Skip to main content

The vast majority of the U.S. $727 billion trade deficit in goods for 2011 is due to "intra-firm" or "related party" trade, that is, trade between two units of the same corporation, according to the U.S. Census Bureau. This is significant because such trade is the most open to companies manipulating the prices between subsidiaries to minimize tax liabilities, usually known as abusive transfer pricing. Moreover, as Stuart Holland argued in 1987, intra-firm trade is also less responsive to changes in exchange rates than is trade between independent businesses, since within an individual multinational corporation each subsidiary will have a specific role to play in its supply chain, which won't be quickly changed.

U.S. goods trade and related party trade (billions of dollars), world and selected countries, 2011:

Country         Exports from US      Imports to US         Balance

World            $1480.4                   $2207.8                 - $727.4
World (RP)    $  365.0                   $1056.2                 - $691.2
Canada          $  280.9                   $  315.3                 -     34.5
Canada (RP) $     98.1                   $  162.0                 - $  64.1
Ireland           $     7.6                    $    39.4                 - $  31.7
Ireland (RP)   $     1.5                    $    34.6                 - $  33.1
Mexico          $ 196.4                    $  262.9                 - $  64.5
Mexico (RP)  $   60.5                    $  155.7                 - $  95.2

Sources: Total trade, U.S. Census, Trade in Good with World, Not Seasonally Adjusted; Related party (RP) trade, U.S. Census, NAICS Related-Party, select all NAICS2, 2011, all countries, variables "imports related trade" and "exports related trade" and layout by country. Canada, Ireland, and Mexico as linked.

As we can see, related party trade (which can mean trade within either a U.S. or foreign multinational corporation) is 27.6% of goods trade, but it represents a whopping 95.0% of the trade deficit. Moreover, in countries where the U.S. has heavy foreign direct investment, such as Canada, Ireland, and Mexico, the trade deficit for intra-firm trade actually exceeds the country's overall trade deficit.

In fact, virtually all U.S. imports from Ireland take the form of intra-firm trade. This is no doubt due to Ireland's status as a tax haven and low corporate income tax rate of 12.5%.

These data suggest that much of the U.S. trade deficit is due to U.S. corporations offshoring production and exporting the products back home. As the related-party data does not distinguish between U.S. and foreign multinationals, there is no way to know exactly how big the share of U.S. multinationals is in intra-firm, but is surely much more than half. Moreover, not counted in the data are imports that come from subcontractors (Wal-Mart's many suppliers, Foxconn producing Apple products, etc.).

The bottom line is that we need to reverse the incentives in the tax code that encourage the offshoring of jobs. (Why does Apple have $64 billion in cash abroad?) However, to emphasize the point I made last time about what Americans want out of tax reform and the "reform" that has actually happened, it's worth pointing out that Robert Gilpin of Princeton University, author of the seminal U.S. Power and the Multinational Corporation (1975), made the same policy recommendation almost 40 years ago, and it hasn't happened yet. We've got our work cut out for us.

UPDATE: Following the Mitt George Romney rule ("one year might be a fluke"), I went back and collected the data for all years back to 2002 (the earliest for which the related party trade info was available). While 2009-11 were all 95%, previous years were generally between 70% and 80%. I'm not sure yet what to make of that.

Year    
    Goods trade deficit     Related party trade deficit     % Related party

2011         727.4                     691.2                            95.0%
2010          634.9                     607.7                       95.7%
2009         503.6                     479.2                       95.2%
2008         816.2                     647.9                         79.4%
2007         808.7                     619.1                       76.6%
2006         828.0                            582.9                       70.4%
2005         772.4                     530.0                       68.6%
2004         654.8                     478.9                           73.1%
2003         532.4                     389.3                       73.1%
2002         468.3                     352.1                       75.2%

Originally posted to Kenneth Thomas on Thu Aug 09, 2012 at 10:41 PM PDT.

