A recent acquaintance wrongly assumed that I support Donald Trump’s candidacy for president because I chair the Made in the USA Foundation. (I don’t support any candidates for public office.) Mr. Trump’s fundamental trade position is that the United States has been out-negotiated by China, Mexico and Japan. This is not the real cause of our trade imbalance. Our trade deficit has been not been caused by Chinese or Mexican companies, it has been caused by American companies going offshore and an American tax system that encourages it.
American companies, from General Motors to Carrier air conditioning to Johnson and Johnson and Pfizer are the problem. Remember that US taxpayers saved GM from going out of business. While we were saving GM, it moved production of the Cadillac SRX to Mexico and the Buick Regal to Germany. After costing the US government more than $10 billion, GM is now importing Buicks from China, South Korea and Poland. At the same time Mercedes Benz and BMW have been ramping up their US auto production.
Johnson and Johnson makes all of its band aids in China and Brazil. No trade deal encouraged them to go offshore, only cheap labor. It is interesting that most private label band aids are made in the United States.
Carrier is moving air conditioner production from Indiana to Mexico. Carrier is moving there for cheap labor. Our tax system allows Carrier to deduct the cost of moving production offshore from its US income taxes. This practice must be stopped. Our tax code should not encourage greedy companies to move production offshore.
We don’t need better negotiators, we need better laws and more loyal companies. There are not many businessmen less loyal than Donald Trump and his family. Not only are his hotels filled with imported furnishings, his Trump suits, shirts and ties are all imported. Harvard Trade and Investment Professor Robert Lawrence did an investigation of Trump-branded merchandise advertised on Trump.com and found that products made in the US are the exception and not the rule. Most of the Trump neckties, shirts and suits are made in China, Bangladesh or simply say “imported.” And virtually all of his daughter Ivanka Trump’s extensive clothing and accessory line for women is made outside the US, with many items manufactured in China.
“Of the 838 Ivanka products advertised through the site, none appear to be made exclusively in the US; 628 are imported and 354 made in China,” Professor Lawrence found.
Trump’s wife, Melania, who is also in the fashion business, has a jewelry line sold on QVC television shopping network. Melania Trump’s jewelry is all made in China.
Mr. Trump claims he can’t make money making suits, shirts and ties in the USA. But Brooks Brothers does. So does Hart, Schaffer and Marx and many other companies. Dozens of American companies make women’s apparel in the United States. Similarly, hundreds of companies make jewelry in America, from Alex and Ani to Tiffany. If the Trump family really cared about manufacturing in the United States, they would have sourced most of their products here.
More and more US companies are moving offshore to save money on taxes. Pfizer, the largest pharmaceutical company in the world, moved production from the United States to Ireland for one reason: The Irish corporate tax rate is 12.5%.
Mr. Trump proposes a 15% corporate tax for all corporations. If we reduced corporate taxes to 15% across the board, corporations would still move to Ireland and other countries with lower taxes. This shows Mr. Trump doesn’t really understand what the heck is going on.
If we tax all corporations at a 15% rate, the USTreasury will suffer hundreds of billions in lost income. Service industries are not moving offshore. A pizza parlor can’t pick up and move to China. Lowering taxes on services, retail and other businesses will not help our trade imbalance, but it will massively increase the national debt.
Only manufacturing costs matter. A better, targeted proposal is a manufacturing tax of zero. If we tax corporations who manufacture 100% of a product in the United States at a tax rate of zero, no profitable corporation will move offshore, and many will move back. Yet it won’t deplete the US Treasury since most (88%) of the corporations who pay taxes do not manufacture in the United States. And those who manufacture here usually don’t manufacture every part of their products in this country. The manufacturing tax of zero is a proportional tax: if a company makes a product 50% in the United States, it will pay a tax rate of 17.5%, half the usual rate of 35%. The manufacturing tax of zero will encourage companies to make a higher percentage of their products in the United States.
Mr. Trump has shown that he is no friend of US manufacturing. He has also shown that he really doesn’t understand the problem and the relationship between taxes and trade. Maybe we will learn more about Mr. Trump and taxes when he releases his personal income tax returns.
Joel Joseph is chairman of the Made in the USA Foundation, a non-profit organization dedicated to promoting American-made products. Email joeldjoseph@gmail.com. Phone 310 MADE-USA
From The Progressive Populist, August 15, 2016
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