FROM textiles to semiconductors, United States products are being forced out of the markets by foreign competition. The US trade deficit, $123 billion in 1984, threatens to reach $150 billion this year. Trading of manufactured goods has plummeted -- down $50 billion from 1983 and '84. Even agriculture, once the shining star of our trade picture, may suffer a drop in exports of up to $4 billion this year. Import surcharges are being bandied about as a means of loosening the grip that foreign products have on the world market and the US market. Current proposals would levy duties as high as 25 percent on exports coming into the US. Some would target selected countries, while others would apply the surcharge worldwide.
The answer is not an import surcharge:
Even if it replaces some jobs lost to imports, it is likely to result in new job losses in the US export sector.
A surcharge is illegal under international treaties and would present grave risks of foreign retaliation against US exports.
It would scuttle efforts to revitalize the trading system and open foreign markets to US goods through a new round of trade negotiations.
An import surcharge would merely offer temporary relief while we ignore the long-term problems.
To remedy trade problems, action must accomplish two goals: It must promise both equitable trade and expanding trade. While some argue that a surcharge will make the trading system more equitable, it certainly won't lead to trade expansion. A ``one-two'' jab with a 25 percent surcharge on US trading partners could be countered with a knockout of future trade. This could wreak disaster, with 1 out of every 8 Americans depending on exports for his or her job and 2 out of every 5 acres of farmland yielding
production for export. A ``quick fix'' to trade problems must not jeopardize jobs.
In searching for a solution to the trade situation, the US tends to concentrate on changing policy, when the best answer lies in changing the tax system. The ability of US products to compete with foreign goods is handicapped because the tax system benefits US competition.
Under the General Agreement on Tariffs and Trade (GATT), products are to be taxed in the country where they are consumed. This means that so-called indirect taxes can be rebated as goods are exported from a country and indirect taxes can be levied as imports enter the country.
Most of our trading partners levy a larger percentage of their revenues than we do. In Europe, this tax takes the form of a value-added tax (VAT). Japan has a substantial excise tax on automobiles. This method of taxation by our trading partners produces a tax bias in favor of foreign goods imported in this country and against American exports.
For example, by the time a Toyota rolls into the showroom in the US, its Japanese producer has already received a rebate on the taxes he paid in Japan and has paid no taxes when the car came into this country. This gives the Japanese producer approximately a $600 advantage over the American automaker. When General Motors sells a car in Japan, however, it does not get a tax rebate as the car leaves the US, and it encounters a large excise tax at the border of Japan. Foreign exporters essentially en joy a tax holiday, while American exporters are double taxed.
It's time for our government to wise up to the fact that our exporters are playing with a stacked deck. We can even the odds, however.
I suggest leveling the trading field through a business-transfer tax (BTT), which would replace part of the individual and corporate income tax. The BTT is a net-receipts tax determined by taking the difference between a company's gross receipts and its purchases of inputs (raw materials, capital, and services) and applying the tax rate. It is a much more neutral tax than the current corporate individual income taxes, because it does not discriminate against capital formation. One of its most beneficial
effects, however, would be on our trade situation.
Everyone recognizes the benefits of free trade. But we are fooling ourselves if we think the US trading system is on equal ground with our competitors when there exists such a blatant tax bias against American exports and for foreign imports.
A BTT would eliminate that bias and still be legal under the GATT, which should stifle cries of protectionism. Export receipts could be excluded from the tax base, and the full BTT tax rate could be applied to imports entering the country. The BTT would be eligible for exactly the same border-tax adjustment as the European VAT or the Japanese auto excise tax.
Giving American producers an equal footing with foreign competitors is a first step toward the trade expansion that can fuel growth in our economy. Combined with the lowering of marginal rates and encouragement of savings to provide investment capital, the BTT could bring our archaic tax code into the 1980s so the US can once again compete internationally.
Sen. William V. Roth Jr. (R) of Delaware is a member of the Finance Subcommittee on International Trade.