Also republished by Community Spotlight.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Would a VAT tax take the profit out of this? (5+ / 0-)
    •  VAT Tax? (3+ / 0-)
      Recommended by:
      Lujane, Wee Mama, some other george

      I'll have to go to the bank and give them my SSN number so I can get an ATM machine card and take out money to pay the VAT Tax. I just hope I don't forget my PIN number.

      < /snark >

      If I wanted to read how much Obama sucks, I'd be on RedState, not DailyKos.
      --@jameskass

      by ThatsNotFunny on Thu Aug 09, 2012 at 11:48:25 PM PDT

      [ Parent ]

    •  Virtually (12+ / 0-)

      all countries that trade with the US employ VAT taxes to protect their exports and inhibit imports.  For example, I read a few weeks ago (can't verify however due to our non-transparent 'system') that a Jeep Cherokee that costs $27k here would cost $85k in China if exported there.  So what does a car manufacturer do?  They open up their manufacturing in China... now GM is 'back on top'.
      GM opened a $300 million auto plant in Russia 2 days after Obama took office (Nov 7 2008) and slightly before they got their $25 billion bailout.  If it doesn't make sense what is going on, it isn't supposed to except the powerz running the show have no interest in Amerika's future.

      "Let me issue and control a nation's money and I care not who writes the laws." Mayer Amschel Rothschild, 1790

      by FreeTradeIsYourEpitaph on Fri Aug 10, 2012 at 07:00:44 AM PDT

      [ Parent ]

      •  That's not really VAT, that's import duty. VAT (2+ / 0-)
        Recommended by:
        Lujane, BusyinCA

        is only 20% or so. And most of the price difference comes not even from import duty but from middlemen.

        •  I thought import duty's were illegal? (0+ / 0-)

          We used to have a system of quota's and duties and they disappeared about 15 years ago, so why are our competitors allowed to operate that way?  I thought our free trade agreement disposed of these universally.

          •  Russia is not even in WTO. It can impose whatever (2+ / 0-)
            Recommended by:
            BusyinCA, FarWestGirl

            duties it wants. And import duties on cars are legal, US imposes them as well (2.5% on cars, 25% on trucks). In Russia they are much higher although now that they are entering WTO they are likely to be lowered. Duties in China are not particularly high (up to 20%).

            http://www.euronews.com/...

          •  No, tariffs are not illegal (0+ / 0-)

            The U.S. did make commitments to the WTO about what its tariff rates would be, but did not make them illegal. Individual free trade agreements such as NAFTA generally do remove all tariffs.

            I've read a couple of books recently that our trade policy has been harmful to the middle class, and I will be posting on some of them soon.

      •  Yo! Mr. FreeTrade (0+ / 0-)

        Did you know that the so-called Rothschild quote you use as your signature is completely unattested?
        Did you know that it is used mostly by anti-semitic conspiracy theorists?
        Did you want to be mistaken for an anti-semitic conspiracy theorist?
        Of course not. No one would wish such a thing. Hope you find a better quote soon.

    •  No. VAT isn't a solution for much of anything, (0+ / 0-)

      it is just a slaes tax that is collected incrementally as a product moves through the economy.

      That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

      by enhydra lutris on Fri Aug 10, 2012 at 03:43:49 PM PDT

      [ Parent ]

  •  VAT Designed to Promote Exports (3+ / 0-)
    Recommended by:
    FG, Lujane, BusyinCA

    The Value Added Tax was invented by the Europeans because it is a tax protocol which can be manipulated to promote exports.  The principal method by which this can be done is that the VAT applies only to products which are consumed inside the taxing regime.  Producers of product or services which export those products have no VAT applied to the product or service.  They thereby gain a potential advantage over others who might be operating within different taxing regimes, which are income or earnings based.  To apply a VAT against products being imported by ostensibly American corporations, the IRS would need to gather information from the producers on the value of all of the inputs going into the products or services being imported so that the value added in the exporting nation could be assessed.  Otherwise, any tax would be essentially a tariff applied against whatever the import value might be.

