Focus on Exports to Revive the Economy

There is no quick fix to lower the amount of imports coming into the USA. 90% of imports are oil or products coming from China. Oil may take several decades of work to bring about significant change. China has an unlimited supply of cheap labor and a predatory exchange rate.

Increasing exports, however, would be a much quicker way to close the trade deficit and at the same time provide stimulus to the economy. The USA has excess industrial and service capacity. It does not need infusions of government bailout money to be able to create export products. The decline of American exports has never been a factor of quality or product – only price.

In the 21st century, generally speaking America sees itself as an importer. It believes foreign made goods are better value for money. This was not true 50 years ago. And the rest of the world sees America in the same way. American products are good – but just too expensive – not value for money.

There are ways to change this export dynamic.

Customs Regimes

What is not realized is that most countries return the tax money collected from exporters proportional to the value of products exported. The logic is simple. If you import something you did collect tax money anyway – so if you export something you benefit from the creation of jobs and give up tax revenues to make your exports more competitive. A country benefits from job creation caused by exports, and the only benefit from imports is a reduction in price to consumers. Exporters should be proportionally refunded all collected taxes included property taxes and state income taxes (California are you listening). I would even try a proportionate tax holiday on profits. Creating jobs revives economies.

Rulers do not reduce taxes to be kind. Expediency and greed create high taxation, and normally it takes an impending catastrophe to bring it down. (Charles Adams)

Exim-Bank

All major countries in the world support their exports with export financing – the USA is no exception. The US Exim competitiveness has been falling for years. But Congress (hello to Barney Frank and Christopher Dodd) knows exactly what is wrong, and has done nothing to fix it. On an empty stomach, have a read of this 2007 Competitiveness Report (PDF alert).

Liability Laws

One reason America is expensive is due to liability laws. Ask any doctor how much he pays for insurance. Fall off a step ladder, and you sue the hell out of the manufacturer. When American products or services are sold overseas, in most cases the end user has the right to sue in America. The manufacturer or service provider must bear the cost of liability insurance and include same in its prices. Congress must simply pass a law barring USA court jurisdiction for cases involving loss or use outside of USA borders.

Shipping

In 1920, America passed a law referred to as the Jones Act for the purpose of protecting the American marine shipping industry and its unions. The unintended consequence was the almost complete destruction of America’s marine shipping industry. The extent of this destruction could not have been clearer than during the first Gulf War when I could not charter any Russian ship (BLASCO) because they were under contract to the US military to move equipment and supplies to the Gulf. Very little of USA exports or imports travel on US flagged vessels today. I have so much data in my head on this subject, and its tragic effect on America – that I must leave further discussion on this topic to another time.

America needs a strong merchant navy to be traders. Repeal the Jones Act.

Expatriate Workers

America taxes income of Americans who work overseas. Most other countries do not. This has killed the golden goose. Americans are simply too expensive to employ overseas. Okay, so we lose a few jobs overseas – no big deal. There is an unintended consequence – you also lose a significant amount of jobs in America at the same time. The reason is that an American working overseas specifies American products. An Italian specifies Italian products. Japanese specifies Japanese products. I think you get the point. Eliminating US taxes will reduce the cost of a USA worker overseas by up to 50%, and puts an American in a chair to specify purchases.

And back to the liability issue. If an American individual or company is working internationally – USA courts should be barred hearing any disputes relating to that employment. If an American works for ABC Company in Egypt, and ABC has a subsidiary in Houston – that employee must be barred from suing in America. This eliminates the liability risk to foreign and American employers for hiring an American national and using their services overseas.

Tax Holidays for Foreign Companies to Invest

Incentives are provided to foreign companies to build plants in America. We do what we can to make foreign companies more competitive on US soil than our own companies. The consequences of this can easily be seen. This whole subject must be re-thought.

Final Thoughts

Everything we do has unintended consequences. I am a firm believer in evolutionary change – changing a small item and watching the effects. Revolutionary change brings many unintended consequences – and the potential of things being far worse than before the change.

But what happens when our elected Congressional leaders fail to monitor unintended consequences of many small changes they have made in the past? The import/export ratio is not a new problem. Most of what I am suggesting should have been implemented in 1970’s or 1980’s piecemeal to watch the effects of each change.

At this point, we need to make these changes at once.

Disclosures: I have no foreign income in 2008.

Comments

[derryl:]

Mr. Hansen,
If your recommendations are implemented who are America's liberal lawyers going to sue for failing to perfectly idiot proof their exported ladders? Some years ago a Saturday Night Live "news" flash reported,

"The conversion of the planet into a nerf playground has been completed at a cost to the world's governments of $4.8 quadrillion dollars."

In the liberalist worldview everyone, domestic and foreign, is "entitled" to 100% security and safety. Everyone except American employers, that is. Liberal lawyers and judges and politicians don't care how much damage their 'principles' cause to the American economy, any more than CEO's care when they take $100 million bonuses for overseeing the collapse of the companies they are supposedly managing.

