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View Diary: U.S. Trade Deficit Largely Due to "Intra-Firm" Trade (59 comments)

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  •  Well, we can fix tax incentives... (1+ / 0-)
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    Lujane

    ...starting with the elimination of corporate tax and repatriation taxes, but even that won't necessarily fix the labor cost differential that influences off-shoring.

    Ultimately, building a tax base on companies that are only tangentially American is going to be futile.  We're going to have to tax people, goods and services that are located in America.  Tarriffs are one alternative, but given the WTO and the general flow of trade policy, an unlikely one.

    •  15% - Industry's Dirty Little Secret (7+ / 0-)

      15%!  That's about the maximum direct labor cost associated with the production of any item.  Industry jumps through hoops so that they can reduce the costs associated with that 15%, while they allow their other costs balloon out of all proportion.  If businesses are moving rapidly to low labor cost centers, it's because they know they can seize an advantage only temporarily as laws and other costs catch up with them.  Usually, it's inspired by crony capitalism, wherein advantageous tax or regulatory deals are temporarily struck with a some noxious regime which knows its time in power is a wasting asset and needs to be exploited to the maximum.  Just look at the labor manufacturing for electronics in China.  One of the principal manufacturers for electronics is deciding to move to robotic production because it is cheaper still than using hand production.  That equipment is available anywhere in the world, which means the production could return to the US if the enterprise so chose.  That it doesn't tells us more about the regime in which it is choosing to operate than about the potential profitability of the firm itself.  Dictatorial firms prefer to work in dictatorships because they understand and can navigate the culture.  It's home, plain and simple.

      "Love the Truth, defend the Truth, speak the Truth, and hear the Truth" - Jan Hus, d.1415 CE

      by PrahaPartizan on Fri Aug 10, 2012 at 08:04:44 AM PDT

      [ Parent ]

      •  I think you're exaggerating a little. (0+ / 0-)

        As emerging markets start consuming, there's going to be (even if labor costs were equalized) production advantage to making the product close to the market.

        Exporting a product only makes sense if the advantage to building it in the US outweighs the cost of shipping it coupled with the political and marketing disadvantage of being a foreign importer in the market you're trying to sell in.

        •  So China Consumes Most Domestic Production (0+ / 0-)

          Your argument starts off predicating that the - the - major manufacturing center on the planet today consumes a large proportion of its own production as justification for the massive shift in production to China.  I would argue that the facts give lie to that assertion.  The production has shifted far more rapidly to China than any domestic consumption could justify there, even more so than any future domestic consumption will justify as most American manufacturers will learn to their dismay.

          What you have confirmed is that crony capitalism rules all.  In a true free trade environment, there would be no disadvantages to being a foreign importer in an overseas market except for the economic costs associated with actually delivering a product.  Today's business environment should allow for ready access to banking facilities to enable trade.  Only restrictive government policies intended to protect domestic producers could account for the environment you describe, in which case no free trade regime exists and the nations promoting such restrictions should not be afforded access to free market provisions.  In other words, China should not be treated as a WTO-abiding firm but as a renegade.  What do the US firms which moved willy-nilly do when they can't import their own products back into the US under that scenario.  How many of the CEO and C-suite execs who promoted such policies get sacked when their short-sighted perspectives hoist them high.

          "Love the Truth, defend the Truth, speak the Truth, and hear the Truth" - Jan Hus, d.1415 CE

          by PrahaPartizan on Fri Aug 10, 2012 at 01:53:00 PM PDT

          [ Parent ]

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