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

    by PrahaPartizan on Thu Aug 09, 2012 at 11:52:12 PM PDT

    •  The problem is trying to use tax policy to (6+ / 0-)

      manipulate exchange and trade, instead of just trying to collect enough money to fund necessary services. Indeed, that's the problem with money, as well -- using it as a tool for social engineering, instead of as a simple measure of exchange and trade.
      Our public corporations (state and nation) are supposed to promote the welfare of the population. Instead, our petty potentates want to rule and dominate and enhance their own power. What we've got, especially in our legislative bodies is insubordinate public servants.
      Strangely enough, the conservative emphasis on making government smaller contributes to this misdirection by affirming that agents of government are empowered to rule, rather than serve as stewards. Property rights are being used as a sop to disguise that basic human rights are being neither respected nor satisfied.

      Willard's forte = "catch 'n' cage". He's not into "catch and release."

      by hannah on Fri Aug 10, 2012 at 01:16:59 AM PDT

      [ Parent ]

      •  Governments use tax policy to manipulate all (2+ / 0-)
        Recommended by:
        Lujane, PrahaPartizan

        kinds of things. Promote homeownership, promote procreation etc. It's not going to stop.

        •  But it should stop. (1+ / 0-)
          Recommended by:
          indres

          The "Revenue Service" should be completely separated from the "Department of Subsidy and Welfare" . . . that is the only way to achieve the "transparency" necessary to avoid just this sort of cheating.  And Mitt's $100 million dollar IRA.

          Using tax favoritism as an instrument of policy is an invitation to abuse . . . by the "favorites" . . .

          Fake Left, Drive Right . . . not my idea of a Democrat . . .

          by Deward Hastings on Fri Aug 10, 2012 at 08:51:26 AM PDT

          [ Parent ]

  •  Transfer Pricing Scandal and Conundrum (17+ / 0-)

    This topic really addresses the issue of transfer pricing.  US corporations operating abroad will try to keep all of the profits associated with a product in the foreign nation exporting to the US, so long as the tax arrangement they have with that nation is advantageous.  The corporation is trying to keep the visible profit being generated inside the US at zero, which means the transfer pricing is manipulated to maximize the import price, thereby reducing domestic profits.  The IRS does a crappy job of policing these types of transfer prices unless they can be easily proven, such as the import of commodity products which trade widely in the global market.  Once one starts dealing with exclusive products with highly engineered features having no obvious duplication with competitors, the sky is the limit on just how much the importer wants to assign to the foreign price when it concocts its transfer pricing assessment.  This can be substantial, since a domestic price of, say, $100 per unit. requiring a domestic manufacturing cost of $50 could see a transfer price of at that same level despite the actual foreign manufacturing cost being $20-$30 per unit, yielding an extra profit on the exchange.  The story gets even better if the US firm needs to provide certain essential components or services which it lowballs to the foreign production source, thereby transferring profit outside the US beyond the IRS's reach and reducing the tax liability.  All of this happens every day.

    "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 12:03:19 AM PDT

    •  Profit is a nefarious principle. It means (8+ / 0-)

      someone is getting ripped off.  That profit is collected by middlemen does not change that. Since our analysis of economic behavior is focused on producers and consumers, the role of the middlemen is essentially overlooked, especially the size of their "cut" for doing nothing. The marketers are parasites and, from time to time, they derail the whole process. It's not just the banksters and financial engineers. The army of non-productive middlemen keeps growing.

      Willard's forte = "catch 'n' cage". He's not into "catch and release."

      by hannah on Fri Aug 10, 2012 at 01:27:12 AM PDT

      [ Parent ]

      •  Our economy has, for decades now, been (0+ / 0-)

        broker/middleman heavy. If you took the non- value-added types (this includes most CEOs, as well as brokers, marketing types and a handful of others) out of the supply chain the prices on many items would plummet, but unemployment would skyrocket.

