Cross posted from TradeReform.org
For those of you who say there is no trade impact resulting from foreign Value Added Taxes, please read this.
I Squared R Element Company is in Akron, New York. It makes industrial heating elements which are used for many processes to make other things, including glass and computer chips. The company was the low bidder on a contract to export to China.
However, the company lost the bid. Why?
I squared R was told it did not include, in its bid, China's 10% customs duty or the 17% value added tax(VAT) that must be paid at the border.
All our goods pay a 17% VAT at the Chinese border. And the uninformed say we are a high cost producer. Chinese exporters also get a 17% VAT rebate, i.e. they get paid to export.
What are potential solutions?
If our trade negotiators had negotiated agreements that allowed access to the lucrative U.S. market only if the other country did not apply its VAT tariff (to our exports to them) or rebate their VAT (to their company exports to us), then it would be fine.
If the U.S. had its own VAT of, for example 12%, which also exempted families making $100,000 or less, then I Squared R Element Co. would have a 12% tax rebate upon export to get that much closer to the winning bid.
But we don't. There was a 27% charge at the Chinese border for U.S. goods. Lost sale.