Solar Panel Maker Seeks Duties v. China (Trade Problem VAT Would Fix)

What a shame!  At one time it looked like the manufacture of solar panels would be an arena in which the U.S. could work towards energy independence, grow manufacturing jobs and compete successfully.  However, China, following a trade model of government subsidies and dumping has managed to put most American solar panel manufacturers out of business.  Those manufacturers that remain in the U.S for the most part import Chinese solar modules and only assemble the finished panels here.  One of the holdouts, SolarWorld Industries America, the German subsidiary, has petitioned the Commerce Department to impose new duties on solar modules that with loopholes currently escape duties.  (See NYTimes, 01/01/2014.)

Think about this:  China imposes a 17% VAT on imports, and, by virtue of the Value Added Tax mechanism, also subtracts the 17% tax burden from exports.  This creates a very large price wedge in itself against solar panels manufactured in the U.S. for domestic consumption.  Were the U.S. to similarly employ a VAT (in sweeping tax reform as a revenue-neutral replacement for the Corporate Income Tax and other taxes), domestic manufacturers like SolarWorld would be far less disadvantaged vs. Chinese and other foreign imports.  SolarWorld’s need for duties might even be entirely mitigated.

Hollings, Sen. Fritz, “Making Romney Electable,”, 04/25/12

“The voters are frustrated. The country is fighting in all the wars but globalization. Globalization is nothing more than a trade war with production looking for a cheaper country to produce. Every country develops an industrial policy to protect its economy. Our industrial policy is to call for “free trade” and have Corporate America develop China’s closed market. The United States needs to develop an industrial policy to make Corporate America want to invest and create jobs in our country.

Fundamental to an industrial policy is a Value Added Tax, which is rebatable on export. The corporate tax is not. A U.S. manufacturer exporting to China is taxed twice: the 35 percent corporate tax and a 17 percent VAT when the product reaches China. But U.S. manufacturers in China import their product into the U.S. tax-free. We are not only building China’s economy, but Germany’s. The BMW plant in South Carolina doesn’t make the engine or technological parts in South Carolina. They are produced in Germany, shipped at 3 percent cost; assembled at 3 percent cost and BMW produces a motor vehicle in South Carolina 13 percent cheaper than Detroit. Using its 19 percent VAT, Germany probably has as many manufacturing jobs in the U.S. as it does in Germany — which we welcome.

The people are tired of the campaign. All they have heard for a year is that both candidates are for jobs, but the plants keep closing in their states. They have caught on to ten year plans to balance the budget; to do filibusters to fundraise; taxing the rich to balance the budget; appeals to their pride and charades to create jobs. Candidates and media worry about Medicare that goes broke in 2024 and Social Security that goes broke in 2033 but not the country that’s already broke. The people are frustrated because the country is fighting all the wars but globalization. They are looking for the candidate to do something real to create jobs and pay for government. Replacing the 35 percent Corporate Tax with a 6 percent VAT does something real. The VAT has no loopholes; gives instant tax reform; produces billions to eliminate deficits and creates millions of jobs.”

Hollings, Sen. Fritz, “Untying the Knot,”, 04/09/12

“There is an immediate solution to deficit spending and creating jobs — just replace the 35 percent Corporate Tax with a 6 percent VAT. The 2011 Corporate Tax produced revenues of $181.1 billion. A 2011 6 percent VAT would have produced $728 billion. This will cut taxes, eliminate loopholes, give instant tax reform, promote exports, free up $2 trillion in offshore profits for Corporate America to create jobs in the United States, provide billions to avoid deficits, and create millions of jobs.

Everyone in Congress is for these initiatives, but not one of the 535 members will introduce the VAT solution, nor will President Obama. Why not? Because Corporate America doesn’t want to increase the cost of their China exports to the United States. U.S. exports to China are taxed twice: the 35 percent corporate tax and a 17 percent VAT when exports reach China. China’s exports to the United States are tax free. 141 countries compete in globalization with a VAT that is rebated on exports. Wall Street, the big banks, and Corporate America are the biggest contributors to the President and Congress. Contributions for reelection in Washington come before the nation’s economy. Talk shows and the political pundits don’t mention the VAT solution because the press and media are owned or in bed with Corporate America.

