isolate and attack the pathological cells without sickening the whole organism. We need a corporate tax cut. And US industries need protection against predatory practices. To quote from the World Trade Organization's website: "A country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as "countervailing duty") on subsidized imports that are found to be hurting domestic producers." China subsidizes industries outrageously--by offering cheap credit to state-owned companies from state-owned banks, and allowing state-owned companies to run at a loss while they crush the competition with low prices. That's how entire industries that began with American innovations turned into Chinese monopolies. ...How do you deal with a organized mercantilism on this scale? I doubt the House Republicans' plan will address it. The answer is to fight fire with fire. When China (or other exporters) subsidize exports to the US, impose tariffs preemptively. We have the right to do so under the World Trade Organization rules. There's no reason to go through long and weary diplomatic dances. Identify the problem, impose a tariff, and let the other side go howling to the World Trade Organization. How do we know that Chinese companies are using subsidies to undercut US prices? Look at their books. Many if not most state-owned companies are unprofitable and are borrowing money to paper over losses. Most of their data is publicly available, because the state-owned companies went to the public market to obtain capital and have to publish income statements and balance sheets. It would take a bit of work, but a lot less than one might think--it's the sort of exercise that equity analysts do every day. Targeted tariffs are much better than an across-the-board tariff (which President-elect Trump has suggested on occasion), and they are defensible under WTO rules. Instead of a Procrustean bed that would penalize US industries that happen to depend on imports due to the nature of their business, the aggressive use of anti-subsidy and anti-dumping tariffs would correct problems before US industries withered and died--as the solar panel industry did in the late 2000s. Tax incentives aren't enough. The Chinese will keep dumping. An adjustment of the Chinese exchange rate with the dollar isn't enough (Chinese producers will just cut their prices in dollars). Better to go right after the offending products and impose a fair price with tariffs. As Dr. Henry Kressel and I argued in a Nov. 21 op-ed in The Wall Street Journal, there's a more extreme and efficacious measure that should be applied to the whole array of defense procurement: demand domestic content for any electronic component that is used in a weapons system or by the national security functions of the US government. That would cost a bit more, but it would be worth it on national security grounds. No computer is safe, as the president-elect said, except for a computer built in the US in a controlled facility. It would have the side benefit of forcing US producers to shift the whole production cycle and supply chain for many high-tech items back to the US. |
| Posted by:g(r)omgoru |
| #8 Would that not be a good hint that you are incorrect? No. I was specifically referring to imports being taxed at the prevailing VAT rate at point of entry, such that they are on an equal tax basis to domestically produced items. |
| Posted by: phil_b 2017-01-19 16:58 |
| #7 > good solution. And what happens in the EU's so called Single Market. Would that not be a good hint that you are incorrect? |
| Posted by: Bright Pebbles 2017-01-19 14:30 |
| #6 China in particular has been given a pass in this regard. The Chinese have a special relationship with the US political system. |
| Posted by: Pappy 2017-01-19 13:53 |
| #5 ...it would help if 'those in power' didn't flood the low skill market with unlimited labor (uncontrolled immigration), thus dropping the value of such labor. What are you suggesting, smashing the democratic incubator ? |
| Posted by: Besoeker 2017-01-19 13:43 |
| #4 ...it would help if 'those in power' didn't flood the low skill market with unlimited labor (uncontrolled immigration), thus dropping the value of such labor. |
| Posted by: Procopius2k 2017-01-19 13:39 |
| #3 demand domestic content for any electronic component that is used in a weapons system or by the national security functions of the US government. Sounds like a no brainer to me. But I think these policies should also take into account that with China and some of these other countries we are pitting American workers against foreign workers whose basic human rights are routinely denied. China in particular has been given a pass in this regard. OTOH, American labor unions price their members out of the global labor market. Further, minimum wage laws prohibit workers at the bottom rungs of the ladder from competing against their overseas counterparts. We have people who are homeless and/or dependent on welfare because the value of their labor is less than the minimum wage. Wouldn't we all be better off if they had to settle for what they're worth? |
| Posted by: Abu Uluque 2017-01-19 12:03 |
| #2 For emphasis: demand domestic content for any electronic component that is used in a weapons system or by the national security functions of the US government. |
| Posted by: Anguper Hupomosing9418 2017-01-19 09:47 |
| #1 The trouble with the import tax and export credit system now under consideration by House Republicans is simple: it redistributes rewards and penalties arbitrarily. Err! so what? As long as it's a level playing field within an industry, it doesn't matter. Any and all taxes arbitrarily penalize. The House is to encourage domestic production by refusing to allow corporations to treat imported items as an expense for tax purposes. This is a mistake, which I am sure will be rectified. The imported item cost+tariff should be an expense. Effectively, a GST/VAT at the border, which strikes me as a good solution. And what happens in the EU's so called Single Market. |
| Posted by: phil_b 2017-01-19 07:09 |