Now on to tarrifs

[nadinbrzezinski]

After dealing with why higher taxes lead to investment... it is time to touch on something DC really doesn't want to, TARIFFS.

An easy way to think of them is to think of them as taxes on imported goods. They can have a good function, as in protecting a young economy, or a bad function, as in open a mature economy to competition and ultimately rape.

You can have a balanced tariff policy too.

Essentially this is what they do... if I produce a widget in the US, and it costs me, to bring it to market five bucks, and I decide to export this production to oh China... here is the choice the government has. I can as a government tax the imported goods in such a way that it costs me about the same to produce in CHINA or to produce them in the US... or charge me a joke or a tariff, where it is logical for me to produce in China. As a nation, starting with NAFTA, we decided to turn that tradition of protecting our industries on our head, and our tariff system was completely open. If you import things to the US these days, the tariffs, they still exist, are very low.

Now if you export to China, for example. the Chinese have pretty hefty tariffs as well... in the order of the 20% range.

When I was growing up I was always stunned by taxes in Mexico on Cars. Yes, Ford made them in Mexico as well as Volkswagen, and both were (still are) unionized. But upwards of 50% of the value of the car, if it contained foreign parts, was taxes. It was just 20% if it was locally sourced since it was a luxury product.

These free trade agreements have essentially opened the country and it's markets, making it very cheap for companies to export those jobs. They are doing something else. they are also externalizing all costs. In order to attract them governments are not requiring taxes and all that happy horse.

So this is a simple explanation (and trust me, it is very complex) as to why companies are moving your jobs to China. Now China is starting to become expensive... pesky labor is starting to organize and demanding better pay... so their next frontier will be Vietnam oh and Colombia, where killing labor is a sport.

[villager]

1. Yes! We should link tariffs on cheap, eco-ruining non-unionized goods to any "tax breaks..."

n/t

[nadinbrzezinski]

2. Paper production is coming back

because of the cost of fuel. It costs them about the same. They had to rebuild the paper mill though.

[FreakinDJ]

3. Tariffs are 1/2 the equation

US Corps get Tax Breaks for moving offshore - plain and simple

There are so many "Legislated Obstacles" for the American Worker

[nadinbrzezinski]

5. Yes but I am keeping these things in small sections

targeted sections.

I realize that most of us really do not understand fiscal policy. And trust me, this is highly simplified. I just took a look at the schedule... oh my.

[FreakinDJ]

7. I prefer to call it the "Reverse Tariff Trade War"

which is what it is.

But of course since Wall St is making massive profits from it no one in Washington will talk about it

The new laws, which were passed on 16 March 2007, have been the subject of protracted debate and speculation for a considerable time now. They will become effective as of 1 January 2008, heralding the beginning of a new era of investment in China, with there no longer being any preferential treatment given to Foreign Invested Enterprises (FIEs) over their domestically funded counterparts. Pockets of favourable treatment will remain, however, in industries that the authorities wish to channel investment towards.

Existing taxation structure

At face value the previous tax structure was essentially uniform with all firms, regardless of the source of their funding, paying the same proportion of their profits in tax. There existed a base rate of 30% to which a surcharge of 3% could be added by local authorities, although in practice this is generally waived. FIEs have been able to take advantage of an extensive range of incentives based on the industry sector of their business, or their geographical location, provided they have agreed to a statement of commitment to operate in China.

Firms in the manufacturing sector can be exempt from paying any tax whatsoever for the first two years of making an operating profit and a 50% reduction in the standard tax rate for three years thereafter. In addition, there are a host of other tax benefits to foreign firms including a base rate of 15% to manufacturers in designated Economic and Technological Development Zones or businesses in Special Economic Zones. There are further tax rates of 24% available to productive FIEs located in the various development zones and cities, dependent on the location of the project.

Additional tax breaks can be made available to FIEs if they chose to reinvest their share of profit, capital reserve, or enterprise and development and expansion reserve. Rebates of up to 40% are possible provided that the aforementioned assets are reinvested for a period of five years or more, although this is conditional on the reinvestment being channelled into increasing existing capital stock or into another FIE. Alternatively, if the profits are reinvested into an export-oriented industry or a technologically advanced industry then the firm is entitled to receive a rebate on the tax already paid on the profit share that has been reinvested.

http://www.chinaorbit.com/china-economy/corporate-tax-china.html

[nadinbrzezinski]

8. Since demand drives this economy, and there is no money to spend

UNLESS companies have made the strategic decision to move to other areas with a heathy middle class (see China and GE)... they will have to... sooner or later.

This is the kind of situation that can breed radicalization.

[FreakinDJ]

9. Granted - 2 different Corp Tax policies

US Corporate Tax policy heavily in favor of outsourcing

China Corp Tax policy heavily in favor of Manufacturing Growth

Its "Trickle Down" alright - except it targets trickling down to the Chinese Middle Class

http://seekingalpha.com/article/237482-emerging-market-consumer-etfs-are-winning-the-performance-game

[Horse with no Name]

4. I am a Protectionist.

So, I absolutely agree!

[nadinbrzezinski]

6. It depends on the industry, but I am mostly a protectionist

or trend to it... the current economic system is NOT good for the rest of us.