I would tax China coming in, products coming in. I would do a tariff. And they do it to us. You have to be smart. I m a free trader, I m a free

Transcription

1

2

3 I would tax China coming in, products coming in. I would do a tariff. And they do it to us. You have to be smart. I m a free trader, I m a free trader, and some of the people would tell you oh it s terrible I love free trade but it s gotta be reasonably fair. I would do a tax. And let me tell you what the tax should be? The tax should be 45 percent. That would be a tax that would be an equivalent to some of the kind of devaluations that they ve done. They cannot believe that we haven t done this yet.

4

5

6 I think one of the most pivotal moments in modern American history was his immediate withdraw from TPP. That got us out of a trade deal and let our sovereignty come back to ourselves, the people, the mainstream media don't get this, but we're already working in consultation with the Hill. People are starting to think through a whole raft of amazing and innovative, bilateral relationships -- bilateral trading relationships with people that will reposition America in the world as a -- as a fair trading nation and start to bring jobs. High value added, manufacturing jobs, back to the United States of America.

7

8

9

10 The New Administration Key Positions in the Trump Administration for Trade Policy Robert Lighthizer United States Trade Representative, USTR (Nominee) Background: Trade attorney, former Deputy USTR Peter Navarro Director of new White House National Trade Council (Appointee) Background: Economist, Professor, Author of Death By China Wilbur Ross Secretary of Commerce Background: Billionaire Investor

11 Presidential Powers Over Trade

12 Trump could limit or revoke the United States foreign trade agreements as president Overview of presidential powers over foreign trade agreements Article I, Section 8 of the US Constitution gives Congress the power to regulate commerce with foreign countries. However, Congress has delegated much of this regulatory power to the president through legislation The United States has free trade agreements (FTAs) with 20 countries, all requiring reciprocal reduction of tariffs and other trade barriers. Under the authority given to the presidency, a Trump administration can terminate FTAs without Congressional approval Though Trump could unilaterally terminate FTAs, his administration would face strong legal challenges by both US courts and international trade organizations. Additionally, Congress could propose new bills to revoke the presidency s power over trade Sources: Justin Wolfers, Why a President Trump could start a trade war with ease, The New York Times, September 19, 2016; Marcus Noland, Clyde Hufbauer, Sherman Robinson and Tyler Moran, Assessing trade agendas in the US presidential campaign, Peterson Institute for International Economics, September 19, 2016.

13 The president can set import restrictions for products that jeopardize national security Trade Expansion Act of 1962, Section 232(b) Presidential powers Allows the president to raise tariffs or impose import restrictions on products that negatively impact national security Places no limit on the nature of restrictions or the size of tariffs that can be imposed Implementation The director of the Office of Emergency Planning must first investigate the impact of certain products or trade relations and approve that the impact merits presidential action Precedent Section 232(b) of the law was cited as one of the legal grounds for President Richard Nixon s 10% steel tariff imposed in 1971 Analysis Though the United States has signed the General Agreement on Tariffs and Trade (GATT) and is a member of the WTO, the president retains the power to impose trade restrictions in the name of national security. Sources: Justin Wolfers, Why a President Trump could start a trade war with ease, The New York Times, September 19, 2016; Marcus Noland, Clyde Hufbauer, Sherman Robinson and Tyler Moran, Assessing trade agendas in the US presidential campaign, Peterson Institute for International Economics, September 19, 2016.

14 The president can impose tariffs to balance payment deficits or to retaliate against unfair trade practices Trade Act of 1974 Section 122 Grants the president special powers to deal with large and serious United States balance ofpayments deficits Allows the president to impose tariffs of up to 15%, quantitative import restrictions or a combination of the two for 150 days to deal with balance-of-payments deficits; restrictions in place longer than 150 days would need congressional authorization The restrictions can be applied on a nondiscriminatory basis or against one or more countries with large balance of payments surpluses with the US Can be imposed across the board without the need for a national security impact investigation Section 301 In order for Section 301 to be invoked, the US trade representative has to determine that a foreign country is infringing on US trade rights or carrying out discriminatory trade practices against US commerce The president can then take various retaliatory actions, including the imposition of duties or other import restrictions Section 301 measures do not have a built-in expiration date A Trump administration could potentially use allegations of exchange rate manipulation to impose Section 301 sanctions against China Analysis Breaching international trade agreements could lead to challenges in the WTO and retaliatory tariffs from other countries Sources: Justin Wolfers, Why a President Trump could start a trade war with ease, The New York Times, September 19, 2016; Marcus Noland, Clyde Hufbauer, Sherman Robinson and Tyler Moran, Assessing trade agendas in the US presidential campaign, Peterson Institute for International Economics, September 19, 2016.

