Source: The Heritage Foundation, Framing the Economic Debate, October 7, 2004.
Posted on 10/01/2006 3:30:13 AM PDT by NapkinUser
In July, our trade deficit hit yet another all-time record, $68 billion, an annual rate of $816 billion. Imports surged to $188 billion for the month, as our dependency on foreigners for the vital necessities of our national life ever deepens.
China's trade surplus with us was $19.6 billion for July alone, moving toward an all-time record of $235 billion for 2006 -- the largest trade deficit one country has ever run with another. Our deficit with Mexico is running at an annual rate of $60 billion. With Canada, it is $70 billion. So much for NAFTA. With the European Union, it is running at $160 billion.
America as the most self-sufficient republic in history is history. For decades, U.S. factories have been closing. Three million manufacturing jobs have disappeared since Bush arrived. Ford and GM are fighting for their lives.
Bushites boast of all the new jobs created, but Business Week tells the inconvenient truth: "Since 2001, 1.7 million new jobs have been created in the health care sector. ... Meanwhile, the number of private sector jobs outside of health care is no higher than it was five years ago."
"Perhaps most surprising," writes BW, "information technology, the great electronic promise of the 1990s, has turned into one of the biggest job-growth disappointments of all time. ... (B)usinesses at the core of the information economy -- software, semiconductors, telecom and the whole gamut of Web companies -- have lost more than 1.1 million jobs in the past five years. Those business employ fewer Americans than they did in 1998, when the Internet economy kicked into high gear."
Where did the high-tech go? China. Beijing's No. 1 export to the United States in 2005, $50 billion worth, was computers and electronics.
If Americans are the most efficient workers on earth and work longer hours than almost any other advanced nation, why are we getting our clocks cleaned? Answer: While American workers are world-class, our elites are mentally challenged. So rhapsodic are they about the Global Economy they have forgotten their own country. Europeans, Japanese, Canadians and Chinese sell us so much more than they buy from us, because they have rigged the rules of world trade.
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.
Exported U.S services face the same double whammy. A VAT equivalent is imposed on them, while the exported services of foreign providers get the VAT rebate. Disadvantage to U.S. services: $85 billion annually.
Why do our politicians not level the playing field for U.S. companies?
First, ignorance of how world trade works. Second, ideology. These robotic free-traders recoil from any suggestion that they aid U.S. producers against unfair foreign tactics as interfering with Adam Smith's "invisible hand," which they equate with the hand of the Almighty.
Third, they are hauling water for transnational companies that want to move production overseas and shed their U.S. workers.
How could we level the playing field? Simple. Impose an "equalizing fee" on imports equal to the rebates. Take the billions raised, and cut taxes on U.S. companies, especially in production. Create a level playing field for U.S. goods and services in foreign markets, and increase the competitiveness of U.S. companies in our own home market by reducing their tax load.
U.S. trade deficits would shrivel overnight. And jobs and factories lately sent abroad would start coming home.
Isn't it time we put America first -- even ahead of China?
That would help most taxxpayers, would help these foreign trade problems immensely, and would boost the entire economy as well.
It's time for the FairTax!!!
Because with the proper tax system - the FairTax - it isn't necessary at its present levels. It can be grealy reduced or eliminated.
The employees at the first would leave for greener pastures any chance they got.
As shown in #81, the FairTax will ameliorate many of these problems and will function a lot like a tariff as far as the effects on things coming into the country from these low cost nations. Additionally, it will remove the tax component now embedded in US goods that are exported - directly helping the US sellers to be more competitive.
" as long as Spain has the navy to plunder riches such as gold and silver from the heathens in the new worlds, let others manufacture stuff we will enjoy"
Thats fine and dandy untill the red army starts doing what they have announced they will do as soon as we have given them enough money and manufacturing ability.
Without manufacturing, how will we be any different than China 30 years ago???
How will we be any different than Egypt or Lebanan???
Ofcourse the gov't will manufacture the 'numbers' to appease us...There are economists out there that are 180 degrees from the gov't paid numbers crunchers...
If you know of one, send him this way...
You are correct. We are being looted and our industrial base destroyed. Soon we will be a second class nation. And so many defend it. Sickening.
Basic reality, Jesus could come down from the sky and give us all the gasoline we'd ever use for the rest of our lives for free or even pay us to take it, and we'd still have a huge problem. The only idea I know of with any potential to fix the problem is the idea of the neighborhood work site.
What could be done to ameliorate the manufacturing decline?
Not much unless you want to talk tariffs.
Actually there is a better alternative than tariffs as tariffs tend to illicit a response in kind against our exported goods.
Consider that today we operate with income and payroll taxes and the systemic overhead that goes with them driving the costs of manufacture and our exports up. Imports have little of this tax overhead component built into them as the nations sending goods to us subsidize their manufacturers by rebating the VATs they pay in production back to them on anything they export.
Those goods that we export to these countries get their VATs tacked onto them with the consequence that not only do our goods get loaded with our own taxes, they get loaded with foreign taxes as well.
This is a double hit on our exports in relation to our imports that we saddle ourselves with. Our exports get a double load of taxes while imports into our nation come in with little if any tax burdens from their origin countries while we fail to tax the goods anywhere equal to how we tax our own domestic goods.
The net result of this is an extreme unfair trade advantage for trade imports into this country even beyond that of low wage environments many of those nations operate with. Even a tariff added onto imported goods would fail to address the imbalance for our manufacturers would still be hit with our own taxes as well as the VATs of the nations we export to and any retaliative tariffs they would tack on in response to our tariffs.
One immediate thing we could do is change the basic structure of our tax system.
Don't tax manufacturers and production through income and payroll taxes that burden our manufacturing to begin with. Instead levy taxes only on consumption in the United States collecting the tax on all imports and domestic goods equally at point of retail sale.
Repeal income and payroll taxes and levy across the board retail sales tax. All goods and services are then treated equally without a tariff to raise the specter of trade wars, our exports are free of our own taxes leveling the field in competing with foreign goods in their own countries.
As far as relieving any decline we have experienced in manufacturing, consider what we see happens where tax havens exist in which to do business.
Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
August 12, 1996
- "A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."
You mean the decline in manufacturing employment?
No, I mean manufacturing as whole. As a percent of GDP, manufacturing has shrunk by over 50% in fifty years.
Granted this measure is relative to other sectors which may be growing - nevertheless the question remains why has our manufacturing base not kept up with the rest of our economy? And more importantly, what effect will its continued shrinking have?
Geezer, I hope you have that link - I'm not sufficiently organized to keep that kind of thing - but I remember reading it!
I mean manufacturing as whole. As a percent of GDP, manufacturing has shrunk by over 50% in fifty years.
One of the best places I know of to find compilations of such information is MW Hodges' website:
His cite of that manufacturing statistic comes out of the 2004 Economic Report of the President.
"On a GDP basis the trend is the same negative > the U.S. manufacturing base declined from 30.4% of GDP in 1953 (when we had a trade surplus) to 12.7% in 2003 - a 58% drop in the manufacturing share of GDP - and more is foreign-owned than before. (Bureau Economic Analysis table b-12, Economic Report of President, appendix table)"
Thanks geezer-
I'm kind of hesitant on Pat on the issue of Israel and World War III against Islamofascism, but on economic issues, Pat nails it. I wish we had other voices as well. Still where Pat is wrong, I'll say so but when he is right, again, I'll say so. In this case and on immigration, all I can say is "go Pat go!" It's a shame he's out to lunch when he doesn't support Israel or the war.
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