Rebranding The Border Adjustment Tax As ‘Removing The Made In America Tax’ Reveals GOP Leadership As Orwellian Spin-masters
This past week at CPAC, I sat in the audience as Kevin Brady (R) put a new spin on the Border Adjustment Tax proposed by Speaker Ryan. It was all I could do to keep myself from standing up to heckle Brady. Here’s why.
The Border Adjustment Tax (BAT) is the proposal GOP leadership is pushing to counter President Trump’s tariffs. In a nutshell, the BAT will 1) impose a 20% tax on all incoming imports, and 2) provide a 20% rebate to U.S. built product that is exported abroad.
We’ll focus on the 2nd part, though the 1st is equally bad. I’ll tell you why in an upcoming article.
Real World Example
Let’s assume you are a mid-sized American pump manufacturer in Wisconsin. You build pumps for the domestic market. You do not export.
Let’s also assume that I run an American corporation that manufactures pumps, valves, heat exchangers, among other things. We sell pumps into the domestic market, but we also export product. We are competitors in the highly competitive pump market.
I will receive a 20% government rebate check courtesy of Paul Ryan and Kevin Brady. Since you don’t export, 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 pumps. 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 Apple iPhone.
But in this case, the government has distorted the market. I’m innovating by supporting Ryan and Brady’s cleverly worded proposal. You will be sorry you didn’t think of this angle they gave me.
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 hair-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 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.
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.