In a perfect world Congress, defending the interests of the nation and its people, would shut these bloodsuckers down. In the real world bloodsuckers are "leading citizens" and politicians. The system has become so endemically corrupt that the word "corruption" is rarely spoken anymore.

2008 Dec 07 08:28 AM

[malach hamo...:]

what exactly do you think can be sold to foreigners which they can't make themselves for less money?

2008 Dec 07 09:22 AM

[Gary Noffke:]

Mr. Hansen has a few good points. His statement: "The decline of American exports has never been a factor of quality or product – only price" is wrong. I think the US can be credited with some of the best and worst products ever manufactured with the bulk of them falling in the worst category. Take the failed auto industry which can no longer sell the big gas hogs even in the US where more is spent on glamorous advertising campaigns than research and development. Gasoline costs were approximately three times higher in Europe and much of the developed world ten to twenty years ago than here in the US. Seems this should have been a wake-up call for the auto industry. They also are as ugly and poorly made as they are inefficient. Of course the advertising and tax breaks that encouraged it worked well enough when the economy was ripping along, but no amount of hype can sell crap to idiots when they have nothing to spend. Reform the advertising, media and corporate tax laws that created this mess that promotes greed and ignorance and the trade deficit will go away. The cost of products will go down and the quality and value will go up. derryl is right as it is mostly the leading citizens and politicians who are the bloodsuckers in control. Where's the leadership and vision when it requires a total disaster to instigate reform?

2008 Dec 07 09:42 AM

[Elaine Supkis:]

Um, I recall in the recent news, stories about China exporting DANGEROUS STUFF including poisoned food, children's toys laced with lead and other poisons, etc.

The loonies who want no regulations, no US laws protecting us are insane! As for imports: there is a very simple and quite obvious tool concerning that: tariffs and barriers! The Chinese and Japanese use various interesting barriers we cannot overcome no matter how often we negotiate.

These are non-negotiable. Or worse, they make us tear down even more of our own controls so they can flood us with their exports.

The US has expanded export trade for years and years. But every year, we import more and more, starting in 1970 and onwards. The only year we had a positive money flow was the year Bush Sr sold our entire military to the Saudi Royals and Kuwaiti Sheikhs for billions of dollars!

And since then, our trade imbalance has gotten much, much worse. The writer of this article it typical of people who like to bloviate about international trade. He obviously doesn't track statistics. Nor use them to prove his point. The US trade statistics are horrific and only improve during recessions when everyone simply stops buying much of anything.

The core solutions were cast out after WWII when we were on top of the world. We thought, we could do as we pleased. Now, we are going bankrupt. Free trade is a total disaster for us because we are the world's default currency.

2008 Dec 07 09:53 AM

[fran:]

you have not addressed three important linchpins impeding changes presented.

special interest money

influencial lobbies

congressional term limits



your and reader recommendations requested.



signed: GERRY MANDER

2008 Dec 07 11:38 AM

[gordon:]

Oh, instead of facing the WAGE STAGNATION reality in America, you want the Dollar to fall again (it's already rolled over from a s-t top), helping exports,meaning the price of oil
will soar again, as hedge funds pile in? I don't buy any argument that low demand/deflation has taken hold, enough to offset speculation.
Oil back to $60+ in a heartbeat, hurting average working (WAGES, not cap gains)
people.
Remember Bush's so-called American Jobs Act or some bullcrap, allowing foreign
profits to be repatriated at 3-5% income tax? Remember what they did with the money? STOCK BUYBACKS! NOT ONE SINGLE JOB CREATED.
You want that again?

2008 Dec 07 03:41 PM

[fran:]

i don't recall much/any stock holder protest per the buy backs over the years. if one wanted other actions by boards, those requests/actions would be public records.

r.e. the favorable tax treatment for off shore profits returned to USA--
you would prefer cash left/invested in foreign countries? or you possess a better scheme for flow of funds to US?


On Dec 07 03:41 PM gordon wrote:

> Oh, instead of facing the WAGE STAGNATION reality in America, you
> want the Dollar to fall again (it's already rolled over from a s-t
> top), helping exports,meaning the price of oil
> will soar again, as hedge funds pile in? I don't buy any argument
> that low demand/deflation has taken hold, enough to offset speculation.
>
> Oil back to $60+ in a heartbeat, hurting average working (WAGES,
> not cap gains)
> people.
> Remember Bush's so-called American Jobs Act or some bullcrap, allowing
> foreign
> profits to be repatriated at 3-5% income tax? Remember what they
> did with the money? STOCK BUYBACKS! NOT ONE SINGLE JOB CREATED.<br/>You
> want that again?

2008 Dec 07 05:49 PM

[Joyful Alte...:]

Exports have a lot to do with the value of the dollar. When the dollar dropped earlier this year, half of my used book sales (my hobby business) were exports. Since the dollar rose, I haven't exported any (except one to Canada).

2008 Dec 11 11:17 AM

[website:]

US is the must competitive economy in the wrld ans it should export more!

Jan 01 06:18 PM