        That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

        by enhydra lutris on Fri Aug 10, 2012 at 03:54:07 PM PDT

        [ Parent ]

        •  Organizations Couldn't Function As Well (1+ / 0-)
          Recommended by:
          enhydra lutris

          The direct labor component of most manufacturing has been below 20% for most of the last half century but that doesn't mean the indirect costs associated with running a business don't contribute to making it functional.  Those broker/middleman types you cite include just about everyone else in a business, from management down through marketing to engineering to finance to HR to even the sales staff.  Eliminating all of those components would reduce the nominal price but it would also mean that not much product would actually move around.

          "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 04:02:22 PM PDT

          [ Parent ]

          •  Not all of those are non-value-added positions. (0+ / 0-)

            CEOs, however, generally are, engineering and product design, generally aren't, etc. Our economy is built around brokers and marketing, but needn't be.

            That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

            by enhydra lutris on Fri Aug 10, 2012 at 04:21:07 PM PDT

            [ Parent ]

      •  Profit Doesn't Necessarily Mean Theft (0+ / 0-)

        Profit is merely the excess of revenues over costs.  By your thesis, only the primary producer (like the farmer or the miner or the fisherman) should see any profit.  Some entities get paid a profit because they absorb risk associated with transactions.  Others get receive a profit because they provide a service in time or place delivery of a product.  Profit really only becomes theft when it starts to drift out of the line of what one might expect to be a reasonable return for the value of the service provided.  That's where we've seen problems with the financial engineering of the last thirty years.  The profit demanded by financial engineers is totally out of line with the value of the real service rendered.

        "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 04:29:30 PM PDT

        [ Parent ]

  •  VAT (0+ / 0-)

    That's where VAT comes in.

  •  Ummm $1480.4 - $2707.8 = -$1227.4 Billion (1+ / 0-)
    Recommended by:
    Kinak

    So -$691.2 RP would be 56.3% still significant but not 95% of the trade deficit.

    "Reason is six-sevenths of treason," said one of his neighbors. "Intelligence is what the enemy uses," said another.

    by Misterpuff on Fri Aug 10, 2012 at 03:29:30 AM PDT

  •  Well, we can fix tax incentives... (1+ / 0-)
    Recommended by:
    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 ]

  •  Excellent diary.. I would add: (24+ / 0-)

    Before I hold my breath on going after the tax incentives (which would require Congressional action not likely to happen)....

    I would humbly suggest we have NO MORE FREE TRADE TREATIES SIGNED BY OBAMA.

    I'm not asking Obama to do anything;  I'm asking him simply to NOT do something that is solely in his power.

    He's already done Free Trade with Columbia, Panama, S. Korea.  

    Let's pressure Obama to STOP pushing for the Trans Pacific Partnership, which (if Obama pushes it) will be larger than NAFTA.

    There's no Senate involved.  No filibustering.

    There no GOP House involved.  

    It's only Obama.  Just him.  All he needs do is NOT push for it.  No one can make him.  No one can force him.  Negotiating Treaties is the strict purvey of the President.

    The Senate can do nothing unless Obama drops a Free Trade Treaty on their desk.

    Bottom Line:

    I'm just asking Obama to NOT advocate for more corporate profit driven Free Trade Job Off-Shoring.  Just a little inaction on Obama's part is all I'm humbly requesting.  Do Nothing.  That's it.

    I voted for Change. Not Three Chiefs of Staff from Wall Street Banks. Not Bernanke, Summers, Geithner, Holder, Simpson, or a Monsanto Lobbyist. Not more Free Trade. Not more Patriot Act. Not defending Wall Street's Savvy Businessmen.

    by Johnathan Ivan on Fri Aug 10, 2012 at 06:41:37 AM PDT

    •  Wish I could rec this comment 50 times. (5+ / 0-)

      I'd like to know the specific bills which brought about the current situation, but yes, as the saying goes, when you're in a hole, stop digging!

      I am become Man, the destroyer of worlds

      by tle on Fri Aug 10, 2012 at 06:57:49 AM PDT

      [ Parent ]

    •  It makes little difference. WTO rules govern (2+ / 0-)
      Recommended by:
      PrahaPartizan, Lujane

      most trade anyway and individual treaties don't make huge changes to them.

