Trump's right, on trade we're the world's 'biggest sucker'
Sunday’s article on President Trump’s trade rhetoric, "Trump escalates trade war talk, threatens European carmakers with stiff tariffs, " contained a very misleading statement: “The United States already imposes a 2.5 percent tariff on the import of foreign cars and a 25 percent tariff on the import of foreign trucks and commercial vans. The European Union charges a 10 percent tariff on the import of U.S. cars.”
When Mercedes exports a $50,000 car to the U.S., it receives a 17.5 percent VAT rebate on the value, or $8,750. It then pays a 2.5 percent tariff or $1,250. Landed cost in the United States is $42,500, plus transportation.
When GM exports a $50,000 car to Germany, it has to pay a 10 percent tariff plus a 17.5 percent VAT. The landed cost in Germany is $63,750, plus transportation.
So the Mercedes in the U.S. has a wholesale cost of $42,500, less than GM’s domestic cost of $50,000, yet the GM car in Germany has a wholesale price of $63,750, $13,750 more that the Mercedes with the VAT. Yet both cars left their factory at the same cost.
During the Clinton administration, a new World Trade Agreement was negotiated and signed. It allows exporting countries to rebate the VAT or sales tax on exports and impose it on imports. However, it prohibits countries from rebating the corporate income tax on exports and imposing an equivalent levy on imports. Of all the world’s major economies, the United States is the only country without a VAT and until last month, had the highest corporate income tax so this provision is strictly an anti-U.S. provision. Thank the politicians in Washington for this one-sided agreement.
Now let’s take a look at the so called 25 percent tariff on commercial vans. A family member recently purchased a new Mercedes commercial van for his business. He learned that all the Ford and Mercedes vans that are imported come into the U.S. with windows all around and interior seats. This makes them passenger vans subject to the 2.5 percent tariff. Once here the seats and side windows are removed. Solid metal panels are installed where the side windows were. Now it’s an imported commercial van but only paid the passenger vehicle tariff. Plus of course, Ford and Mercedes get the VAT rebate on the commercial vehicles as well.
I’m not done yet. NAFTA stands for North American Free Trade Agreement but there’s nothing "free trade" about it. Canadian and Mexican exports get their 10 percent VAT rebated at the border but U.S. exports going to those countries get the 10 percent VAT added at the border. My business regularly exports to Canada and the bureaucracy is worse than when we export to Ireland, France or Belgium.
I’ve been involved in business for 55 years, much of it with businesses either affected by or actually engaged in international trade. Every other country manipulates its trade rules, tariffs and regulations to gain advantage when selling to the United States, which is the world’s biggest market. They all want to sell here but they don’t want to compete with U.S. goods back at home. We are the world’s biggest sucker and don’t seem to realize it.
Stewart Walton owns and operates Sheaves Inc., which sells wire rope sheaves used in construction, marine, oilfield and similar industries. He lives in Mystic.
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