Reposted from The Plain Dealer

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Getting tough on China trade could boost U.S. manufacturing, panelists say

Robert Shoenberger | September 25, 2012 | Plain Dealer

CLEVELAND, Ohio — Changes to the federal tax system and pushing for tough trade sanctions on China could boost manufacturing in the United States, experts said Monday during a manufacturing summit in Cleveland.

“We need public policies that support the manufacturing base,” Pat Choate, an economist and Ross Perot’s running mate during the 1996 presidential election, said at Cuyahoga Community College’s Unified Technologies Center. “We need to deal with other countries the way that they are, not the way we want them to be.”

Organized by the Coalition for a Prosperous America, a coalition of unions, manufacturers and farmers that advocates for changes to U.S. trade policy, the Northeast Ohio Economic Summit gathered together Republicans and Democrats as well as union leaders and business owners to discuss trade issues.

As often happens at such meetings, China was the focus of much of the discussion. Lawmakers and some business groups have long accused China of manipulating its currency and using trade agreements to gain an unfair advantage against manufacturers in this country.

State Rep. Mike Dovilla, a Republican from Berea, and Toledo Democratic Rep. Marcy Kaptur took turns criticizing Chinese trade policies. Both politicians are running for re-election this year.”Unfair trade with China has foreclosed on the opportunity for too many Ohioans to prosper,” Dovilla said. He added that his constituents have complained about the lack of action in Washington to stop currency manipulation.

Kaptur, who has supported such legislation, said powerful groups that favor the flow of cheap products from China have blocked legislation from moving through Congress. She linked the debate over trade issues with ongoing debates in Washington over federal spending and taxation.

“We have a budget deficit on the national level because we have a trade deficit,” Kaptur said. She added that the U.S. has had a negative trade balance with the rest of the world for 30 years, and “you just can’t sustain those losses for so many years.”

Much of the discussion focused on making radical changes to the tax system.

Charles Blum, a former diplomat and trade negotiator who now runs Washington trade consulting group IAS, advocated the replacement of much of the corporate and personal income tax with a value-added tax. Used in most parts of the world, VATs are effectively national sales taxes. Or in the cases of exports, goods typically get taxed when they leave a nation’s borders.

The advantage to a value-added tax, Blum said, is that international trade rules allow countries to rebate VAT payments to manufacturers. If a manufacturer in China made a product that cost $100 there, it would be subject to such a tax, making its cost effectively $117. But if that manufacturer exported the product to the United States, China could rebate the VAT, reducing the cost back to $100.

Because the U.S. lacks a value-added tax, exporters have get a bigger benefit for shipping products here.

“We’re going to have to come to terms with a tax system that doesn’t work anymore,” Blum said. “We’re the victims, and only we can change it.”

The challenge of implementing a VAT in this country is that consumption taxes are regressive - poorer people tend to spend a larger portion of their incomes on taxes than they would under income-tax systems. Blum said such concerns could be addressed if political parties could agree to tackle the issue.

Bob Baugh, executive director of the AFL-CIO’s Industrial Union Council, said a VAT would be a concern, but he’s seen them work in other countries. In Europe, he said unions in Germany and France support VATs because that tax revenue goes to support health care and retirement programs for workers.

“They’ve built their progressivity into their system on how they spend their money,” Baugh said.

Kaptur said getting such a massive change in the tax code through Congress would be extremely difficult.

“Congress isn’t too good at big ideas,” Kaptur said. She used the 2009 debate over health care as an example. The bigger the change, she said, the more likely that interest groups will lobby to protect advantages that they have received under the current tax code.

“If a president proposes it and then brings it to Congress, then maybe, it has a chance,” she said. Failing that, she held out little hope for big changes to manufacturing policy.