      •  Really? (3+ / 0-)
        Recommended by:
        superscalar, jm214, bluezen

        Then why is Obama bothering expending his political capital and time to push for Free Trade Treaties - if as you posit - they really don't do much of anything?

        Why is it that the Heritage Foundation is watching the TPP closely, concerned about its secrecy (to, as they say, avoid criticism from 'protectionists')?

        Protectionists?  Does that imply the U.S. will lose further jobs?

        Why, yes it does.

        And, why is it that the Conservative Heritage Foundation championed Obama's Free Trade deals with Columbia, S. Korea, and Panama - if, as you posit, such agreements really don't mean much?

        I'm sorry.  Call me a partisan but when the Heritage Foundation supports an economic policy, I get just a little concerned that such a policy will NOT benefit the 99%.

        The fact that Obama is doing does not change that reality.

        I voted for Change. Not Three Chiefs of Staff from Wall Street Banks. Not Bernanke, Summers, Geithner, Holder, Simpson, or a Monsanto Lobbyist. Not more Free Trade. Not more Patriot Act. Not defending Wall Street's Savvy Businessmen.

        by Johnathan Ivan on Fri Aug 10, 2012 at 08:42:54 AM PDT

        [ Parent ]

      •  John Boehner on Obama's Free Trade: (4+ / 0-)
        Recommended by:
        superscalar, Van Buren, BusyinCA, jm214

        http://www.washingtontimes.com/...

        While this day took too long to come, manufacturers, farmers, and small businesses can now be more competitive in the global marketplace. By boosting American exports, these agreements — part of the Republican jobs plan — help the private sector put Americans back to work.
        So much for those obstructionist Rethuglicans, eh?

        And what an odd thing:  Boehner seems to imply this will be good for workers.

        Clinton said the same thing about NAFTA.

        How'd that work out?

        Who says we don't have bipartisanship?

        Defending Free Trade Job Off-shoring because a (D) does it is indefensible.

        I voted for Change. Not Three Chiefs of Staff from Wall Street Banks. Not Bernanke, Summers, Geithner, Holder, Simpson, or a Monsanto Lobbyist. Not more Free Trade. Not more Patriot Act. Not defending Wall Street's Savvy Businessmen.

        by Johnathan Ivan on Fri Aug 10, 2012 at 08:50:32 AM PDT

        [ Parent ]

      •  If it makes "little difference" (1+ / 0-)
        Recommended by:
        jm214

        that should make it all the easier to not do it.  But it makes a big difference to a rather small number of very influential "corporations are people too"s . . . who have a disproportionate influence on tax policy (even Obama's) . . .

        Fake Left, Drive Right . . . not my idea of a Democrat . . .

        by Deward Hastings on Fri Aug 10, 2012 at 08:56:02 AM PDT

        [ Parent ]

    •  Point of information (0+ / 0-)

      Trade agreements are no longer treated as treaties, which would require a 2/3 vote in the Senate. Instead, they are treated simply as legislation incorporating the provisions of the agreement into U.S. law, so a simple majority vote in both houses is required.

      •  Thank you - that's an element of (0+ / 0-)

        nuance I forgot.

        Though I still stand by my underlying theme:  Namely, I'd ask Obama to do NOTHING rather than pushing for more Free Trade Job Off-Shoring.

        I voted for Change. Not Three Chiefs of Staff from Wall Street Banks. Not Bernanke, Summers, Geithner, Holder, Simpson, or a Monsanto Lobbyist. Not more Free Trade. Not more Patriot Act. Not defending Wall Street's Savvy Businessmen.

        by Johnathan Ivan on Fri Aug 10, 2012 at 08:03:44 PM PDT

        [ Parent ]

  •  Tariffs. (2+ / 0-)

    TARIFFS.

    Sure, it's not gonna happen anytime soon.  Still, for it to ever happen, millions of people will need to know about & demand it first.  While abolishing corporate personhood is the likely prerequisite to accomplishing the reversal of free trade policy, the issue of tariffs as fundamental to domestic employment is something every American can understand.

