Tag: global markets

The Miscellaneous Tariff Bill: No Trivial Matter

As soon as today, the House may vote on a trade bill that sounds trivial but is in fact quite important: H.R. 4380, the Miscellaneous Trade and Technical Corrections Act of 2010.

Without passing judgment on the specific bill, the miscellaneous tariff bill (MTB) process has been a quiet trade policy success for almost 30 years. MTBs typically contain hundreds of provisions suspending tariffs on imported goods important to U.S. manufacturers but no longer made in the United States. The most common items included in the bills are parts, specialty manufactured products, and industrial chemicals with long, tongue-twisting names. The suspensions are usually temporary, lasting three years.

At least eight such MTBs have been enacted since 1982, most recently in 2006 when Congress passed two such bills. The bills tend to garner broad bipartisan support because the tariff suspensions do not negatively affect specific domestic producers, since no domestic producers compete with the imports, or at least do not object to the tariff suspensions.

A broad range of companies and industries also support MTBs, including the National Association of Manufacturers, because it helps U.S. producers cut costs to better compete in global markets. A 2009 study by Andrew Szamosszegi of Capital Trade Inc. concluded that passage of an ambitious MTB would boost GDP by $3.5 billion and manufacturing exports by more than $1 billion. Passage of an MTB would be right in the spirit of the Obama administration’s National Export Initiative.

Complicating passage of an MTB this time around is the curious stance of GOP leaders in the House, who insist that tariff suspensions be included in an “earmark moratorium.” I’m all for banning spending earmarks, those secretive provisions in huge spending bills that dole out tax dollars for bridges to nowhere and other unnecessary projects. But the provisions of an MTB are a completely different type of legislation.

In contrast to pork-barrel spending, a tariff suspension repeals a narrow tax that falls disproportionately and unfairly on a small group of producers. Instead of granting a favor at the public’s expense, a tariff suspension relieves individual producers of a burden that falls on them and nobody else. Unlike a spending earmark, a tariff suspension creates no new claim on public resources. It does not expand the scope or size of government.

Republicans should suspend their moratorium on tariff suspensions and give the latest miscellaneous-tariff bill a fair hearing.

Seven (Free-Market) Ways to Boost U.S. Exports

President Obama has committed his administration to the ambitious goal of doubling U.S. exports in the next five years. I don’t believe the government should be setting such targets—the rate of growth of U.S. exports should be left to the marketplace—but I am all for the administration seeking ways to expand the freedom of U.S. companies to sell in global markets.

In the “Economic Watch” column of the Washington Times today, I suggest six policy changes that will help American producers sell more of their goods and services abroad. None of them involve subsidies, threats of sanctions, or other government involvement.

Among my suggestions: enact into law the three free-trade agreements that have already been negotiated, repeal the trade embargo against Cuba, keep trade peace with China, and set a good example by keeping the U.S. market open.

If I could have added another suggestion (alas, space in a real newspaper is limited), it would be to issue more visas for trade delegations visiting the United States. Under misguided notions of national security, we make it more difficult than it should be for delegations from China and other  markets to visit the United States to inspect U.S. goods offered for sale. But like the other suggestions, this one is politically challenging as well.

If the president wants to boost exports, he will need to show the necessary leadership to remove the government-imposed barriers that still remain.

Global Markets Keep U.S. Economy Afloat

Three items in the news this week remind us why we should be glad we live in a more global economy. While American consumers remain cautious, American companies and workers are finding increasing opportunities in markets abroad:

  • Sales of General Motors vehicles continue to slump in the United States, but they are surging in China. The company announced this week that sales in China of GM-branded cars and trucks were up 67 percent in 2009, to 1.8 million vehicles. If current trends continue, within a year or two GM will be selling more vehicles in China than in the United States.
  • James Cameron’s 3-D movie spectacular “Avatar” just surpassed $1 billion in global box-office sales. Two-thirds of its revenue has come from abroad, with France, Germany, and Russia the leading markets. This has been a growing pattern for U.S. films. Hollywood—which loves to skewer business and capitalism—is thriving in a global market.
  • Since 2003, the middle class in Brazil has grown by 32 million. As the Washington Post reports, “Once hobbled with high inflation and perennially susceptible to worldwide crises, Brazil now has a vibrant consumer market …” Brazil’s overall economy is bigger than either India or Russia, and its per-capita GDP is nearly double that of China.

As I note in my Cato book Mad about Trade, American companies and workers will find their best opportunities in the future by selling to the emerging global middle class in Brazil, China, India and elsewhere. Without access to more robust markets abroad, the Great Recession of 2008-09 would have been more like the Great Depression.

The Legacy of TARP: Crony Capitalism

When Treasury Secretary Hank Paul proposed the bailout of Wall Street banks last September, I objected in part because the TARP meant that government connections, not economic merit, would come to determine how capital gets allocated in the economy. That prediction now looks dead on:

As financial firms navigate a life more closely connected to government aid and oversight than ever before, they increasingly turn to Washington, closing a chasm that was previously far greater than the 228 miles separating the nation’s political and financial capitals.

In the year since the investment bank Lehman Brothers collapsed, paralyzing global markets and triggering one of the biggest government forays into the economy in U.S. history, Wall Street has looked south to forge new business strategies, hew to new federal policies and find new talent.

“In the old days, Washington was refereeing from the sideline,” said Mohamed A. el-Erian, chief executive officer of Pimco. “In the new world we’re going toward, not only is Washington refereeing from the field, but it is also in some respects a player as well… . And that changes the dynamics significantly.”

Read the rest of the article; it is truly frightening. We have taken a huge leap toward crony capitalism, to our peril.

High-Tech Companies Warn White House about Tax Hike

As I warned in my “deferral” video, the president’s proposal to increase the tax burden on U.S. companies competing in global markets is horribly misguided. The White House has now been put on notice by high-tech executives that they will be compelled to move jobs out of America if this destructive policy is adopted.

Bloomberg reports:

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits. “It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.” 

…Ballmer is one of 10 U.S. software company executives pushing back against the tax proposals in meetings today with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat. …In a roundtable discussion today, Ballmer, Symantec Corp. Chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing U.S. workers. …Ballmer said…fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country.

Obama ‘Offshore’ Tax Plan Will Cost U.S. Companies Business and Jobs

The Obama administration is ready to follow through on campaign promises to crack down on U.S. companies that “ship jobs overseas.” The administration announced this weekend that it would seek to raise taxes on the so-called active earnings of U.S.-owned affiliates abroad. According to a front-page story in this morning’s Wall Street Journal:

Under current law, U.S. companies can defer taxes indefinitely on the many of the profits they say they have earned overseas until they “repatriate” that money back to the U.S. The administration seeks to sharply limit the tax deductions that companies taking advantage of deferral can take.

Of course, there is a perfectly good reason why we don’t tax what U.S. companies earn and keep abroad: those companies are already paying taxes in the countries where their affiliates are located, and at the same rates that apply to multinationals from other countries competing in the same markets.

As I pointed out in a Cato Free Trade Bulletin in January, locating affiliates in foreign markets is now the chief way that U.S. companies reach new customers outside the United States. If we sock them with the relatively high U.S. corporate rate, U.S. companies will be less able to compete against German and Japanese multinationals in the same markets who need only pay the (almost always) lower corporate rate assessed by the host country. And as I noted in January, any jobs created at affiliates abroad tend to promote more employment at the parent company back in the United States.

This demagogic grab for more revenue will only cripple the ability of U.S. companies to expand their sales in global markets, putting in jeopardy the U.S.-based jobs that support their foreign affiliates.