Mislabeling the Border Adjustment Tax (the “Removing The Made In America Tax”) is as misleading as it is deadly to your domestic business.
This past week, GOP leadership henchman Kevin Brady (R) put a new spin on the Border Adjustment Tax. Brady referred to the proposal as ‘removing the made in America tax’ on American made products. The argument goes like this:
Most other countries have taxes on incoming products and we don’t, so we need one.
The problem is with the way they’ve structured the Border Adjustment Tax (BAT). The proposal GOP leadership is pushing runs counter President Trump’s tariffs. In a nutshell, the BAT will 1) impose a 20 percent tax on all incoming imports, and 2) provide a 20 percent rebate to U.S. built product that is exported abroad.
We’ll primarily focus on the second part, though the first is equally bad.
Real World Example
Let’s assume you are a mid-sized American garage door manufacturer in Texas. You build garage doors for the domestic market. You do not export.
Let’s also assume that I run an American corporation that manufactures garage doors, commercial siding, water heaters, among other things. We sell garage doors into the domestic market, but we also export tons of commercial siding product. We are competitors in the highly competitive garage door market.
I will receive a 20 percent government rebate check courtesy of Paul Ryan and Kevin Brady for my commercial siding exports. Since you don’t export anything, you get no rebate.
The first thing I am going to do is lower my prices in the domestic market where we compete with you on garage doors. You ask yourself: “Why would he do that?”
I’d do that to put you out of business, and in the long term, raise my prices back up over what either of us were making when we competed. Furthermore, I’d lose no profitability because the government is subsidizing my predatory behavior.
By the way, that’s how business works. It’s no secret that every business innovates to create for itself monopoly pricing on their new products. Exhibit 1 is the Apple iPhone.
But in this case, the government has distorted the market. I’m innovating by supporting Ryan and Brady’s cleverly worded proposal. Furthermore, the fact that they rebranded their initiative in a catchy patriotic way, you may unwittingly support your own demise.
Cash Is Fungible
We’ve heard Speaker Ryan use that phrase when discussing government funds dispersed to Planned Parenthood. So, he knows that cash is fungible. He just doesn’t know how business operates.
Who knows how business operates?
I’ve run Fortune 500 businesses around the globe, and I’d use this hare-brained scheme to eliminate my competition. That would be you. This would make my shareholders happy. That’s your job when you work for a publicly-held corporation, or any business with shareholders. The profit you earn is the return they get on their investment. It’s pretty straightforward.
Who else knows how business operates? The same CEO’s who wanted Trans Pacific Partnership (TPP) and who have lined up to support Speaker Ryan and Kevin Brady’s latest bad idea. They are supporting it because it funds their war on small and mid-sized manufacturers, just like TPP.
Lastly, who else knows how business operates? That man is President Trump. He knows that tariffs will protect all American businesses who build on American soil from foreign competitors who do not trade fairly with America. That includes U.S. multi-national corporations that located abroad explicitly intending to export product back into the U.S. undercutting American workers.
Tariff Isn’t A Four Letter Word
Tariffs are the transparent mechanism by which we fight back against countries who are waging economic war on America every single day. The scaled tariff that I support is one that would require zero additional headcount at the U.S. Treasury to administer. That’s why it is smart for President Trump to stay the course and reject the GOP proposal, no matter what Orwellian terms they cobble together to sell it to the public.
The scaled tariff is so transparent. That’s another reason for Speaker Ryan and Kevin Brady to hate it. Their corporate donors would have no loopholes to exploit. That’s precisely why I advocate for it so strongly.
A BAT is essentially a global tariff. You are globally imposing a tariff on anything that comes into your country. When everyone does it, it cancels out. The way they’ve structured it, we are treating the countries that willingly buy more from us the same as those who thwart us.
The U.S. has an annual trade deficit running at roughly $500 billion. We could correct that with the scaled tariff starting almost overnight. The scaled tariff fits with the U.S. agreements already in place. The list of countries driving that deficit can be found here.
In particular, the mercantilist countries that we should be laser focused on is China (-318.4), Japan (-73.4), Germany (-67.2), South Korea (-20.7), and Taiwan (-13.2), and and is a subset of this deficit table. The U.S. Treasury department issued a report in May of 2016 naming names. Those particular countries manipulate their currencies or subsidize their industries to the detriment of American imports. These are countries who are waging the battle against American workers. Therefore, they should be the primary focus of American attention as it relates to trade imbalance, but not the only focus.
America has the best workers. We are the best innovators. When politicians like Ryan and Brady sell them out with patriotically-branded gimmicks, they expose themselves as charlatans.
Paul Nehlen is not another lifelong politician, but a business executive and inventor. Nehlen started out on the factory floor, and through God’s grace, grit, and determination rose to lead Fortune 500 manufacturing businesses around the world. Nehlen challenged Speaker Paul Ryan in Wisconsin’s 2016 First Congressional District to stop Trans-Pacific Partnership and secure America’s border. Today he is waging the battle against the refugee resettlement racket and leading the cause to fight for America’s values. He lives in Delavan, Wisconsin.