15 Under a loosely-defined national emergency, the president can restrict trade with countries that pose an economic threat International Emergency Economic Powers Act of 1977 National emergency powers Grants the president powers to regulate international commerce and freeze foreign assets if under an unusual and extraordinary threat Though the IEEPA does not explicitly grant the president to power to impose tariffs, the president may argue that such an action falls under the power to regulate commerce Implementation The standard for what qualifies as an unusual and extraordinary threat is loose, as US courts have never questioned presidential declarations of a national emergency Precedents The IEEPA has been used to impose sanctions on countries such as Nicaragua, Panama, Sierra Leone and Somalia The previous use of IEEPA sanctions against small countries that were not in direct conflict with the US raises questions about the definition of the unusual and extraordinary level of threat required to trigger the law Analysis Trump has proposed tariffs of up to 35% on goods from Mexico 45% for Chinese imports. If he invoked the IEEPA, the Supreme Court may find that such high tariffs represent an overreach into Congressional authority However, Trump could likely impose quantitative import restrictions instead, which have never been overturned by courts when imposed by past US presidents Sources: Justin Wolfers, Why a President Trump could start a trade war with ease, The New York Times, September 19, 2016; Marcus Noland, Clyde Hufbauer, Sherman Robinson and Tyler Moran, Assessing trade agendas in the US presidential campaign, Peterson Institute for International Economics, September 19, 2016.

16 Border Adjustment Tax

17 House GOP plan would shift corporate tax from a 35% income tax to a 20% destination-based cash flow tax Issue Proposed change in House GOP s A Better Way Blueprint Federal corporate tax rate Decrease corporate rate from 35% to 20% Corporate Alternative Minimum Tax Repeal the AMT Depreciation Immediate expensing for new investment in equipment, structures and intellectual property No depreciation for land Inventories subject to last-in-first-out (LIFO) accounting Eliminate deductibility of net interest expense Border adjustments Exports exempt from tax, imports subject to tax Carry-forward of net operating losses Net operating losses can be carried forward indefinitely, adjusted for inflation (under current law, the nominal value of net losses in one year can be carried forward in the subsequent 20 years) Special-interest deductions and credits International corporate income Generally eliminate special-interest deductions and credits, such as the domestic production (section 199) deduction, in favor of lowering corporate rate Create business credit to encourage research & development Exempt dividends from foreign subsidiaries from taxation. Repatriation of foreign income taxed at 8.75% for cash and cash equivalents, otherwise taxed at 3.5% Pass-through business Income Tax rate on income earned by a partnership, sole proprietorship or S-corporation is capped at 25%, rather than taxed at ordinary income tax rate Source: A Better Way, Tax Policy Paper, June 24,

18 A destination-based cash flow tax uses a border adjustment to exempt exports from domestic taxation Revenue from the sale of US goods to nonresidents (exports) would not be included in taxable income A destination-based cash flow tax is applied where a good ends up, rather than where it is produced. Cost of goods purchased from nonresidents (imports) would not be deductible from taxable income Essentially, cross-border transactions are ignored when calculating a corporation s tax base. Explanation of destination-based cash flow tax system Source: Kyle Pomerleau and Stephen J. Entin, The House GOP s destination-based cash flow tax, explained, Tax Foundation, June 30,

19 Would a border-adjusted tax be WTO-compliant? Border adjustments upon export are permitted with respect to consumption-based taxes, which are referred to as indirect taxes. However, under these rules, border adjustments upon export are not permitted with respect to income taxes, which are referred to as direct taxes.... Under WTO rules, the United States has been precluded from applying the border adjustments to U.S. exports and imports necessary to balance the treatment applied by our trading partners to their exports and imports. With this Blueprint s move toward a consumption-based tax approach, in the form of a cash-flow focused approach for taxing business income, the United States now has the opportunity to incorporate border adjustments in the new tax system consistent with the WTO rules regarding indirect taxes. Source: A Better Way, Tax Policy Paper, June 24, 2016 House GOP A Better Way blueprint While House Republicans believe that their proposed tax system would comply with WTO rules, tax lawyers aren t so sure. The WTO allows border adjustments on indirect taxes, such as a value-added consumption tax, but does not allow them on direct income taxes. It s unclear whether the WTO will approve the House s hybrid system. Economists argue that the WTO is fine with other taxes that are economically similar to border adjustments (VAT with an equalrate reduction in payroll taxes), but it s possible that this argument would not hold up in a legal setting, because the GOP s proposal is still a direct tax. 19

20 Border adjustment proposal would raise $1.2 trillion in tax revenue over 10 years Tax Policy Center estimates of tax revenue from border adjustments Billions of dollars, FY Source: Jim Nunns, Len Burman, Ben Page, Jeff Rohaly, Joe Rosenberg, An analysis of the House GOP tax plan, September 16,

21 Responses to border adjustment tax proposal [It is] an exotic economics lab experiment. [Retailers are] very concerned about practical effects of this on profits, jobs and operations. David French, National Retail Federation [Border adjustment is a] key provision that improves our global competitiveness and helps level the playing field for exports and imports. It also meets our shared goal to eliminate any tax incentive to move our jobs, headquarters and innovation offshore. While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long-term consequences to the economy and the American consumer could be devastating. The proposed border tax adjustment will distort the market, increase consumer prices and create an uneven playing field for companies and consumers alike. Philip Ellender, Koch Industries Rep. Kevin Brady (R-TX), House Ways and Means Committee chairman Sources: Ryan Rainey, Koch Industries alarmed over GOP tax plan s border adjustment, Morning Consult, December 7, 2016; Steve Lohr, New approach to corporate tax law has House GOP support, New York Times, December 12,