     

    Before elections have their consequences, Activism has consequences for elections.

    by Leftcandid on Fri Aug 10, 2012 at 07:12:41 AM PDT

  •  Your corporate plutocracy at work. (7+ / 0-)

    "Making Americans poorer so the CEO can have a second yacht since 1922".

  •  Well, there's two ways to do that... (2+ / 0-)
    Recommended by:
    maybeeso in michigan, indres
    The bottom line is that we need to reverse the incentives in the tax code that encourage the offshoring of jobs.
    The Republican way, to drop taxes even further on businesses in-country, or the sensible way, to raise taxes (or tariffs) on companies off-shoring manufacturing like that and then re-importing.
  •  I have a simpler solution.... (4+ / 0-)
    Recommended by:
    Calfacon, indres, BusyinCA, PrahaPartizan

    Apple can repatriate the $64 billion in 24hrs or else.

    We hold all the US multinationals by the short hairs, we control their Intellectual Property protections.

    The US can simply make their patents and trademarks null and void.

    The market would be flooded with $99 Generic iPhones within 3 months and Apple would be out of business.

    So repatriate the money immediately, and you have 5 years to move 100% of all production and manufacturing to back to the USA.... or we "kill" your corporation.

    Time to play hard ball.

    •  Immaterial (0+ / 0-)
      "...The US can simply make their patents and trademarks null and void..."
      China and a number of other countries we count as our "trading partners" already do so.

      What we could do is stop trying to use US government muscle to enforce the patent and trademark protection afforded in the US market.  Tell the multinationals to either pay taxes like a real US citizen or stop expecting US government support overseas.

      "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 01:57:23 PM PDT

      [ Parent ]

  •  Why the jump in 2009? (1+ / 0-)
    Recommended by:
    BusyinCA

    My guess is that it was some little treat left in the tax code as a parting gift from Junior.

    Is it true? Is it kind? Is it necessary? . . . and respect the dignity of every human being.

    by Wee Mama on Fri Aug 10, 2012 at 08:38:59 AM PDT

  •  Hard to give credence to this, given... (0+ / 0-)

    the colossal value of imported manufactured goods from China (from shoes to laptops and i-phones), all the oil imports from Canada/Mexico/North Sea/Saudi Arabia, and all those Japanese and German autos.

    Compared to all that, a relative handful of civil airliners and lots of Hollywood DVD's doesn't really seem to balance it out.

  •  What about oil/energy? (0+ / 0-)

    Just saying 10 million bbl/day at $100/bbl is a billion dollars a day flowing out of the country.

    or very roughly $365 billion per year - or basically half the negative trade deficit you list in the diary.

    Personally, I've always claimed that's  a totally manipulated number, but most don't seem to agree . . .

  •  RUSM? (3+ / 0-)
    Recommended by:
    indres, BusyinCA, PrahaPartizan

    We really have been a banana republic for a very long time.  I live in colonial Kansas, where we have a pipeline that went in, no muss no fuss, unlike the noise created by our neighbors to the north concerned about water pollution.  BP has wind farms in 4 counties, where they pay something to the farmers and counties and export all the energy out of Kansas.  The same goes for the nuclear power plant at Wolf Creek (mostly exported) and the new coal fired plant for Western KS (exported energy as well).  The Koch brothers will be able to frack like crazy with the Brownback/Radical right legislature they bought.  We're not all that different from Africa or a South American country at this point.  The rush is on to end services paid for through taxes.  The Kochs hate paying taxes.  Even Billy Graham had an article that said being a tax cheat was wrong.  I'm pretty sure ending taxes so a governmnet can't exist and function isn't the same thing.  If Kansas is to be the Saudi Arabia of Kansas, the fix is in for all the profit to go to corporations and not to the people of Kansas.  I wonder what's in it for Brownback?  Is there a secret account somewhere waiting for him when his days as a politician are over?  He's been a Koch brothers product for a very long time.  

