Smart Trade: Fixing Smart Trade: Fixing AmericaAmerica’’s Economys Economy

Michael Stumo, CEOMichael Stumo, CEOCoalition for a Prosperous AmericaCoalition for a Prosperous America

About CPAAbout CPA

Mission: Balanced trade - eliminate the trade deficit. The biggest potential source of jobs and growth for America

Members: Manufacturing, agriculture and worker organizations and companies.

Representing the interests of 2.7 million households through our association and company members.

Biggest Trade ProblemsBiggest Trade Problems

Persistent Trade Deficit - 20 years

Currency Manipulation

Foreign Consumption Taxes (border adjustable)

State-Owned Enterprises

Lawful foreign subsidies and barriers

Lack of a U.S. trade and manufacturing strategy

Why is the trade deficitWhy is the trade deficit a core issue? a core issue?

GDP = C + I + G + NE

Consumption

Investment

Government Procurement

Net Exports:Total Exports minus

Total Imports

Biggest Most Volatile Net Imports/Trade Deficitssubtract from GDP

“Recession” = Contraction of GDP

How much GDP loss?How much GDP loss?America’s trade deficits since 1991 alone have caused our economy to be 13 percent smaller than it otherwise would be. That’s an economic hole larger than the entire Canadian economy.

- Fletcher, Ian, “Free Trade Doesn’t Work,” (2011)

Industries We Have Already LostX Fabless chipsX Compact fluorescent lightingX LCDs for monitors, TVs and handheld devices like mobile phones electrophoretic

displaysX Lithium ion, lithium polymer and NiMH batteriesX Advanced rechargeable batteries for hybrid vehiclesX Crystalline and polycrystalline silicon solar cellsX Inverters and power semiconductors for solar panelsX Desktop, notebook and netbook PCsX Low-end serversX Hard-disk drivesX Consumer networking gear such as routers, access points, and home set-top boxesX Advanced composite used in sporting goods and other consumer gearX Advanced ceramics and integrated circuit packaging.

Advanced Tech - We are a net importer since 2002.

But we’re moving to high tech, right?

Maybe not.

Well, maybe the service sector will save us!

Obama: Obama: ““Double ExportsDouble Exports””

Bush already doubled exports. Exports increases under Clinton. Our exports have grown almost every year, including to China.

Hourly Compensation Costs in Manufacturing,U.S. Dollars, 2009

Its not just cheap labor that’s the problem! The U.S. is actually now a laggard in manufacturing wages among developed nations.

Labor Costs?

Persistent Currency UndervaluationA Tariff and a Subsidy

Consumption Taxes(Border Adjustable Taxes/Value Added Taxes)

Value Added Taxes are tariffsValue Added Taxes are tariffs

$356 Billion trade distortion

The US tax system has become increasingly out of step with the rest of the world

More than150 countries apply a consumption tax to their imports, doubling the tax burden on US exports

The same countries rebate their tax on their exports; the US almost alone does not apply an offsetting tax on its imports

Each year America’s two-way disadvantage amounts to an estimated half trillion dollars

•

TRADE IMPACT OF BORDER TAX ADJUSTMENTS

How they use VATsHow they use VATs

Tariff and a subsidy

Offset other costs like health care, income tax

Offset tariff reduction

Mexico: 15% VAT after NAFTA, none before

Central America: 12% VAT after CAFTA

Korea: 10% VAT now. Later increase?

China: 19% VAT

NOT NECESSARILY OVERTAXED; BUT BADLY TAXED

The U.S. is not overtaxed EU15 -- 40.3% of GDP US -- 25.4% of GDP

The U.S. is badly-taxed Our tax system relies too

heavily on non-border adjustable income taxes

This hurts Americans’ ability to save and invest domestically

US exports are taxed twice

US imports escape any consumption tax

40.3%

35.0%

25.4%

State Owned EnterprisesState Owned Enterprises“The state’s influence over China’s economy takes many forms and covers a whole spectrum of companies from fully state owned to those that are nonstate but maintain close ties to the government. China’s state-owned and state-controlled companies and industries are generally the largest ones in China and are operated and managed by the central government of the People’s Republic. They are an instrument of state power as well as the centerpiece of China’s industrial policy. They receive massive government sub-sidies and are protected from foreign competition.”* U.S. China Economic and Security Review Commission, 2011 Report to Congress, November 2011, p 40.

21st Cent. Trade Agmt Principles21st Cent. Trade Agmt Principles

Balanced Trade/Net Exports

National Manufacturing/Security Strategy

Neutralize currency manipulation

Address foreign border taxes

Neutralize state owned commercial enterprises

Reciprocity - benefits vs. concessions

Michael Stumo, CEOCoalition for a Prosperous America

tel: 413.717.0184email: cpa@prosperousamerica.org

www.prosperousamerica.orgwww.tradereform.org

www.cpabuyamerica.com

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