22 Companies relying on imports could potentially see lower net incomes under GOP border-adjusted tax law Estimated net income of five US retailers Millions of dollars Under current law Under proposed border-adjusted tax law Source: RBC Capital Markets; Retailers risk multibillion-dollar earnings hit under GOP tax plan, Wall Street Journal, Jan 6,

23 NAFTA countries are most exposed to cross-border taxes imposed by the United States Countries most exposed to a border adjustment tax Exports to US (% of total) Exports (% of GDP) Exports to US (% of GDP) Total impact score Mexico Canada Ireland Netherlands Switzerland Germany Sweden UK Norway China New Zealand Japan Italy France Australia Source: TD Securities, Market Musings: Global Strategy, January 6, 2017; Bloomberg 23

24 Anytime I hear border adjustment, I don t love it. Because usually it means we re going to get adjusted into a bad deal. That s what happens. President Trump, January 16, 2017 It s certainly something that s going to be discussed. I would say, over the next month-and-a-half, two months we ll be having more concrete discussions. Right now, we re really focused on health care more than anything else. President Trump, January 18,

25 Opposition Growing? "The fourth idea being crammed into this comprehensive proposal by the House is the so-called border adjustment tax." This 20 percent tax on all imports is regressive, hammers consumers, shuts down economic growth, and is proven to grow the federal government. Increased consumer prices would hammer consumer confidence and lower overall demand, thus putting downward pressure on jobs. This is exactly the wrong approach to take right now." - Senator David Perdue (R-GA), Washington Times Op-Ed, Feb 25

26 Actions on the BAT FDRA Grassroots Advocacy Tool to Send a Letter to Congress today (30 seconds) National Business Coalition Opposing the BAT Executive Footwear Summit on May 11, 2017, Washington, D.C. Executive Fly-Ins with FDRA for Hill Meetings Special Shoe-In Show for an In-Depth Discussion of the BAT Proposal 26

27 Over 150 businesses and trade associations join Coalition opposing the BAT Major businesses in the Americans for Affordable Products coalition 27

28 Over 25 businesses join a pro-border adjustment tax campaign, led by General Electric and Boeing Major businesses in the American Made Coalition Source: David Shepardson and Ginger Gibson, GE, Boeing, Oracle form coalition to support Republican border tax, Reuters, February 3,

29

30 Where s The Footwear? 30

31 -127,489,829 31

32 -188,624,861

33 72% 16% 4%

34 34

35 35

36 36

37 37

38 38

39 ! FDRA Analyzed Full Year 2016 U.S. Footw ear Im port Data to Com pile These Rankings 2016 RAN K CO U N T R Y IM P O R T T R E N D 2015 RAN K CO M M E NTARY unchanged) C H IN A 1.7B p airs!!! Still!the!dominant!supplier!to!US,!but! shipments!lower!7!of!9!years;!us!import!share! at!just!72.3%,!a!17kyear!low.! unchanged VIE T N AM 368M p airs "! 7!straight!years!of!doubleKdigit!growth!in! shipments!to!us.!!avg.!landed!cost!still!high.!! Record!15.7%!US!import!share. unchanged IN D O N E S IA 101M pairs "! 9!straight!years!of!gains;!record!shipments!in! 2016!with!US!import!share!at!16Kyear!high!of! 4.4%.! unchanged IN D IA 28M p airs "! 5th!straight!year!of!doubleKdigit;!Record!tally! in!2016!as!'make!in!india'!initiative!gains! attention!&!traction. unchanged C A M BO DIA 26M p airs "! Shipments!to!US!up!750%!over!last!4!years;! country!rivals!china!as!a!key!lowkcost! supplier.! up)1)spot MEX IC O 24M p airs "! Shipments!to!US!in!2016!rise!for!the!7th!time! in!8!years!to!a!thirteenkyear!high;!but!still!less! than!half!the!1997!high. down)1)spot IT A LY 18M p airs!! As!domestic!footwear!manufacturing!sank!to! a!modernkera!low!in!2016,!shipments!to!the! US!slipped;!volume!little!changed!over!the!last! 7!years. unchanged B R A Z IL 14M p airs "! 2016!shipments!to!the!US!inched!to!a!6Kyear! high,!but!remain!little!changed!over!this! period!and!only!1/7th!the!2003!high.!!!! unchanged unchanged DOM IN ICAN R E P U BLIC 13M pairs TH A ILA N D 7M p airs *!Data!Source:!US!Department!of!Commerce,!Full!Year!2016.!!Analytics:!FDRA!!!!! This!Western!Hemisphere!dutyKfree!supplier! continues!to!lead!all!caftakdr!countries;!last! year's!volume!eased!from!a!14kyear!high! reached!in!2015. Thai!shipments!to!US!in!2016!sank!13!of!the! last!14!years!to!the!lowest!volume!in!the! modern!era!as!average!landed!cost!exceeds! average!from!rest!of!world. 39

40 40

41 Thank You! 41