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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.

Source: Focus on Exports to Revive the Economy