While the public is focused on tariffs and pundits are bemoaning the dangers of a “trade war,” our foreign competitors have the last laugh every day, watching our factories close and our colleges over-qualify future pizza delivery peons.
It doesn’t have to be that way. In fact, it’s easy to see a solution.
Here is one unfair trade example. Germany and the European Union charge a 10% tariff on cars they import from the U.S. We only charge 2.5% on cars imported from there into our country.
That misses the bigger part of the story. In addition to their 10% tariff, Germany, for example, charges an additional 19% import Value Added Tax (VAT), bringing the total to 29% tax paid to the German government for expenditures that include “socialist” universal healthcare, expanded retirement benefits and subsidized higher education.
The U.S. has no VAT for public services. Business lobbyists oppose that tax system, complaining it is onerous to implement, but never explaining how they successfully do it in places like Romania, Slovenia or Turkey.
The result is an auto made and sold in the U.S.A. for $50,000 will cost $64,500 to buy in Germany. A $50,000 car made in Germany will cost $51,250 here. Surprise – not too many American cars on the Autobahn, but no shortage of dealers here for BMW, VW, Mercedes, Audi, Porsche and Opel.
Germany boasts 857,336 highly-paid workers in the truck and auto industry. That’s 3.5 times as many as the Big Three in this country. General Motors employs 97,000 people in the U.S. while Chrysler has 56,900, and Ford, 85,000 – a combined total of 239,000.
U.S. auto workers earn about $34 an hour – new hires far less. German auto workers average $67 an hour ($129,000 annually).
As an aside, while our streets seem clogged with foreign cars, did you ever wonder why there are so few foreign trucks?
The same politicians – who decry tariffs – decided decades ago to protect the American truck industry and imposed a 25% tariff (still in effect) on imported trucks. That tariff successfully keeps away foreign price competition from F-150 and Silverado pickups.
Even if we negotiate the elimination of all tariffs by all nations, the VAT will continue to strangle America’s ability to export goods.
In the EU example on this page most countries hover around 20% on imported goods from any nation outside the European Union. If we had the factories, that EU VAT would hit every tv, computer, refrigerator and espresso machine exported to them.
The Coalition for a Prosperous America (CPA) is asking Congress to improve the federal tax system to promote US trade competitiveness.
The group favors a strategic consumption tax:
…such as a Goods and Services Tax (GST), to improve America’s trade competitiveness. Currently, foreign governments charge US exporters value-added (VAT) taxes—averaging 17 percent globally—at their borders.
Most of these countries have reduced tariffs over the last 45 years—but replaced them with value added taxes. They use this new revenue to reduce other taxes and costs, and to fund national pension systems and health care.
The US is virtually alone in not collecting value added taxes on imports.
CPA said Congress should fix this foreign trade advantage “through an innovative and strategic consumption tax called a Goods and Services Tax.”
But Americans, especially the poor and working class, should not pay more taxes. Congress should therefore, at the same time, reduce or offset other domestic taxes and costs such as payroll taxes.
CPA suggested that a 13 percent GST could raise $1.4 trillion in revenue and fund “a full credit against payroll taxes, reduce personal income taxes, and provide a credit for healthcare costs.
US manufacturers would benefit from the cost reduction and receive a 13 percent GST rebate when exporting. Foreign companies would pay a 13 percent GST tax sending bringing goods into the US.
This sounds reasonable. The only folks who would oppose it are multi-national firms, who are sending our jobs and factories overseas, but those are the powers that seem to run Congress and have exerted extreme influence in the White House the past six administrations.
Click here for the text of CPA’s letter to the House Ways and Means Committee.
China also hits us with imported VAT, which could be as high as 16% standard, plus 3% National Education, 2% Local Education, 6% City Maintenance and 3% Construction services – a total of 30%.
Tariffs are hefty and additional.
Chinese VAT rates
|Rate||Type||Which goods or services|
|16%||Standard||All other taxable goods and services since 1 May 2018|
|10%||Standard||Retail; entertainment; hotel; restaurants; catering services; real estate and construction, telephony calls; postal; transport and logistic. Since 1 May 2018|
|6%||Standard||Financial services and insurance; telephony and internet data; IT; technology; consulting.|
|3%||–||Chinese National Education Tax|
|2%||–||Chinese Local Education Taxes|
|6%||–||City Maintance & Construction|