    Shine like the humblest star.

    by ljm on Fri Aug 10, 2012 at 09:54:33 AM PDT

  •  I've Read 70% Of All Goods Imported From China (2+ / 0-)
    Recommended by:
    Kenneth Thomas, BusyinCA

    Are imported from U.S. corporations doing business in China.

    So-called 'free trade deals' aren't really about trade at all, they are about arbitraging the cost of labor and the rules for foreign direct investment.

    If I as a U.S. citizen buy something made by a U.S. corporation operating in China what has been 'traded' and how does this benefit me as a U.S. citizen on the whole?

    Yes I understand that (we think) the cost of that good or service is lower and we (think we) don't have to deal with that nasty environmental problems that producing that good or service carries with it -- but neither of these two reasons provide a rationale for offshoring those jobs 'cause in the one case we are simply arbitraging the cost of labor to produce that good or service, and in the other we have just hidden that negative externally, we haven't eliminated it.

    I won't be coming home tonight, my generation will put it right - Genesis 9:3

    by superscalar on Fri Aug 10, 2012 at 09:59:58 AM PDT

  •  This is how multinationals (2+ / 0-)
    Recommended by:
    PrahaPartizan, Egalitare

    Make it coming and going, leveraging tax laws and exchange rates.

    Ireland is a mill for transfer-pricing profit taking, it is no accident that Apple and others use it as a hub of international business.

    Another problem is the basic accounting methods used for measuring import-export in globalized supply chains, as illustrated by this study by the ADB.

    Fundamentally, the accounting is inaccurate, in terms of real added value, effective taxation and financing costs.

    Corporations are far ahead of governments when it comes to gaming the system.

    What about my Daughter's future?

    by koNko on Fri Aug 10, 2012 at 10:35:52 AM PDT

  •  I remember hearing that much of this (2+ / 0-)
    Recommended by:
    BusyinCA, PrahaPartizan

    is really nothing more that transfers of revenue to avoid taxes. The scam goes like this: ABC Co. forms a Bermuda or Cayman Island or Luxemburg subsidiary and transfers of sells their trade marks and other intellectual property. Then they pay themselves royalties, but the royalties being paid to a foreign subsidiary, they are an expense for tax purposes in the US, and they are nontaxable in the country where they corporations set up the scam. So basically, they can adjust their licensing fees negate all of their domestic profits, even if they are a highly profitable enterprise. Now, of course, they're scheming for an amnesty so they can repatriate all that tax free money and close the circle. Sweet deal - - - for them and their crony pols.    

    •  Personal Experience of the Scam (1+ / 0-)
      Recommended by:
      Old Surgeon

      A bazillion years ago I was involved in a power generation project which was being exported to a foreign nation.  One of the components which was to be included in that project was manufactured in the US and was being financed under a very attractive US government financing program.  When the time came to actually contract for the manufacture of the component, the supplier, who was HQd across the Hudson River from where my offices were located and whose manufacturing facility was elsewhere in the US, presented us with a sales contract prepared by their Swiss subsidiary which would be dealing through their Bermuda affiliate.  Basically, most of the profit being generated from the sale using US government funds was going to be hidden overseas.  This happened about forty years ago, so it's been going on for a long time.

      "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 02:06:21 PM PDT

      [ Parent ]

  •  Seriously???? (1+ / 0-)
    Recommended by:
    Sky Net

    1. What a meaningless use of statistics.

    As we can see, related party trade (which can mean trade within either a U.S. or foreign multinational corporation) is 27.6% of goods trade, but it represents a whopping 95.0% of the trade deficit.
    2. Depending on the year more than 1/2 of the trade deficit can be due to oil. That of course can also involve intra-corporate transfers (think Exxon, Shell, BP etc).  By the way it would be easy to shrink that one by just upping gas prices to levels that are used in other civilized countries.

    3. A lot of the US-Mexico-Canada trade is related to autos with parts and finished cars being shipped cross border, with the net being far less significant (and this is mostly related party). So Toyota may make Camry in the US and ship it to Canada while it imports a Corolla it makes in Canada into the US. Yes a big total number, but net, not so much.

