Letter from the Editor: Foreign Gains

R.J. King
R.J. King

No one likes to fight with one hand tied behind his or her back— but such is the state of affairs of the United States and its trade, tariff, and tax policies.

Operate a domestic automotive factory and be subject to levies at every step of the manufacturing process, from mining iron ore to the final sale on the showroom floor. But run that same factory in Mexico and, poof, the taxes and tariffs all but disappear, while regulations are greatly curtailed. Don’t blame the automakers or their suppliers for setting up shop in Mexico; the fault lies with the actions of Congress and the White House over the past 40 years.

As Burl C. Adkins, founder and chairman of Dearborn-based Global Technology Associates, a professional staffing firm serving the global automotive industry since 1988, explains, U.S. businesses are increasingly setting up operations or relocating corporate head- quarters outside of the country’s borders or overseas to avoid paying domestic taxes and international tariffs.

In his new book, Common Sense Part II, Adkins points out that a car built in Germany that retails for $30,000 (including taxes) can be exported to the United States at a cost of $24,300. How is that possible? Germany provides a 19 percent rebate tax ($5,700) on the export. The U.S., meanwhile, applies a tar- iff tax duty of 2.5 percent once the car arrives on domestic soil.

Conversely, a $30,000 car built in America and shipped to Germany is subject to 29 percent in tariff taxes and duties (sans a rebate tax). Given the playing field, few American-built cars are sold in Germany, Japan, South Korea, and other countries that have instituted onerous levies to ward off foreign competition.

In fact, since the 1930s, more and more U.S. manufacturers have opened factories in Europe, Asia, South and Central America, Russia, and the Middle East. At first, it was cheaper and more efficient to build products overseas when the associated costs of ship- ping were factored in. Decentralization also served to build up Europe and Asia following World War II. Since then, however, foreign countries have moved to slap high tariffs on American-built products to protect their domestic jobs.

Given the minimal response from Congress with one hand tied or the White House — whether controlled by Democrats or Republicans — it’s no wonder local, state, and national government agencies are scrambling to balance their books and provide needed infrastructure and public services.

Consider the damage when foreign products are not subject to large portions of what domestic manufacturers pay in taxes, including Social Security, interest on our $18-trillion-plus national debt, Obamacare, Medicare, Medic- aid, defense, public safety agencies, infrastructure, food stamps, etc.

As a result, the U.S. has seen thousands upon thousands of manufacturing jobs head overseas due to decentralization, high foreign tariffs, duties, and so-called free trade agreements. Meanwhile, the pending Trans-Pacific Partnership trade agreement offers an opportunity to establish a level playing field.

Rather than wait for the final details to emerge in the coming months, our Michigan congressional delegation has a unique opportunity to scrutinize the pact and make sure state businesses have fair access to global markets. Short of that, the hole just gets bigger.

“If you’re an American company that builds a car here and you decide not to pay taxes, you will be sent to jail,” Adkins says. “But if you’re an American company that builds the same car in Mexico, you can sell the car in the U.S. and avoid most taxes. Or you can set up your corporate headquarters overseas and avoid paying (most domestic) taxes. Congress and the White House need to fix this problem, because the economic climate they set up and allow to linger is unsustainable.”

— R.J. King, rjking@dbusiness.com