Report Card for Donald Trump

[Ragnarök_62]

(12-20-2016, 11:01 PM)Classic-Xer Wrote: I think we already know the nation that he intends to impose tariffs on. You know, the one where Carrier had intended to move another one of its manufacturing plants to until an election result changed things. I have no problem with tariffs being used for an American cause. Do you, or do any true Democrats that are still left, have a problem with using tariffs for an American cause?

Who is more reliant upon who economically? I'd say that they're more reliant upon us than we are reliant upon them economically. What has the Communist Chinese economy been able to endure and survive up to this point as far as major challenges as far as its history goes? Communist China hasn't been around as long as we have. Anyone know? We know what the American economy has been able to endure and survive up to this point in our history.

Pretty close

http://www.onenewspage.com Wrote:While the market, and various pundits and economists have been mostly focused on the still to be disclosed details of Trump's infrastructure spending aspects of his fiscal plan, "one of the least talked about but possibly most important tax shifts in the history of the United States" is, according to DB, House Speaker Paul Ryan’s and President-elect Trump’s “border tax adjustment” proposal.

This is part of the “Better Way” reform package and also figures prominently in the writings of senior Trump administration officials.

What is it?

Put simply, *the proposal would tax US imports at the corporate income tax rate, *while exempting income earned from exports from any taxation. The reform would closely mirror tax border adjustments in economies with consumption-based VAT tax systems. If enacted, the plan will likely be extremely bullish for the US dollar. What’s more, it would have a transformational impact on the US trade relationship with the rest of the world. Consider the below:

· *A “border tax adjustment” would, roughly speaking, be equivalent to a 15% one-off devaluation of the dollar.* Imports would be 20% more expensive, because corporates would have to pay the new 20% corporate tax rate on their value. Exports would be roughly 12% “cheaper”, because for every $33 of earnings earned from $100 of exports (we use the 33% gross margin of the S&P), there would be a 12% tax cost ($33 earnings*35% current tax rate) that would no longer be imposed on corporates. *Taking the average impact on the prices of exports and imports is equivalent to a 15% drop in the dollar.*
· *A border tax adjustment would be very inflationary.* The price of exports doesn’t affect the US consumption basket so would have no impact on CPI. However, the cost of imports would go up by 20%, which based on a simple relationship between import PPI and US inflation would be equivalent to a 5% rise in the CPI. Corporates may of course choose to absorb part of the rise in import costs in their profit margins. But either way, the order of magnitude is large.
· *A border tax adjustment would be very positive for the US trade balance.* Similarly to the dollar calculations,* a border tax adjustment would be equivalent to an across the board import tariff of 20% and an export subsidy of 12%.* Keeping all else constant and applying standard trade elasticity impact parameters to an average of the two estimates *results in a more than 2% drop in the trade deficit equivalent to more than 400bn USD, or equivalently, an almost complete closing of the US trade deficit.*

In other words, should the "border tax proposal" pass, it would not only send inflation soaring, while eliminating the US trade deficit - a long-time pet peeve of Trump  - it would also be the trade-equivalent of a 15% USD devaluation, even as it leads to an offsetting surge in the actual value of the dollar.

To be sure, there are uncertainties related to all estimates above. First, there is a question mark on whether a border tax adjustment based on a territorial corporate tax system (as opposed to VAT) would be allowable under WTO rules. *The question is highly complex, but senior Trump advisers have stated they would be willing to take the issue to the WTO*.

It is also not clear what types of goods the new tax would cover – the broader the coverage the bigger the impact and vice versa.

Second, the impact on trade highlighted above should be considered an upper bound, as the post-crisis responsiveness of current account balances to relative price shifts has proven to be much lower.

Still, it is hard to argue that such a fundamental shift in tax treatment of US exports and imports would not have a material impact on trade relations and flows with the rest of the world. More importantly, Saravelos argues, the second-order impact of “re-shoring” may be more material given that US corporate activity has been disadvantaged due to the current unfavorable tax treatment of offshore profits.

* * *

Taking all of the above into account, *the academic literature is unambiguous in its conclusion that the dollar should rally strongly in the event a “border tax adjustment” is put in place*. An appreciating dollar would be a natural response to an improving US trade balance and the competitiveness gains achieved by the shift in the relative prices of exports over imports.* In extremis, the dollar would rally by 15% to fully offset the price changes caused by the tax. *This analysis is partial however, with the knock-on consequences on the Fed, US corporate off-shoring and global trade relations likely making the impact even more material.

Deutsche Bank concludes that combined with potential changes to the treatment of unrepatriated earnings, "the proposed changes to the US corporate tax code could be one of the most important shifts in US tax and international trade policy in a generation."

We wholeheartedly agree with DB's assessment in this particular case.

Now, I think this is an awesome turn of events away from globalization/neo-liberalism.   A border tax, which is pretty similar to the awesome VAT, that' I've always supported to fuck over outsourcing/H1-B scum bags is great. As for the inflation thingie,  that's mostly for Ishits and other con$umerist crap.  Besides if Apple wants to sell cheaper Ishits,  they can always make 'em here in the USA.