In 2006, the Princeton economist, Alan Blinder, estimated that for the next decade off-shoring would cost the U.S. Economy an average of 3 to 4 million jobs per year. We are off-shoring jobs faster than we can create them. The recession ended over 2 ½ years ago and we wonder why the recovery is anemic. The economy would come alive by replacing the 35 percent corporate tax with a 6 percent VAT.”

Hollings, Sen. Fritz, “Building the Economy,”, 02/14/12

 “Just at the time we need government, all the candidates run “against big government.” “I served in government, but didn’t inhale.” “Get government out of the way so market forces can work.” Who do they think developed the economy? Not market forces. Not Corporate America, whose executives caterwaul “free trade;” “protectionism.” The government of China develops the most closed, controlled economy in history, and Corporate America off-shores to China.

The founding fathers taught us that government creates the economy. The U.S. was born in a trade war (the Boston Tea Party) and President George Washington’s first message to Congress emphasized “manufactories.” The government developed our economy with the Tariff Act of 1789. The Mother Country opposed this development, cautioning against protectionism, calling for “free trade,” and nagging David Ricardo’s “doctrine of comparative advantage” — England’s textiles versus Portugal’s wines. But Alexander Hamilton saved us with his famous “Report on Manufactures,” and Henry Clay exclaimed on the floor of the United States Senate in 1836 that free trade “never existed; it never will exist… ” Abraham Lincoln was a protectionist. Theodore Roosevelt wrote a friend: “Thank God I’m not a free trader.” We didn’t pass the income tax until 1913. We built this nation with protectionism into an economic superpower, “… twenty-five billion dollars more than her nearest rival, Great Britain… ” (Theodore Rex, Edmund Morris, p. 20). President Theodore Roosevelt kept market forces from working with anti-trust laws so that we have an open market today.

How do you think government builds a strong economy? Paying its bills, incentives and enforcing its trade laws to protect investment. Globalization is nothing more than a trade war with production looking for a government cheaper to produce. In globalization the war has expanded from trade to research, technology, innovation, production, jobs, payrolls — the economy. Corporate America has $3 trillion ready to invest, waiting for the President and Congress to determine the increase in revenues bound to occur. Corporate America demands protection. Rather than bailing out Detroit, President Obama could have protected motor vehicles by imposing a tariff on auto imports like Brazil is now imposing. Rather than begging Russia for helicopters, President Obama should enforce the War Production Act of 1950 which would create millions of jobs. Everyone knows that you can’t build a strong economy with federal aid to keep the policemen, firemen and teachers in their jobs or cut payroll taxes which Wall Street executive, Steve Rattner, says: “… provides little lasting benefit. We could just as effectively throw borrowed hundred-dollar bills out of airplanes.”

How could President Obama and Congress bring Corporate America back from China? Easy. Just take the tax benefit to off-shore and give it to Corporate America to on-shore — cancel the 35 percent corporate tax and replace it with a 6 percent value added tax. Immediately, the CEOs, tax lawyers and tax lobbyists cry: “We can’t have a national sales tax.” 141 countries compete in globalization with a VAT or national sales tax. Replacing the corporate tax with a 6 percent VAT is on value added, not sales, and a tax cut. Reason for the howls: a VAT has no loopholes. The CEOs and Corporate America with today’s loopholes are not paying any tax. They could care less about building our economy. China is getting difficult every day. This tax cut releases $3 trillion for Corporate America to create millions of jobs in the United States. The 2010 corporate tax produced $194.1 billion in revenues. A 2010 6 percent VAT would have produced $700 billion in revenues. Exemptions for the poor leave billions to pay down the debt. The VAT is on consumption — the more you consume, the more you pay. Now folks can pay their fair share of taxes. The VAT promotes exports and is self-enforcing. A good bit of the IRS is eliminated, reducing the size of government.”

Hollings, Ernest F., “Why America Slept on Globalization,” The Post and Courier, 01/17/12

“Globalization is nothing more than a trade war with production looking for a country cheaper to produce. And the war has expanded from trade to production, research, technology, techniques, jobs, payrolls — the economy. Every nation struggles in the economy war to maintain and build its economy — except the United States.

