If Romney sees no laws favoring off-shoring, then explain China – allvoices

While Republicans continue to gloat over former Massachusetts Gov. Romney’s recent “Etch-a-Sketch” rebirth during the first televised debate, there remain many critical policy statements that went unchallenged that evening. One, in particular, occurred during the exchange related to outsourcing, more specifically “off-shoring” when the activity involves another country. President Obama proclaimed that he would eliminate laws that favored off-shoring and replace them with tax incentives that would encourage more domestic hiring by local corporations. The retort from his opposition left many more people in total disbelief.

Romney appeared dumbstruck by the notion, suggesting that he was unaware of such laws. He would need to check with his accountant or get another accountant if he had missed another financial opportunity. This statement comes from a man that made millions at Bain Capital by exporting manufacturing jobs to China and other Asian countries. As campaign ads profess, how can Gov. Romney fix the trade problem with China when he has been a major contributor and benefactor of the off-shoring process? Does he honestly believe that Americans are asleep on this issue?

It is doubtful whether many Americans could care less, but understanding the myriad of details that surround trade arrangements can be complex, another area, like the tax code, where money from lobbyists have over time created a “Gordian Knot” of sorts – difficult to unwind and more difficult to correct. Regardless of Romney’s feigned ignorance, there are tax laws that shield foreign profits from immediate taxation, trade tariffs that favor nations that export to us, and arrangements that protect foreign industries from our exports. Take your pick, but every one of these practices is contributing to our trade deficit in a significant way.

The press today is filled with stories about a trade war with Mexico over tomatoes. It seems Florida growers are being “manhandled” by cheap imports from south of the border, and after many letters from a bipartisan group of concerned politicians, the Commerce Department rolled back a 16-year old trade agreement in an attempt to save local farmers. This current case is just one example of the “back-and-forth” that takes place daily in the world of cross-border transactions.

Mexico may be a neighbor in need of help, but this description pales in comparison when one looks at our trading relationship with China. Believe it or not, our trade war with China involves daily struggles that range from wheat and chickens to cars and solar panels, the latter receiving much of the attention in the past year. China has over a 50% market share in the solar panel market, and they are loath to give up one bit of it. They have aggressively subsidized prices at a state level to protect their position, lowering prices over 80% in the last five years, half of that figure in the last twelve months.

Demand has dropped in EuropeEurope for obvious reasons, but when President Obama announced that making inroads into alternative energy sources was a major priority of his administration, Chinese officials responded forcefully to block our progress on “Day One.” As a result, companies like Solyndra, Solar Trust of America, Evergreen Solar, and SpectraWatt Inc. have all sought bankruptcy protection in the courts. Put another victory in the “win” column for the “Middle Kingdom.”

When you compete with Chinese industry, you also compete with Chinese government officials that will react quickly to changes in the external market environment. On our side of the ocean, trade arrangements can take years to debate and negotiate, and while the Commerce Department can modify tariffs, this competitive “tool” is but one of many moving parts in the global trade apparatus. As Tom Friedman, a noted author on the topic, has written, we would be much better off if our government could act like China’s at least one day of the year. Democracies are nice, but corporations are dictatorships.

One must go back to the eighties to discover the origins of China’s rise to stardom on the international trading stage. Chinese officials had been experimenting with economic reforms for years, trying to find the magic formula that would replicate the success that other “Tiger” economies in Asia were experiencing. When Deng XiaopingDeng Xiaoping approved “Special Economic Zones,” (“SEZ”), in southeastern China, the race was finally enjoined. Factories sprung up over night. Foreign investment poured into the country’s coffers, and the much-heralded “China Price” drew manufacturing assets from across the globe.

Today China holds $1.16 trillion of our $16 trillion debt load, a little less than 8%, but the largest amount held by any one of our trading partners. Japan is close behind, but no other nation comes close to these two. Americans are now “addicted” to the low prices offered by local big-box “China-Marts.” Fixing trade tariffs to bring jobs home will involve some pain on the buying end that many of us will regret in the short term, but will be necessary to resurrect long-term prosperity.

The morass, however, is deeper than one might think. Take the automobile industry, for example. We have a 5% tax on Chinese imports, but China has a 25% on our exports to them. If car manufacturers wish to get behind this “tariff wall,” then they can enter into a local arrangement to produce cars within the Chinese mainland by partnering with a Chinese State Owned Enterprises (SOEs). GM, Volkswagen, and Hyundai are just a few entities that have pursued this route, taking with them a host of American jobs for the sake of foreign profits. These profits remain untaxed until repatriated, residing in Cayman Island and Swiss bank accounts until invested overseas.

Trade wars are insidious and complex. The reality is that a strategy of winning by exporting to the United States is limited by its very nature. The “devil” is in the detail, but, despite entreaties from Romney, there are no “angels” in his policies. Long-term restructuring of all trade arrangements must be proposed, accepting full well that there will be economic repercussions down the road.

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