[ancient_geezer]

I think you may be wrong here. If there is more foreign investment in the U.S., our trade balance (merchandise) would be further from balance, not closer.

The whole rationalization of adjusting currency exchange rates is toward trade balance.

If there is no adjustment toward balance, US export goods merely become even more competitive in foreign markets increasing or volume and profits received in trade.

 

ftp://ftp.usitc.gov/pub/reports/studies/PUB3110.PDF

PDF page 33

Finally, Hines (1996b) argues that exchange rates move to reflect international differences in goods prices. Thus any increase in export competitiveness caused by a move to destination basis would ultimately be offset by appreciation of the U.S. dollar. Another line of reasoning is that countries use receipts from exports either to import immediately, or to make investments abroad which ultimately provide income to pay for a larger volume of imports in the future. Both of these arguments are based upon the observation that strong economic forces keep a country’s trade in approximate balance regardless of what other policy changes it may undergo. The likelihood that the change from an origin-based system to a destination-based system would in fact generate incentives to export and disincentives to import ultimately depends on the strength with which the long-run tendency toward balanced trade in fact operates. Grubert and Newlon (1995 and 1997) point out that a destination-based consumption tax does create an incentive for cross-border shopping, if goods can be reentered tax free, and for consumption abroad through travel or emigration. Finally, the ultimate effect of a flat consumption tax on the price of particular goods will depend on demand elasticities. Those goods for which demand is relatively inelastic may be able to pass through a larger price increase (tax inclusive) to purchasers than those with elastic demands.²⁹ Whether this would happen in specific cases would depend, among other things, on the price behavior of production inputs and competing products.

 

From what the paper indicates about the effect of a flat sales tax hitting both domestic manufacture and imports equally we would see, and removing tax burdens from exports:

1. an appreciation of the dollar (expanded purchacing power, e.g. lower prices) and
2. an influx of investment from abroad in US industry,

to return trade balances back towards equilibrium over the long term after an intial surge in exports in relation to imports to the US.

Thus substantial benefit to the US economy and American standard of living arising from the implementation of retail taxes in place of the current income/payroll tax can be expected that goes with the increasing purchasing power of american dollars in foreign markets that increase the attractiveness of U.S. investments that earn those appreciating dollars.

[Your Nightmare]

The whole rationalization of adjusting currency exchange rates is toward trade balance.

When people say "trade balance" they usually mean the balance of trade in goods and services. Is this the what you mean when you say "trade balance"?

[groanup]

I'm not sure a consumption tax is going to have such an effect. Most of the trade "deficit" is with China, Asia and India. We're wealthier than they are so we are buying more of their stuff than they are ours. The NRST will make us much wealthier. That alone will expand our imports. What will expand our exports? Maybe more plants relocating here because of our tax haven status.

The hand wringing over the trade deficit is another left wing talking point to make the economy look bad. Our exports are now at a record level. So more jobs must be related to exports than ever before unless capacity utilization and productivity are also at records. I don't know.

I do know that a hell of a lot of jobs are required to import all the stuff we do: the importation and distribution infrastructure is huge.