In the Jan. 7 debate in New Hampshire, Gov. Jon Huntsman exclaimed: “We don’t want to start a trade war.” Japan started the trade war after World War II by closing its market, subsidizing its manufacture, selling its exports at cost, making up the profit in its closed market — making Toyota No. 1 as General Motors went broke. In the same debate, Gov. Mitt Romney exclaimed: “We’ve got to stop China from stealing our jobs.”

China steals intellectual property — not jobs. President Obama and Congress do the “stealing” by continuing the tax benefit to offshore jobs.

Corporate America invests in China because there are no labor, safety or environmental concerns. If you make a profit, you pay no corporate tax unless profits are repatriated. Just reinvest for more profit. If not profitable, walk away with no legacy cost. Facing this kind of competition in globalization, the U.S. must develop an economy attractive to invest and protect the investment.

The president and Congress say they are developing an economy to create jobs in the United States. Tax cuts or federal aid for policemen, firemen and teachers is no way to build an economy. It takes private investment.

Ed Schultz, on MSNBC, continually exclaims: “You can’t increase the taxes on the job creators. Really? Where are the jobs?”

In China. To get Corporate America out of China and investing in the United States, we’ve got to lower the taxes “on the job creators.” All we have to do is to take the tax benefit to offshore jobs and give it to Corporate America to onshore jobs — replace the 35 percent corporate tax with a 6 percent value added tax. This tax cut reduces the cost of exports 29 percent, creating jobs. It releases $1.2 trillion in offshore profits for Corporate America to repatriate and create millions of jobs. In 2010, the corporate tax produced revenues of $194.1 billion. A 2010, a 6 percent VAT would have produced $700 billion. The VAT is a tax on consumption, not income. The more you spend, the more you pay. The poor have to spend most of their income on food, health and housing, so exemptions for the poor leaves billions to pay down the debt.

The VAT is self-enforcing: you either pay it or pass it on. Much of the IRS can be eliminated, cutting the size of government. The VAT has no loopholes, so it eliminates the tax lobbyists. We must get in step with the 141 countries that use a VAT to compete in globalization or keep losing our economy. Germany uses its 19 percent VAT, which is rebated on exports, to produce green jobs in the U.S. 13 percent cheaper than any domestic production. It produces the parts at high cost in Germany to avoid any tax; ships the parts at 3 percent cost, and assembles the parts in Charleston, at 3 percent cost, producing windmills.

China’s 17% VAT Is Trade Advantage

Keith Bradsher reports in The New York Times (“China’s 10-Year Ascent to Trading Powerhouse,” 12/09/11), that China has seized upon the broad rules available under the open global trading system governed by the WTO to accelerate Chinese trade.  The agreement with China, which was hammered out under GATT rules ten years ago, permitted China to impose higher tariffs to protect a then developing economy.  These rules are still in place and permit China to retain a tariff wedge of 25% on imported cars.

That tariff is not the only wedge.  China also employs a 17% Value Added Tax, which under GATT rules is subtracted from exports and added to imports.  Bradsher:

 “But the 25 percent tariff is only one reason a Grand Cherokee costs three times as much in Chongqing as in Chicago. In the name of energy conservation, China also assesses a sales tax of up to 40 percent of the vehicle’s price based on its engine size. Small, fuel-sipping Chinese cars pay the lowest rate, as little as 1 percent, while gas-guzzlers from the United States and Europe pay the highest rate.

 China also collects a 17 percent value-added tax on almost everything sold in the country, whether imported or domestically produced. But like many European nations, China uses a W.T.O. provision that allows the tax to be fully refunded to China’s export producers, who often pass along the saving to foreign buyers.

 What’s more, China limits foreign manufacturers to no more than 50 percent ownership of car assembly plants in China. That special rule, which China managed to negotiate for its W.T.O. accession agreement when its auto industry seemed tiny and vulnerable, has forced multinationals to set up numerous joint ventures in China and to transfer a wide range of technology to those Chinese partners.”