Foreign tax policies put U.S. cars at disadvantage

[1gobluedem]

Senator Shelby, please read. And note: the writer is not from Michigan.


Foreign tax policies put U.S. cars at disadvantage

BY U.S. REP. MIKE MICHAUD • DECEMBER 10, 2008


In the debate about the Big Three American automakers, unfair foreign trade practices have scarcely been mentioned and the very unlevel playing field on which we force our domestic producers to compete.
Unfair foreign trade and economic practices are not "just a different way of doing business," but are conscious policies intended to distort markets and give foreign firms a competitive advantage. Consider just one of these unfair practices: value added tax systems, which are used to discriminate against American cars, trucks and auto parts, as well as thousands of other products, by more than 150 of our trading partners.
The VAT is levied at each step of the production process -- whenever value is added to a product and that product is passed up the assembly chain. The VAT is ultimately incorporated in the final price of the product and paid by the end consumer. However, if the product is exported, the producer gets a big break: The tax is rebated. In effect, the VAT functions as an export subsidy. But it is also a barrier to foreign markets for products from the United States, a non-VAT country.

Read more: http://www.freep.com/apps/pbcs.dll/article?AID=2008812100354

[Lasher]

1. We can't control the rest of the world.

But we can level the playing field for our domestic producers with tarrifs. Some people these days think this is a quaint old tactic but I am still very fond of the idea.

[muriel_volestrangler]

2. Dodgy maths - what it really means is that sales tax is less in the USA

Here's the actual situation:

A German factory produces a car for $20,000 (including all the sales margins). If they sell it in Germany, they have to charge VAT, so the sales price is $23,000. If they sell in in the USA, it's $20,000 (if there's no sales tax in that state).

A US factory produces a car for $20,000. If they sell it in Germany, they have to charge VAT, so the sales price is $23,000. If they sell in in the USA, it's $20,000 (if there's no sales tax in that state).

The difference is that Germany ends up with government revenue for all the cars sold in Germany, whatever the origin. But there's no 'unfair playing field' for the car manufacturers (unless you say "because of their extra revenue, Germany then manages to keep income tax rates down, provide health care, etc.")

The solution that would keep everything fair would be to raise sales taxes on all cars, domestic or foreign, sold in the USA. And on other such items. And a 15% tax on non-essential items might help hold back over-consumption, too. Against that, sales taxes tend to be regressive.

[1gobluedem]

3. What about tariffs? US import tariff is 2%

Tariffs and sales tax are two different things, at least that's what I've always thought. Sales tax is charged on sales, import tariffs are taxed on goods coming into the country regardless of sale.

[muriel_volestrangler]

4. I don't know what tariffs are in either direction

The article didn't mention tariffs either; yes, if they do exist, that could be 'unfair'.

[1gobluedem]

5. They exist and are a huge part of the problem

China's tariff on imported cars is, for example, 21%.

Other countries protect their domestic manufacturers. The US does not.

[muriel_volestrangler]

6. As far as I can tell, EU vehicle import tariff is 10%, US 2.5%

From a story (repeated elsewhere) on EU-Korean talks:

The EU puts a 10 percent duty on imported cars versus a 2.5 percent duty imposed by the US, versus an eight percent duty imposed by South Korea.

http://www.neurope.eu/articles/76251.php

So, yes, that does alter the relative prices (assuming the tariffs apply to US cars imported into the EU too).

It has to be said, car imports from the US to the EU are far less common than from Korea, I'd say - from the US, it's Jeep, and that's about it (other parts of Chrysler do advertise on UK TV, it's true, but their cars are rare on the roads). Ford and GM manufacture heavily in Europe, though.

[LisaM]

7. Toyota gained a market in the US in the 1980s by price dumping

Show me where the Japanese government allowed the US to go in and sell cars below their value to establish consumer recognition and market share.