    By the way the US approach to transfer pricing can be asinine. I worked for a company that exported a product to the US. The amount of money we had to spend on lawyers and accountants just to try an understand the insanity was enormous, let alone what we had to spend in order to comply.

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Fri Aug 10, 2012 at 11:09:12 AM PDT

  •  Question. (0+ / 0-)

    This is way the hell out of my area of expertise, but a couple of questions.

    1. Are foreign companies exporting to the US liable for corporate income taxes, or just tariffs?
    2. If the answer to the above is no, wouldn't you have to configure import duties to offset the incentive to relocate headquarters overseas?
    3. If the answer to the above is yes, can we do that within our current trade treaty obligations?

    •  Domestic Corporate Income Taxes (1+ / 0-)
      Recommended by:
      Pete Cortez

      A foreign corporation importing into the US would be liable for income taxes on income generated inside the US.  So, if a firm produced a widget and exported it to the US, the enterprise would be liable for whatever the net income might be after accounting for the delivered product price and the cost of doing business inside the US.  As an example, if the widget sells in the US for $100, due to the competitive environment existing inside the US market, and the cost of doing business in the US market were $20 per unit, then any income tax would be generated on whatever balance derived once the per unit delivered cost were subtracted.  Trust me, that delivered cost will be sky high, as close to wiping out the US income tax liability as they can make it.  That's why it's called transfer pricing.  The importing entity gets to set the price, pretty arbitrarily too, on what the import cost is going to be.  The less a product can be considered a commodity the greater the latitude they will have on setting that price at whatever will generate the least US income tax.

      "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 02:13:54 PM PDT

      [ Parent ]

      •  Follow-up (0+ / 0-)

        How do you collect income tax from a foreign corporation based in...say...Ireland?  I can see how this is done with a subsidiary, but say the foreign entity is exporting to a wholly separate, domestic partner?

        I think, if I understand the rest of your comment (I didn't really follow the transfer pricing bit all that well), that in that case US tax law views the transferred item as a commodity.  And something else comes into play then?

        •  Subsidiary Must Exist In the US (1+ / 0-)
          Recommended by:
          Pete Cortez

          You don't collect taxes from the parent organization HQd in the foreign country.  You collect income taxes from that enterprise's subsidiary organized and located in the US.  That's why the income taxes apply to only the income generated in the US.  If the foreign corporation is exporting to a third-party (say an independent importer or an agent) then the foreign exporter will be liable for no tax at all.  They would likely draft their sales agreements so that the title to goods transfers on the deck of the ship or vehicle transporting the goods anyway so that any goods which might be deemed under their control are always effectively outside the US.

          The issue of commodity pricing arises because a taxing agency can develop an idea of what the price should be for a good if it trades essentially as a commodity on the global market.  If the good trades as a highly engineered or designed item, it becomes much more difficult to establish a level of equivalency.  For example, if the foreign firm imports a quantity of wheat, an internationally recognized bourse exists which sets prices for wheat daily.  Therefore, the exporter can't set a price for the good much different than what it is trading for on the commodity market.  If the good is highly engineered, who knows what the value of the good might be when it comes into the US.  We know what it might sell for wholesale or retail as it trades hands in the distribution chain, but we don't know what the dockside delivered price should be.  The actual manufacturing cost will be a closely held secret by the producer, so no one really knows the price.  In this case, if the seller has tight control over the distribution, they know what the market price can be and what the distribution and marketing costs can be to clear the market.  Then, they need only back out those costs to arrive at what they claim to be the transfer price from their facility off-shore.  In this circumstance, how can the IRS dispute their claim.  They would have no equivalent item offering a similar price because both are so highly engineered.  Any good marketer could easily develop a rationale for why the transfer price is valid.

          "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 03:55:49 PM PDT

          [ Parent ]

  •  T&R'd, bookmarked for community edu. (0+ / 0-)

    Well-done. Clear for the general readership.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site