Re: Buy America?

Islander wrote:
Alan Lichtenstein wrote:

Islander wrote:

Alan Lichtenstein wrote:

Islander wrote:

Alan Lichtenstein wrote:

Islander wrote:

Alan Lichtenstein wrote:

Josh Rosenbluth wrote:

On Feb 1, 1:54 pm, Islander <nos...@xxxxxxxxxxx> wrote:

Will a "Buy American" policy produce retaliatory acts by foreign
countries? Perhaps, but I think it would be a mistake to dismiss it
solely on the basis of the Smoot-Hawley experience. The situation is
different. What industries are likely to suffer if there is
retaliation, what is the risk, and are we better off despite the risk?






From what I gathered on This Week, Barney Frank is with all of the
economic elites (afterall, he is one of them), that the idea is bad.
However, he supports it because 1) the pain of free trade is
concentrated in a few while its benefits are diffuse (Frank would be
less open to Buy America if there was no some other mechanism to ease
the pain), and 2) the public wants it and thus it maybe a necessary
small evil to gain a greater good.

Your point about no retialiation is interesting, but Frank didn't
bring it up, and he's too smart not to if he believed it.





Actually, the concept is required, if we are ever going to get our GDP house in order. We sorely need to reduce the impact of the FIRE Sectors on our GDP, and the only way to do that is to increase manufacturing. The concept of'buy American' attempts to achieve that, but in a somewhat confrontational manner, which is unproductive. But if the concept of 'buy American' were introduced through the 'back door,' being achieved surreptitiously, the effect will be the same.

ANY move on our part to return manufacturing to America will promote retaliation, but the manner of that retaliation is what is at issue. If we introduce our 'buy America' by actually not doing anything, but because business made their own decision, it will be far harder for countries to retaliate.





How would you avoid violating the GATT/WTO agreements that we are a party to and which preclude imposing any form of barrier to purchasing from any foreign country except in cases of national security, health, safety or similar circumstances?




The answer is simple; we aren't instituting any PROHIBITIONS or barriers to purchasing the goods. The U.S. will NOT restrict the goods produced in foreign countries in any way nor will it tinker with the price at which those goods are sold. What we are doing is simply exercising the right to internally collect taxes on individuals and businesses that do business in America. So if the Government chooses to lower the tax rate on companies for certain items, it may do so. There is precedent for this, as there are any number of items or services which already receive favored tax status as compared to other gods and services. In point of fact, when the Government reduced taxes in 2001 and 2003, giving domestic companies a break, there was no retaliation, and there will be none now. But unlike 2002 or 2003, domestic companies will want to pay the lower tax rate, so there will be a great incentive to return manufacturing to America, as those companies will understand that the lower tax rate, coupled with the removal of paying income and excise taxes in a foreign country with respect to its manufacturing, as well as the cost of shipping will more than compensate for the higher labor costs here, yielding a higher bottom line.

In reality, there is no violation of GATT or any other treaty we have entered into, because we are introducing no barrier to trade. We are letting individual companies make the decision in a free market for themselves.

Now, it will be evident that certain countries, such as China, Indonesia and India, for example, will understand that they will lose jobs to America, but since the markets are here, while they may retaliate in kind, it will have absolutely no effect, since we produce little here which we sell there as compared to the opposite. At any rate, it will form the basis for negotiation for trade policies, which will give the U.S. the upper hand in negotiating a level playing floor for labor costs, preventing further outsourcing, which is the best we can hope for anyway.




Your proposal seems pretty transparent to me. What is a tariff, after all, but a tax?



Are you labeling the Bush tax cuts mentioned earlier as tariffs? Because I'm doing the same thing.



Sorry, but in order to give tax cuts on imported goods, you have to have taxes to cut.


Obviously. I've advocated that for over a year.

We don't have a federal consumables tax, so reducing

taxes on corporate income is the only option that I see for your proposal.


Which is what I proposed, but my proposal requires a reduction only on goods and services either manufactured or provided in their entirety in the United States, with the higher marginal tax rates applying on goods and services either manufactured in whole or in part outside the United States.

Federal revenue from corporate taxes is already small - only

about 10% of GDP. Import of consumer goods is at about 14% of our total GDP, so unless profitability is very high in the import business, there is not much room to decrease taxes on imports, probably less than $40B. You would need a awful lot of leverage to make that work for a $2T industry.


I did not state this correctly, but it appears that you understood what I meant. In the interests of accuracy, I should have said that the amount of money involved in leaving taxes high on imports is probably not sufficient to achieve your goals. You argue below that there would be a multiplier effect. I agree, but still question whether it would provide enough leverage. Unfortunately, we will probably never know.

Perhaps we should try it to see whether or not it is successful. I suspect that the mercenary interests of business, in particular the 'bottom line' will be a strong motivating factor. Business will also factor in the costs of transportation and related costs( insurance ), which will be yet another variable, as being closer to markets translates into additional income as well. and since that additional income will be taxed at a lower rate, profits will be greater.

You may be correct that we will never know, but if Obama was really interested in systemic change which really addresses the problems, he would be proposing this. Unfortunately HE isn't.

The decrease in corporate and business taxes would be offset by the additional income taxes collected by the additional jobs created. Maybe not in entirety, but to a degree. Furthermore, since a significant percentage of our GDP is due to consumer spending, the additional jobs would serve to boost that as well. AND we have the added benefit of reducing the portion of our GDP which the FIRE Sectors generate and consequently, making our GDP far 'healthier' than it is today.

If you raise taxes on imported goods, you are essentially creating a tariff.


To be clear, I should have said, "Alternatively, if you raise taxes..." I know that raising taxes is not what you are proposing.

By your logic, you can interpret the stimulus as a tariff. I suggest that you retract the offending statement.

I will NOT raise any taxes. I will LOWER then for domestic goods. Hardly a tariff, but it has the same effect, but in a manner which will not cause trade wars or run afoul of treaties. But it WILL give us the upper hand in negotiating trade agreements that level the playing field for labor, and reducing outsourcing. Which is all we want anyway, really.


I remain skeptical that your proposal would provide enough leverage to accomplish what you envision.

We should try it to be certain. One major benefit of my plan is that we reallocate the proportion of contribution of each sector to our GDP, which is perhaps the greatest and most important asset.

We will probably need to leave it at that.

If you wish.
.

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    ... ANY move on our part to return manufacturing to America will promote retaliation, but the manner of that retaliation is what is at issue. ... If we introduce our 'buy America' by actually not doing anything, but because business made their own decision, it will be far harder for countries to retaliate. ... as there are any number of items or services which already receive favored tax status as compared to other gods and services. ... In point of fact, when the Government reduced taxes in 2001 and 2003, giving domestic companies a break, there was no retaliation, and there will be none now. ...
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