Daniel Drew, the legendary 19th century Wall Street insider, reputedly said that all he wanted in any deal was "a little unfair advantage." Most of America's trade competitors seem to want the same thing, or even a big unfair advantage.
Imagine how it would help the competitiveness of American exporters if U.S. companies could cut their prices an average of 19 percent in Europe and 17 percent in Asia. Imagine what it would also mean if foreign imports into the United States from overseas were raised by the same percentages.
U.S. financial generosity to our allies after World War II included giving them special trade advantages to help speed up their postwar recovery. The United States agreed that they could rebate to their producers any indirect taxes they paid on goods they exported to the U.S., and they could also impose an equal charge on any U.S. products they imported.
Those nations recovered from World War II many years ago, but they still cling to what started out as a little advantage but has steadily increased to become a massively unfair advantage. The cost to U.S. producers increased to a whopping $327 billion in 2006.
In practical terms, this means that the German manufacturer of an automobile exported to the United States gets a rebate from the German government equal to the indirect taxes paid in Germany, a type of tax called the value-added tax. Since the VAT rate in Germany is 19 percent, the German carmaker gets a 19 percent tax rebate on every vehicle exported to the United States.
That's a significant subsidy to German auto manufacturers which enables them to sell cars in America for much less than they sell for in Germany. But what about U.S. automobiles exported to Germany?
A U.S. manufacturer exporting an auto to Germany must pay the German government a VAT equivalent tax of 19 percent of the price of the car plus 19 percent of all the costs of transportation, insurance, docking and duties involved in getting the car to Germany. The U.S. company gets no credit for corporate taxes it pays in the United States.
Today, 157 other countries use a VAT tax system that gives foreigners a large and unfair advantage over U.S. producers in both our markets and in foreign markets. This two-edged sword cost U.S. producers $327 billion in 2006.
But that's not all. The VAT advantage also creates a perverse incentive for U.S. companies to move their plants and jobs to other countries so they, too, can take advantage of the VAT subsidy.
Phyllis Schlafly is a national leader of the pro-family movement, a nationally syndicated columnist and author of Feminist Fantasies.
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